Australian Government: Bowel-shaking iron ore crash imminent

Advertisement

The Office of the Chief Economist (formerly BREE) has put its Juen QTR forecasts out and it’s a job well done as it refuses to be drawn into the garbage raining from Wall Street on commodity prices.

It has done a good job across all major dirts. First, iron ore, where it sees

Iron ore prices surged to record highs in 2021, surpassing US$200 a tonne in early May. The continuing rebound in economic\ activity in China and other advanced economies has led to an elevated demand for steel and consumption goods, in the midst of ongoing tightness in global iron ore supply.

 Australian export volumes are expected to grow steadily, from 871 million tonnes in 2020–21 to 954 million tonnes by 2022–23. This reflects the commencement of several new mines in Western Australia.
 Australia’s iron ore export values are estimated to have risen from $103 billion in 2019–20 to $149 billion in 2020–21, on the back of record prices and growing volumes. An easing in prices from the latter half of 2021 is forecast to lower export earnings to $113 billion by 2022–23.

That’s as good an outlook as any that I have seen.

Advertisement

Metallurgic coal also looks about right though is a risk of falling faster:

 Metallurgical coal prices have recovered moderately, in line with improving global industrial production and economic activity. The Australian premium hard coking coal (HCC) price is forecast to increase from an average US$143 a tonne in 2021 to around US$157 by 2023.
 Australia’s exports are forecast to rise from a 2020–21 low of 171 million tonnes to reach 186 million tonnes by 2022–23. Supply chains disrupted by China’s informal import restrictions have largely reorganised, albeit with some loss of revenue (see Australia section).
 Australia’s metallurgical coal export values are forecast to reverse most of their recent decline, rebounding from $22 billion in 2020–21 to almost $32 billion by 2022–23.

Thermal coal also looks good:

Advertisement

Thermal coal spot prices have generally recovered over the past quarter, as Asian economies continue to emerge from the 2020 downturn. The Newcastle benchmark price is forecast to average US$90 a tonne in 2021, easing slowly to US$68 a tonne by 2023.
 The COVID-19 pandemic and informal import restrictions imposed by China have led to a decline in Australian thermal coal exports, from 213 million tonnes in 2019-20 to a forecast 194 million tonnes in 2020–21. Exports are expected to recover to 212 million tonnes by 2022–23, as Asian economies return to normal conditions.
 Australia’s thermal coal exports are forecast at $17 billion in 2021-22, a relatively strong result, but lower than 2019-20 earnings of $20 billion.

Well done, Office of the Chief Economist.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.