When it comes to Aussie exports, iron ore is king of the pack
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Iron ore is the first Australian commodity to reach the $100 billion a year mark in export value.
The value of Aussie iron ore exports reached $101.7bn in the 2019-20 financial year, smashing the previous annual export benchmark of $77.5bn also set by iron ore in the previous financial year.
Australia is the world’s largest exporter of iron ore and this is a great achievement at a time when our economy needs all the support it can get, Minister for Resources, Water and Northern Australia Keith Pitt said.
“The recent Resources Energy Quarterly revealed total industry exports will reach around $293 billion for the 2019-20 financial year, despite the challenges posed by the global coronavirus pandemic,” Pitt added.
Iron ore has benefitted from a sustained period of strong prices, thanks to ongoing supply disruptions in Brazil and surprisingly robust demand from China.
The benchmark 62 per cent fe product currently fetches about $US112 ($157) a tonne.
But high pricing may not last. The Australian government is erring on the side of caution, forecasting iron ore spot prices to almost halve to a~$55/t by the end of this year in the latest Economic and Fiscal Update.
The treasury forecasts are lower than the government’s official commodity forecaster the Office of the Chief Economist, which predicts the iron ore spot price to average $79.50/t in 2020.
“Iron ore prices have remained resilient to date as the impact of falling steel production outside China has been largely offset by strong demand from Chinese steel producers and supply disruptions in Brazil,” Treasury writes.
“However, there is uncertainty about the supply and demand outlook and the prudent assumption for the iron ore spot price has been retained.
“The iron ore price is assumed to decline to US$55 per tonne FOB by the end of the December quarter 2020. Commodity prices are volatile and the outlook remains a key uncertainty in the outlook for nominal GDP.”
Pitt said that the slowdown in global industrial activity is impacting coal and gas demand but noted that both commodities still managed to generate over $7bn in exports in June alone.
“Demand for both will return as we emerge from this pandemic and while some are using the downturn to make exaggerated claims about the future of some resources, the International Energy Agency (IEA) confirms coal will remain a key player in energy generation for at least the next two decades,” Pitt said.
However, his confidence in coal – particularly thermal coal – may be misplaced with the IEA noting in its ‘Global Energy Review 2020’ that its outlook is the most uncertain amongst all fuels.
This is due to its use in the power sector, which makes it strongly dependent on the level of electricity demand, as well as the growing strength of renewable energy power generation despite the COVID-19 pandemic.
More recently, the IEA said that spending on coal-fire power had reached a decade low and that final investment decisions for new plants continue to decline.
Speaking at the Clean Energy Council’s Clean Energy Summit, the IEA’s executive director Fatih Birol also called for existing coal plants to be either shut down or cleaned up, saying that it would be impossible for the world to meet even “modest” climate targets if this was not achieved.