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Australian export earnings from resources and energy have more than doubled since the last mining bust Coal and gas companies will be beneficiaries of a global energy crisis, with energy exports to outstrip resources Gold production is expected to hit fresh highs while lithium earnings should more than double by 2024 $405 billion That's the record-smashing number the Federal Government's forecasting body the Office of the Chief Economist estimates Australia's powerhouse resources industry raked in last year. It's a figure that has more than doubled since the downturn in 2015-16 and is poised to sail even higher in FY22-23, hitting an astonishing $419 billion. That comes off the back of what was already a record $308.56 billion in 2020-21. While that number was driven largely by outrageous iron ore prices, this year Australian miners have been a beneficiary of the tight energy markets supercharged by concerns over security of supply after Russia's invasion of Ukraine. According to the latest Resources and Energy Quarterly from the OCE, part of the Department of Industry, Science and Resources, the value of energy export exports have increased by a ridiculous 128.9% over the past year from $81.2b to $185.9b while resources sales have contracted 3.8%. That has been driven by unforeseen prices for metallurgical coal, thermal coal and LNG, averaging US$400/t, US$241/t and $16.2/GJ respectively in a volatile year. And the global energy crisis means the sector, thought to be going out of fashion amid the drive to replace fossil fuels with renewables, will likely outstrip revenue from mining in the coming year. Increased export volumes in 2022-23 will sustain iron ore revenues (down from $133b to $116b) and increase energy sales to more than $200 billion. Flooding, weather disruptions and Covid hit production across a range of commodities in the latter part of FY22, reducing the final estimate from the $425b predicted in the last REQ update. But Federal Resources Minister Madeleine King said the industry was still underpinning the Aussie economy. "Australia’s resources and energy sector continues to underpin Australia’s economy and to support international energy security during the global turbulence caused largely by Russia’s invasion of Ukraine,” Minister King said. “The Australian Government is committed to ensuring that the benefits of Australia’s exports flow through to all Australians, as well as the 303,000 Australians who work directly in the resources sector." As always, there are plenty of little golden nuggets in the report, so we're helping you out by picking four key takeaways from Canberra's boffins. 1) Iron ore prices are set to slide Governments are typically bearish on iron ore prices, largely because the commodity is so important for tax and royalty revenue that overestimating them can blow a budget to hell. Just ask the WA Liberal Party. Iron ore prices are trading around the US$115/t mark at the moment for benchmark 62% Fe spot, a price at which miners would be making a tasty margin if not the super profits BHP, Rio and Fortescue churned out at US$230/t in 2021. Iron ore earnings are projected by Canberra to fall from $133bn last year to $116bn in FY23 and $85bn in FY24 as prices recede from an average US$119/t across FY22 to US$99/t this financial year and US$74/t in FY24. Despite that, they see iron ore exports rising significantly from 876Mt in FY22 to 911Mt this year and 929Mt in FY24. The analysts say weaker demand from China and a shift away from blast furnace steelmaking in places like the EU and USA will hurt demand for iron ore while new supply (which always seems to struggle) comes from Aussie and Brazilian producers. "The mixed demand picture comes alongside new supply which continues to come online from major producers in Australia, as well as an expected recovery in Brazilian supply for the rest of this year following recent weakness," they wrote. "The spot price for 62% Fe iron ore fines (FOB) for calendar 2022 is now forecast to average US$115 per tonne in 2022. "Over the rest of the outlook period to 2024, iron ore prices are forecast to decline to lower long-run levels. "This follows more modest growth in blast-furnace steelmaking (compared with the past decade) from major producers such as the EU, US and China, as the world undergoes a transition to a low emissions environment. "This softer demand will also take place alongside growing supply from Australia and Brazil." 2) Coal prices are already confounding Govt forecasts The feds think coking coal will fetch an average US$343/t in FY23 and US$232/t in FY24, with thermal coal spot prices expected to fall from an average US$241/t in FY22 to US$216/t in FY23 and US$136/t in FY24. That follows the conventional logic that met coal used in steelmaking attracts a premium to thermal coal given its higher quality and extra processing requirements. But the economic reality right now is steel demand is under threat, especially from China's struggling property sector. Less demand in China means more competition for Australian exports in other markets. Meanwhile, proposed and shadow sanctions against Russian coal and high gas prices have forged a new leg up for energy coal, which for the first time in recent memory is trading above met coal prices. Sales for met coal and thermal coal in FY23 have been revised up by some $20 billion and $7 billion respectively thanks to the current price volatility. "Global supply chains are facing a second round of reorganisation, with Western sanctions against Russia following on from Chinese import restrictions against Australia. These policies have pushed prices up and forced rapid adjustments in shipping and transportation across the global market," the OCE said. "They have also raised the distance — and thus the freight cost — of the thermal coal trade, reducing market efficiency. Over time, this may reduce the competitiveness of coal against other energy types. "However, Australia remains somewhat insulated due to the high quality of its deposits, especially with a significant competitor in higher grade markets now locked out of parts of the market." Supply in Australia and globally is expected to continue to be slow ramping up, with a lack of investment and financing in new coal deposits amid community opposition to the sector also emerging in exploration spending data. "Australia’s coal exploration expenditure decreased to $43 million in the March quarter, to be 15% off the level of March 2021," analysts wrote. "Prices have risen markedly for Australian coal in recent months, but thermal coal producers face issues with finance, insurance and social licence. Exploration is thus likely to be dominated by metallurgical coal in future." 3) Lithium earnings will more than double in the next two years Lithium is the metal du jour thanks to the growth of the electric vehicle sector and prices remain near historic highs. Experts say tightness will remain for some time to come. That means prices are heavily tipped to stay elevated, with spot prices for spodumene (a 6% lithium concentrate sold by Aussie miners to Asian converters) currently in excess of US$6000/t. Canberra says spodumene was worth an average US$1729/t in 2021-22, lifting (conservatively) to US$2265/t for FY23 and US$2180/t for FY24. Lithium hydroxide prices are expected to fall from an average of US$35,570/t in 2022 to US$28,810/t in 2024. But new mine production volumes will be the big driver of revenue growth from $4.2bn in FY22 to $7.8bn in FY23 and $9.4bn in FY24. "Forecast export revenue over the outlook has been revised up substantially," analysts said. "This reflects a combination of sustained record spodumene prices, faster than expected pass-through of spot prices to contract prices and new production and trade data. "Estimated export revenue in 2021–22 has been revised up, from $2.8 billion in the March 2022 Resources and Energy Quarterly to $4.1 billion. Further out, 2022–23 has been lifted from $4.6 billion to $7.8 billion, and 2023–24 from $5.3 billion to $9.4 billion." By 2035 they say the total lithium ion battery supply chain include engines, cars, batteries and chargers will be worth over $7 trillion. 4) Gold production will hit a new record While Canberra expects gold prices to fall back from US$1847/oz in 2022 to US$1665/oz by 2024, it thinks export earnings will rise from $24bn to $26bn as Aussie gold production soars from 320t in 2020-21 and 313t in 2021-22 to 338t in FY23 and 361t in FY24. Major additions will include 6.2t from Red 5's (ASX:RED) King of the Hills Mine, expected to hit commercial production in the coming quarter, 4.3t from Calidus Resources' (ASX:CAI) Warrawoona mine and Heritage Minerals will bring on 1.6t from the Mount Morgan tailings project in Queensland next year. Expansions at major operations like Newmont's Tanami mine in the NT are also expected over the next two years, with 5.7t to come from the new Bellevue Gold (ASX:BGL) mine in the northern Goldfields from next year and Vista Gold's Mt Todd mine in the NT expected to add 11t from March 2024. Supply chain issues and inflation could be a drag though, as seen with Evolution Mining's (ASX:EVN) recent decision to delay plans for an expansion of its Mungari mill from 2Mtpa to over 4Mtpa. "The primary risk to the Australian gold production forecast is the extent to which supply chain issues and labour or skills shortages continue in the short term for Australian gold producers," the report authors said. "For example, Silver Lake Resources withdrew their 2021–22 production guidance after the March quarter 2022, due to COVID-19 related labour shortages and supply chain interruptions."

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