resources and energy quarterly june 17 · macroeconomic outlook: kristy krautler steel and iron...

Resources and Energy Quarterly June 2017 2

Further Information

For more information on data or government initiatives please access

the report from the Department’s website at:

www.industry.gov.au/oce

Editor

David Thurtell

Chapter Authors

Resources and energy overview: Marco Hatt

Macroeconomic outlook: Kristy Krautler

Steel and iron ore: Monica Philalay

Metallurgical and thermal coal: Gayathiri Bragatheswaran

Gas: Nikolai Drahos

Oil: Kate Martin

Uranium and zinc: Mark Gibbons

Gold and copper: Joseph Moloney

Aluminium, alumina, bauxite: Thuong Nguyen

Aluminium box: Thuong Nguyen and David Thurtell

Nickel: Marco Hatt

Special Feature (Battery Component Commodities): Mark Gibbons

Acknowledgements

The authors would like to acknowledge the contributions of:

David Thurtell

Mark Cully

Tim Bradley

David Whitelaw

Laura Ling

Katya Golobokova

Ken Colbert

Cover image source: Glencore.

Contents image source: BHP

© Commonwealth of Australia 2017

ISSN 1839-5007 [ONLINE]

Vol. 6, no. 4

This work is copyright. Apart from any use as permitted under the

Copyright Act 1968, no part may be reproduced or altered by any

process without prior written permission from the Australian

Government. Requests and inquiries concerning reproduction and rights

should be addressed to:

Department of Industry, Innovation and Science, GPO Box 9839,

Canberra ACT 2601 or by emailing [email protected]

Creative Commons licence

With the exception of the Coat of Arms, this publication is licensed under

a Creative Commons Attribution 3.0 Australia Licence.

Creative Commons Attribution 3.0 Australia Licence is a standard form

license agreement that allows you to copy, distribute, transmit and adapt

this publication provided that you attribute the work.

A summary of the licence terms is available from:

http://creativecommons.org/licenses/by/3.0/au/deed.en

The full licence terms are available from:

http://creativecommons.org/licenses/by/3.0/au/legalcode

The Commonwealth’s preference is that you attribute this publication

(and any material sourced from it) using the following wording:

Source: Licensed from the Commonwealth of Australia under a Creative

Commons Attribution 3.0 Australia Licence.

https://industry.gov.au/oce

mailto:[email protected]

http://creativecommons.org/licenses/by/3.0/au/deed.en

http://creativecommons.org/licenses/by/3.0/au/legalcode

ContentsForeword 4

About this edition 5

Resource and energy overview 6

Macroeconomic outlook 17

Steel 22

Iron ore 28

Metallurgical coal 35

Thermal coal 43

Gas 50

Oil 58

Uranium 66

Gold 73

Aluminium, alumina and bauxite 79

Copper 91

Nickel 97

Zinc 103

Batteries 108

Trade summary charts and tables 115

Appendix 124


ForewordAustralia’s resources and energy export earnings grew rapidly in 2016–

17, up by 25 per cent to $205 billion, based on preliminary estimates.

However, resource and energy export earnings are forecast to decline

marginally in 2017–18 and 2018–19. Declining prices are expected to

more than offset the impact of rising export volumes.

The rise in export values in 2016–17 was largely due to an unexpected

spike in metallurgical coal and iron ore prices. These steel-making

commodities account for over half of Australia’s resources and energy

exports by value.

Steel mills in China — the largest consumer of Australia’s iron ore and

one of the largest for metallurgical coal — continued to increase output

and helped drive steel making commodity prices higher in 2016–17.

Metallurgical coal prices were also propelled higher by the now partially-

reversed restrictions placed on coal mining operations in China and

several temporary disruptions to supply.

Export volumes for the major base metals declined sharply in 2016–17,

reflecting a combination of mine and refinery closures, as well as once-

off supply disruptions. The drop in base metals production is forecast to

turn around modestly in the next two years. This reflects a small number

of new mines and the impact of the ramping up of other existing mining

operations.

Over the next two years, LNG is forecast to add $14 billion to Australia’s

resources and energy exports, while declining coal and iron ore prices

are expected to detract $11 billion and $9.8 billion from export earnings,

respectively.

Moderating global demand growth, in addition to growing low-cost

supply, is putting downward pressure on resource and energy

commodity prices, particularly for iron ore but also for metallurgical coal.

Iron ore prices have already declined noticeably, while metallurgical coal

prices — held up in the June quarter by supply disruptions attributed to

Cyclone Debbie — are also falling back.

The volume of Australia’s resources and energy exports is forecast to

continue to grow robustly in the next two years. LNG is forecast to be the

largest contributor to export volumes growth, with several major projects

still yet to be completed or to reach full capacity. Export volumes for

metallurgical coal are also expected to grow strongly in 2017–18, as

stockpiles built up in the wake of Cyclone Debbie are wound down.

However, investment in Australia’s mining sector has declined rapidly in

recent years — and is expected to continue to do so. This is already

evidenced in the sharp decline in exploration expenditure, and has

contributed to a reduction in employment in the mining industry as a

whole. Growth in export volumes 2017–18 and 2018–19 are forecast to

be weighed down by falling investment, although the impact of lower

investment in the industry will be more apparent beyond the two year

outlook horizon.

This edition of the Resources and Energy Quarterly contains a special

feature on battery component commodities. Global battery markets have

entered a period of rapid growth in recent years, and the Australian

mining industry may be well positioned to capitalise on this growth.

Australia has the fourth highest reserves in the world of lithium and the

fourth highest of cobalt — both of which are battery component

commodities. However, it is not clear yet how far Australia can progress

beyond mining and into other parts of the battery supply chain, which are

dominated by China. Despite this, the undeveloped state of the supply

chain may result in opportunities emerging that are not yet apparent.

Mark Cully

Chief Economist

Department of Industry, Innovation and Science


Publication Expected release date Outlook period Special focus

June quarter 2017 7 July 2017Australian data: 2018–19

International data: 2019Battery component commodities

September quarter 2017 6 October 2017Australian data: 2018–19

International data: 2019Developments in key international markets

December quarter 2017 22 December 2017Australian data: 2018–19

International data: 2019Resources and Energy Major Projects

March quarter 2018 April 2018Australian data: 2022–23

International data: 2022Medium term (five year) outlook

Table 1.1: Resources and Energy Quarterly publication schedule

About this editionEach June, September and December quarter edition of the Resources

and Energy Quarterly will update the Office of the Chief Economist’s

‘short term’ (two year) outlook for production and exports of Australia’s

major resource and energy commodities.

This edition includes a special topic: battery component commodities.

In this report, commodities are grouped into two broad categories,

referred to as ‘resources’ and ‘energy’. ‘Energy’ commodities comprise

metallurgical and thermal coal, oil, gas and uranium. ‘Resource’

commodities in this report are all other mineral commodities.

Unless otherwise stated, all Australian dollar figures in this report are in

2016–17 dollar terms. All US dollar figures are in 2017 dollar terms.


Figure 1.1: Revisions to export earnings

Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of

Industry, Innovation and Science (2017)

Source: ABS (2017) International Trade in Goods and Services, 5368.0;Department of


Revisions to the outlook

Since the March 2017 Resources and Energy Quarterly, the value of

Australia’s resources and energy export earnings in 2016–17 has been

revised down by $9.9 billion (4.6 per cent) to $205 billion. The downward

revision primarily reflects an earlier than expected decline in iron ore

prices since the March 2017 Resources and Energy Quarterly. Export

earnings for iron ore have been revised down by $7.2 billion to $65

billion. Export earnings have also been revised down for LNG — by $1.0

billion — largely due to unplanned outages at LNG plants.

A downward revision to the iron ore price is also the primary reason for

the downward revision in resource and energy export earnings in 2017–

18 and 2018–19. An anticipated delay to the start-up of the Ichthys

project (which will produce LNG and condensate), and downward

revisions to the oil price outlook (which affects the LNG price outlook)

also contributed to the downward revisions in total resources and energy

export earnings.

Downward revisions to the metallurgical coal and copper price outlooks

also contributed to the revisions to export earning in 2017–18 and 2018–

19.

Overall, resource and energy export earnings in 2017–18 have been

revised down by $13 billion to $202 billion, while export earnings in

2018–19 have been revised down by $8.3 billion to $200 billion.

100

125

150

175

200

225

250

2006–07 2009–10 2012–13 2015–16 2018–19 2021–22

2016–17 A

$ b

illion

Actual Dec–16 forecast

Mar–17 forecast Jun–17 forecast

-8 -6 -4 -2 0

Iron ore

LNG

Metallurgical coal

Copper

Oil

2016–17 A$ billion

2016–17 2017–18 2018–19

Figure 1.2: Largest revisions to export earnings, March 2017 to

June 2017


Figure 1.3: Resource and energy export prices, real terms

Notes: Export prices are export unit values (EUVs, export values divided by export

volumes); the price index is a Fisher Price Index, which weights each commodity’s EUV

by its share of total export values; the Australian dollar index is based to June quarter

2017 = 100; US dollar commodity prices are converted at the market exchange rate





Market summary: Commodity prices and world demand

Commodity prices declined for the first time in a year in the June quarter

The Office of the Chief Economist’s resource and energy commodity

price index — the weighted-average price Australian resource and

energy exporters receive for their commodities — is estimated to have

declined by 3.0 per cent in nominal terms in the June quarter 2017,

following four consecutive quarters of growth. A depreciation in the

Australian dollar cushioned the impact of the fall in USD commodity

prices: in US dollar terms, Australia’s resources and energy export

prices are estimated to have dropped by 6.7 per cent.

The slide in resource and energy commodity prices was largely driven

by a 13 per cent decline in iron ore export prices (export unit values).

Iron ore prices are forecast to decline further over the next two years, as

supply grows and global demand is little changed.

Partially offsetting the decline in iron ore prices in the June quarter was a

15 per cent increase in LNG export prices. Higher prices for LNG are

linked to the lagged effect of higher oil prices in the early months of

2017.

Cyclone Debbie — which hit northern Queensland in late March and

caused export delays in the world’s largest metallurgical coal producing

region — contributed to the metallurgical coal spot price increasing by

24 per cent in the June quarter 2017. However, with the spot price

considerably lower than the previous contract price, export prices are

estimated to have only increased by 4.0 per cent overall. Delays to the

June quarter contract price negotiations resulted in exporters moving

entirely to spot or index-linked pricing in that period.

Thermal coal export prices are estimated to have grown by 4.9 per cent

in the June quarter 2017. This reflects the renegotiation of the

benchmark contract price, which settled at US$84 a tonne for April 2017

to March 2018, a 36 per cent increase. Weighing down on overall

thermal coal export prices was the benchmark Newcastle spot price,

which declined by 5.0 per cent in the June quarter.

Other major price movers in the June quarter were zinc (up 9.3 per cent)

and copper (up 5.5 per cent). Alumina prices declined by 20 per cent,

while nickel prices declined by 13 per cent.

0

50

100

150

200

Jun–04 Jun–07 Jun–10 Jun–13 Jun–16 Jun–19

Index

Australian dollars US dollars

-30 -20 -10 0 10 20

Iron ore

Alumina

Metallurgical coal

Nickel

Aluminium

Gold

Zinc

Copper

Thermal coal

LNG

Per cent

Figure 1.4: Growth in Australia’s nominal export prices in the June

quarter 2017 (ranked in order of contribution to total)


Notes: The price index is a Fisher Price Index based on Australia’s export volumes and

values. The values are in Australian dollars.



Notes: Steel-making includes iron ore and metallurgical coal. Energy excludes

metallurgical coal. Consumption volumes for each commodity are weighted by their share

of Australia’s resources and energy export values for that year.

Sources: Bloomberg (2017) World Steel Association; IEA (2017) Coal Information 2016;

Nexant World Gas Model (2017); International Energy Agency Monthly Oil Data Service

(2017); World Nuclear Association (2017); Thompson Reuters (2017); World Bureau of

Metal Statistics (2017); International Nickel Study Group (2017); International Lead Zinc

Study Group (2017); Department of Industry, Innovation and Science (2017)

In 2016–17, Australian exporters received the highest prices for their

commodities since 2013–14

Resources and energy export prices are estimated to have grown by 23

per cent in real terms in 2016–17, to reach their highest level since

2013–14 — although they remained 34 per cent lower than their 2008–

09 high.

Nonetheless, Australia’s resources and energy export prices are

forecast to decline by 6.1 per cent in 2017–18, and by a further 7.4 per

cent in 2018–19. These declines primarily reflect declining metallurgical

coal prices — driven by a forecast decline in China’s metallurgical coal

imports. Also expected to put downward pressure on Australia’s overall

resources and energy export prices is iron ore and, to a lesser extent,

thermal coal. Partially offsetting declines in iron ore and coal prices are

forecast increases in LNG, crude oil and condensate and gold prices.

Growth in global consumption of Australia’s resource and energy

commodities is forecast to slow over the next two years

Global consumption of resource and energy commodities is forecast to

grow in 2017, 2018 and 2019 — albeit more slowly than in 2016, and

considerably more slowly than most of the last decade. Slower global

demand growth is expected to contribute to declining commodity prices.

In particular, growth in consumption of steel-making commodities iron

ore and metallurgical coal — which together represent over half of

Australia’s resources and energy exports — is forecast to slow

significantly. This is attributed to slight declines in steel production in

China, the world’s largest steel producer, following a decade of rapid

growth.

Similarly, a slowdown in infrastructure investment and construction

activity in China is expected to be reflected in slowing growth in global

consumption of base metals.

Global consumption of energy (excluding metallurgical coal)

commodities is also forecast to slow, but not to the same extent as steel-

making commodities. For Australia, the most important source of growth

in global energy commodity demand will be from gas, which is forecast

to grow at an average annual rate of 1.6 per cent between 2016 and

2019. By contrast, global consumption of thermal coal is forecast to grow

by 0.7 per cent a year.

0

20

40

60

80

100

120

140

160

1998–99 2002–03 2006–07 2010–11 2014–15 2018–19

Index,

2016

–17 =

100

Figure 1.5: Australia’s resources and energy export prices, real terms

-4

-2

0

2

4

6

8

10

12

1999 2003 2007 2011 2015 2019

Annual per

cent change

Steel-making Energy Base metals Gold Total

Figure 1.6: Global usage of resource and energy commodities






Australia overview

Australia’s resource and energy export values grew rapidly in the first

half of 2017, driven by a temporary surge in prices

Australia’s resources and energy export values grew by 44 per cent

year-on-year (in real terms) in the March quarter 2017 — the strongest

growth in over six years — and are estimated to have increased by 34

per cent year-on-year in the June quarter. For 2016–17 as a whole,

resource and energy export values are estimated to have grown by 25

per cent.

Growth in export values in 2016–17 was largely propelled by increased

prices — particularly for metallurgical coal and iron ore (despite recent

price declines), but also for thermal coal and LNG. The rapid price

growth was likely temporary — driven by a surge in activity in China’s

construction sector, as well as once-off weather and infrastructure-

related supply disruptions. As a result, prices for iron ore and coal are

forecast to decline in the next two years, while LNG prices — which are

linked to oil prices by formula under contractual arrangement — are

forecast to be remain close to current levels.

To a lesser extent, growth in export values was supported by growth in

export volumes in 2016–17. The resources and energy export volumes

index — which weights export volumes for each commodity by their

value — is estimated to have grown by 3.9 per cent in 2016–17. This

was the slowest growth in export volumes in six years.

Declining investment in the mining industry (particularly outside of oil

and gas) is weighing on export volumes growth. The slowdown in export

volumes growth reflects slower growth in iron ore and coal export

volumes than in previous years, as well as declines in export volumes of

metallurgical coal, zinc, nickel, aluminium, copper and oil.

Weather-related supply disruptions had a measurable effect on

Australia’s metallurgical coal exports in 2016–17

Several weather events affected Australian resource and energy exports

in 2016–17. In Queensland, a combination of weather-induced

production and infrastructure problems, industrial action and geological

instability in some mines, hampered metallurgical coal production in the

September quarter 2016.

Figure 1.7: Australia’s resources and energy export values and

volumes

0

50

100

150

200

250

0

25

50

75

100

125

2002–03 2006–07 2010–11 2014–15 2018–19

2016–17 A

$ b

illion

Index,

2016–17 =

100

Volumes Values

-10 0 10 20 30

2018–19

2017–18

2016–17

Per cent

Prices contribution Volumes contribution

Figure 1.8: Annual growth in Australia’s resources and energy

export values, contributions from prices and volumes


Figure 1.9: Export volumes growth by commodity grouping

Notes: The base metal group comprises aluminium, copper, nickel and zinc



Metallurgical coal exports were again affected in the June quarter 2017

by rail damage in the aftermath of Cyclone Debbie. Producers stockpiled

output while they waited for railway and port infrastructure to be

repaired, suggesting a pickup in exports is likely in 2017–18. The two

weather events contributed to metallurgical coal export volumes for

2016–17 being revised down from a 1.2 per cent increase (as of the

June 2016 Resources and Energy Quarterly) to a 2.9 per cent decrease.

In Western Australia, a particularly severe monsoon season had a small

impact on iron ore and LNG shipments. The effect of the monsoon was

small enough such that company guidance for iron ore shipments for

2016–17 was not altered. Woodside reported that its Western Australian

LNG and condensate production was lower than expected because of

the monsoon.

Heavy rainfall in South Australia in the March quarter 2017 impacted on

copper production, contributing to a 13 per cent decline in output.

Export volumes across most base metals, metallurgical coal, oil and

uranium, are estimated to have declined in 2016–17

With relatively little new investment in Australian resource and energy

mining and refining in recent years — a notable exception being LNG —

export volumes growth has slowed considerably. In some cases,

temporary supply disruptions and mine or refinery closures has

contributed to lower export volumes.

Export volumes for the major base metals are estimated to have

declined sharply in 2016–17, including zinc (down 32 per cent), nickel

(down 27 per cent) and copper (down 11 per cent), reflecting a

combination of mine and refinery closures, as well as temporary supply

disruptions. Oil (down 4.7 per cent) and uranium (down 2.1 per cent)

also declined, reflecting temporary supply disruptions.

Several nickel, zinc and aluminium operations closed in 2016–17 — with

producers reacting to lower global prices. Aluminium production was

also adversely affected by a power outage at Portland Aluminium

smelter. The decline in copper export volumes largely reflects life-of-

mine closures.

The drop in base metals production is forecast to turn around, modestly,

in 2017–18 and 2018–19. This reflects a small number of new mines

starting production, and other new mining operations increasing output.

Export volumes growth to accelerate in 2017–18, but soften in 2018–19

In 2017–18 and 2018–19, Australia’s resources and energy export

volumes are forecast to grow by 7.0 per cent and 4.8 per cent,

respectively. The pickup in 2017–18 partly reflects a return to growth in

base metals exports. LNG exports will remain the main driver of growth

in export volumes in the next two years, but the pace of growth in LNG

exports is expected to slow sharply in both years. This reflects export

volumes levelling off, as LNG operations finish their ramp up to full

capacity following a period of heavy investment in the sector.

-20

-10

0

10

20

30

40

50

LNG Gold Iron ore Thermalcoal

Cokingcoal

Basemetals

Per

cent

2015–16 2016–17 2017–18 2018–19


Note: Mining industry value-added is in seasonally adjusted chain volume measures

Source: ABS (2017) National Accounts, 5204.0; ABS (2017) International Trade in Goods

and Services, 5368.0; Department of Industry, Innovation and Science (2017)

Note: Chart data is in seasonally adjusted chain volume measures

Source: ABS (2017) National Accounts, 5204.0; ABS (2017) International Trade in Goods

and Services, 5368.0

The mining industry continued to support overall Australian economic

growth in the March quarter 2017

Australia’s real Gross Domestic Product (GDP) grew by 0.3 per cent in

the March quarter 2017, with mining industry value-added growing by

0.5 per cent. The mining industry directly accounted for 14 per cent of

the growth in Australia’s GDP in the quarter. Growth in mining industry

value-added was primarily driven by oil and gas extraction, which grew

by 3.1 per cent. Coal mining industry valued-added also grew in the

March quarter (up 1.6 per cent), while iron ore mining value-added

declined by 1.5 per cent.

Oil and gas extraction has been the largest contributor to growth in

mining industry value-added in the last two years, propelled by rapid

growth in LNG exports. Growth in industry value-added for Australia’s

largest commodity exports — iron ore and coal — has been dampened

by falling capital expenditure and slowing export volumes growth.

Resources and energy exports have a significant impact on mining

industry value-added, as demonstrated in Figure 1.10. Over the next two

years, accelerated growth in resources and energy export volumes

(primarily from LNG) is expected to underpin more rapid growth in

mining industry value-added. However, as outlined in the March 2017

Resources and Energy Quarterly, mining’s contribution to the Australian

economy is projected to slow considerably after 2018–19, as the last of

the LNG plants currently under construction are completed, and as the

LNG industry approaches full capacity.

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Mar–15 Sep–15 Mar–16 Sep–16 Mar–17

$ b

illion

Oil and gas extraction Iron ore mining

Coal mining Other mining

Mining services

Figure 1.11: Cumulative growth in mining industry value-added

since March quarter 2015

-10

-5

0

5

10

15

20


Per

cent

Mining industry value added

Resources and energy export volumes

Figure 1.10: Mining industry value-added and resources and

energy export volumes, year-on-year percentage growth


Figure 1.12: Mining industry capital expenditure, fiscal year

Notes: Chart data is in nominal terms

Source: ABS (2017) Private New Capital Expenditure and Expected Expenditure, 5625.0

Notes: Other mining includes non-metallic mineral mining and quarrying and exploration

and other mining support services; chart data is in nominal terms

Source: ABS (2016) Private New Capital Expenditure and Expected Expenditure, 5625.0

Mining industry capital expenditure grew slightly in the March quarter

2017, although it is expected to decline in 2017–18

Investment in Australia’s mining industry crept up by 0.4 per cent in the

March quarter 2017, the first increase in nearly three years. The

increase was entirely driven by a rise in investment in building and

structures, while investment in plant and machinery continued to decline.

However, it is likely that mining investment will again decline in the

coming financial year. Mining companies are expecting a 27 per cent

drop in nominal investment in 2017–18. These falls are likely to come

mostly from oil and gas extraction. As can be seen in Figure 1.13,

investment in oil and gas peaked in December quarter 2013 —

considerably higher, and over a year later, than the investment peaks for

metal ore and coal mining.

Equally apparent is the dramatic decline in oil and gas investment since

its peak. Weighing on investment in the oil and gas sector in the coming

two years will be the $US54 Gorgon LNG project, which was completed

in March 2017. While large LNG projects remain — most significantly,

the $US37 Ichthys and the $US34 billion Wheatstone projects — the list

of major projects yet to be completed is forecast to diminish rapidly over

the next two years.

Exploration expenditure is growing, driven by gold

Exploration expenditure grew by 5.1 per cent (seasonally adjusted) in

the March quarter 2017, but was 3.7 per cent lower year-on-year. Within

the total, minerals exploration expenditure grew for the fourth

consecutive quarter, and was 15 per cent higher year-on-year.

The increase in minerals exploration in the past year has been largely

driven by gold exploration. Increased gold exploration has been

incentivised by relatively supportive gold prices and high profit margins.

While the gold price has declined by 22 per cent (in nominal terms)

since its record high in December quarter 2012, it remains 43 per cent

higher than its 21st century-to-date average. The outlook for gold prices

is also generally stable.

Minerals exploration in the March quarter 2017 was also helped by

growth in “other minerals” exploration, and by nickel and cobalt

exploration. Coal exploration edged up by 2.1 per cent year-on-year,

while iron ore exploration declined by 7.3 per cent year-on-year.

0

5

10

15

20

Mar-2009 Mar-2011 Mar-2013 Mar-2015 Mar-2017$ b

illion

Oil and gas extraction Metal ore mining

Coal mining Other mining

Figure 1.13: Mining industry capital expenditure by commodity,

quarterly

0

10

20

30

40

50

60

70

80

90

100

2007–08 2009–10 2011–12 2013–14 2015–16 2017–18

$ b

illion

Actual Expected


Figure 1.15: Australia’s mining industry employment

Notes: Data is a three quarter centred moving average of original data; non-metallic

minerals includes quarrying; services is ‘other mining support services’

Source: ABS (2017) Labour Force Australia, 6291.0.55.003

Note: Data is seasonally adjusted

Source: ABS (2017) Actual and Expected Private Mineral Exploration, 8412.0

Notes: Trend data

Source: ABS (2017) Labour Force Australia, 6291.0.55.003

Mining employment edged up in the June quarter 2017, for the fourth

consecutive quarter

The mining sector employed 235,800 people in the June quarter 2017,

up by 0.4 per cent quarter-on-quarter and by 6.0 per cent year-on-year.

Mining industry employment has been growing since the September

quarter 2016.

The modest improvement in mining industry employment in recent

quarters was supported by the recent jump in minerals (particularly gold)

exploration activity. This is evidenced by Figure 1.16, which shows that

the growth in mining industry employment is limited to exploration and

mining support services and, to a lesser extent, metal ore mining. By

contrast, employment in other mining sub-industries have been relatively

steady or in decline.

0

200

400

600

800

1,000

1,200

1,400

1,600

Mar–97 Mar–01 Mar–05 Mar–09 Mar–13 Mar–17

A$ m

illio

n

Minerals Petroleum

Figure 1.14: Australia’s exploration expenditure, quarterly

0

20

40

60

80

100

120

Jun–97 Jun–02 Jun–07 Jun–12 Jun–17

Thousand p

ers

ons

Coal Oil and gas

Metal ore Non-metallic minerals

Exploration and services

0

50

100

150

200

250

300

Jun–97 Jun–02 Jun–07 Jun–12 Jun–17

Thousand p

ers

ons

Figure 1.16: Australia’s mining industry employment,

by sub-industry


Notes: f Forecast growth on previous year ; EUV is export unit value, which is export

values divided by export volumes; values are in 2016–17 dollars



A$2.0b

A$2.1b

A$2.7b

A$3.2b

A$8.1b

A$5.8b

AS7.8b

A$17.4b

A$17.0b

A$37.0b

A$26.5b

A$54.7b

A$2.1b

A$2.1b

A$2.4b

A$3.5b

A$6.0b

A$5.9b

A$7.9b

A$16.5b

A$19.1b

A$31.3b

A$31.5b

A$58.2b

A$1.9b

A$2.1b

A$2.5b

A$3.2b

A$5.6b

A$6.3b

A$7.4b

A$17.5b

A$19.1b

A$22.7b

A$35.7b

A$64.5b

0 15 30 45 60 75

Lead

Nickel

Zinc

Aluminium

Crude oil

Alumina

Copper

Gold

Thermal coal

LNG

Metallurgical coal

Iron ore

2016–17 2017–18 f 2018–19 f

2017–18 fPer cent

change2018–19 f

volume EUV value volume EUV value

p q q p q q

6 15 -10 2 -8 -6

p q q q q q

10 -20 -12 -2 -14 -16

p p p p p p

24 12 38 16 2 18

q q q q

-1 0 0 -1 -10 -11

q q q p p p

-2 -3 -6 4 1 5

p p p q q

2 4 6 0 -1 -1

p q q p q q

1 -6 -6 1 -2 -2

p p p p p

0 7 7 28 6 35

p p p q q q

4 6 10 -1 -9 -10

q q q p q p

-2 -2 -4 16 -6 9

p q p

10 -9 1 0 0 0

p q p p q q

12 -1 11 4 -7 -3

Figure 1.17: Australia’s major resources and energy commodity

exports, 2016–17 dollars


Annual percentage change

Unit 2015–16 2016–17 s 2017–18 f 2018–19 f 2016–17 s 2017–18 f 2018–19 f

Resources and energy A$m 160,741 205,230 206,776 209,061 27.7 0.8 1.1

– real b A$m 163,554 205,230 202,424 200,255 25.5 -1.4 -1.1

Energy A$m 59,813 86,664 93,077 96,198 44.9 7.4 3.4

– real b A$m 60,860 86,664 91,118 92,146 42.4 5.1 1.1

Resources A$m 100,928 118,566 113,699 112,863 17.5 -4.1 -0.7

– real b A$m 102,694 118,566 111,305 108,109 15.5 -6.1 -2.9

Notes: s estimate f forecast; CAGR is compound annual growth rate in percentage terms from 2016–17 to 2018–19

Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of Industry, Innovation and Science (2017)

Table 1.2: Outlook for Australia’s resources and energy exports

Volume Value (2016–17 A$)

Unit 2016–17 s 2018–19 f CAGR Unit 2016–17 s 2018–19 f CAGR

Alumina kt 17,938 18,265 0.9 A$m 6,286 5,846 –3.6

Aluminium kt 1,353 1,395 1.6 A$m 3,202 3,174 –0.4

Copper kt 909 948 2.1 A$m 7,439 7,804 2.4

Gold t 326 334 1.1 A$m 17,467 17,366 –0.3

Iron ore Mt 825 893 4.0 A$m 64,502 54,732 –7.9

Nickel kt 183 201 4.9 A$m 2,052 2,064 0.3

Zinc kt 1,026 1,169 6.7 A$m 2,521 2,652 2.6

LNG Mt 51 74 19.7 A$m 22,693 37,046 27.8

Metallurgical coal Mt 182 197 3.8 A$m 35,673 26,487 –13.8

Thermal coal Mt 202 199 –0.8 A$m 19,150 17,011 –5.7

Oil kbd 228 292 13.2 A$m 5,601 8,147 20.6

Uranium t 7,724 8,450 4.6 A$m 947 1,003 2.9

Table 1.3: Australia’s resources and energy commodity exports, selected commodities

Notes: b In 2016–17 Australian dollars; s estimate; f forecast

Source: ABS (2017) International Trade in Goods and Services, 5368.0; Department of Industry, Innovation and Science (2017)


Figure 2.1: Industrial production growth vs world PMI, YoY growth

Source: Netherland CPB (2017) World Trade Monitor April; Markit (2017) JP Morgan

Global Manufacturing PMI

Global outlook

The March 2017 Resources and Energy Quarterly noted early signs of a

broadening pick up in the global economy. Conditions in the June

quarter 2017 reflected a continuation of this recovery, with the growth

outlook for several countries being upgraded. Global growth is forecast

to reach 3.5 per cent in 2017, and 3.6 per cent in 2018, up from 3.1 per

cent in 2016.

Improvements in the global outlook have been primarily driven by

ongoing relatively loose monetary conditions, low energy prices, and a

steady recovery in business confidence. Surveys monitoring the global

manufacturing sector such as the world Purchasing Manager’s Index

(PMI) appear to have topped out but remain strong. The performance of

the Eurozone — Germany in particular — improved, with manufacturing

conditions at a six-year high.

Despite positive outlooks for short term growth, there remain several

risks to global growth in the medium/long term. Low productivity growth

continues to plague many advanced economies, creating a drag on

wage growth and weak demand.

There are other risks to the medium-term outlook. A faster-than-

expected pace of US interest rate rises could result in a strong

appreciation of the US dollar, which would have significant flow-on

effects for many countries’ debt repayments. Any significant US fiscal

stimulus would potentially add to demand; given that the US economy is

already close to full employment, this would add to inflationary

pressures, putting pressure on the US Federal Reserve to raise rates.

The 19th National Congress of Communist Party of China in November

will be important for the medium term direction of the Chinese economy.

A delicate balance needs to be set between economic growth and

financial stability, and also ensuring that high growth does not come at

the expense of necessary structural reforms.

China

Indicators of China’s “old economy” of export and investment-led growth

showed some weakness in recent months. This suggests a gradual

slowing of the economy, as the transition towards consumption-led

growth continues. Despite the recent weakness, growth in industrial

production remains above the trend of the past two years. Manufacturing

conditions also indicate expansionary conditions in the sector.

Growth in house prices has eased from the rapid rate seen in late 2016.

However, investment in real estate is firm, with a year-on-year rise of 8.8

per cent in May. Slower price growth has not impacted construction

activity, with new residential construction starts rising by 8.4 per cent in

May. This is likely fuelled by new developments being undertaken to

reduce undersupply in major cities.

In the short term, Chinese real GDP growth is expected to ease

modestly, to 6.6 per cent in 2017 and 6.2 per cent in 2018. Growing

concerns over China’s reliance on debt-financed investment represent

the main risk to the medium term outlook. In a recent statement to the

IMF Monetary and Financial Committee, the Governor of the People’s

Bank of China reiterated that China will undertake “prudent and neutral”

monetary policy. Large injections of support will be avoided, and more

efforts will be made to deleverage the economy to reduce the ratio of

debt to GDP.

-21

-14

-7

0

7

14

21

30

36

42

48

54

60

66

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Per

cent

Index p

oin

ts

World PMI World IP growth (lagged 2 months, rhs)


0

5

10

15

20

25

30

35

2012 2013 2014 2015 2016 2017

Per

cent

Real estate Manufacturing Fixed asset investment

Figure 2.2: Breakdown of Chinese investment, YoY growth

Figure 2.3: US unemployment rate vs initial jobless claims

Source: National Bureau of Statistics, China (2017)

Source: Bureau of Labour Statistics, United States (2017) Unemployment rate; United

States Department of Labour (2017) Initial jobless claims

In Beijing, banks are taking more time to assess mortgage applications,

and in some cases are ceasing to grant mortgage loans altogether. The

central bank is also continuing to increase interbank interest rates, in an

effort to temper asset price rises.

Although the future outlook for China remains relatively positive, an

absence of additional stimulus could see growth slowing in the second

half of 2017. Given that China is the world’s largest consumer of raw

materials, this suggests lower growth in global demand for commodities,

particularly industrial metals. In May, China hosted a summit to promote

their One Belt One Road Initiative — an infrastructure program aimed to

link China with a broad range of countries across continents to

encourage better trade links. Although Australia is not part of the

initiative, the push for infrastructure development across countries could

increase demand for Australia commodities.

United States

US real GDP growth was weak in the March quarter (1.4 per cent

annualised rate), however, growth was constrained by temporary factors

including unseasonably warm weather — which limited spending on

utilities. Strong consumption growth and falling unemployment continue

to drive a positive near term outlook. A strong growth outlook for the US

will help improve the outlook for the global economy. Business

confidence has also picked up, amidst expectations of increased

government spending in the future. The unemployment rate is also

falling, and initial jobless claims data point to further falls in the

unemployment rate in the short term.

Further expectations of an improvement in the US economy are

reflected in US bond yields. Yields have risen significantly since the

November 2016 election, suggesting the market is expecting inflation to

pick up. Following the rise in the Federal Funds Rate in June, another

rate rise is likely in late 2017, with three more expected during 2018.

US economic growth is expected to be 2.1 per cent in 2017 and 2018.

The Federal Budget, released in May, indicated there would be fiscal

support in the form of tax cuts, but made little mention of the proposed

infrastructure spend which dominated the presidential election

campaign. Tax cuts in the proposed Budget are intended to be funded

by an improvement in growth, which is assumed to jump to 3 per cent.

1

3

5

7

9

11

13

150

240

330

420

510

600

690

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Per

cent

Num

ber

of cla

ims

Initial jobless claims (lhs)

Unemployment rate (lagged 8 months, rhs)


Figure 2.4: Eurozone PMI vs Eurozone real GDP, YoY growth

Source: Eurostat (2017) Euro Area Gross Domestic Product; Markit (2017) Eurozone

Composite PMI

Source: Ministry of Economy, Trade and Industry, Japan (2017) Indices of Industrial

Production; Japan Machine Tool Builder’s Association (2017) monthly Machine Tool

Orders

Europe

Real GDP growth in the Eurozone in the March quarter was1.9 per cent

(annual rate). Growth was driven by positive results for household

consumption and investment. Conditions in the manufacturing sector are

at six-year highs, while industrial production also grew 1.4 per cent in

April. Energy production was the main contributor to the increase in

production. Exports also showed strong growth, helped by the weaker

Euro.

Political uncertainty following a number of elections earlier in the year

has not affected sentiment in the Eurozone. Improving conditions in the

manufacturing sector have led to an improvement in the outlook. GDP

growth forecasts have been revised up to 2.0 per cent in 2017 and 1.8

per cent in 2018.

The European Central Bank (ECB) is unlikely to reverse its

accommodative monetary policy in the near future. At the May ECB

Board meeting, the President of the ECB reiterated that the bank would

continue its quantitative easing measures until December 2017.

However, after seeing strong growth figures for the March quarter, the

ECB indicated there would be no further interest rate cuts.

Japan

Japan recorded strong growth (of 2.2 per cent) in the March quarter

(seasonally adjusted annualised rate). This result was driven primarily

by rising exports, as increased demand for technology and smartphones

benefited Japanese component makers. Domestic consumption has also

increased, though there has not been a corresponding increase in

wages. Although manufacturing conditions faltered slightly in May,

business sentiment remains solid.

Positive expectations of future growth were also reflected in the Bank of

Japan’s (BoJ) statement following the May BoJ Board meeting. The

economic outlook has now been classified as “turning toward a

moderate expansion”, due to improvements in exports and production.

However, low inflation continues to plague the central bank, with price

growth remaining persistently under the BoJ target of 2 per cent. The

BoJ is expected to continue with quantitative easing measures, to keep

prices from falling and to encourage investment.

-60

-40

-20

0

20

40

60

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P

er

cent

Industrial production Machine tool orders

Figure 2.5: Japanese industrial production vs Machine tool orders,

YoY growth

-6

-4

-2

0

2

4

6

35

40

45

50

55

60

65

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Per

cent

Index p

oin

ts

Eurozone PMI (lhs) Eurozone GDP (rhs)


Figure 2.6: South Korea real GDP, YoY growth

Figure 2.7: India real GDP, YoY growth

Source: Bank of Korea (2017)

Notes: Not seasonally adjusted

Source: Central Statistical Organisation, India (2017)

The IMF forecasts growth of 1.2 per cent in 2017, fuelled by continued

growth in net exports. Growth is forecast to fall back to 0.6 per cent in

2018. Low growth is expected to continue into the medium term, as

income growth remains weak and population ageing puts pressure on

the available labour force.

South Korea

South Korea recorded strong real GDP growth of 2.7 per cent in the

March quarter (year-on-year), supported by strong exports and industrial

production. However, in recent months, manufacturing activity has

contracted, due to rising input costs and falls in New Orders. This

weakness has led to a downward revision in the growth outlook; GDP is

now expected to reach 2.7 per cent in 2017 and 2.8 per cent in 2018

(both revised down by 0.3 percentage points).

With the outcome of the recent snap election now settled, there should

be a greater element of political stability in South Korea.

India

Real GDP growth was weaker in the March quarter, dropping to 6.6 per

cent (annual) as the effects of demonetisation of high-value currency

notes lingered. As a result, growth is forecast to be only 7.2 per cent in

2017. Despite this slowing, India will still be the fastest growing economy

in the world, having surpassed China.

Sizeable increases in public sector wages and pensions are supporting

private consumption, while structural reforms — particularly the

introduction of the goods and services tax and measures to improve the

ease of doing business — are projected to help private investment

revive. Growth is expected to recover in 2018, reaching 7.7 per cent.

0

1

2

3

4

5

6

7

8

9

10

2012 2013 2014 2015 2016 2017

Per

cent

-4

-2

0

2

4

6

8

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Per

cent


Table 2.1 Key world macroeconomic assumptions

Per cent 2016 2017 a 2018 a 2019 a

Economic growth b

Advanced economies 1.7 2.0 2.0 1.9

United States 1.6 2.1 2.1 1.9

Japan 1.0 1.2 0.6 0.8

European Union 28 2.0 2.0 1.8 1.8

Germany 1.8 1.6 1.5 1.4

France 1.2 1.4 1.7 1.7

United Kingdom 1.8 2.0 1.5 1.6

South Korea 2.8 2.7 2.8 3.0

New Zealand 4.0 3.1 2.9 2.6

Emerging economies 4.1 4.5 4.8 4.9

Emerging Asia 6.4 6.4 6.4 6.3

South East Asia d 4.9 5.0 5.2 5.3

China e 6.7 6.6 6.2 6.0

Chinese Taipei 1.4 1.7 1.9 2.0

India 6.8 7.2 7.7 7.8

Latin America -1.0 1.1 2.0 2.5

Middle East 3.8 2.3 3.2 3.2

World c 3.1 3.5 3.6 3.7

Inflation rate b

United States 1.4 2.2 2.4 2.3

Notes: a Assumption; b Change from previous period; c Weighted using purchasing power parity (PPP) valuation of country gross domestic product by IMF d Indonesia, Malaysia, the Philippines,

Thailand and Vietnam; e Excludes Hong Kong

Source: IMF (2017) World Economic Outlook; IMF (2017) Article IV Consultation with the United States of America - Concluding Statement of the IMF Mission; Department of Industry, Innovation

and Science

24

Figure 3.1: World trends in steel production and consumption, compound annual growth rates

Note: Area of bubble represents absolute steel production in 2015 and 2019 (forecast), respectively.

Source: World Steel Association (2017); Department of Industry, Innovation and Science (2017)

Market summary

The momentum of global steel production growth has slowed in recent

months, growing 3.6 per cent year-on-year in April and May compared to

5.2 per cent in the March quarter 2017. Nevertheless, global steel

production growth has remained relatively strong; in contrast, production

contracted by 1.5 per cent year-on-year in the five months to May 2016.

World steel production growth has continued to be supported by a

broadening pick up in the global economy. There has been a steady

improvement to global business confidence and manufacturing sector

indicators.

Annual world steel production growth is forecast to moderate to average

1.3 per cent in 2017, 1.0 per cent in 2018 and 0.9 per cent in 2019. A

marginal decline in Chinese steel production as infrastructure and

construction activity in that nation slows is expected to be outweighed

by strong steel production growth in the rest of the world, particularly in

India.

Steel production and consumption

China’s steel production reached a record high in April 2017

China’s steel production increased by 4.1 per cent year-on-year in the

first five months of 2017, and reached a monthly record of almost 73

million tonnes in April. Growth in China’s steel production was driven by

stronger domestic demand and higher prices, with exports declining.

Steel exports were down by 26 per cent in the first five months of the

year. There has been an accumulating suite of trade barriers against

Chinese steel products. Additionally, China’s steel has become less

competitive in export markets, as strong domestic demand allows

producers to charge higher prices to offshore buyers.

Apparent steel usage increased by 8.8 per cent year-on-year in the five

months to May 2017. Steel consumption was supported by ongoing

infrastructure investment, with infrastructure fixed asset investment (FAI)

up by 21 per cent year-on-year in the five months to May.

Resources and Energy Quarterly June 2017

EU

US

Brazil

RussiaChina

Japan

South Korea

India

800mt

-10

-5

0

5

10

-5 0 5 10

Consum

ption g

row

th (

per

cent)

Production growth (per cent)

2012 to 2015

EU

US

Brazil

Russia

China Japan

South Korea

India

800mt

-10

-5

0

5

10

-5 0 5 10

Consum

ption g

row

th (

per

cent)

Production growth (per cent)

2016 to 2019 (forecast)


Figure 3.3: China’s monthly steel production and exports, YoY change

Notes: Infrastructure FAI (fixed asset investment) series begins in 2015; Consumption is

apparent steel consumption.

Sources: Bloomberg (2017) National Bureau of Statistics of China

Source: Bloomberg (2017) National Bureau of Statistics of China; Bloomberg (2017)

China Customs General Administration

China’s steel production and consumption forecast to moderate

Steel consumption in 2017 is forecast to be little changed from 2016

levels. Although the Central Government has increasingly signalled the

prioritisation of economic growth and stability over financial reform and

debt control this year providing some support to steel consumption

through ongoing government investment this is expected to be offset

by the impact of declining demand from other sectors.

Construction activity has slowed since more stringent lending and buying

policies in the real estate sector were implemented in 2016 and early

2017. Construction FAI was down 20 per cent year-to-date in May 2017.

However, price growth in real estate outside of the big cities indicates

the potential for further real estate development activity. If this occurs,

steel production and consumption growth could be larger than what is

currently forecast.

The steel sector PMI for May 2017 points to steel production remaining

robust in the short term. The steel PMI typically leads steel production by

a month. Capacity cuts which tend to increase steel producers’

margins are also expected to provide incentives for increased

production in the short-term.

Nevertheless, production growth is expected to moderate, and output is

forecast to decline marginally (by 0.4 per cent) in 2017. Declining

exports, industry consolidation, cuts to old/inefficient capacity (with a 50

million tonne target for 2017), and the enforcement of environmental

restrictions, are all expected to contribute to the marginal decline in

production.

Beyond 2017, steel production is forecast to decline by 0.6 per cent in

both 2018 and 2019, weighed down by relatively subdued domestic

demand. Government spending is expected to ease, and a renewed

focus on financial stability and reigning in debt is expected to dampen

private investment and, as a result, steel consumption.

China’s recently announced ‘One Belt One Road’ plan has the potential

to increase China’s steel needs beyond what has been forecast.

However, there is insufficient clarity at this time regarding how the

initiative will be implemented and, in turn, how it will affect steel demand.

-20

0

20

40

2012 2013 2014 2015 2016 2017

Per

cent

Construction FAI Infrastructure FAI Consumption

Figure 3.2: China’s monthly FAI and steel consumption, YoY change

-10

0

10

20

30

-40

0

40

80

120

2012 2013 2014 2015 2016 2017

Per

cent

Per

cent

Steel exports Steel production (rhs)


Figure 3.4: India’s monthly steel production and exports, YoY change

Source: Bloomberg (2017) World Steel Association; Bloomberg (2017) Reserve Bank of

India

India forecast to become the second largest steel producer in 2018

India’s steel production increased by 7.4 per cent year-on-year in the

five months to May, as new capacity continued to be completed.

Domestic consumption has not entirely absorbed the growing output

exports of steel have surged although from a low base growing by

142 per cent year-on-year in April 2017. Steel imports decreased by 23

per cent over the same period, driven by both increased domestic

production and restrictive trade policies.

India’s steel consumption is expected to be bolstered by substantial

government investment in infrastructure, affordable housing and urban

development. Preferential treatment of Indian-made steel in government

projects is also expected to benefit the domestic industry.

India remains on track to overtake Japan as the world’s second largest

steel producer in 2018, with production forecast to grow by 7.0 per cent

to 110 million tonnes, and by a further 6.3 per cent in 2019 to 117 million

tonnes. However, there remains several headwinds to India’s official

steel production targets, including constrained access to raw materials,

land and finance. It is also unclear whether demand and export growth

will be strong enough to absorb the forecast rapid additions to capacity.

Production in the rest of world buoyed by a rebound in steel demand

Steel production in the rest of the world (excluding China and India)

increased by 4.7 per cent year-on-year in the five months to May.

Japan’s steel production grew 1.5 per cent year-on-year in the five

months to May. Japan’s industrial production and manufacturing indices

reached their highest levels in nine years in April 2017, supporting steel

production growth.

Similarly, strong industrial production growth in both the EU and the US

has supported growth in steel production, of 4.1 per cent and 2.3 per

cent year-on-year in the five months to May, respectively. In the US,

there remains substantial uncertainty surrounding President Donald

Trump’s infrastructure spending plans. Earlier expectations of a surge in

steel demand may not eventuate, at least in the short-term.

Steel production in South Korea has declined by 2.8 per cent year-on-

year in the two months to May, partly weighed down by declining vehicle

production. The decline follows strong growth of 4.7 per cent in the

March 2017 quarter.

Steel production in the rest of the world is forecast to grow by 2.5 per

cent in 2017, before slowing to 1.8 per cent and 1.7 per cent in 2018 and

2019, respectively.

Trade barriers continue to grow for steel products

There has been a growing suite of anti-dumping duties and other

restrictive trade policies on steel products, largely in response to high

volumes of cheap steel imports from China in 2015 and 2016.

In the EU, additional anti-dumping duties on steel products from China

brought the coverage to almost 20 steel products. The US has imposed

more than 190 duties on iron and steel product imports from China. In

April 2017, the US Department of Commerce initiated an investigation

into the impact of steel imports on national security. The investigation

wad due to be completed in June, and may result in additional

restrictions on imports from many steel producing countries.

The growing number of trade barriers may act as a constraint on steel

production growth in China and other Asian producers, which in turn has

potential implications for Asian import demand for iron ore and

metallurgical coal.

-10

-5

0

5

10

15

20

-80

-40

0

40

80

120

160

Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

Per

cent

Per

cent

Steel imports Steel production (rhs)



Crude steel consumption 2016 s 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f

European Union 28 171 171 174 177 0.5 1.4 1.8

United States 103 107 112 114 3.5 5.1 1.6

Brazil 19 20 21 21 3.9 3.0 3.0

Russia 43 41 40 40 -4.0 -1.5 -0.1

China 712 708 699 689 -0.5 -1.3 -1.3

Japan 67 69 70 71 3.0 1.1 1.6

South Korea 57 57 57 58 -0.4 1.0 1.3

India 95 102 108 115 6.7 6.7 6.2

World steel consumption 1,629 1,647 1,665 1,683 1.1 1.1 1.1

Notes: s estimate f forecast


Table 3.1 World steel consumption and production (million tonnes)

Crude steel production 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f

European Union 28 162 166 169 173 2.3 2.0 2.0

United States 78 80 84 84 2.5 4.0 0.8

Brazil 31 32 34 35 2.4 4.7 4.7

Russia 71 70 69 69 -1.6 -0.7 -0.1

China 808 805 800 795 -0.4 -0.6 -0.6

Japan 105 108 109 111 3.0 1.0 1.8

South Korea 69 69 71 72 0.9 1.9 2.1

India 96 103 110 117 7.5 7.0 6.3

World steel production 1,629 1,651 1,666 1,682 1.3 1.0 0.9


Figure 4.1: Iron ore price, quarterly, FOB Australia and CFR China

Figure 4.2: Monthly iron ore and steel prices, end of month port stocks

Source: Bloomberg (2017) Metal Bulletin; Department of Industry, Innovation and Science

(2017)

Notes: Iron ore price is FOB Australia; Steel price is a composite of China’s steel prices

Source: Bloomberg (2017) SteelHome; Bloomberg (2017) Metal Bulletin; Bloomberg

(2017) Custeel; Department of Industry, Innovation and Science (2017)

Market summary

Australia’s iron ore export earnings for 2016–17 have been revised down

by $7.5 billion from the forecast in the March 2017 Resources and

Energy Quarterly, to $65 billion, reflecting an earlier than expected

decline in the iron ore price. This nevertheless still represents an

increase in export earnings of 33 per cent on 2015–16.

The iron ore price has been revised down slightly for the next three

years. Higher prices at the end of 2016 and start of 2017 stimulated

additional supply, placing additional downward pressure on prices. The

iron ore price is now forecast to average US$62 a tonne (FOB Australia)

in 2017. With demand expected to be steadily outpaced by the growth of

low-cost supply, the price is forecast to decline to US$48 a tonne in

2018 and to US$47 a tonne in 2019. Australia’s export earnings are

forecast to decline to $58 billion in 2017–18, and $55 billion in 2018–19.

Prices

Growing low-cost supply to place downwards pressure on iron ore price

The iron ore price fell sharply in the June quarter, at one point reaching

a 12-month low of US$47 a tonne (FOB Australia) in mid-June, before

rebounding late in the month. While the decline in the iron ore price was

expected, it occurred earlier than forecast in the March 2017 Resources

and Energy Quarterly. As a result, the iron ore price forecast has been

revised down from US$65 a tonne (average) to US$62 a tonne in 2017.

The iron ore price is forecast to average US$55 a tonne in the second

half of 2017. The recent strength of China’s steel sector (please refer to

the Steel chapter) is expected to provide some short-term support.

Nevertheless, the iron ore price is forecast to ultimately decline. Iron ore

port stocks in China have steadily grown to record highs, reaching an

estimated 140 million tonnes in June 2017. The seaborne iron ore

market is forecast to remain well-supplied by low-cost producers in 2018

and 2019. Demand for iron ore is forecast to moderate over the same

period, as steel production declines in China.

High iron ore prices at the end of 2016 and start of 2017 resulted in a

rebound in iron ore production in China and other nations, such as Iran.

An extended period of low prices is likely to be required to displace the

additional supply. The price forecast has been revised down from US$51

per tonne to US$48 a tonne in 2018, and to US$47 a tonne in 2019.

0

50

100

150

200

250

2008 2010 2012 2014 2016 2018

2017 U

S$ a

tonne

CFR China FOB Australia

0

1,500

3,000

4,500

0

50

100

150

2014 2015 2016 2017

RM

B

US

$ a

tonne

Million tonnes

Port stocks Iron ore price Steel price index (rhs)


Figure 4.3: 58 and 62 per cent iron content prices

Notes: Prices are CFR China; Right axis inverted; Difference represents the difference

between the 58 per cent iron content price relative to the 62 per cent price.

Source: Bloomberg (2017) Custeel

Box 4.1: Growing spread between low and high grade iron ore price

While the ‘benchmark’ iron ore price is for 62 per cent iron content ore,

usable iron ore for steelmaking generally ranges between 58 to 65 per

cent iron content. There are premiums/discounts for the price of

higher/lower grade ores.

A growing divergence between the price for low grade ores compared

with 62 per cent ores has recently emerged. In April–May 2017, the price

for 58 per cent iron content fines was 27 per cent lower than the 62 per

cent price, compared to 19 per cent a year earlier. The difference has

averaged 14 per cent since 2012.

Factors likely to impact on the price spread over the short and long term

include:

• the increase in the metallurgical coal price following Cyclone Debbie.

The higher metallurgical coal prices has increased demand for higher

grade iron ore, as it requires less metallurgical coal for the steel-

making process. The effects of this are expected to be short-lived, as

the effect of Cyclone Debbie on the metallurgical coal price

dissipates.

• increased low-grade exports from India, following the resumption of

mining and the removal of export taxes in the last couple of years.

The additional supply may weigh on the price of low-grade ores.

However, exports from India should ease, as their monsoon season

peaks (usually lasting from May to September).

• more stringent environmental regulations in China. This drives a

growing preference for higher grade iron ore, which increases the

efficiency of steel mills and reduces emissions.

• conversely, the demand for low grade ores may be supported by

steel-makers looking to blend those ores with the growing supply of

high grade ores from Brazil, in order to reduce costs.

While the gap has recently narrowed, as some of the short term

pressures ease, it is still larger than the historical average. There is

some uncertainty about whether the larger price spread will be sustained

due to longer-term structural factors.

Australia generally has high quality iron ore reserves (close to the 62 per

cent benchmark). However, some Australian producers with lower grade

mines may be exposed to persistently lower prices for low-grade ore.

-30

-20

-10

00

60

120

180

2012 2013 2014 2015 2016 2017

Per

cent

US

$ a

tonne

Difference (rhs) 58 per cent 62 per cent

World trade

World trade in iron ore is forecast to grow by 2.6 per cent in 2017 and by

2.9 per cent in 2018, before moderating to 0.9 per cent in 2019. At 1.59

billion tonnes, world iron ore trade in 2019 will be twice the 2009 volume.

China’s iron ore import demand faces headwinds but forecast to grow

China’s iron ore imports increased by 1.8 per cent year-on-year in April

and May, following strong year-on-year growth in the March quarter of

12 per cent. The slowing pace of import growth — predominantly from

Australia — was largely due to weather disruptions in the Pilbara, which

affected mine/rail operations and iron ore shipments.

China’s import demand may have also been weighed down by growing

domestic iron ore production and increased scrap steel use. The

government-mandated closure of illegal induction furnaces by 30 June

2017 has resulted in lower scrap prices and increased scrap use, further

reducing iron ore demand. Growing scrap use is expected to ease, as

stockpiles are drawn down. Further, domestic iron ore production

reacted to the surge in iron ore prices as 2016 progressed. China’s iron

ore production (adjusted for quality) was up 22 per cent year-on-year in

April and May 2017.


Figure 4.4: China’s iron ore imports and production, YoY change

Figure 4.5: India’s iron ore production and consumption

Notes: China’s iron ore production has been adjusted for quality

Source: Bloomberg (2017) China Customs General Administration; Bloomberg (2017)

Antaike Information Development

Notes: Consumption is apparent iron ore consumption.

Source: Bloomberg (2017) World Steel Association; Department of Industry, Innovation

and Science (2017)

It is estimated that 21 per cent of China’s pig iron was produced using

domestic ore in March and April, in contrast to the 2016 average of 14

per cent. However, China’s iron ore mines are high cost and their ore of

low grade, and the displacement of domestic ore with imports is

expected to resume. China’s iron ore imports are forecast to grow by 0.7

per cent and 0.3 per cent in 2018 and 2019, respectively.

India’s iron ore production continues to grow

India’s iron ore production growth has been driven by supportive

government policies, including streamlined approval processes and the

easing of mining and export restrictions. Iron ore production is expected

to be further supported by plans to auction eight mining blocks in the

2017–18 Indian financial year.

There remains ongoing challenges with transporting iron ore from the

mines in the western States to the steel mills in the eastern coastal

States. The prospect of government intervention in the iron ore market to

ensure low-cost materials for its steel industry may also dampen

incentives for the development of new mines. A government-appointed

committee is currently developing recommendations for a domestic

pricing mechanism.

Despite growing production, India is expected to become a net importer

of iron ore by 2019. Consumption from its rapidly growing steel industry

is expected to outpace domestic iron ore production.

Seaborne iron ore market to remain well-supplied

The seaborne iron ore market is forecast to remain well-supplied.

Increased output from low-cost, high-grade producers in Australia and

Brazil is expected to displace high-cost producers. In 2019, Australia is

forecast to account for 56 per cent of global seaborne trade, up from 54

per cent in 2016, while Brazil is forecast account for 26 per cent of

seaborne trade, up from 24 per cent in 2016.

Iron ore exports from Brazil doubled in the first five months of 2017

compared to the same period in 2016, to 70 million tonnes. Strong

export growth is forecast for the next two and a half years. Vale has

reaffirmed their production target of 360–380 million tonnes in 2017, and

is on track to achieve the 400 million tonne long-term target at the end of

2018, supported by the ramp up of the S11D and Itabiritos projects.

Anglo American’s Minas Rio mine is expected to reach full capacity of

27 million tonnes by 2020.

-20

-10

0

10

-15

0

15

30

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

Million tonnes

Million tonnes

Australia Brazil Rest of world Production

0

50

100

150

200

250

2009 2011 2013 2015 2017 2019M

illion tonnes

Production Consumption


Figure 4.6: Forecast iron ore production in 2019

Figure 4.7: Australia’s iron ore export volumes and values

Notes: China’s iron ore production adjusted for quality; Based on a forecast iron ore price

of US$53 a tonne CFR China.

Source: AME Group (2017); Department of Industry, Innovation and Science

Source: ABS (2017) International Trade, Australia, Cat. No. 5465.0; Department of


While the resumption of mining at Vale and BHP’s Samarco mine looks

increasingly unlikely in 2017 — with ongoing debt restructuring and

environmental licensing challenges — it is still expected to add 19

million tonnes to Brazil’s output by the end of 2019.

Australia

Exploration expenditure remains at historical lows

Expenditure declined by 7.3 per cent to $54 million in the March 2017

quarter, the lowest quarterly figure since 2006. Growing global supply

and expectations of low prices has discouraged exploration activity.

Australia’s iron ore export earnings revised down

Australia’s estimated export earnings for 2016–17 have been revised

down to $65 billion, but this still represents a 33 per cent increase from

2015–16. The revision is predominantly due to the earlier than expected

decline in the iron ore price in the June quarter.

A particularly severe monsoon season in February and March affected

mining and rail operations across the Pilbara. Nevertheless, 2016–17

shipment guidance from Rio Tinto and Fortescue Metals Group was

unchanged at 330–340 million tonnes and 165–170 million tonnes,

respectively. BHP’s production guidance narrowed to 268–272 million

tonnes, from 265–275 million tonnes. Iron ore shipments from Port

Hedland grew by 12 per cent year-on-year in both April and May, and hit

a monthly record of 44 million tonnes in May, reflecting strong export

growth in the months following the wet season.

A fire at BHP’s Mt Whaleback processing plant and a derailment on the

Newman to Port Hedland line — both in June — may potentially disrupt

shipments. Mining has resumed in the unaffected areas, and the rail line

has restarted at limited capacity. It is unclear if exports will be affected.

Atlas Iron has deferred its Corunna Downs project, originally set to

commence production in 2018. The company cited market conditions

and delays in approval processes as major factors contributing to the

decision. Their production guidance for 2017–18 has been maintained at

9–10 million tonnes, due to increased production at the Mt Webber mine.

Export earnings for 2017–18 have been revised down to $58 billion, and

for 2018–19 to $55 billion. While modest output growth is expected to be

assisted by ongoing productivity improvements and additions to

capacity, the impact will be offset by the effects of a lower iron ore price.

0

30

60

90

0

300

600

900

2008–09 2010–11 2012–13 2014–15 2016–17 2018–19

2016–17 A

$b

Million tonnes

Volume Value (rhs)

0

25

50

75

100

0

250

500

750

1,000

Australia Brazil China India Rest ofworld

Per

cent

Million tonnes

Production Proportion of production that is profitable (rhs)



World trade in iron ore 2016 s 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f

Iron ore imports

– European Union 28 140 138 138 138 -1.1 0.3 0.0

– Japan 131 133 134 136 1.4 1.0 1.8

– China 1,035 1,038 1,046 1,049 0.3 0.7 0.3

– South Korea 75 71 72 74 -5.2 1.9 2.1

– India 4 7 8 13 90.0 10.5 79.6

Iron ore exports

– Australia 808 851 885 897 5.3 3.9 1.3

– Brazil 364 382 408 419 4.9 6.8 2.8

– India 9 8 7 7 -13.9 -9.6 0.0

– Ukraine 38 42 42 42 10.8 0.1 0.4

World trade 1,492 1,531 1,576 1,590 2.6 2.9 0.9

Notes: s estimate. f forecast.


Table 4.1 World iron ore trade



World Unit 2016 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f

Prices bc

– nominal US$/t 52.7 62.4 49.1 49.2 18.5 -21.4 0.4

– real d US$/t 53.9 62.4 47.9 47.0 15.8 -23.3 -1.9

Notes: b fob Australian basis c Spot price, 62% iron content basis. d In 2017 US dollars. h Crude steel equivalent and iron . Crude steel is defined as the first solid state of production after

melting. In ABS Australian Harmonized Export Commodity Classification, crude steel equivalent includes most items from 7206 to 7307, excluding ferrous waste and scrap and ferroalloys.

i In 2016–17 Australian dollars. f forecast. s estimate.

Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; AME; Company Reports.

Table 4.2 Iron ore outlook

Australia Unit 2015–16 2016–17 s 2017–18 f 2018–19 f 2016–17 s 2017–18 f 2018–19 f

Production

Steel hs Mt 5.05 5.35 5.26 5.26 6.1 -1.7 -0.1

Iron ore Mt 836.1 873.5 912.1 934.6 4.5 4.4 2.5

Exports

Steel hs Mt 0.77 0.92 0.98 0.98 20.2 6.3 -0.1

– nominal value A$m 598 752 740 739 25.9 -1.6 -0.1

– real value i A$m 608 752 725 708 23.7 -3.7 -2.3

Iron ore Mt 785.8 825.4 872.8 893.1 5.0 5.7 2.3

– nominal value A$m 47,799 64,502 59,473 57,139 34.9 -7.8 -3.9

– real value i A$m 48,635 64,502 58,221 54,732 32.6 -9.7 -6.0


Figure 5.1: Spot prices

Figure 5.2: Benchmark contract prices for Australian metallurgical coal

Source: IHS (2017)

Source: Department of Industry; Innovation and Science (2017)

Market Summary

Global metallurgical coal spot prices spiked in April, in the wake of the

destruction left by Cyclone Debbie in Queensland, the world’s largest

metallurgical coal producing region. Important rail links to export ports

were cut, tightening the export market. Since April, a return to normal of

rail operations has seen prices decline. Prices are forecast to fall

modestly further over the rest of the outlook period. Overall export

earnings for 2016–17 are estimated to have been a record $36 billion.

However, due to price declines over the outlook period, export earnings

for 2017–18 and 2018–19 are forecast to be lower.

Prices

Spot price decline expected to continue

Spot prices rallied in April 2017, to average US$261 a tonne for the

month. The rally in price was largely driven by a sharp decline in exports

from Queensland, caused by the fallout from Cyclone Debbie. Since the

rally in April, spot prices have started to decline, with prices in the June

quarter estimated to have averaged US$187 a tonne.

The combination of easing Government-mandated coal mine closures —

and restricted days of coal mine operation in — China, and a recovery in

metallurgical coal operations in Australia, are expected to have a

normalising (no weather disruptions) impact on global production levels.

These factors are forecast to result in spot prices in 2017 averaging

around US$158 a tonne.

June quarter benchmark contract prices paid to Australian metallurgical

coal producers by Japanese steel producers were still not settled as of

late-June. The significant delay in landing on a June quarter price was

largely due to Cyclone Debbie. Reports suggest that, in lieu of a

quarterly contract price, producers and consumers adopted a spot or

index-linked approach as a pricing mechanism for the June quarter.

Australian benchmark prime hard metallurgical coal contract prices are

forecast to average US$191 a tonne in 2017 — a 67 per cent increase

from 2016, reflecting the high March quarter contract price of US$285 a

tonne. Contract prices for the remaining two quarters are forecast to be

substantially lower.

0

50

100

150

200

250

300

350

Jul-11 Apr-12 Jan-13 Oct-13 Jul-14 Apr-15 Jan-16 Oct-16

US

$ a

tonne

Australian hard coking coal Australian low volatility PCI

0

50

100

150

200

250

300

350

400

Dec-03 Dec-06 Dec-09 Dec-12 Dec-15 Dec-18

2017 U

S$ a

tonne


Figure 5.3: Monthly import volumes of top three major importers

Source: IHS (2017)

The fall in price in the latter half of 2017 is expected to be driven by both

increased metallurgical coal production in China and a return to average

production levels in Australia. Price declines may also be exacerbated

by further increases in metallurgical coal production at mines unaffected

by Cyclone Debbie, as producers (even high-cost ones) respond to the

(still relatively high) price level.

Australian benchmark metallurgical coal contract prices are forecast to

decline by 28 per cent in 2018, to US$137 a tonne. A further decline of

13 per cent to $US119 a tonne is forecast in 2019, as import demand

and supply normalise. China is expected to be a large contributor to the

improved balance between supply and demand, as its metallurgical coal

production increases. Spot prices are expected to follow the same trend

as contract prices, with an increase in the average price in 2017 but

declines in 2018 and 2019.

Premium hard coking coal spot prices are forecast to increase by 8.0 per

cent in 2017 to US$159 a tonne. In 2018, premium spot prices are

forecast to decline by 18 per cent to US$130 a tonne, with a further 14

per cent decline to US$112 a tonne forecast in 2019.

World trade

World metallurgical coal trade in 2017 is forecast to decline by 3.0 per

cent from 2016 levels, to 306 million tonnes, as import demand from

China declines. In 2018, a decline in metallurgical coal demand for steel

production in China is expected to be partially offset by increased import

demand from India, with trade forecast to decline by only 1.0 per cent to

302 million tonnes. In 2019, world trade is forecast to increase by 1.0 per

cent to 306 million tonnes. This increase is expected to be driven by

growing demand from India.

China’s metallurgical coal imports to decline over the outlook period

China is the largest metallurgical coal consumer, the second largest

importer, and the fourth largest consumer of Australian metallurgical

coal. China’s metallurgical coal imports rose by 42 per cent year-on-year

in the five months to May 2017.The increase in imports was supported

by the highest steel production output on record in China in April 2017.

Despite the year-on-year lift in imports in the first four months of 2017,

metallurgical coal imports are forecast to gradually decline from 2016

levels over the rest of 2017 — declining by 5.9 per cent to 56 million

tonnes, as China’s revised coal mining closure policies continue to take

effect. The Chinese Government has made it clear that specialty coal

output (i.e. metallurgical coal) will not be cut. This change in policy — as

well as a moderate level of imports — is expected to ensure sufficient

metallurgical coal supply for China’s domestic steel production over

2017.

China’s metallurgical coal imports are forecast to decline by 11 per cent

in 2018 to 50 million tonnes, and by a further 12 per cent in 2019 to 44

million tonnes. The outlook for metallurgical coal imports in China is

expected to be impacted by moderating growth in domestic steel

demand, as Beijing’s fiscal stimulus fades and activity cools in the

construction sector.

0

1

2

3

4

5

6

7

8

9

Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17M

illion tonnes

China India Japan


Figure 5.4: Major importers

Source: IHS (2017), Department of Industry, Innovation and Science (2017)

India’s metallurgical coal imports are forecast to increase by 8.5 per cent

to 56 million tonnes in 2018, and by a further 6.3 per cent to 60 million

tonnes in 2019. While the further development and expansion of India’s

steel industry could underpin even stronger metallurgical coal import

growth, challenges surrounding access to raw materials, land and

finance, have the potential to limit growth in the steel industry.

Japan’s metallurgical coal imports hold steady

Japan is the third largest importer of metallurgical coal, and the second

largest consumer of Australian metallurgical coal. Japan’s metallurgical

coal imports declined by 5.9 per cent year-on-year in the four months to

April 2017, following a 5.8 per cent year-on-year increase over 2016.

The increase in imports in 2016 can be partially attributed to re-stocking

activities by steel producers. Metallurgical coal imports in 2017 are

forecast to remain similar to 2016 levels, at 53 million tonnes, supported

by expected higher steel exports and exports of finished goods (such as

automobiles).

Japan’s metallurgical coal imports are forecast to increase by 0.9 per

cent to 54 million tonnes in 2018, and stay close to that level in 2019.

Steady growth in imports is expected to be supported by steady

Japanese steel production and exports of steel-intensive goods.

World exports

United States’ metallurgical coal exports rise for the first time in 5 years

Australia is the world’s largest metallurgical coal exporter. The United

States, Canada, Russia and Indonesia, all rank after Australia. The US

makes up 17 per cent of the seaborne market.

In the four months to April, 2017, the United States’ metallurgical coal

exports increased by 24 per cent year-on year, as producers responded

to higher metallurgical coal prices. This significant increase in exports

follows continuous calendar year declines since 2012.

Over the rest of 2017, exports are expected to fall back in line with falling

metallurgical coal prices. Falling metallurgical coal prices will affect US

producers in particular, due to the relatively high cost nature of their

operations. In 2017, US exports are forecast to decline by 2.7 per cent to

36 million tonnes.

India’s metallurgical coal imports are forecast to increase

India is the world’s largest importer of metallurgical coal. It is also the

largest consumer of Australia’s high quality metallurgical coal, and is

expected to remain so over the outlook period. India’s metallurgical coal

imports declined by 16 per cent year-on-year in the March quarter. This

decline follows a year-on-year 12 per cent increase in the December

quarter, which came about despite the sharp rise in metallurgical coal

prices.

Despite the March quarter year-on-year decline, India’s metallurgical

coal imports are forecast to increase by 2.0 per cent from 2016 levels to

52 million tonnes in 2017. The rise will be driven by an increased need

for metallurgical coal to support local steel production. Government

investment is expected to spur spending on infrastructure, and increase

growth in the construction sector, both of which require steel.

0

10

20

30

40

50

60

70

India South Korea China Japan EU

Million tonnes

2016 2019 f


Figure 5.5: United States exports of metallurgical coal

Notes: s Estimate; f Forecast

Source: IEA (2017) Coal Information 2016; Department of Industry, Innovation and Science (2017)

Source: IEA (2017); Department of Industry, Innovation and Science

Table 5.1: World metallurgical coal trade

US metallurgical coal exports are forecast to decline by 8.3 per cent to

33 million tonnes in 2018, with a further decline of 6.1 per cent to 31

million tonnes in 2019. Declines will be underpinned by softer import

demand from China, and by declines in the metallurgical coal price,

which will deter high-cost producers.

Russia’s exports continue to increase year-on-year

Russia’s metallurgical coal exports increased by 12 per cent, year-on-

year in the first four months of 2017 — on the back of higher

metallurgical coal prices. The majority of Russia’s metallurgical coal

exports to date in 2017, when to Ukraine. Exports over 2017 are forecast

to increase by 7.0 per cent to 24 million tonnes, due to strong import

demand from Russia’s key markets, such as Ukraine and South Korea.

In 2018 Russia’ s exports are forecast to increase by 3.0 per cent to 24

million tonnes and to increase by a further 3.0 per cent to 25 million

tonnes, in 2019. Growth in exports are expected to be supported by

lower domestic production costs and profitable metallurgical coal prices.


World Unit 2016 s 2017 f 2018 f 2019 f 2017 f 2018 f 2019 f

Metallurgical coal imports

─ European Union 28 Mt 42 43 43 43 1.7 0.0 0.8

─ Japan Mt 53 53 54 54 -0.3 0.9 0.9

─ China Mt 60 56 50 44 -5.9 -10.7 -12.0

─ South Korea Mt 36 37 37 38 2.0 0.0 2.7

─ India Mt 51 52 56 60 2.0 8.5 6.3

Metallurgical coal exports

─ Australia Mt 186 183 186 192 -1.7 1.8 3.2

─ Canada Mt 28 28 29 29 1.2 1.2 1.2

─ United States Mt 37 36 33 31 -2.7 -8.3 -6.1

─ Russia Mt 22 23 24 25 7.0 3.0 3.0

World trade Mt 315 306 302 306 -3.0 -1.0 1.0

0

10

20

30

40

50

60

2014 2015 2016 2017 2018 2019

Million tonnes


Figure 5.6: Australia’s metallurgical coal production

Figure 5.7: Australia’s metallurgical coal export volumes and values



Australia’s production and exports

Australia's production to stay robust

Australia’s metallurgical coal production is estimated to have increased

by 2.0 per cent to 193 million tonnes in 2016–17. A number of mines

were adversely affected by Cyclone Debbie late in the March quarter

and into the June quarter. However, the cyclone affected export tonnage

more so than production; many mines reported that the effects of the

cyclone on production were minimal. In 2016–17, the metallurgical coal

market highlights were higher metallurgical coal prices and a strong

rebound in import demand from China.

In 2017–18, production is forecast to increase by 2.4 per cent to 198

million tonnes, assisted by the start-up of operations at the Byerwen

mine in Queensland. In 2018–19, production is expected to increase by

a further 1.6 per cent to 201 million tonnes, as ramp-ups in production at

Byerwen (3.5 million tonnes) and the start-up of operations at Eagle

Downs (1.4 million tonnes) — both in Queensland — take effect.

Australia’s export volumes and export earnings are estimated to

increase amidst higher prices

Australia’s metallurgical coal export volumes in 2016–17 are estimated

to have declined by 2.9 per cent to 183 million tonnes. Export volumes

were adversely affected by export tonnage delays in the June quarter,

due to damage from Cyclone Debbie.

Many mines’ ability to transport their output to the major metallurgical

coal export terminal (Dalrymple Bay) for export were affected by the

temporary closure of the Goonyella rail line, which was damaged by the

floods associated with Cyclone Debbie. Affected mines included Hail

Creek, South Walker Creek, Isaac Plains, Carborough Downs, Caval

Ridge, Peak Downs and Foxleigh. Around 6 million tonnes of exports are

estimated to still be affected by the temporary closure of the Goonyella

rail line.

170

175

180

185

190

195

200

205

2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

Million tonnes

0

10

20

30

40

50

0

50

100

150

200

250

2002–03 2005–06 2008–09 2011–12 2014–15 2017–18

2016–17 A

$ b

illion

Million tonnes

Volume Value (rhs)


Stockpiled tonnages have been, or are in the process of being sent as

delayed cargoes. As of mid-May, around 29 ships had been waiting to

be loaded at Dalrymple Bay Coal Terminal. Export unit values in the

June quarter are expected to be affected by a change in pricing

mechanisms, with more cargoes priced off spot rather than the contract

price (due to no settled contract price in the June quarter).

While the price spike in late 2016 and April 2017 bumped up the export

earnings of some Australian producers, other producers were adversely

affected due to the export delays. Overall, 2016–17 export earnings are

estimated to have increased by 77 per cent to reach a record high of $36

billion.

In 2017–18, Australia’s export volumes are forecast to increase by 10

per cent from 2016–17 levels, to 201 million tonnes. The export of

cargoes delayed by Cyclone Debbie in the March and June quarters of

2017 is expected to more than offset the impact of weaker demand from

China. Export earnings in 2017–18 are forecast to decline by 12 per cent

from 2016–17 levels to $31 billion, impacted by lower prices.

Export volumes in 2018–19 are forecast to decline by 2.0 per cent to 197

million tonnes. This decline is expected to be largely due to a return to

normal export volumes, as the backlog from Cyclone Debbie is worked

off. Import demand from traditional consumers — including India and

Japan, as well as demand from ASEAN economies — are forecast to

increase, outweighing a decline in import demand from China. Export

earnings in 2018–19 are forecast to decline by 16 per cent to $26 billion,

driven by lower export volumes and prices.


Notes: b Fob Australian basis; c Contract price assessment for high-quality hard coking coal; d In 2017 calendar year US dollars; f Forecast; g Hard coking coal fob Australia east

coast; s Estimate

Source: ABS (2017) International Trade, cat.no 5465.0; Company Reports; Bloomberg (2017) Steel Business Briefing; Department of Industry, Innovation and Science (2017)

Table 5.2: Australia’s metallurgical coal outlook



Contract prices b c

– nominal US$/t 114.4 191.3 140.3 124.5 67.2 -26.7 -11.2

– real US$/t 116.9 191.3 137.0 118.8 63.5 -28.4 -13.2

Spot prices g

– nominal US$/t 143.5 158.5 133.5 117.3 10.4 -15.8 -12.1

– real US$/t 146.8 158.5 130.4 112.0 8.0 -17.7 -14.1



Production Mt 189.3 193.0 197.6 200.7 2.0 2.4 1.6

Export volume Mt 188.0 182.5 200.7 196.7 -2.9 10.0 -2.0

– nominal value A$m 19,790 35,673 32,137 27,652 80.3 -9.9 -14.0

– real value e A$m 20,136 35,673 31,460 26,487 77.2 -11.8 -15.8


Figure 6.1: Spot prices remained strong in early 2017

Figure 6.2: Japanese Fiscal Year contract prices

Source: IHS (2017)

Source: Department of Industry, Innovation and Science (2017)

Market Summary

Thermal coal exports are estimated to have added a substantial $19.2

billion to export revenue in 2016–17, and are forecast to be similar in

2017–18, at $19.1 billion. After a price spike from late 2016 to early

2017, thermal coal prices are forecast to gradually decline over the

outlook period. The decline in prices will eventually affect Australia’s

thermal coal export earnings, especially in 2018–19. Export volumes for

2017–18 and 2018–19 have been revised down from the March 2017

Resources and Energy Quarterly, due to forecast lower thermal coal

import demand from South Korea,following a change in energy policy by

the new government.

Prices

Early 2017 prices, lower than late 2016 but still much higher than before

the price surge

After reaching near five-year highs in late 2016, benchmark thermal coal

prices started to decline over the March quarter — with Australia’s

benchmark Newcastle free on board (FOB) spot price averaging US$81

a tonne. Australia’s Newcastle FOB June quarter spot price is estimated

to have dropped by 5.0 per cent from the March quarter, to average

around US$77 a tonne. While prices have declined, the fall has not been

as pronounced as expected, due to continued import demand from

China — albeit at a lower growth rate than seen in late 2016. China’s

imports of thermal coal grew by 17 per cent year-on-year in the March

quarter. The growth in imports over the first few months of the year can

be attributed to imported thermal coal being more competitively priced

than domestic coal.

The JFY 2017 (April 2017 to March 2018) benchmark price was settled

in April 2017 at US$84 a tonne, a 33 per cent increase from JFY 2016.

The increase reflects the price recovery relative to the first half of the

previous year, driven by the impact of China’s supply side policies.

Newcastle FOB spot prices are forecast to average US$77 a tonne over

2017, an increase of 15 per cent from 2016. The year-on-year increase

is largely reflective of the lower prices seen in the first half of 2016,

which dragged down the annual 2016 average price.

0

20

40

60

80

100

120

140

Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

US

$ a

tonne

Newcastle 6000kcal Richards Bay 6000kcal QHD 5800kcal

0

20

40

60

80

100

120

140

2008 2010 2012 2014 2016 2018 f

2017 U

S$ a

tonne


Figure 6.3: Monthly import volumes of China and India

Source: IHS (2017)

The JFY contract price is projected to decline over the outlook period, by

16 per cent to US$70 a tonne in JFY 2018, and by 5.0 per cent to US$67

a tonne in 2019. The falls in price are expected to be caused by

declining import demand from China — as it moves to a more diversified

energy mix — and by constrained import growth in India. Global

benchmark spot prices are expected to follow the same declining trend

as contract prices. In 2018, Australia’s Newcastle FOB spot price is

forecast to decline by 10 per cent to US$69 a tonne, and decline by 4.3

per cent to US$66 a tonne in 2019.

World trade

World thermal coal trade in 2017 is forecast to decline by 2.4 per cent to

1 billion tonnes. Trade is forecast to fall by 2.1 per cent to 990 million

tonnes in 2018, and then to decline by a further 0.4 per cent in 2019 to

986 million tonnes. Falls in trade volumes are expected to be driven by

lower import demand from China, India and South Korea; import

demand in India is only expected to pick up outside the outlook period

(post 2019). Total demand from large consumers such as China and

India is expected to be mostly met by domestic supply over the outlook

period.

A range of nations — including China — are investing in ways to achieve

higher energy efficiency by using advanced technology coal-fired power

plants. Some countries are also conducting research and development

in areas such as carbon capture and storage, to reduce carbon

emissions.

World imports

Increased import demand from China sustained in early 2017, but

forecast to decline over the outlook period

China is currently the largest consumer and importer of thermal coal in

the world, and was the second largest importer of Australian thermal

coal in 2016. China’s thermal coal imports increased by 15 per cent,

year-on-year in the first five months of the year. The increase in imports

was driven by relatively high domestic prices. High domestic prices were

due to continued lower domestic supply availability, as not all thermal

coal mines immediately reached full production capacity after the

Chinese Government eased its restrictions on production.

Over the course of 2017, Chinese domestic thermal coal prices are

forecast to stabilise in a price range of US$74–84 a tonne. This price

range is expected to enable domestic producers — as well as coal-fired

power plants — to operate profitably.

Despite the spike in imports early in the year, China’s 2017 thermal coal

imports are forecast to decline by 4.2 per cent year-on-year to 172

million tonnes, as domestic prices ease back. This declining trend is

expected to continue into 2018 and 2019. In 2018, thermal coal imports

are forecast to decline by 8.0 per cent to 158 million tonnes, and to

decline by 0.8 per cent to 157 million tonnes in 2019. The declines are

expected to be driven by China’s focus on reducing air pollution, through

the adoption of alternatives to coal-fired power generation.

0

5

10

15

20

25

Jul-07 Jul-10 Jul-13 Jul-16

Million tonnes

China India

India lowers output targets but imports forecast to continue to decline

India is the second largest consumer of thermal coal in the world, and

the second largest importer. It is the sixth largest consumer of Australian

thermal coal. India’s thermal coal imports in the first quarter of the year

fell by 22 per cent year-on-year. Imports are forecast to continue to

decline throughout 2017, despite a downgrade in the government-set

domestic production target in 2017–18.


Figure 6.4: Monthly imports of Japan and South Korea

Source: IHS (2017); Department of Industry, Innovation and Science (2017)

President Moon Jae-in has made clear his plans to curb coal-fired power

generation to combat air pollution. He has done this by announcing the

following: a temporary and eventual permanent shutdown of ten aging

coal-fired power plants with a combined capacity of 3.35 GW by June

2017; an increase in the government’s consumption tax on coal; and an

election pledge to stop construction of any new coal-fired power plants,

including 5GW of coal capacity already being built. How these policy

announcements and commitments play out — in terms of the magnitude

of imports to be affected — remains to be seen.

In the four months to April, South Korea’s thermal coal imports grew by

16 per cent year-on-year. Imports for the remainder of the year are

forecast to be subdued in light of the President’s plans, with imports

declining by 1.8 per cent to 96 million tonnes in 2017. Given South

Korea’s industrialised economy and anticipated increasing energy

needs, it is expected that coal will continue to contribute to the base load

energy supply in some way. That being said, the outlook for South

Korea’s imports in 2018 and 2019 is expected to remain subdued, with

imports forecast to decline by 4.2 per cent to 92 million tonnes and by a

further 1.1 per cent to 91 million tonnes, respectively.

Coal India — the State-owned company that produces the majority of

India’s coal — has had its production target downgraded by 10 per cent

for 2017–18, to 600 million tonnes. The downgrade has been attributed

to an alignment of production with expected demand — indicating

slower-than-expected growth in national coal-fired power generation.

In 2017, India’s thermal coal imports are forecast to decline by 3 per

cent to 161 million tonnes. Further declines are expected in 2018 and

2019 — partly attributable to the Indian Government’s expected

continued stance on reducing the country’s reliance on imported thermal

coal, as well as to slow progress in power sector reform.

The Indian Government recently announced that while India was aiming

to be completely self-sufficient in thermal coal, it acknowledges that

there will likely always be some need for imported thermal coal: around

38 per cent of coal-fired generation capacity is built to imported thermal

coal specifications (higher-energy content coal). Issues within the power

sector are affecting distribution utilities and causing bottlenecks at coal-

fired power plants. In 2018, India’s thermal coal imports are forecast to

decline by 1.5 per cent to 158 million tonnes, and then to decline by 1.0

per cent to 157 million tonnes in 2019.

Japan’s thermal coal imports, forecast to remain steady

Japan is the third largest importer of thermal coal in the world and the

largest consumer of Australian thermal coal. Japan’s thermal coal

imports increased by 1.5 per cent year-on-year in the four months of

2017. Thermal coal imports in 2017 are forecast to increase by 1.3 per

cent to 140 million tonnes, supported by increasing utilisation of coal-

fired power plants and a 0.5 per cent increase in installed coal-fired

power generation capacity. Imports are forecast to increase slightly in

2018 and 2019, to 141 million tonnes and 142 million tonnes,

respectively. Stable import demand in 2018 and 2019 is expected to be

supported by steady coal-fired power generation.

South Korea's thermal coal imports forecast to decline due to new

government policy

South Korea is the third largest importer of thermal coal and third largest

consumer of Australia’s thermal coal. A downward revision from the

March 2017 Resources and Energy Quarterly has been made to South

Korea’s coal import forecast over 2017 to 2019. The revision is due to

action taken by President Moon Jae-in since his election in May 2017.

0

2

4

6

8

10

12

14

16

Jul-07 Jul-10 Jul-13 Jul-16

Million tonnes

Japan South Korea


Figure 6.5: Major thermal coal exporters

Source: IEA (2017); Department of Industry, Innovation and Science

Over the outlook period, there is a possibility that the Indonesian

Government’s mandated domestic coal obligation policy may play a part

in influencing the amount of production available for export. The policy

enforces a requirement that domestic coal mines fulfil most of the

country’s coal-fired power generation needs before exports can be

initiated. At this stage, the time it will take to fully implement the policy is

unknown, with progress to date slower than anticipated.

Early strength in Colombian thermal coal exports

Colombian thermal coal exports increased by 5.7 per cent year-on-year

in the first five months of 2017, on the back of higher domestic

production. However, in May, production at the country’s largest thermal

coal mines were hard hit by heavy rainstorms, which also affected rail

and port operations. Rainstorms persisted over most of May, but by

early June, operations were believed to have returned to normal.

In 2017, Colombia’s thermal coal exports are forecast to increase by 3.9

per cent from 2016, to 92 million tonnes. In 2018, Colombia’s thermal

coal exports are forecast to increase by 2.2 per cent to 94 million tonnes,

and to increase by a further 2.7 per cent to 97 million tonnes in 2019.

Growth in exports is expected to be supported by stronger thermal coal

prices (compared to lows seen in early 2016).

This will encourage not only low-cost producers — such as Glencore,

Anglo American and BHP Billiton’s Cerrejon mine, which average

US$35.40 a tonne cost of production — but also mid-level cost

producers such as Drummond and Itocho Corporation’s La Loma and El

Descano mines (average US$47 a tonne cost of production).

Australia’s exploration, production and trade

Coal exploration up marginally, year-on-year

Australia’s exploration expenditure increased by $500,000 year–on–year

in March quarter 2017, to $23.9 million. However, exploration

expenditure declined by 28 per cent from the previous quarter.

Australia’s production projected to increase

In 2016–17, production is estimated to be similar to 2015–16, at 250

million tonnes. Stable production was supported by higher average

thermal coal contract and spot prices.

World exports

Indonesia’s exports lift on the back of higher thermal coal prices

Indonesia’s thermal coal exports increased by 11 per cent year-on-year

in the first quarter of 2017. Exports were buoyed by sustained increased

thermal coal import demand in China, and by the ramp up in Indonesian

production towards the end of 2016 — incentivised by the higher prices.

Over 2017, Indonesia’s thermal coal exports are forecast to be steady at

380 million tonnes — as thermal coal prices steadily decline, but trade at

more profitable levels compared to price lows seen in early 2016. There

is, however, potential for some small-sized producers to ramp up

production, after incurring production losses due to a prolonged wet

season earlier in the year. A ramp-up in production could see average

4700kCal prices drop, due to oversupply. Industry officials in Indonesia

are cautioning producers to show restraint when considering boosting

production.

Indonesia’s thermal coal exports are forecast to decline by 1.3 per cent

to 375 million tonnes in 2018, and fall to 373 million tonnes in 2019. The

decline in exports is likely to be supported by falling thermal coal prices

(more pronounced for lower calorific value coal, the mainstay of

Indonesian production) — discouraging high cost producers.

0

50

100

150

200

250

300

350

400

Indonesia Australia Russia Colombia South Africa

Million tonnes

2016 2019f


Figure 6.6: Australia’s coal exploration expenditure

Figure 6.7: Australia’s thermal coal export volumes and values



In 2017–18, production is forecast to increase marginally, to 251 million

tonnes, driven by relatively firm thermal coal prices, but constrained by

forecast lower import demand from traditional consumers such as South

Korea.

Ramp-ups in production are expected at some large mines, including at

the Hunter Valley Operations, Narrabri and Moolarben. In 2018–19,

production is forecast to be stable at 251 million tonnes. Output is

expected to be supported by ramp-ups in production at Mangoola (up to

8.3 million tonnes a year capacity) and Ravensworth (up to 9.3 million

tonnes a year capacity), but is likely to be constrained again by lower

import demand from South Korea.

Australia’s export earnings estimated to rise in 2016 –17 and 2017–18

Export volumes in 2016–17 are estimated to have risen by 0.5 per cent

year-on-year to 202.4 million tonnes. The increase in export volumes

was powered by strong import demand from China, notably in the first

half of the financial year. Export earnings are estimated to have risen by

28 per cent year-on-year to $19.2 billion, driven by higher spot prices.

In 2017–18, export volumes are forecast to decline by 0.7 per cent to

201 million tonnes. Lower import demand from South Korea is the

reason for the slight downward revision in exports from the March 2017

Resources and Energy Quarterly. In 2017–18, export values are forecast

to stay similar to 2016–17 levels, as thermal coal contract prices and

average annual spot prices increase from 2016–17 levels, but volumes

decline. A large volume of Australia’s thermal coal exports are sold on a

contractual basis, therefore the higher negotiated price in JFY 2017 (36

per cent higher than JFY 2016) is likely to bode well for exporters in

2017–18. However, some of these gains are expected to be outweighed

by the impact of lower export volumes and spot prices.


199 million tonnes, as Chinese, Indian and South Korean thermal coal

import demand remains relatively subdued. Export values for 2018–19

are also forecast to decline by 11 per cent to $17 billion, in line with

lower volumes and lower spot and contract prices.

0

20

40

60

80

100

120

140

0

50

100

150

200

250

Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

US

$ a

tonne

Million d

ollars

Exploration (A$m) JFY contract (rhs) Newcastle spot (rhs)

0

5

10

15

20

25

0

50

100

150

200

250

2002–03 2005–06 2008–09 2011–12 2014–15 2017–18 f

2016–17 A

$ b

illion

Million tonnes

Volume Value (rhs)




Contract prices b

– nominal US$/t 62 84 72 70 36.4 -14.3 -2.8

– real c US$/t 63 84 70 67 33.4 -16.3 -5.0

Spot prices d

– nominal US$/t 65 77 70 69 17.4 -8.2 -2.1

– real e US$/t 67 77 69 66 14.8 -10.3 -4.3

Coal trade Mt 1,036 1,012 990 986 -2.4 -2.1 -0.4

Imports

– Asia Mt 727 718 717 729 -1.3 0.0 1.6

– China Mt 180 172 158 157 -4.2 -8.0 -0.8

– Chinese Taipei Mt 56 57 59 60 2.5 2.5 2.5

– India Mt 166 161 158 157 -3.0 -1.5 -1.0

– Japan Mt 138 140 141 142 1.3 1.0 0.5

– South Korea Mt 98 96 92 91 -1.8 -4.2 -1.1

– Europe Mt 213 198 184 172 -7.0 -7.0 -7.0

– European Union 27 Mt 167 156 145 135 -7.0 -7.0 -7.0

– other Europe Mt 46 43 40 37 -7.0 -7.0 -7.0

Exports

– Australia Mt 202 199 200 201 -1.6 0.6 0.6

– Colombia Mt 89 92 94 97 3.9 2.2 2.7

– Indonesia Mt 379 380 375 373 0.2 -1.3 -0.5

– Russia Mt 148 151 153 155 2.0 1.3 1.3

– South Africa Mt 74 76 77 78 2.9 1.3 1.3

– United States Mt 17 20 18 16 14.4 -10.0 -11.1

Australia Unit 2015─2016 2016─2017 s 2017─2018 f 2018─2019 f 2016─2017 f 2017─2018 f 2018─2019 f

Production Mt 250.8 250.0 251.3 251.4 -0.3 0.5 0.0

Export volume Mt 201.3 202.4 201.0 199.0 0.5 -0.7 -1.0

– nominal value A$m 14,751 19,150 19,514 17,760 29.8 1.9 -9.0

– real value h A$m 15,009 19,150 19,103 17,011 27.6 -0.2 -10.9

Notes: b Japanese Fiscal Year (JFY), starting April 1, fob Australia basis. Australia–Japan average contract price assessment for steaming coal with a calorific value of 6700 kcal/kg gross air

dried; c In current JFY US dollars; d fob Newcastle 6000Kcal; e In 2017 calendar year US dollars; s Estimate; f Forecast

Source: ABS (2017) International Trade, cat.no 5465.0; IHS Inc (2017); IEA (2017) Coal Information 2017; Coal Services Pty Ltd; Queensland Department of Natural Resources and Mines

(2017); Department of Industry, Innovation and Science (2017); Company Reports

Table 6.1: Thermal coal outlook


Figure 7.1: Recent movement in export unit values

Figure 7.2: Export unit value and JCC oil price forecasts

Notes: JCC price is lagged three months. Spot price index covers Japan, China, South

Korea and Taiwan and is for delivery in 4–6 weeks.

Source: ABS (2017); Argus Media (2017); Bloomberg (2017)

Source: ABS (2017); Argus Media (2017); Bloomberg (2017)

Market summary

The value of Australia’s LNG exports is forecast to increase from an

estimated $23 billion in 2016–17 to $37 billion in 2018–19. Growth in

export earnings will be supported by higher export volumes and, to a

lesser extent, higher prices. LNG is forecast to overtake metallurgical

coal as Australia’s second largest resource and energy export in 2018–

19.

Estimated export earnings in 2016–17 are $1 billion lower than forecast

in the March Resources and Energy Quarterly, with export volumes

having been curtailed by several unplanned outages at LNG plants

during the first half of 2017. Downward revisions to export earnings in

2017–18 (totalling $4.0 billion) and 2018–19 (totalling $1.6 billion) reflect

a more subdued outlook for both oil prices (to which LNG prices are

directly linked) and export volumes.

Prices

Oil price movements drive Australian LNG prices

The average price of Australian LNG (FOB) reached a one-year high of

$8.70 a gigajoule (GJ) in April — around US$6.90 per million British

thermal units (MMbtu). The increase was supported by the oil price rally

in early 2017. The majority of Australian LNG is sold on long-term

contracts linked to the price of Japan Customs-cleared Crude (JCC) oil

by a time lag of three months.

The average price of Australian LNG (FOB) is forecast to increase to

$9.30 a GJ in 2017–18 (US$7.30 per MMbtu), before steadying in 2018–

19, largely driven by movements in oil-linked contract prices.

However, low spot prices will play some role in constraining the average

export price achieved, particularly in 2018–19, as Australian exporters

increase their share of sales at spot prices. Asian spot prices (Delivered

Ex Ship) are forecast to bottom out at around $6.10 a GJ in 2019

(around US$4.70 per MMbtu), as additions to global supply capacity

outstrip growth in LNG demand.

0

20

40

60

80

100

120

0

2

4

6

8

10

12

Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

US

$ a

barr

el

A$ a

gig

ajo

ule

Export unit values Asian spot price Lagged JCC price (rhs)

0

25

50

75

100

125

150

0

3

6

9

12

15

18

Jun-09 Jun-11 Jun-13 Jun-15 Jun-17 Jun-19

2016–17 U

S$ a

barr

el

2016–17 A

$ a

gig

ajo

ule

Export unit values JCC oil price


Figure 7.3: Global liquefaction capacity and LNG demand

Figure 7.4: LNG import forecasts

Source: Nexant World Gas Model (2017); Department of Industry, Innovation and Science

(2017)


(2017)

World trade

World LNG trade is forecast to increase at an average annual rate of 7.4

per cent a year, to reach 320 million tonnes in 2019. Emerging Asia —

led by China — and Europe are expected to drive demand growth.

Prospects for growth in the imports of the world’s two largest consumers

— Japan and South Korea — are more limited.

While LNG demand is forecast to grow rapidly over the next few years, it

is expected to be outpaced by growth in supply capacity. Consequently,

the average capacity utilisation of LNG plants is expected to fall.

World imports

The imports of the world’s largest LNG buyer are set to decline

Japan’s LNG imports increased by 5 per cent year-on-year in the first

four months of 2017, with gas consumption supported by a cold winter

across North East Asia. However, the increase in LNG imports is

expected to be temporary, with Japan’s LNG imports forecast to fall from

83 million tonnes in 2016 to 78 million tonnes in 2019.

The recent restart of nuclear power generation capacity — which

competes with gas-fired power — is expected to weigh on LNG imports

from mid-2017. Japanese utility Kansai Electric Power reactivated its

Takahama No.3 and No.4 reactors in the June quarter (combined

capacity 1.7 gigawatts), after a local court injunction was overturned by

the High Court in Osaka. Five of Japan’s fleet of 42 reactors are now

operational, increasing total nuclear capacity from 2.7 gigawatts to 4.4

gigawatts.

Further reactor restarts are possible within the outlook period. Four more

reactors — with capacity totalling 4.7 gigawatts — have received

approval from Japan’s Nuclear Regulation Authority to restart. However,

the timing and scale of nuclear restarts remains a key uncertainty

affecting the outlook.

75

80

85

90

95

100

0

100

200

300

400

500

2012 2013 2014 2015 2016 2017 2018 2019

Per

cent

Million tonnes

Global capacity World demand Capacity utilisation (rhs)

0

20

40

60

80

100

Japan SouthKorea

China EmergingAsia (exChina)

Europe Rest ofworld

Million tonnes

2016 (estimate) 2019


Figure 7.5: Japan’s LNG imports

Figure 7.6: South Korea’s LNG imports


(2017)


(2017)

Recent announcements in South Korea could support LNG imports

South Korea’s LNG imports are forecast to be broadly unchanged over

the outlook period — a small upward revision to the March Resources

and Energy Quarterly forecast. The new South Korean President, Moon

Jae-In, has announced several measures that could provide some

support to LNG imports over the next few years.

LNG competes with both nuclear and coal in electricity generation in

South Korea. From 2018, operations at six old coal-fired power stations

will be suspended between March and June each year, to address

worsening air pollution. In addition, two old coal-fired power stations will

begin the process of shutting down operations from July 2017, and will

close by the end of the year. A further eight coal-fired power closures

are expected before mid-2022 (brought forward from 2025), although it

is not yet clear when these shutdowns will occur. The South Korean

government has also signalled that increases in the consumption tax on

coal are likely.

The president has also pledged to close down the aged Wolsong 1

nuclear reactor, to address public concerns about nuclear safety,

although a timeline for this has not been specified. The reactor accounts

for 2.8 per cent (0.7 gigawatts) of South Korea’s nuclear capacity. If gas-

fired generation replaces reduced coal-fired and nuclear power capacity,

increased LNG imports will be required.

Emerging Asia, led by China, to drive growth in LNG demand

China’s LNG imports increased by 39 per cent year-on-year in the first

four months of 2017. Gas consumption and domestic production rose,

while pipeline imports contracted.

China’s LNG imports are forecast to increase from 27 million tonnes in

2016 to 45 million tonnes in 2019 — an average annual rise of 19 per

cent. China has agreed to large contracts for LNG imports, which will

start over the next few years, in order to meet rising gas demand. The

Chinese government is aiming to increase the share of gas in the energy

mix from 5 per cent in 2014 to 10 per cent by 2020.

The extent to which China relies on LNG to meet its growing gas needs,

however, will depend on whether domestic gas production targets can

be achieved, and on LNG’s competiveness vis-à-vis pipeline gas

imports.

0

20

40

60

80

100

2009 2011 2013 2015 2017 2019

Million tonnes

Australia North America South East Asia Middle East Other

0

5

10

15

20

25

30

35

40

2009 2011 2013 2015 2017 2019M

illion tonnes



Figure 7.7: China’s LNG imports

Figure 7.8: Global LNG supply capacity


(2017)

Notes: Liquefaction capacity is nameplate capacity less allowance for downtime and

maintenance.


(2017)

Other Emerging Asian economies are also expected to make a large

contribution to growth in global LNG imports. Growth will be underpinned

by low spot prices and the availability of floating storage and

regasification unit (FSRU) technology, which allows small volumes of

LNG to be received more cheaply. Pakistan, for example, will

commission its second FSRU in late 2017, and a further two FSRUs by

2019.

Europe’s LNG imports are expected to increase

European LNG imports are forecast to increase from 38 million tonnes in

2016 to 69 million tonnes in 2019. Rising gas consumption, falling

indigenous production (particularly in the Netherlands), and a desire to

diversify away from Russian pipeline supply are all expected to support

LNG imports. However, if LNG demand in Europe does not grow as

strongly as projected, Qatari and US LNG may be displaced, potentially

then bringing increased competition to the Asia-Pacific.

World supply

Global supply capacity to rise

The next few years are expected to see a major expansion in global

supply capacity. Global liquefaction capacity is forecast to increase from

285 million tonnes in 2016 to 382 million tonnes in 2019.

The United States will make the largest contribution to new capacity

Around half of all new capacity will come from the United States. By

2019, all five LNG projects currently under construction in the United

States are expected to have commenced operations, bringing nameplate

capacity to around 64 million tonnes. However, US exports are only

forecast to rise to around 37 million tonnes in 2019, with all of these

projects scheduled for completion late in the outlook period.

The cost competitiveness of US LNG exporters will largely be

determined by the price for which they can purchase domestic gas for

export. The US Energy Information Administration forecasts the Henry

Hub spot price — the reference price for US domestic gas — to rise

from an average US$2.50 per MMbtu in 2016 (A$3.20 a GJ) to US$3.40

per MMbtu in 2018 (A$4.30 a GJ) because of growing domestic

consumption and new export capabilities.

0

10

20

30

40

50

2009 2011 2013 2015 2017 2019

Million tonnes


0

20

40

60

80

100

Australia NorthAmerica

MiddleEast

Africa South EastAsia

Rest of theworld

Million tonnes

Existing capacity 2016 Additional capacity by 2019


Figure 7.9: Value of Australian LNG exports

Figure 7.10: Annual growth in Australia’s LNG export values,

contributions from prices and export volumes

Notes: Office of the Chief Economist estimates for historical export values by country

based on Argus Media data.

Source: Argus Media (2017); Department of Industry, Innovation and Science (2017)

Notes: Log change is used to approximate percentage change. The approximation

becomes less accurate the larger the percentage change.

Source: ABS (2017); Department of Industry, Innovation and Science (2017)

Qatar’s exports are forecast to remain largely unchanged

Qatar is the world’s largest LNG exporter. In 2016, Qatar exported an

estimated 77 million tonnes of LNG — the equal highest level since

2011. Qatar’s LNG projects have the lowest short-run marginal

production costs in the world, and Qatar’s exports are forecast to be

broadly stable over the outlook period at 74 million tonnes.

To date, Qatar’s LNG exports have been largely unaffected by recent

tensions with its Middle Eastern neighbours. However, Qatar now

reportedly faces higher shipping costs, as a result of the closure of the

Port of Fujairah in the United Arab Emirates to Qatari LNG tankers — a

key refuelling stop for vessels transiting through the Persian Gulf.

Qatar’s decision in April to lift the moratorium on new gas development

at its North Field, and potentially expand the capacity of its LNG trains, is

not expected to affect its LNG exports within the two-year outlook period.

Australia

LNG export earnings to increase, driven by higher export volumes

The value of Australia’s LNG exports is forecast to increase from an

estimated $23 billion in 2016–17 to $37 billion in 2018–19 — an average

annual increase of 28 per cent. Rising export values will be underpinned

by higher export volumes and, to a lesser extent, higher prices.

Australia’s LNG export volumes are forecast to reach 74 million tonnes

in 2018–19, up from an estimated 51 million tonnes in 2016–17. Higher

export volumes will be underpinned by the ramp-up of production at

Gorgon, as well as the completion of the three remaining LNG projects

under construction — Wheatstone, Icthys and Prelude. These three

projects will add around 21 million tonnes to Australia’s LNG export

capacity, bringing total nameplate capacity to around 88 million tonnes.

The average price of Australian LNG (FOB) is forecast to increase by 12

per cent in 2017–18, before stabilising in 2018–19.

The forecast for export values has been revised down

Estimated export values for 2016–17 are around A$1 billion lower than

forecast in the March Resources and Energy Quarterly because of lower

than expected exports over the first half of 2017. Production at

Woodside’s North West Shelf and Pluto projects were affected by

0

2

4

6

8

10

Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19

2016–17 A

$ b

illion

Japan Korea China Other

-60

-40

-20

0

20

40

60

2008–09 2010–11 2012–13 2014–15 2016–17 2018–19P

er

cent

Volumes Prices Values


Figure 7.11: Australia’s LNG exports and capacity utilisation

Notes: Utilisation shown as a share of nameplate capacity. Office of the Chief Economist

estimates are used when LNG trains are ramping up to full capacity.

Source: ABS (2017); Department of Industry, Innovation and Science (2017)

Note: nameplate capacity.


adverse weather conditions in the March quarter. Operations were also

suspended at the North West Shelf between 15 and 28 April, following

an electrical fault. Train 1 at the Gorgon project was stopped in the

second half of May, due to the failure of a flow measurement device.

Downward revisions to export values in 2017–18 and 2018–19 (totalling

A$5.6 billion) reflect a more subdued outlook for oil prices, and a slower

ramp-up in exports than forecast in the March Resources and Energy

Quarterly. LNG production at Inpex’s Icthys project — which was

originally scheduled to begin in late 2017 — has been delayed until

March 2018. More minor revisions have been made to the forecasts for

a number of other LNG projects.

A number of uncertainties remain

Oil prices remain a key sensitivity to the outlook for LNG export

earnings. If the JCC oil price forecast was reduced by US$5 a barrel,

projected LNG export earnings would be $2.7 billion lower in 2018–19 at

$34.3 billion.

Some uncertainty also surrounds the outlook for export volumes.

Competition in global LNG markets is set to intensify over the next few

years, and the average capacity utilisation of Australian LNG plants is

expected to edge down.

The extent of the decline will depend on the cost competitiveness of

Australian LNG projects and the amount of flexibility in Australian LNG

contracts. LNG contracts often include clauses which allow buyers to

reduce purchases to minimum ‘take-or-pay’ levels. It is possible buyers

may utilise these provisions if oil-linked contract prices remain higher

than spot prices, or if they become over-contracted for LNG.

The Australian Domestic Gas Security Mechanism (ADGSM) has the

potential to affect future LNG exports. The ADGSM will allow the

Australian Government to restrict LNG exports if a gas supply shortfall is

projected in the domestic market. LNG exporters that are net

contributors to the domestic market will not be affected, but those that

are not net contributions may have their exports capped.

On current projections, Australia will overtake Qatar as the world’s

largest LNG exporter in 2019, when Australian LNG exports reach 76

million tonnes. However, this is not a certainty: the difference between

the projected exports of the two countries is narrow, and downside risks

to the outlook for the Australian LNG exports remain.

Figure 7.12: Australian LNG export capacity

60

70

80

90

100

0

20

40

60

80

2009–10 2012–13 2015–16 2018–19

Per

cent

Million tonnes

Export volumes Capacity utilisation (rhs)

0

20

40

60

80

100

2008–09 2010–11 2012–13 2014–15 2016–17 2018–19M

illion tonnes

Existing New capacity additions




JCC oil price a

– nominal US$/bbl 41.9 53.7 57.6 61.1 28.3 7.3 6.0

– real h US$/bbl 42.8 53.7 56.3 58.3 25.4 4.8 3.6

Gas production t Bcm 3 608.9 3 650.0 3 737.3 3 780.6 1.1 2.4 1.2

Gas consumption t Bcm 3 607.8 3 650.8 3 740.2 3 784.7 1.2 2.4 1.2

LNG trade d Mt 258.0 278.8 297.9 319.9 8.0 6.9 7.4

Notes: a JCC stands for Japan Customs-cleared Crude b Production includes both sales gas and gas used in the production process (i.e. plant use) as well as ethane. Historical gas production

data was revised in the June quarter 2017 to align with Australian Petroleum Statistics published by the Department of Environment and Energy. c Gas production from Bayu-Undan Joint

Production Development Area is not included in Australian production. Browse basin production associated with the Ichthys project is classified as Northern market. d 1 million tonnes of LNG is

equivalent to approximately 1.36 billion cubic metres of gas. e In 2016–17 Australian dollars. f forecast. g 1 MMBtu is equivalent to 1.055 GJ. h In 2017 US dollars. s estimate. t estimate for

2016.

Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; Department of Industry, Innovation and Science (2017); Company reports; Nexant World Gas Model

(2017).

Table 7.1 Gas outlook

Australia



Production b Bcm 88.2 104.6 126.0 139.5 18.7 20.4 10.7

– Eastern market Bcm 43.4 54.2 57.1 55.1 24.9 5.3 -3.4

– Western market Bcm 43.8 49.1 67.0 74.0 11.9 36.4 10.5

– Northern market c Bcm 0.9 1.4 2.0 10.4 47.1 46.3 423.2

LNG export volume d Mt 36.9 51.5 63.8 73.8 39.7 23.9 15.7

– nominal value A$m 16,576 22,693 32,017 38,675 36.9 41.1 20.8

– real value A$m 16,866 22,693 31,343 37,046 34.6 38.1 18.2

LNG export unit value g

– nominal value A$/GJ 8.5 8.3 9.5 9.9 -2.0 13.9 4.4

– real value e A$/GJ 8.7 8.3 9.3 9.5 -3.7 11.5 2.2

– nominal value US$/MMBtu 6.6 6.6 7.4 7.9 0.8 12.5 5.8

– real value e US$/MMBtu 6.7 6.6 7.3 7.5 -1.0 10.2 3.5


Figure 8.1 Recent movement in oil prices

Figure 8.2 Annual oil prices

Source: Bloomberg (2017), Brent and West Texas Intermediate spot prices

Source: Bloomberg (2017), Brent and West Texas Intermediate spot prices; Department

of Industry, Innovation and Science (2017)

Market summary

Some unusual production dynamics appeared in the global oil market

during the first half of 2017. The OPEC output agreement — aimed at

rebalancing the global oil market — was largely adhered to, while US oil

output rose. The OPEC output agreement has recently been extended

beyond 2017, in response to persist high global stocks levels.

The value of Australia’s crude oil and condensate exports is forecast to

rise to $6.0 billion in 2017–18 and to $8.1 billion in 2018–19. Forecast

earnings have been revised down by $2.2 billion in 2017–18 and $0.7

billion in 2018–19 from the March Resources and Energy Quarterly due

to project delays and a more subdued outlook for oil prices.

Prices

In the first six months of 2017, Brent crude oil spot prices averaged

US$53 a barrel, while West Texas Intermediate (WTI) spot prices

averaged US$50 a barrel. These average prices were around 40 per

cent higher than in the corresponding period last year, when the market

was characterised by excess global supply.

Despite price gains in the first four months of 2017, rising US oil output

and speculation around persistent global over-supply prompted a drop in

prices at the start of the June quarter, bringing Brent spot prices under

US$50 a barrel for the first time since November 2016. A slow

drawdown of global stocks has had a dampening effect on prices —

OECD stocks were 292 million barrels above the five-year average in

April.

Oil price forecasts for 2017 have been revised down to US$54 a barrel

for Brent and US$52 a barrel for WTI, as expectations about US

production continue to rise. These forecasts are contingent on OPEC

agreement production restrictions being adhered to in the second half of

the year.

Continued OPEC pact to support modest price growth

In the coming quarters, as the market tightens — with global supply

coming down below global demand — stock levels are expected to go

down, particularly as seasonal refinery activity picks up. Average spot

prices for Brent crude are forecast to be US$58 a barrel in 2018 and

US$61 a barrel in 2019. WTI crude is forecast to average US$55 a

barrel in 2018 and US$57 a barrel in 2019.

0

20

40

60

80

100

120

140

2009 2011 2013 2015 2017 20192017 U

S$ a

barr

el

Brent West Texas Intermediate

0

10

20

30

40

50

60

70

Sep-2016 Dec-2016 Mar-2017 Jun-2017

US

$ a

barr

el

Brent West Texas Intermediate

OPEC production

target increased

OPEC Agreement signed Agreement extended to

March 2018


Figure 8.3 Annual growth in world oil consumption

Figure 8.4 OECD Industry Petroleum Stocks

Source: International Energy Agency Monthly Oil Data Service (2017); Department of


Source: International Energy Agency Monthly Oil Data Service (2017); Department of


World oil consumption

Oil consumption in the first half of 2017 was lower than expected in a

number of countries, including in the major consuming countries of

China, India and the US. Global consumption is expected to recover

over the remainder of the year, to average 97.8 million barrels a day —

an annual increase of 1.3 per cent in 2017. This rate of consumption

growth will be the lowest since 2011, as a number of advanced

economies — including the US and Japan — exhibit stagnant or falling

consumption. Non-OECD consumption growth, which is forecast to

average 2.8 per cent in 2018 and 2019, is expected to outweigh the

impact of slowing consumption growth in OECD countries.

Strong consumption growth in China and India

China’s consumption of crude oil is forecast to increase at an average

annual rate of 2.7 per cent over the outlook period, driven by firm

economic activity and an expanding petrochemical sector. Tightening

controls on pollution may have a dampening effect on consumption

growth in the longer term.

Oil consumption in India is expected to increase substantially over the

outlook period, albeit from a low base. The impacts of India’s

demonetisation of high value currency notes in late 2016 lowered

consumption growth in early 2017, which — at an average rate of 4.3

million barrels a day — was almost 2 per cent lower than in the same

period last year. There is significant capacity to increase vehicle

ownership per capita, and consumption growth is forecast to be around

6 per cent in 2018 and 2019.

World oil production

World oil production for the first five months of the year expanded by 0.2

per cent on an annual basis, as some of the world’s largest producers

changed their production strategy. Over this period, output from OPEC

was down by 0.3 per cent, or 133,000 barrels a day, as strong

compliance continued under the 2017 OPEC Production Agreement.

Production from Brazil and Canada also showed strong annual growth,

production for the first five months of the year was 12 per cent and 7.7

per cent higher than the same period in 2016.

-1

1

2

3

2014 2015 2016 2017 2018 2019

Million b

arr

els

a d

ay

Non-OECD OECD Total

2017

2.3

2.5

2.7

2.9

3.1

Mar Jun Sep DecM

illion b

arr

els

Range 2012-2016 Average 2012-2016 2015 2016


Figure 8.5 OPEC production and 2017 Production Agreement

Figure 8.6 Production of select countries under 2017 Agreement

Source: International Energy Agency Oil Market Report (June 2017); Department of


Source: International Energy Agency Oil Market Report (June 2017); Department of


World production is forecast to increase marginally in 2017, averaging

97.2 million barrels a day, as lower OPEC production is expected to be

outweighed by higher US production and new projects in Canada and

Brazil.

The OPEC agreement is set to expire at the end of the March quarter

2018, and higher output is expected in the second half of 2018 and in

2019. World production is forecast to increase to 99.7 million barrels a

day in 2018, and to 101.1 million barrels a day in 2019.

Risks to the extended OPEC agreement

In November 2016, a historic agreement was made between OPEC and

eleven other countries to reduce 2017 production, by 1.8 million barrels

a day. This agreement aimed to reduce global oil supply and bring the oil

market into balance. In May 2017, OPEC extended the output reduction

agreement until March 2018, to increase the rate of stock level

drawdown over the next 10 months.

The strong compliance record to date — led by Saudi Arabia reducing

output by more than the committed amount — provides some indication

that compliance will continue. However, extending the timeframe of the

agreement may make long-term commitment more difficult.

Other factors made lower production targets easier to comply with in the

first half of the year, including seasonal production changes and planned

maintenance. Despite regional diplomatic tensions, Qatar has expressed

its intention to continue compliance with the OPEC agreement.

Increased production from OPEC countries excluded from the

agreement — Iran, Libya and Nigeria — pose an upside risk to the

supply outlook. Iran’s production in the first five months of the year was

13 per cent higher than in 2016, at 4.5 million barrels a day. This partly

reflects the lifting of sanctions just over a year ago.

If agreeing OPEC countries continue with production restrictions, 2017

OPEC crude oil and liquid production is expected to be 38.8 million

barrels a day, increasing to 39.7 million barrels a day in 2018. Looking

towards the end of the outlook period, it is unclear how OPEC will

transition away from the production restrictions, and whether full

production will return to the market in a staged or uncontrolled manner.

28

29

30

31

32

33

34

Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17

Million b

arr

els

a d

ay

OPEC production OPEC 2017 production target

0

2

4

6

8

10

12

Russia Saudi Arabia Iraq Kuwait United ArabEmirates

Million b

arr

els

per

day

Average production Jan - May 2017 Target


Figure 8.7 US shale oil production and rig count

Source: International Energy Agency Oil Market Report (June 2017); Department of Industry, Innovation and Science (2017)

Source: US Energy Information Administration (2017), Drilling Productivity Report

Figure 8.8 Annual change in OPEC and US petroleum production

Higher US production lowers prices and negates OPEC agreement

Booming US oil output — both shale and conventional oil — has been

the biggest surprise in the oil market in 2017. US oil production in the

first five months of the year was 1 per cent higher than in the same

period last year. US exports have also lifted; in February, for the first

time, the US was the largest exporter to China.

Forecasts for US production have been continually revised up, as the

US rig count — an indicator of output potential — has increased on a

weekly basis, and is now at its highest point in more than two years. US

production is forecast to expand by 4.8 per cent in 2017 and 7.7 per cent

in 2018. Significant decreases in well-head production costs, as well as

technology and efficiency improvements, have allowed average shale

basin operating costs to drop to $40-50 a barrel.

0

200

400

600

800

1,000

1,200

1,400

0

1

2

3

4

5

6

7

May-09 May-11 May-13 May-15 May-17

Num

ber

of ri

gs

Million b

arr

els

a d

ay

Production Rig count (right axis)

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Thousand b

arr

els

per

day

OPEC United States


Figure 8.9 Australia’s petroleum production

Figure 8.10 Condensate capacity of development LNG projects

Source: Australian Petroleum Statistics (2017); Department of Industry, Innovation and

Science (2017)

Source: Department of Industry, Innovation and Science (2017), Company Reports

Australian production and trade

Australia’s crude and condensate production dropped in the first four

months of 2017, averaging 343,000 barrels a day — 12 per cent lower

than the same period in 2016. Severe weather-related shut-downs

contributed to lower production from the North West Shelf and Pluto

production fields, while industrial action resulted in lower Gippsland

Basin production.

In line with lower quarterly production, exports in the first four months of

the year averaged 188,000 barrels a day — 17 per cent lower than the

same period last year. Higher oil prices facilitated an 11 per cent annual

increase in export earnings for the first four months of the year, reaching

$1.6 billion.

Due to sharp decreases in production at the start of 2017, the annual

production forecast for 2016–17 has been revised down. For 2016–17,

production is forecast to decrease by 10 per cent to average 287,000

barrels a day.

Production growth expected from new LNG projects

Over the outlook period, higher condensate production is expected to

drive production increases. Condensate can occur in natural gas

reserves and be simultaneously extracted. Total crude and condensate

production is expected to increase in 2017–18, to average 294,000

barrels a day. Production forecasts have been revised down, as LNG

development projects timelines have changed— including for the Icthys

project, with condensate production capacity of 100,000 barrels day.

As the Prelude and Icthys projects commence in 2018, 2018–19

production is forecast to average 374,000 barrels a day. As production

reaches capacity levels in these projects, their output is expected to

account for more than 40 per cent of total condensate production.

0

100

200

300

400

500

600

700

2002–03 2005–06 2008–09 2011–12 2014–15 2017–18

Thousand b

arr

els

a d

ay

Crude oil Condensate LPG

2016-17 average

scheduled 2018

scheduled 2018 scheduled

2017

0

50

100

150

200

250

300

Currentproduction

Icthys Prelude Gorgon LNG Wheatstone

Thousand b

arr

els

a d

ay

operating

2017


Figure 8:11 Australia’s exports of crude oil and condensate

Figure 8:12 Australia’s production and imports of refined products



Source: Department of Environment and Energy (2017) Australian Petroleum Statistics,

Table 2, Department of Industry, Innovation and Science (2017)

Higher export earnings supported by positive price outlook

Australia’s exports of crude oil and condensate are estimated to have

decreased by almost 5 per cent in 2016–17, to an average rate of

228,000 barrels per day, due to production outages in the first half of

2017. Despite lower volumes, export earnings are estimated to have

increased in this period, driven by higher oil prices. On an annual basis,

2016–17 export earnings are forecast to increase by 1 per cent to $5.6

billion.

Export volumes are expected to increase over the outlook period,

reaching 229,000 and 292,000 barrels per day in 2017–18 and 2018–19,

respectively. In line with higher forecast production — and provided oil

prices strengthen as expected — substantially higher export earnings

are anticipated over the outlook period. 2017–18 export earnings are

forecast to increase by 7 per cent to $6.0 billion. In 2018–19, export

earnings are expected to increase substantially, reaching $8.1 billion.

Australia’s refinery activity

In the March quarter, Australia’s production of refined products

decreased for a third consecutive quarter. Despite higher refinery output

in April, annual production for 2016–17 is estimated to decrease by 5 per

cent, to average 424,000 barrels a day. Production is forecast to

decrease at a slower rate over the outlook period. Domestic refining

capacity faces significant challenges, including cost competition from

newer, larger facilities in Asia, particularly in China.

As a result of lower domestic production, a 5 per cent increase in refined

product imports is estimated to have occurred in 2016–17, with imports

reaching an average rate of 621,000 barrels a day. Provided domestic

production stays at current levels, imports of refined products are

forecast to increase slightly over the outlook period, in line with demand

growth.

0

3

6

9

12

15

0

100

200

300

400

500

2002–03 2005–06 2008–09 2011–12 2014–15 2017–18

A$ b

illion

Thousand b

arr

els

a d

ay

Volume Value (right axis)

0

100

200

300

400

500

600

700

800

2000–01 2004–05 2008–09 2012–13 2016–17T

housand b

arr

els

per

day

Refinery production Imports of refined products



World Unit 2016 2017 f 2018 f 2019 f 2017 2018 2019

Production a mb/d 97.0 97.2 99.7 101.1 0.2 2.6 1.4

Consumption a mb/d 96.6 97.8 99.3 100.6 1.3 1.5 1.3

WTI crude oil price

Nominal US$/bbl 43.2 51.9 56.2 59.6 20.0 8.2 6.2

Real b US$/bbl 44.2 51.9 54.8 56.9 17.3 5.7 3.8

Brent crude oil price

Nominal b US/$bbl 44.1 53.5 57.6 61.1 21.2 7.8 6.0

Real c US$/bbl 44.1 53.5 56.3 58.3 18.5 5.3 3.6

Table 8.1 Oil outlook


Australia Unit 2015–16 2016–17 s 2017–2018 f 2018–19 f 2016–17 2017–18 2018–19

Crude and condensate

Production a kb/d 317 287 294 374 –9.5 2.6 27.1

Export volume a kb/d 239 228 229 292 –4.7 0.3 27.8

Nominal value A$m 5,444 5,601 6,144 8,505 2.9 9.7 38.4

Real value g A$m 5,540 5,601 6,015 8,147 1.1 7.4 35.4

Imports a kb/d 342 342 341 324 0.0 –0.2 –5.0

LPG

Production ac kb/d 53 53 51 66 0.1 –3.5 28.7

Export volume a kb/d 34 38 35 45 11.0 –8.8 28.5

Refined products

Refinery production a kb/d 445 424 419 415 –4.6 –1.3 –1.1

Export volume ad kb/d 10 18 12 9 73.0 –32.6 –24.1

Imports a kb/d 593 621 611 643 4.8 –1.6 5.2

Consumption ae kb/d 950 966 965 982 1.7 –0.1 1.8

Notes: a Number of days in a year is assumed to be exactly 365; b In 2017 calendar year dollars; c Primary products sold as LPG; d Excludes LPG; e Domestic sales of marketable products;

f Forecast; g In 2016–17 financial year Australian dollars; s Estimate; z Projection. A barrel of oil equals 158.987 litres

Source: ABS (2017) International Trade Statistics Service, cat. no.5464.0 ; Energy Information Administration (2017); Department of Industry, Innovation and Science (2017)


Figure 9.1: Uranium prices, monthly

Figure 9.2: Outlook, quarterly uranium spot price

Source: Cameco Corporation (2017) Uranium Spot and Long Term Prices.

Source: Cameco Corporation (2017) Uranium Spot Price; Ux Consulting (2017) Uranium

Market Outlook.

Market summary

The global uranium market continues to experience low prices and

significant oversupply, although there are tentative signs of some

turnaround in conditions. Production cuts are likely to restrain an

inventory build over the next two years, while on the demand side,

significant new nuclear power generation capacity is being constructed

in China and India.

Australian export volumes are estimated to have edged up to 7,724

tonnes of U308 over 2016–17. However, rising production at the

Olympic Dam and Four Mile mines is forecast to support a rise in export

volumes to 8,450 tonnes by 2018–19. Export values are expected to fall

to $947 million in 2016–17, before recovering to $972 million in 2017–18

and $1 billion in 2018–19, as prices and production rise.

Prices

Uranium prices remain historically low

Uranium prices have been constrained by uncertainty and weak demand

for more than five years. Although the Fukushima nuclear reactor

meltdown in Japan has played a significant role in suppressing demand

in recent years, there are also longer-term factors at work. Gradual

improvements in reactor efficiency and technology are restraining global

uranium usage, to the potential detriment of suppliers.

Uranium prices averaged $US25.64 a pound over 2016, reaching a

historical low level of $US18 a pound last November. Spot prices remain

low and inventories substantial, as a result of a surge of selling. Uranium

markets have been destabilised as a range of generalist investment

funds have exited. Ongoing political difficulties have also curbed the

growth of the nuclear power industry in several countries.

In the first half of 2017 prices lifted and then stabilised at an average

level of around $US23 a tonne for four months, but lost ground again in

May 2017, falling to $US19.60 a pound.

0

20

40

60

80

100

120

140

160

2006 2008 2010 2012 2014 2016

US

$ a

pound

Spot Long term

0

20

40

60

80

100

120

140

1999 2002 2005 2008 2011 2014 2017

US

$ a

pound


Figure 9.3: World nuclear power generation

Figure 9.4: New nuclear capacity

Source: International Energy Agency (2017); World Nuclear Association (2017), DIIS

estimates

Source: World Nuclear Association (2017).

Prices are expected to rise moderately in the medium term. World

uranium extraction has declined, most notably in Kazakhstan, where

Kazatomprom — a major supplier — announced substantial production

cuts of around 5 million pounds in 2017. At the same time, new capacity

in Eastern Europe and Asia is coming online, more than offsetting cuts

and suspensions in Western Europe. The combined effect should see

prices lift gradually, from an average of around $US22.90 a pound in

2017, to $US25.20 a pound in 2018, and $US29.00 a pound in 2019.

Significant price growth is not expected in the short-term, as progress in

re-opening reactors remains slow in Japan, and global inventories have

held up better than expected.

Large uranium producers typically sell most of their output through long

term contracts, rather than on the spot market. The Ux Consulting long

term indicator contract price fell to an average $US39.00 a pound in

2016, and is estimated to average $US32.95 a pound in 2017. This price

is expected to largely follow trends in the spot market; long term

contracts typically vary across producers, however, due to differences in

contract lengths, volumes and terms, as well as to market conditions at

the time of signing. Australia’s average export returns are generally

much lower than the world indicator contract price.

World uranium consumption

Emerging Asia is still the primary driver of nuclear power growth, though

there are tentative signs of growth in Eastern Europe

In 2016, world uranium consumption increased by 1.1 per cent to 83,400

tonnes, with a further rise to 88,300 tonnes expected in 2017.

Solid aggregate growth masks divergent trends in individual countries. In

Japan, the pace of reactor restarts remains slow: Kansai Electric

Power’s Takahama No. 3 reactor re-commenced production in June

2017, meaning a total of five reactors (from 42) have returned to

operation. Three more reactors have received approval from Japan’s

Nuclear Regulation Authority, and thus are expected to come online by

the end of 2017. However, a large number of reactors will remain

dormant for the foreseeable future.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2000 2003 2006 2009 2012 2015 2018

Terr

aw

att

hours

OECD Non-OECD

0

10

20

30

40

50

60

70

China OtherAsia

EasternEurope

NorthAmerica

WesternEurope

Africa –Middle East

SouthAmerica

Gig

aw

att

s e

lectr

ic

Under Construction Planned


Figure 9.5: World uranium consumption (U3O8)

Figure 9.6: World uranium production (U3O8)

Source: International Energy Agency (2017); World Nuclear Association (2017).

Source: Nuclear Energy Agency (2016); Ux Consulting (2016) Uranium Market Outlook;

World Nuclear Association (2017).

Nuclear power generation in China continues to grow strongly. At the

end of April, China was operating 35 nuclear power plants, with another

21 under construction and a further 36 due to commence construction by

2020. Although reactor numbers are rising, greater efficiency in new

designs (such as the Evolutionary Power Reactor system in Guandong)

will constrain uranium consumption growth.

India has formalised previously vague proposals to expand its capacity,

publishing proposals for a further 10 new reactors with a combined

capacity (7000MW) that exceeds the entire capacity of the 22 reactors

currently in operation. The Indian Government is now aiming to derive a

quarter of India’s electricity generation from nuclear sources by 2050.

Although there is significant uncertainty in parts of the US energy

market, conditions for nuclear plants are relatively stable, and little direct

impact is expected following the Trump Administration’s announcement

in March of a rollback in the Clean Power Plan. The US still has 99

reactors in operation, and a further four (with a combined capacity of

around 4,500 megawatts) under development.

In April, the Polish state-owned energy group Polska Grupa

Energetyczna announced plans to build Poland’s first nuclear plant, with

“localisation and environmental studies” now underway in Pomerania.

In late April, the UK opened a fusion reactor, and officially achieved first

plasma. The reactor produces fusion by attaining a record-breaking

plasma temperature of 100 million degrees — seven times hotter than

the centre of the Sun. Reactor technology of this kind is highly efficient,

and wider adoption of it will reduce average uranium use per reactor.

The South Korean Government is shifting in the opposite direction, with

the election in May of a new President who has committed to closing

one reactor (Wolsong-1) and cancelling the construction of two other

reactors — which had been scheduled to open in 2021 and 2022. In

May, a referendum in Switzerland approved revisions to the Energy Act,

which bans the construction of new nuclear plants.

Globally, uranium requirements are forecast to edge down to 87,800

tonnes in 2018, as few new reactors are due to come online. Uranium

use is then expected to grow marginally in 2019, with global demand

reaching 88,100 tonnes. Higher demand in Asia is expected to offset

declines in Europe.

0

10

20

30

40

50

60

70

80

90

100

2000 2003 2006 2009 2012 2015 2018

Thousand tonnes0

5

10

15

20

25

30

Kazakhstan Africa Canada Other AustraliaT

housand tonnes

2005 2010 2015 2020


Figure 9.7: Uranium supply–demand balance (U3O8)

Figure 9.8: Australia’s uranium exploration

Source: International Atomic Energy Agency (IAEA); Ux Consulting (2017); World Nuclear

Association (2017).

Source: ABS (2017) Mineral and Petroleum Exploration, cat. no. 8412.0; Cameco

Corporation (2017) Uranium Spot Price.

World uranium production

Mine production is set to increase steadily

In 2017, world mine production is forecast to increase by 1.7 per cent to

74,000 tonnes, as output rises in Canada and Russia.

Production facilities in other parts of the world are curbing output, as low

prices make extraction unprofitable. Kazakh production, in particular, is

expected to decline significantly in 2017.

World uranium supply is increasingly being drawn from uranium

inventories held by nuclear utilities and secondary market supplies. Ux

Consulting has estimated that there are sufficient inventories held by

nuclear utilities to cover forward demand for around 5 years in Japan, 30

months in the United States and Europe, and around 7 years in China.

With inventories high, it is expected that uranium producers will focus on

cutting costs rather than increasing production. High-cost mines are

likely to scale back or cease production, and new projects will remain on

hold until price increases improve their commercial viability.

A gradual erosion of inventories and a slow recovery in prices should

see production edge back towards primary sources over the next year or

so , with mine production expected to lift by 3,900 tonnes to 77,900

tonnes by 2018. This will be underpinned by continued increases in

production at CGN/Swakop Uranium’s Husab mine in Namibia,

Peninsula Energy’s Lance mine in the United States, and the Cameco

Cigar Lake mine in Canada.

Australia’s exploration, production and exports

Australia’s uranium exploration expenditure continues to decline

Exploration for uranium continues to decline, with quarterly expenditure

falling from $6.3 million in the December quarter 2016 to $5.1 million in

the March quarter 2017. Exploration now sits well below the 2010 peak,

when spending over the year reached $190 million.

Western Australia announced a ban on uranium mining leases in June.

While four existing projects (Cameco’s Kintyre and Yeelirrie projects,

Vimy Resources’ Mulga Rock project and Toro Energy’s Wiluna project)

are exempt, future leases will not be issued, effectively terminating

exploration in Western Australia.

0

10

20

30

40

50

60

70

0

10

20

30

40

50

60

70

Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16

US

$ a

pound

A$ m

illio

n

Exploration expenditure Uranium price (rhs)

0

20

40

60

80

100

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Thousand tonnes

Consumption Primary Production


Figure 9.9: Australia’s uranium production

Figure 9.10: Australia’s uranium exports

Source: BHP Billiton (2017) Operational Review; Department of Industry, Innovation and

Science (2017); Energy Resources of Australia (2017) ASX Announcement – Operations

Review; Company media announcements (2017).

Source: Department of Industry, Innovation and Science (2017).

Australia’s production is set to increase from its low point in 2016

Australia’s uranium production is forecast to be roughly steady in

2016–17, at 7,724 tonnes. Stronger production at the BHP Olympic Dam

mine, and a ramp-up of production in Quasar Resources’ Four Mile

Mine, are expected to drive a lift in production to 8,073 tonnes in 2017–

18 and to 8,450 tonnes in 2018–19.

In late April, Vimy Resources announced that the Mulga Rock mine in

Western Australia is likely to have a larger metal deposit than earlier

modelling had suggested, which may expand the yield in future years.

However, growth from other sources is likely to be constrained by the

recently announced ban on further mining leases in Western Australia.

Australian producers may face tough conditions during 2017 and 2018,

as long-term supply contracts expire. It is likely that a greater share of

global demand will be met from the spot market in 2017, as buyers

capitalise on historically low prices.

Nuclear power growth in China to drive Australia’s uranium exports

It is estimated that Australia exported 7,724 tonnes of U308 in

2016–17. Australia does not use nuclear power, and robust demand in

regional markets is expected to draw all of Australia’s uranium

production into export markets over the outlook period.

Prices remained below production costs throughout 2016–17, creating

difficult conditions for producers. Export values are estimated to have

been roughly steady at around $947 million in 2016–17 (in real terms).

However, higher prices should encourage production to shift up slightly,

increasing export values to $972 million in 2017–18 and $1,003 million in

2018–19.

Although the outlook for exports remains tight in the short term, there is

still strong potential for demand growth in several key regions, including

North America, Western Europe, and China. There are also hopes of

opening up new markets in India — with Australian Prime Minister

Turnbull announcing an intention to resume uranium exports to India “as

soon as possible” during a state visit in April.

0

2

4

6

8

10

12

14

1999-00 2002-03 2005-06 2008-09 2011-12 2014-15 2017-18

Thousand tonnes

0

200

400

600

800

1,000

1,200

1,400

0

2

4

6

8

10

12

14

1999-00 2003-04 2007-08 2011-12 2015-16

2016-1

7 A

$ m

illio

n

Thousand tonnes

Volume Value (rhs)




Production kt 73.1 74.4 77.9 80.1 1.7 4.7 2.8

Africa b kt 9.5 11.4 13.1 14.9 20.1 14.7 13.9

Canada kt 15.9 16.2 16.7 16.7 2.1 2.8 0.0

Kazakhstan kt 28.1 26.7 27.4 27.4 -5.0 2.7 0.0

Russia kt 3.6 4.0 4.2 4.3 9.4 5.7 2.7

Consumption kt 83.4 88.3 87.8 88.1 5.9 -0.6 0.4

China kt 13.8 17.1 17.5 18.7 24.0 2.3 6.7

European Union 28 kt 22.2 22.4 24.3 22.2 1.0 8.7 -8.9

Japan kt 0.5 1.2 1.7 2.0 162.9 42.0 17.9

Russia kt 6.1 6.6 6.9 7.0 7.0 4.6 2.5

United States kt 23.0 22.5 22.1 22.5 -1.9 -1.9 1.6

Price

– nominal US$/lb 25.6 22.9 25.2 29.0 -10.8 10.0 15.2

Notes: b Includes Niger, Namibia, South Africa, Malawi and Zambia; c In 2017 US dollars; d in 2016-17 Australian dollars; f forecast.

Source: Australian Department of Industry, Innovation and Science (2017); Cameco Corporation (2017); Ux Consulting (2017) Uranium Market Outlook.

Table 9.1 Uranium outlook



Production t 7,717 7,724 8,073 8,450 0.1 4.5 4.7

Export volume t 7,889 7,724 8,073 8,450 -2.1 4.5 4.7

– nominal value A$m 963 947 993 1,047 -1.6 4.9 5.4

– real value d A$m 979 947 972 1,003 -3.3 2.7 3.2

Average price A$/kg 122.0 122.6 123.0 123.9 0.5 0.3 0.7

– real d A$/kg 124.2 122.6 120.4 118.7 -1.3 -1.8 -1.4


Figure 10.1: Gold prices and the US dollar

Figure 10.2: Gold prices and US Treasury Yields

Source: LBMA (2017) Gold Price PM; Thompson Reuters (2017) US dollar index

Notes: The US dollar index is a weighted average of the foreign exchange value of the

US dollar against the currencies of a broad group of major US trading partners

Source: LBMA (2017) Gold Price PM; Thompson Reuters (2017) US Treasury Income

Protected Securities 10 year yield

Market summary

The gold price is forecast to average US$1,254 a troy ounce in 2017 —

revised higher from the March Resources and Energy Quarterly, due to

larger than expected safe-haven demand and a weaker than expected

US dollar over much of 2017. Australian dollar gold prices have

continued to rise in 2017, favouring local producers. Australian

production was lower than expected in the March quarter, as heavy

rainfall interrupted several mine operations. However, forecasts for

export volumes remain mostly unchanged from the March 2017

Resources and Energy Quarterly, while export values have been revised

higher, due to higher than expected world gold prices. Australia’s

exports of gold are forecast to stay relatively unchanged at 334 tonnes in

2018–19, worth over $17 billion.

Prices

Gold prices rose steadily in first half of 2017

The London Bullion Market Association (LBMA) gold price increased by

9.1 per cent between January and June this year, to average US$1,238

a troy ounce. The rise in gold prices was supported by a weaker than

expected US dollar, low real US treasury yields, and geo-political

concerns.

Several events over the first half of 2017 have been supportive of gold

as a safe haven asset. US and Russian relations came under pressure

in late March, due to greater US involvement in the Syrian conflict. Gold

prices rallied in late March, reaching a year-to-date peak of $1,290 per

ounce in mid-April. Further uncertainty was caused by the French

Presidential election, as well as by heightened tensions on the Korean

peninsula.

Investor demand was flat in the June quarter, as political concerns were

offset by anticipation of tighter monetary policy by the US Federal

Reserve — which raised the target range for the Fed Funds rate by 25

basis points up to 1–1.25 per cent in June. US official interest rates are

expected to rise further this year, which will improve the yield on US

securities and tend to put downward pressure on gold prices. When real

yields rise, investors prefer to hold US Treasuries — which offer a higher

near default-free risk return— and the opportunity cost of holding gold

rises.

116

120

124

128

1321,000

1,100

1,200

1,300

1,400

Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Index

US

$ a

tro

y o

unce

Gold Price US dollar index (rhs inverted)

-30

0

30

60

901,000

1,100

1,200

1,300

1,400

Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Yie

ld

US

$ a

tro

y o

unce

Gold Price US TIPS 10 Year (rhs inverted)


Figure 10.3: Gold jewellery consumption in India and China

Source: Thompson Reuters (2017) quarterly jewellery consumption

Gold prices have been higher than forecast in the March Resources and

Energy Quarterly. The average gold price in 2017 has been revised

higher, to account for a weaker than expected US dollar and ongoing

political concerns; gold is forecast to average US$1,254 a troy ounce.

The gold price is forecast to decrease by 3.9 per cent in 2018 to average

US$1,205 per troy ounce, as higher real bond yields and a forecast

appreciation in the US dollar weigh on gold prices.

World consumption

Global gold consumption declined by 18 per cent year-on-year in the

March quarter, falling from a historically high March quarter 2016. The

decline was due to lower central bank purchases and investor demand.

World consumption is forecast to increase by 1.8 per cent in 2018, to

2,484 tonnes. The consumption figure is lower than forecast in the

March Resources and Energy Quarterly, due to data revisions.

Jewellery consumption improves in the March quarter

Gold jewellery consumption had a positive start to the year, and was up

by 1.6 per cent year-on-year in the March quarter. The modest rise was

led by India, where higher sales in the run up to the March wedding

season were boosted by favourable currency movements. India’s gold

industry continues to recover from the demonetisation of high-value

Indian currency notes and weak rural incomes, which led to historically

low gold sales in 2016.

Jewellery consumption — which accounts for 80 per cent of total

fabricated demand — is expected to increase over the outlook period.

However, gold sales in India will likely be restrained by the introduction

of a goods and services tax, that came into effect on 1 July. Continued

economic growth in India and China — the world’s two major jewellery

markets — will support higher discretionary spending on gold. Jewellery

consumption is forecast to increase by 3.5 per cent, in 2017.

Gold consumption in electronics increased by 3.7 per cent year-on-year

in the March quarter. The growth in electronics consumption has been

driven by wireless technology used in smartphones, as well as demand

for gold bonding wire. Gold used in electronics is forecast to increase by

2.2 per cent in 2017 to 261 tonnes.

Investor demand falls as further US rate increases remain key headwind

Investment demand increased in the March quarter, but was 34 per cent

lower year-on-year. Demand for bullion-backed Exchange Traded Funds

(ETFs) increased by 109 tonnes in March 2017 quarter. ETF holdings

are expected to decline slightly over the next two years, as US interest

rates are expected to rise to 2.0 per cent by the end of 2018, putting

downward pressure on gold prices.

Central bank demand for gold declined by 27 per cent in the year to the

March quarter. China’s central bank — one of the world’s largest

purchasers in recent times — has been noticeably absent from the

market since late last year. Russia continues to add gold to its foreign

reserves, as the relatively low Ruble provides an opportune moment to

buy from domestic producers. Central bank demand is expected to taper

off over the outlook period, as Chinese and Russian demand slows.

-100

-50

0

50

100

150

200

Mar-11 Mar-13 Mar-15 Mar-17Y

ear-

on-y

ear

per

cent change

India China


Figure 10.4: Growth in world gold supply

Figure 10.5: World mine supply and real gold price

Source: Thompson Reuters (2017)

Source: Thompson Reuters (2017); Department of Industry, Innovation and Science

(2017)

World production

Mine production remains steady while recycling falls

Total gold supply decreased by 12 per cent year-on-year in the March

quarter 2017. World mine production was virtually unchanged, while

recycled supply fell by 21 per cent year-on-year. World mine production

is forecast to increase by 1.5 per cent in 2017 to 3,305 tonnes. Looking

further out, world mine production is expected to plateau over the next

three years. Maintaining the current level of world supply will depend on

new projects reaching commercial production.

In the March quarter, world mine production benefited from several new

projects in the US and Suriname, which offset a large decline of 8

tonnes from Grasberg in Indonesia. Production at Grasberg was

impacted adversely by restrictions on the export of unrefined metal.

Newmont’s Merian operations in Suriname, which commenced

production late last year, remains on track to achieve company guidance

of around 15 tonnes in 2017.

World mine supply is forecast to increase by 2.3 per cent in 2018 to

3,380 tonnes, and reach a peak of 3,414 tonnes in 2019. Several new

projects are expected to add up to 50 tonnes to world mine supply in

2017 — contributed mostly by new gold projects in Canada. Looking

further out, an additional 75 tonnes is expected to be added to world

mine supply in 2018, and a further 34 tonnes in 2019. Much of the

expected additional supply comes from new projects, with only a small

number of expansion projects in the pipeline.

Lower start to the year for recycled supply

World recycled supply declined by 21 per cent year-on-year in the first

quarter of 2017 to 283 tonnes. The decline is largely due to the

exceptional start to 2016, when rising gold prices encouraged greater

recycled supply. Recycled supply is expected to contribute 1,243 tonnes

to world supply in 2017, and to increase by 1.5 per cent to 1,266 tonnes

in 2018.

-60

-40

-20

0

20

40

60

Mar-09 Mar-11 Mar-13 Mar-15 Mar-17

Year-

on-y

ear

per

cent change

Mine production Scrap

200

600

1,000

1,400

1,800

2,200

2,000

2,300

2,600

2,900

3,200

3,500

2005 2008 2011 2014 2017

US

$ a

tro

y o

unce

Tonnes

Mine production Real Gold Price (rhs)


Figure 10.6: Australia’s gold exports

Source: ABS (2017) International Trade, 5464.0; Department of Industry, Innovation and

Science (2017)


Exploration expenditure continues to improve

Australia’s gold exploration expenditure increased by 30 per cent year-

on-year to $155 million in the March quarter 2017. Expenditure on gold

exploration projects accounted for 46 per cent of Australia’s total

minerals exploration expenditure in the March quarter. Gold exploration

expenditure was supported by higher world gold prices and the

favourable exchange rate. Western Australia remains the largest centre

of gold exploration activity in Australia, attracting 75 per cent of total

national gold exploration expenditure.

Wet weather dampens production in the first quarter

The estimate for Australia’s gold mine production in 2016–17 has been

revised lower, due to worse-than-expected production in the March

quarter. Australia’s gold mine production is estimated to have increased

by 0.7 per cent in 2016–17 to 287 tonnes. The forecast for mine

production in 2017–18 remains at 304 tonnes.

Australia’s gold production decreased by 1.3 per cent year-on-year in

the March quarter 2017. The decline in production was due to heavy

rainfall disrupting operations at several mines in the northern region of

Western Australia and parts of the Northern Territory. Record rainfall

during January restricted operations at Newcrest’s Telfer mine, where

production fell 32 per cent quarter-on-quarter. Production at Newmont’s

Tanami mine also declined due to wet weather, however, expansionary

work on the mine is expected to maintain annual gold production at

around 14 tonnes over the next five years.

Production at Newcrest’s Cadia Valley was 14 per cent less than

previously forecast — falling to 5.2 tonnes in the March quarter — as

work was done to proactively manage cave draw and optimise the cave

shape. Newcrest’s guidance for Cadia Valley remains unchanged at 23

– 26 tonnes in 2016–17.

Production at Newmont’s Boddington mine — Australia’s largest gold

mine — increased by 7 per cent year-on-year to 6.3 tonnes in March, as

higher ore grades offset lower mill throughput and recovery. Fosterville

— which is Victoria’s largest gold mine — increased production by 54

per cent year-on-year in the March quarter, and is expected produce

over 6 tonnes in 2017.

Export volumes expected to peak in 2018–19


319 tonnes. The decline in 2017–18 is from an exceptionally high 2016–

17, which benefited from unexpectedly high imported doré (to be refined

in Australia) in the September quarter 2016. Export volumes are

estimated to be 326 tonnes in 2016–17.

In 2018–19, export volumes are forecast to increase by 4.5 per cent and

reach a peak of 334 tonnes, due to higher domestic production.

In real terms, the value of Australia’s gold exports is forecast to total

$16.5 billion in 2017–18 and $17 billion in 2018–19, with higher

production forecast to offset the impact of lower gold prices.

The value of Australia’s gold exports increased by 8.0 per cent year-on-

year to $3.9 billion in the March quarter of 2017. The increase was due

to higher production and higher domestic gold prices. Export volumes

increased by 7.9 per cent over the same period, to 75 tonnes.

0

5

10

15

20

25

0

100

200

300

400

500

2002–03 2005–06 2008–09 2011–12 2014–15 2017–18

A $

billions

Tonnes

Volume Value (rhs)




Total demand t 4,315 4,155 3,913 3,832 -3.7 -5.8 -2.1

– Fabrication consumption b t 2,364 2,440 2,484 2,493 3.2 1.8 0.4

Mine production t 3,255 3,305 3,380 3,414 1.5 2.3 1.0

Price c

– Nominal US$/oz 1,248 1,254 1,234 1,148 0.4 -1.6 -6.9

– Real d US$/oz 1,276 1,254 1,205 1,096 -1.8 -3.9 -9.0


Mine Production t 285 287 304 318 0.8 5.9 4.5

Export volume t 306 326 319 334 6.4 -2.1 4.5

– Nominal value A$m 15,687 17,467 16,858 18,129 11.3 -3.5 7.5

– Real value e A$m 15,961 17,467 16,503 17,366 9.4 -5.5 5.2

Price

– Nominal US$/oz 1,602 1,709 1,642 1,690 6.7 -3.9 2.9

– Real e US$/oz 1,630 1,709 1,607 1,618 4.8 -5.9 0.7

Notes: b Includes jewellery consumption and industrial applications; c London Bullion Market Association PM price; d In 2017 calendar year US dollars; e In 2016–17 financial year Australian

dollars; f Forecast; s estimate.

Source: ABS (2017) International Trade, 5465.0; London Bullion Market Association (2017) gold price PM; World Gold Council (2017); Department of Industry, Innovation and Science.

Table 10.1 Gold outlook


0

800

1,600

2,400

3,200

0

4

8

12

16

1991 1995 1999 2003 2007 2011 2015 2019

US

$ a

tonne

Weeks o

f consum

ption

Stocks (Weeks of consumption) Real LME aluminium prices

Figure 11.1: Annual aluminium prices and stocks

Source: LME (2017) spot prices; Department of Industry, Innovation and Science (2017)

AluminiumMarket summary

Australia’s aluminium export earnings are estimated to have declined by

1.2 per cent to $3.2 billion in 2016–17. Export volumes in the March

quarter 2017 declined by 25 per cent year-on-year to 265,000 tonnes.

The decline in volumes was attributed to a power outage at Portland

Aluminium in December 2016, and to Rio Tinto’s decision to cut

production at its Boyne Island plant. Production in Portland was not

expected to return to normal in 2016–17. Export volumes for 2016–17

are estimated to have declined by 6.2 per cent to 1.4 million tonnes.

Export values were estimated to have declined by 1.2 per cent, to $3.2

billion (2016–17 dollars).

Export volumes are expected to increase in 2017–18 and 2018–19, as

the Portland Aluminium’s production recovers to at least 90 per cent of

pre-outage levels in 2017–18 and onwards. Over the forecast period,

export volumes are forecast to return to 1.4 million tonnes a financial

year. The Chinese Government’s decision to both curb aluminium

production in the 2017–18 winter season and remove illegal production

capacity, will significantly increase aluminium prices in the second-half

of 2017, and this will improve Australia’s aluminium export earnings. As

a result, export earnings are forecast to reach $3.5 billion and $3.2

billion (2016–17 dollars) in 2017–18 and 2018–19, respectively.

Prices

Prices rise strongly in 2017, but fall modestly in 2018 and 2019

The average London Metal Exchange (LME) spot aluminium price

increased by 22 per cent year-on-year in the first six months of 2017, to

average US$1,880 a tonne. Driving the rise in prices was significant

production cuts in China over the winter period — as output was

reduced to curb chronic air pollution.

Possibly reflecting the Chinese production cuts, LME stocks decreased

by 36 per cent from the beginning of the year to around 1.4 million

tonnes in late June 2017. This trend of lower production growth and

declining stocks is expected to continue over the remainder of 2017, and

contribute to higher aluminium prices.

For the year as a whole, aluminium prices are forecast to average 17 per

cent higher than in 2016, at around US$1,879 a tonne. World inventories

of aluminium are forecast to decline by 30 per cent in 2017, to 5.8 million

tonnes — or around 5.1 weeks of consumption.

It remains unclear whether Beijing’s ‘air pollution control’ policy — which

requires Chinese aluminium smelters to cut production by 30 per cent

during the winter period — will be extended beyond 2017–18. Extending

the policy will put upward pressure on world prices. However, increased

supply from new low-cost capacity additions in China, India, Vietnam

and Russia will weigh prices down. The ‘committed’ and ‘probable’ new

and expansion projects that are expected to come on line in 2018

include China (capacity of 3.2 million tonnes per annum), India (330,000

tonnes), Vietnam (300,000 tonnes) and Russia (150,000 tonnes).

Average LME spot aluminium prices are forecast to decline by 4 per cent

in 2018 and by 8 per cent in 2019, to US$1,807 a tonne and US$1,657 a

tonne (in real terms), respectively.

Global aluminium inventory has been revised higher from the March

2017 Resources and Energy Quarterly — due to data revisions since

2014 (see box below). In ‘weeks of consumption’, inventories are

forecast to reach 5.5 weeks in 2018 and 6.5 weeks in 2019.


The new methodology takes into consideration the end of year

aluminium stock levels and the global aluminium balance (production

less consumption). The new aluminium inventory calculation attempts to

eliminate the issue of unreported country stocks and tries to present a

more accurate reflection of global stock moves.

For example,

World aluminium inventory 2017 = World aluminium stocks 2016 +

change in global market balance in 2017.

Box 11.1: Aluminium prices and stocks

Prior to 2009, moves exchange stocks of aluminium provided a good

indication of the net state of supply and demand for aluminium, and

helped explain aluminium price movements. However, since the Global

Financial Crisis, inventory moves have made the true state of the market

much less clear.

Record low interest rates in the wake of the GFC saw a surge in

aluminium ‘financing’, whereby metal was purchased and stored in LME

warehouses, and simultaneously sold forward (at a premium) to cover

(financing, rent, insurance) costs and make a guaranteed risk-free

return. However, changes to LME warehousing rules in recent years —

aimed at reducing the resulting ‘shortages’ brought about by LME daily

load-out limits — has helped free up aluminium inventories.

Typically, when stocks (to consumption) decrease, price tends to

increase, and vice versa. However, between 2014 and 2016, LME

aluminium stocks fell by 23 per cent in 2014 to 4.2 million tonnes, by 31

per cent in 2015 to 2.9 million tonnes, and a by further 24 per cent in

2016 to 2.2 million tonnes. Over this period, the average real LME

aluminium price decreased by 1 per cent in 2014 to US$1,890 a tonne,

by 11 per cent in 2015 to US$1,686 a tonne, and a by further 3 per cent

in 2016 to US$1,640 a tonne.

Over the last three years, supply and demand estimates suggest the

world aluminium market was in deficit by 106,000 tonnes in 2014, but in

surplus by 498,000 and 73,000 tonnes in 2015 and 2016, respectively.

The market balance thus appears to contradict the apparent (much

larger) falls in global exchange stocks, and supports the thesis that

aluminium inventories were simply moved off exchange.

Adding to the difficulties of monitoring inventories to interpret underlying

supply and demand fundamentals, the International Aluminium Institute

(IAI) ceased collecting and reporting aluminium producer inventory data

at the end of 2014. Only Germany and Japan’s aluminium stocks are

now reported.

To overcome the difficulties created by the under-reporting of

inventories, the methodology for estimating global aluminium inventories

has been revised.

Consumption

World aluminium consumption to remain strong

World aluminium consumption increased by 8 per cent year-on-year in

the first four months of 2017, to 20 million tonnes, supported by firm

increases in vehicle sales. Vehicle sales in China increased by 4.2 per

cent year-on-year in the first five months of 2017, to just over 11 million

units, despite a Chinese Government decision to roll back the 50 per

cent tax cut on small cars.

In addition to growing vehicle sales in China was the better-than-

expected rises in vehicle sales from Japan (up 32 per cent), Africa and

the Middle East (up 13 per cent), and India (up 7 per cent). Global

vehicle sales are forecast to increase by 2.5 per cent year-on-year in the

remaining three quarters of 2017, supported by a return to growth in

major Emerging markets such as Argentina, Brazil and Russia.

Global industrial production — a significant driver of commodity demand

— is forecast to increase by 2.9 per cent in 2017. As a result, world

aluminium consumption is forecast to grow by 2.9 per cent in 2017 to 60

million tonnes.

World aluminium consumption is forecast to rise at an average annual

rate of 2.8 per cent over the next two years, to 62 million and 63 million

tonnes, respectively. Consumption growth is likely to track trends in

global industrial production, which is forecast to grow by 3.0 per cent

and 2.5 per cent in 2017 and 2018, respectively. The transport sector is

projected to be the key driver of growth in aluminium usage, supported

by increased vehicle sales and higher aluminium intensity in the

production of trains and new vehicles.


-10

-5

0

5

10

15

20

1991 1994 1997 2000 2003 2006 2009 2012 2015 2018Y

ear-

on-y

ear

per

cent change

World aluminium consumption World industrial production

Figure 11.2: World aluminium consumption

Figure 11.3: Aluminium usage and industrial production, growth

Source: World Bureau of Metal Statistics (2017); Department of Industry, Innovation and

Science (2017)

Source: CPD Netherlands Bureau for Economic Policy Analysis; Department of Industry,

Innovation and Science (2017); World Bureau of Metal Statistics (2017)

Global vehicle sales are expected to increase by 4.0 per cent and 3.2

per cent in 2018 and 2019, respectively, led by projected rises in vehicle

sales in major and emerging automotive markets (such as North

America, China, and Latin America). In China, growth in vehicle sales is

estimated to fall from the double-digit growth rate recorded in 2016.

Aluminium demand from North America is expected to rise at an annual

average rate of over 3 per cent over the next few years, to 7.5 million

tonnes in 2019, buoyed by stronger motor vehicle production. Latin

America is expected to be the fastest growing regional automotive

market in the world, due to more stable currencies in Brazil and

Argentina, and to stronger economic growth in other countries in the

Latin American region.

Global automotive makers are increasingly using aluminium to reduce

vehicle weights and curb emissions. It is estimated that a reduction of

100 kilograms in weight in a vehicle translates to about 0.6 litres less

fuel usage per 100 kilometres distance travelled. Aluminium alloy

replaces steel with equivalent functionality at only half of its weight.

Aluminium use in the manufacture of trains — currently responsible for

around 1 million tonnes of aluminium alloy demand — is forecast to

increase in the next few years. In particular, the market for high-speed

trains is growing at an annual rate 5 per cent.

Production

Production to fall in 2017, but will resume growing in 2018 and 2019

World aluminium production increased by 7 per cent year-on-year in the

first five months of 2017, to 25 million tonnes, driven by a strong growth

(up 11 per cent year-on-year) in China. Chinese producers ramped up

output sharply after winter production restrictions ended. Partially

offsetting the rise in Chinese output was a decline in aluminium output in

Oceania (down by 13 per cent year-on-year), and America (down by 2.5

per cent). The large fall in Oceania production in the March quarter 2017

was due to production cutbacks at Portland Aluminium in Australia.

The Chinese authorities have taken aggressive steps to address air

pollution and excess capacity issues in China. The ‘air pollution control’

policy requires Chinese aluminium smelters to cut aluminium output by

30 per cent over the 2017–18 winter period, and a clamp-down on

‘illegal aluminium capacity’ is to be carried out until the end of 2017.

0

10

20

30

40

50

60

70

1990 1994 1998 2002 2006 2010 2014 2018

Million tonnes

Europe Africa Asia America Oceania


-5

0

5

10

15

2002 2004 2006 2008 2010 2012 2014 2016 2018

Year-

on-y

ear

per

cent change

0

10

20

30

40

50

60

70

1990 1994 1998 2002 2006 2010 2014 2018M

illion tonnes


Figure 11.4: Growth in global vehicle sales

Figure 11.5: World aluminium production

Source: Business Monitor International (2017); Department of Industry, Innovation and

Science (2017)

Source: International Aluminium Institute (2017); Department of Industry, Innovation and

Science (2017)

‘Illegal capacity’ includes facilities that that did not obtain all necessary

approvals from the central government — including the national industry

restructuring guidance — and did not meet aluminium industry standards

and environmental protection requirements. It is estimated that illegal

aluminium capacity in China totals around 6.6 million tonnes. The large

majority (around two thirds, or 4.3 million tonnes) of China’s illegal

capacity is situated in Shandong Province. It is expected that

government inspection teams will report back to the central government

in October 2017, and further production cuts are anticipated over the

remainder of the year.

The crack down on air pollution and ‘illegal capacity’ is expected to

reduce China’s aluminium production by 7 per cent in 2017 to 29 million

tonnes. However, offsetting China’s production cut is the impact of

expected rises in ex-China Asian countries (up 20 per cent) and the

Middle East (up 2 per cent). As a result, the world aluminium production

is forecast to fall by just 1.6 per cent in 2017, to 57 million tonnes.

Global aluminium production is projected to resume growing in 2018 and

2019. Output should reach 64 million tonnes by 2019, driven by

increased capacity in China and other ex-China Asian countries. China

will add new aluminium smelting capacity that is more efficient and

friendly to the environment than the old plants being forcibly retired. A

forecast increase in aluminium prices in 2017 will encourage Chinese

smelters to increase output rates, particularly from those operators

facing production cuts in the 2017–18 winter season. Despite Chinese

local and central governments’ attempt to reduce excess capacity,

China’s production is forecast to grow by 8 per cent and 3 per cent in

2018 and 2019, to 33 and 35 million tonnes, respectively.

There is still uncertainty over whether or not the ‘air pollution policy’ and

‘illegal capacity policy’ being implemented by the Chinese authorities will

be extended after the 2017–18 winter season. There have been were

similar polices in the past, but they failed to curb excess capacity. From

similar current crackdowns on steel production, it appears that Beijing is

more determined this time around. Production data will eventually help

reveal whether the air pollution and illegal capacity control policies have

succeeded.


Figure 11.6: Australia’s aluminium production and exports




Production to fall sharply in 2017

In the March quarter 2017, Australia’s aluminium production decreased

by 13 per cent to 348,000 tonnes, due to reduced capacity at the

Portland smelter (following a power outage in December 2016). Over

this period, Portland’s quarterly production was 23,000 tonnes, around

40 per cent of pre-outage levels. Production at Boyne Island fell by 6.8

per cent year-on-year in the March quarter of 2017 to 135,000 tonnes,

as Rio Tinto decided to lower output in response to higher power prices.

For 2016–17 as a whole, Australia’s aluminium production is estimated

to fall by 6.8 per cent to 1.5 million tonnes. Portland Aluminium’s pre-

outage production levels are not expected to be restored until August

2017.

Production at the Portland smelter is expected to be at least 90 per cent

of pre-outage levels in 2017–18 and onwards, at around 264,000 tonnes

a year. It is unlikely that the Boyne Island smelter will return to full

production soon, due to an ongoing high power prices. As a result,

Australia’s aluminium production for the next two financial years is

forecast to remain at around 1.6 million tonnes.

Energy security and supply issues in Australia are expected to be an

ongoing concern for Australian aluminium smelters. The Finkel Review

(officially the Independent Review into the Future Security) of the

National Electricity Market) recommends action to create a reliable and

affordable energy system in Australia, and provides a way forward for

energy policy at a national level. The Tomago aluminium smelter has

expressed interest in purchasing coal-fired electricity from any potential

supplier in the Hunter Valley. This will boost the chance of a new power

plant being built in the region, which will in turn contribute to the stability

of the region’s power supply. Any supply or demand shocks to electricity

prices would have adverse impacts on aluminium production in

Australia. Rio Tinto’s decision to curtail the output of its Boyne Island

smelter in 2017 highlights the seriousness of power price issue. Rising

power prices have the potential to undermine the sustainability of the

Australian aluminium industry.

Capacity constraint hinders export opportunities

Australia’s aluminium export earnings declined by 18 per cent year-on-

year to $650 million in the March quarter 2017, reflecting a decline in

export volumes (down 25 per cent to 265,000 tonnes). As a result, the

estimate for Australia’s aluminium export values and volumes for 2016–

17 has been revised down by 5 per cent and 2.7 per cent, to $3.2 billion

and 1.4 million tonnes, respectively.

In 2017–18, Australia’s aluminium export volumes and values are

forecast to rise by 4.1 and 10 per cent, respectively, to 1.4 million tonnes

and $3.5 billion (2016–17 dollars), driven by an expected increase in

production at Portland Aluminium, and higher aluminium prices in the

first half of 2017–18. The Chinese Government’s decision to curb

aluminium production in the 2017–18 winter season will increase

aluminium prices in the second-half of 2017, and this is expected to

support increased earnings for Australian aluminium exports.

Australia’s aluminium exports for 2018–19 are forecast to remain steady,

at 1.4 million tonnes. However, export values are forecast to fall by 10

per cent to $3.2 billion (2016–17 dollars), because of a projected fall in

aluminium prices in 2018 and 2019.

0

2

4

6

8

0.0

0.5

1.0

1.5

2.0

1990-91 1995-96 2000-01 2005-06 2010-11 2015-16

2016-1

7 A

$ b

illion

Million tonnes

Aluminium production Export volume Export value - Real


0

100

200

300

400

500

600

1990 1994 1998 2002 2006 2010 2014 2018

US

$ a

tonne (

FO

B A

ustr

alia)

Figure 11.7: Annual alumina price

Source: Bloomberg (2017) alumina monthly price; Department of Industry, Innovation and

Science (2017)

AluminaMarket summary

Australia’s alumina export earnings are estimated to have increased by

3.6 per cent in 2016–17 to $6.3 billion, supported by a strong growth in

alumina prices in the first three months of 2017. However, export values

are forecast to fall by 5.5 per cent in 2017–18 and by 1.6 per cent in

2018–19, to $5.8 billion (2016–17 dollars), because of a forecast

decrease in alumina prices. Export volumes are estimated to have

increased by 1.5 per cent in 2016–17, to 18 million tonnes, and are

forecast to rise modestly (by an average 0.8 per cent a year) in 2017–18

and 2018–19, supported by production cuts in China.

Prices

Alumina prices forecast to grow strongly in 2017, but come under

pressure in 2018 and 2019

The average FOB Australia alumina price increased by 34 per cent year-

on-year in the first six months of 2017, to average US$318 a tonne,

driven by the expectation of Chinese production cuts. The change in

regulatory policies in China — where refineries have been asked to cut

production by 30 per cent during the 2017–18 winter season, and

undergo an illegal capacity investigation until the end of 2017 — is likely

to push up alumina prices in 2017. As a result, the average FOB

Australia alumina price is forecast to rise by 28 per cent in 2017, to

average $US332 a tonne.

Further out, FOB Australia alumina prices are forecast to come under

pressure, falling by 4.1 per cent and 5.8 per cent in 2018 and 2019, to

$US318 a tonne and $US300 a tonne, respectively. New capacity

additions in China and other major producing countries, are expected to

put downward pressure on prices. It is projected that China will add over

6.8 million of refinery capacity in 2018, from greenfield and expansion

projects. In particular, industrial heavyweights Shandong and Shanxi are

forecast to add 2.0 million tonnes and 1.8 million tonnes per annum,

respectively, to the country’s alumina capacity by 2018. Outside of

China, India and the UAE are projected to add another 3 million tonnes

of new refinery capacity in 2018.

Consumption

Modest growth in alumina consumption in 2018 and 2019

In the five months of 2017, world alumina consumption increased by 7

per cent year-on-year, to 44 million tonnes, because of stronger demand

from aluminium smelters. In China — the world’s largest alumina

consumer — alumina consumption increased by 11 per cent year-on-

year, to 23 million tonnes, in line with the rise in China’s aluminium

production.

In Australia, alumina consumption declined by 13 per cent year-on-year

in the March quarter, affected by reduced production capacity in

Portland Aluminium following the power outage in December 2016.

Alumina consumption in America and Europe moved in the same

direction, down 2.5 and 1.2 per cent over the first five months of 2017,

respectively. For 2017 as a whole, global consumption of alumina is

expected to decline by 1.1 per cent to nearly 109 million tonnes,

because of production cut in China over the 2017–18 winter period.


Figure 11.8: World alumina consumption

Figure 11.9: World alumina production

Source: AME Group (2017); Department of Industry, Innovation and Science (2017);

World Bureau of Metals Statistics (2017)

Source: International Aluminium Institute (2017); Department of Industry, Innovation and

Science (2017)

Production

Alumina production to fall in 2017, but return to grow in 2018 and 2019

World alumina production increased by 17 per cent year-on-year in the

first five months of 2017, to nearly 54 million tonnes, mainly driven by

increased production in China (the world’s largest alumina producer).

The rise in Chinese production reflected Chinese refineries’ strategy to

maximise output ahead of production cuts in the 2017–18 winter season.

In addition, there were several new refining capacity start-ups during the

March quarter 2017, including the Chalco Zhengzhou and the East Hope

Jinzhong refineries, both of one million tonnes. Outside of China, output

in Europe rose by 2.5 per cent year-on-year in the first five months of

2017, to 4.3 million tonnes. However, North American alumina output fell

by 32 per cent year-on-year in the first five months of 2017, to about 1.3

million tonnes, as US refineries decided not to raise production until they

know the outcome of the ongoing anti-dumping cases against China.

For 2017 as a whole, global alumina production is forecast to fall by 8

per cent to 106 million tonnes, largely due to production cuts in China.

This is a larger than expected decline than the previous forecast,

reflecting the larger impact of the Chinese and US government’s policies

on their country’s alumina refineries — expected to more than offset the

impact of the delay of new projects in other Asian (ex-China) countries.

China’s ‘air pollution control’ control policy, and the ‘illegal capacity’

crackdown, are forecast to reduce that country’s alumina production by

15 per cent in 2017, to 52 million tonnes. US alumina refineries are

unlikely to boost their output for the remainder of 2017, pending the

Trump Administration’s decision on imported Chinese aluminium. In

India, the 1.6 million tonnes a year Lanjigarh refinery expansion project

is not likely to be operational in 2017, because of poor bauxite

availability. In Indonesia, the 1 million tonnes a year Shandong Nanshan

Bintan Island and 2 million tonnes a year Mempawah refinery projects,

are expected to be delayed into 2018–19.

In 2018 and 2019, world alumina production is projected to resume

growing at an annual rate of 5 per cent, reaching 117 million tonnes by

2019. There is no indication yet that the Chinese Government will

continue requesting alumina refineries to curb production — thereby

reducing air pollution — in winter seasons from 2018 onwards.

0

20

40

60

80

100

120

1991 1995 1999 2003 2007 2011 2015 2019

Million tonnes


0

20

40

60

80

100

120

140

1991 1995 1999 2003 2007 2011 2015 2019M

illion tonnes



Figure 11.10: Australia’s alumina production and exports



China’s alumina production is forecast to increase by 2.0 per cent and

3.6 per cent in 2018 and 2019, to 52 and 54 million tonnes, respectively.

Production in North America is forecast to rise in 2018 and 2019, up by

12 per cent and 2.2 per cent to 17.5 million tonnes and 17.9 million

tonnes, respectively, on the assumption that anti-dumping issues will be

resolved. Global alumina production over this forecast period is

expected to be impacted by delays to the 1.5 million tonnes a year Al

Taweelah Alumina project in the UAE, and the 1.6 million tonnes a year

Alpart Alumina project in Jamaica.


Australia’s alumina production to remain steady

In the March quarter 2017, Australia’s alumina production decreased by

2.8 per cent from the December quarter 2016, to 5.1 million tonnes, due

to reduced output from Rio Tinto’s Queensland Alumina Limited (QAL)

refineries. Cyclone Debbie reached the northern Queensland region at

the end of March, and disrupted the operation and production of the QAL

for a number of days. Production is expected to have risen by 1.8 per

cent in the last quarter of 2016–17, supported by a return to normal

production capacity at the Gladstone refineries. As a result, Australia’s

alumina production is forecast to have increased by 0.4 per cent in

2016–17, to nearly 21 million tonnes.

Going forward, alumina production in Australia is forecast to be little

changed, at about 21 million tonnes in 2017–18 and 2018–19, with no

planned closures/expansions or major disruptions at existing operations.

Exports to rise modestly

In the March quarter 2017, Australia’s alumina export earnings rose by

19 per cent year-on-year to $1.9 billion. The result came as higher prices

more than outweighed the impact of lower export volumes. The

expected return to normal production capacity in the Queensland

Alumina refineries in the fourth quarter of 2016–17, will boost Australia’s

alumina exports. Export volumes and values are estimated to have

increased by 1.9 per cent and 3.6 per cent in 2016–17, to 18 million

tonnes and $6.3 billion (2016–17 dollars), respectively. Export earnings

have been revised up by 7 per cent since the March 2017 Resources

and Energy Quarterly, driven by strong growth in alumina prices since

the beginning of the year.

In 2017–18 and 2018–19, there will be emerging opportunities and

challenges for Australia’s alumina exports. The projected increase in

aluminium production in China and the Middle East over the next two

years is expected to boost the demand for alumina. As a result,

Australia’s alumina exports are forecast to increase at an annual rate of

0.8 per cent, reaching 18.3 million tonnes in 2018–19. However, export

earnings are forecast to fall at an annual rate of 3.8 per cent to $5.8

billion (2016–17 dollars) by 2018–19, because of a likely decline in

alumina prices.

There are risks to the outlook. Firstly, alumina exports are likely to be

constrained by production capacity limits, with no major additions

scheduled until 2018–19. Secondly, new capacity additions from China

and elsewhere will come on line, with an estimate of 19 million tonnes a

year of additional capacity. Thirdly, the rise of India as a potential

supplier of alumina to China will intensify the competition for sales of

alumina to China. India’s share of China’s total alumina imports

increased from 5.0 per cent in the December quarter 2016, to 13 per

cent in the March quarter 2017.

0

3

6

9

0

7

14

21

1990-91 1995-96 2000-01 2005-06 2010-11 2015-16

2016-1

7 A

$ b

illion

Million tonnes

Production Export volumes Export real values


0

50

100

150

200

250

300

350

1990 1994 1998 2002 2006 2010 2014 2018

Million tonnes

Figure 11.11: World bauxite production


Science (2017)

BauxiteMarket summary

The outlook for Australia’s bauxite exports is positive, but there are short

term challenges because of regulatory changes in China. The ‘air

pollution control’ policy and the clamp-down on ‘illegal capacity’ in China

are likely to have a profound impact on Australian bauxite exports in

2017. As a result, export volumes and values are forecast to fall by 2

and 7 per cent in 2017–18, to 23 million tonnes and $921 million (2016–

17 dollars), respectively. However, the prospects for Australia’s bauxite

exports are brighter in 2018–19, driven by the growth in China’s alumina

production. Export volumes and earnings are forecast to grow by 19 and

6 per cent, to 28 million tonnes and $977 million (2016–17 dollars),

respectively.

Production

World bauxite production to rise strongly in 2018 and 2019

In the first four months of 2017, world bauxite production remained

unchanged year-on-year, at 92 million tonnes, as production in Australia

and China — the world’s largest and 2nd largest bauxite producers,

respectively — remained unchanged at nearly 28 and 22 million tonnes,

respectively. For 2017 as a whole, Chinese bauxite production is

estimated to fall by 7 per cent to around 61 million tonnes, due to

curtailed alumina production in the 2017–18 winter season. Offsetting

the fall in Chinese production is the rise in Australia’s bauxite output

(estimated increase of 1.5 per cent), Africa (up 30 per cent), and South

America (up 1.8 per cent). As a result, world bauxite production is

estimated to rise by 2.8 per cent to around 279 million tonnes.

World bauxite production is forecast to rise by 7 per cent and 8 per cent

in 2018 and 2019, to 300 and 324 million tonnes, respectively, primarily

driven by new capacity additions in Australia. With the addition of Metro

Mining’s Bauxite Hills project in 2018, and Rio Tinto’s Amrun project in

2019, Australian bauxite output is forecast to increase at annual rate of

at least 6 per cent, to 92 million tonnes by 2018–19.

China’s bauxite production is unlikely to rise significantly over the next

two years, as the declining quality of domestic bauxite and the depletion

of resources in China deter future investment. China’s bauxite imports

rose by 47% year-on-year in May, taking the January–May 2017 rise on

the corresponding period in 2016 to 15%. Other contributors to

increased global bauxite production include Guinea, Malaysia and

Indonesia. In Malaysia, the government imposed a complete mining ban

at the start of 2016, in order to limit supply growth and address socio-

environmental concerns. The ban has been extended four times, and is

expectedly to be lifted at the beginning the September quarter 2017. In

Indonesia, the government recently lifted the ban on bauxite exports that

had been implemented from 2014 to 2016. The removal of the export

ban is likely to be a stimulus for increased bauxite production in

Indonesia and the world as a whole.

The risk to the global bauxite production forecast comes from energy

and environmental concerns in Guinea. It was claimed by the protestors

in the city of Boke — a key bauxite mining area in Guinea — that bauxite

mining activities are the cause of high pollution levels and electricity

shortages in the nation. Any disruption to the country’s bauxite

operations is likely to have a significant impact on global bauxite output.


0.0

0.3

0.6

0.9

1.2

0

25

50

75

100

1994-95 1998-99 2002-03 2006-07 2010-11 2014-15 2018-19

2016-1

7 A

$ b

illion

Million tonnes

Production Export volumes Export real values

Figure 11.12: Australia’s bauxite production and exports




Australia’s bauxite production escalates in 2019

In the March quarter 2017, Australia’s bauxite production increased by 2

per cent year-on-year to around 21 million tonnes, with two out of three

bauxite producers recording a rise in production. Production at Rio

Tinto’s Gove and Weipa mines in the Northern Territory and Queensland

increased by 8 per cent and 6 per cent year-on-year, to 2.4 million

tonnes and nearly 7 million tonnes, respectively. However, production at

South 32’s Worsley mine in the Western Australia was down by 1.1 per

cent year-on-year to more than 11 million tonnes. For the remainder of

2016–17, there were no scheduled additions or disruptions to existing

operations. As a result, Australia’s bauxite production is estimated to

have increased by 1.5 per cent to 83 million tonnes.

Australia’s bauxite production growth is expected to accelerate in 2018–

19, buoyed by the commissioning of the 5 million tonnes a year Metro

Mining’s Bauxite Hills project in the June quarter 2018, and the 23

million tonnes a year Rio Tinto’s Amrun project in the March quarter

2019. These new additions will increase Australian bauxite output by 1.2

per cent and 10 per cent in 2017–18 and 2018–19, to 84 million tonnes

and 93 million tonnes, respectively. The risk to this forecast rests in the

energy supply issues that Australia is currently facing: rising power costs

will have a considerable impact on operational costs and profitability.

Exports to be affected by regulatory changes in China

Australia’s bauxite export earnings increased by 2 per cent year-on-year

in the March quarter 2017 to $233 million, driven by an 8 per cent year-

on-year rise in bauxite export volumes to China to 5.5 million tonnes. For

2016–17 as a whole, export volumes are estimated to have increased by

14 per cent, to nearly 24 million tonnes. However, export values are

estimated to have fallen by 1.5 per cent to $994 million, because of

lower bauxite prices.

The Chinese Government’s air pollution controls and its clamp down on

illegal capacity are likely to have a larger impact on Australia’s bauxite

exports in 2017–18 than previously estimated. Export volumes and

earnings have been revised down by 7 per cent and 14 per cent, to 23

million tonnes and $921 million (2016–17 dollars), respectively.

The outlook for Australian bauxite exports is brighter in 2018–19, with

export volumes and values forecast to grow by 19 per cent and 6 per

cent, to nearly 28 million tonnes and $977 million (2016–17 dollars),

respectively. An expected rise in alumina production in China will drive

the increased Australian bauxite exports.

The risk to the Australian bauxite production outlook will come from

increased competition from newly-emerging bauxite exporters. For

example, in April 2017, Fiji made its first shipment of bauxite in the first

week of April 2017, exporting 70,000 tonnes of bauxite to China. The

Republic of Fiji is home to the Vanua Levu mine, one of the largest

bauxite mines in Oceania, with an estimated reserve of 1 billion tonnes.

Furthermore, the Emirates Global Aluminium Company of the UAE has

recently opened a representative office in Shanghai, China, to promote

the sales of bauxite from its joint-venture Guinea bauxite mine, Guinea

Alumina Corporation (GAC). The GAC bauxite project is expected to

commence production in 2018, with an annual capacity of 12 million

tonnes a year.




Primary aluminium

Production kt 58,158 57,222 62,177 64,480 -1.6 8.7 3.7

Consumption kt 58,085 59,744 61,548 63,092 2.9 3.0 2.5

Closing stocks b kt 2,762 2,705 2,651 2,598 -2.0 -2.0 -2.0

– weeks of consumption 7.5 5.1 5.5 6.5 -32.2 7.5 18.5

Prices aluminium c

– nominal US$/t 1,604 1,879 1,851 1,736 17.1 -1.5 -6.2

– real d US$/t 1,640 1,879 1,807 1,657 14.6 -3.8 -8.3

Prices alumina spot

– nominal US$/t 253.2 331.8 325.8 314.1 31.0 -1.8 -3.6

– real d US$/t 258.9 331.8 318.2 299.8 28.2 -4.1 -5.8


Production

Primary aluminium kt 1,649 1,536 1,589 1,586 -6.8 3.4 -0.2

Alumina kt 20,550 20,641 20,680 20,834 0.4 0.2 0.7

Bauxite Mt 81.7 83.2 83.7 92.4 1.7 0.7 10.4

Consumption

Primary aluminium kt 207 165 181 177 -20.5 9.9 -1.9

Exports

Primary aluminium kt 1,442 1,353 1,407 1,395 -6.2 4.0 -0.8

– nominal value A$m 3,241 3,202 3,593 3,314 -1.2 12.2 -7.8

– real value e A$m 3,298 3,202 3,518 3,174 -2.9 9.9 -9.8

Alumina kt 17,676 17,938 18,120 18,265 1.5 1.0 0.8

– nominal value A$m 5,995 6,286 6,066 6,103 4.8 -3.5 0.6

– real value e A$m 6,100 6,286 5,939 5,846 3.0 -5.5 -1.6

Bauxite Kt 20,971 23,807 23,339 27,813 13.5 -2.0 19.2

– nominal value A$m 992 994 940 1,020 0.2 -5.4 8.4

– real value e A$m 1,009 994 921 977 -1.5 -7.4 6.1

Total value

– nominal A$m 10,228 10,482 10,600 10,436 2.5 1.1 -1.5

– real e A$m 10,407 10,482 10,377 9,997 0.7 -1.0 -3.7

Notes: b Producer and LME stocks; c LME cash prices for primary aluminium; d In 2017 calendar year US dollars; e In 2016-17 financial year Australian dollars; f Forecast; s Estimate

Source: ABS (2017) International Trade in Goods and Services , 5368.0; AME Group (2017); LME (2017); Department of Industry, Innovation and Science (2017); International Aluminium

Institute (2017); World Bureau of Metal Statistics (2017)

Table 11.1: Aluminium, alumina and bauxite outlook


Figure 12.1: Copper prices and stocks on major exchanges

Figure 12.2: Copper price and market balance

Source: LME (2017) official cash price; Bloomberg (2017) stock inventory at LME,

COMEX and SHFE


Science (2017)

Market summary

After rising in the March quarter, world copper prices declined in the

June quarter 2017, weighed down by declining demand and higher

inventories. Disruptions at a number of major mines in the March quarter

were largely offset by new mine supply and expansion projects coming

online. Australian production was steady in the March quarter, despite

weather-related disruptions impacting several operations. Australia’s

copper exports decreased by 18 per cent year-on-year in the March

quarter, led by lower exports to Asian destinations. Copper export

earnings are forecast to increase by 8.4 per cent in 2017–18 to $8.0

billion, supported by higher prices and volumes.

Prices

Copper prices drift lower in the June quarter

The London Metal Exchange (LME) spot copper price declined in the

June quarter, reaching a low of $5,466 on 8th May. Copper prices have

been weighed down by weaker consumption and relatively high

inventories. Copper stocks on the major exchanges reached a three-

year high in March, and have since remained elevated despite supply

disruptions at three of the world’s largest mines.

The LME copper spot price is forecast to average US$5,667 per tonne in

2017, up by 17 per cent from 2016. This represents a downward revision

from March 2017 Resources and Energy Quarterly, reflecting a larger

than expected market surplus. The larger surplus derives from slightly

lower expectations for demand from China and the US — the world’s

two largest copper users. Copper prices are forecast to decline by 4.1

per cent in 2018 to US$5,438 per tonne, weighed down by both strong

growth in mine supply and slightly lower expectations for global demand.

There are several risks to the outlook for copper prices in the near term.

Industrial action by mine workers, and government intervention on trade

and mine operations, could introduce further supply disruptions in the

second half of 2017. On the other hand, weaker than expected economic

growth in China may have a dampening effect on prices. A strong

appreciation of the US dollar remains a key risk to the outlook. A rising

US dollar makes copper more expensive for non-US residents, and thus

tends to have a dampening effect on consumption.

2,000

4,000

6,000

8,000

200

400

600

800

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

2017 U

S$ a

tonne

Thousand tonnes

Stocks Major Exchanges LME Spot price

0

2,000

4,000

6,000

8,000

10,000

-1,000

-600

-200

200

600

1,000

2000 2003 2006 2009 2012 2015 2018

2017 U

S$ a

tonne

Thousand tonnes

Market Balance Real price (rhs)


Figure 12.3: World Copper Consumption and Industrial Production

Figure 12.4: Growth in China’s copper imports

Source: World Bureau of Metal Statistics (2017); Bloomberg (2017) Netherland CPB;

Department of Industry, Innovation and Science (2017)

Source: Bloomberg (2017) General Administration of Customs, China

World consumption

Copper consumption weighed down by key markets

World refined copper consumption decreased by 3.6 per cent year-on-

year in the first four months of 2017, to 7.5 million tonnes. Consumption

was weighed down by weaker demand from China and Europe.

However, several nations’ consumption grew significantly, such as

South Korea, Taiwan and Brazil. Due to the larger than expected decline

in consumption in the first four months, the forecast for global copper

consumption in 2017 has been revised down to 23 million tonnes.

Copper consumption in China declined by 7.7 per cent year-on-year in

the first four months, to 3.7 million tonnes. Commercial ‘floor-space

started’ — a leading indicator for China’s construction sector —

increased by 3.1 per cent year-on-year in the first five months of 2017.

China’s capital investment in the power grid construction increased by

5.5 per cent year-on-year in the first five months of 2017. The pace of

investment growth is much lower than at the start of 2016, however,

copper demand is expected to rise in 2017, as the power grid is

expanded to keep pace with rising electricity demand.

China’s imports of refined copper fell 28 per cent year-on-year over the

first five months of 2017. However, imports of copper ores and

concentrates and scrap copper have risen. Ore and concentrate imports

rose by 1.9 per cent over the same period, reflecting a structural trend

towards refining copper ores in China, instead of importing refined metal.

Scrap copper imports rose by 18 per cent in January-May 2017.

Copper consumption in the US declined by 1.7 per cent year-on-year in

the first four months of 2017. The construction sector remains the

strongest source of growth for copper demand in the US. New housing

permits increased by 8.3 per cent year-on-year in the first five months,

pointing to stronger demand for copper in 2017. The US manufacturing

sector started the year weaker, with production of electrical equipment

flat, and vehicle production falling by 3.2 per cent year-on-year in the

first five months of 2017.

Growth in global investment in infrastructure and urbanisation in

Emerging economies is expected to drive much of the growth in copper

consumption over the next two years. Copper consumption is forecast to

increase by 3.4 per cent in 2018 to 24 million tonnes, and rise by a

further 2.7 per cent in 2019, to 25 million tonnes.

-15

-10

-5

0

5

10

15

Mar-96 Mar-03 Mar-10 Mar-17Year–

on–yaer

per

cent change

Consumption Industrial Production

-40

-20

-

20

40

60

80

Jan-14 Nov-14 Sep-15 Jul-16 May-17Y

ear-

on-y

ear

per

cent change

Refined Ores & Cons


Figure 12.5: World Copper Refined Production


Science (2017)

World production

World mine copper production remains historically high

World mine copper production decreased by 0.6 per cent year-on-year in

the first four months of 2017. The year-on-year decrease was weighed

down by supply disruptions at three of the world’s largest mines, and by

lower than expected production elsewhere. The forecast for world mine

production in 2017 has been revised down to 20 million tonnes.

Chile, Canada and the United States all had lower production year-on-

year in the March quarter. Output at the world’s largest copper mine,

Escondida in Chile, declined by 64 per cent year-on-year to 94,900

tonnes. The decline was due to strike action, which interrupted

production for almost two months. In Peru, the ramp-up in production at

Las Bambas continues; the mine produced over 111,000 tonnes in the

March quarter.

An additional 430,000 tonnes of copper from new mines and expansions

is expected to come online in 2017. Of this figure, over half is from

sources which are currently producing. Aktogay in Kazakhstan —

operated by KAZ Minerals — is expected to produce 95,000 tonnes,

making it the largest contributor to new mine supply in 2017.

Several large-scale mines and expansions are expected to achieve

commercial production in 2018. By far the largest contribution will come

from Cobre Panama, operated by First Quantum Minerals. The mine has

an estimated annual capacity of 330,000 tonnes. Qulong, a new copper

project operated by Tibet Julong Mining, is expected to produce 120,000

tonnes annually from 2018. Two notable expansion projects, Codelco’s

Radomiro in Chile and Southern Copper’s Toquepala in Peru, are both

expected to contribute an additional 100,000 tonnes each in 2018.

As further new mines commence production and others expand, copper

mine production is forecast to rise by 3.8 per cent in 2018 to 21 million

tonnes, and to rise by 1.6 per cent in 2019 to 22 million tonnes.

Slow start for world refined copper production

World refined copper production decreased by 0.6 per cent year-on-year

in the first four months of 2017 to 7.7 million tonnes. Refined copper

output was weighed down by mine disruptions that impacted on the

supply of copper ores and concentrates.

Refined copper output is forecast to reach 24 million tonnes in 2017,

which is similar to last year.

An additional 648,000 tonnes of refining capacity are expected to come

online in 2017. Most of the new refining capacity will be in China, where

five projects are expected to contribute an additional 585,000 tonnes of

refining capacity. The expansion in China’s refinery production is

expected to continue in 2018, with an additional six projects providing a

combined output of 570,000 tonnes.

Refined production is forecast to increase by 3.6 per cent in 2018, to 24

million tonnes, leading to a market surplus of 164,000 tonnes.

In 2019, relatively stronger consumption growth is forecast to outweigh

an increase in refined production (up by 1.6 per cent to 25 million

tonnes), in line with rising world mine supply. As a result, the market

balance is expected to tighten in 2019, to show a 94,000 tonne deficit.

-6

-4

-2

0

2

4

6

8

10

12

Mar-02 Mar-07 Mar-12 Mar-17

Year–

on–year

per

cent change


Figure 12.6: Australian copper export volume and values

Source: ABS (2017) International Trade, 5465.0; Department of Industry, Innovation and

Science (2017)


Exploration expenditure declines in March Quarter

Australia’s copper exploration expenditure decreased by 27 per cent

year-on-year in the March quarter 2017, to $27 million — the lowest first

quarter result since 2009. Copper exploration expenditure has been in

steady decline since 2012, weighed down by falling world prices. The

decline in March was impacted by exceptional wet weather. Exploration

in Western Australia declined by 46 per cent year-on-year in the March

quarter, mostly due to heavy rainfall in January. Exploration expenditure

in Queensland declined by 26 per cent year-on-year, as Cyclone Debbie

impacted drilling operations. Few weather-related events were recorded

in South Australia, where expenditure increased by 20 per cent year-on-

year, to $3.6 million. Expenditure is expected to rise in 2017, as higher

prices encourage new exploration.

Production was steady in the March quarter

Australia produced 237,200 tonnes of copper ores and concentrates in

the March quarter, virtually unchanged from March 2016. Australia’s

mine production of copper is estimated to have reached 944,800 tonnes

in 2016-17.

Despite the impact of Cyclone Debbie and a train derailment,

Queensland copper production increased by 20 per cent year-on-year in

March quarter. Production at Oz Minerals’ Prominent Hill operations in

South Australia was impacted by heavy rainfall in the March quarter.

Despite the rain, Oz Minerals still expects to reach annual production of

over 105,000 tonnes in 2017 , as production ramps up in the September

quarter.

Mount Lyell — operated by Vedanta’s Copper Mines of Tasmania —

may restart in late 2018, after the Tasmanian Government announced a

further $9.5 million in funding to support the mine’s reopening. Mount

Lyell has been on care and maintenance since 2014, due to the tragic

death of three workers.

Australian production is forecast to increase by 4.6 per cent in 2017–18,

to 988,700 tonnes. Production at Olympic Dam is expected to rise over

the outlook period, as zones of higher grade ore are mined. With the

recommissioning of Mount Lyell expected to add an additional 30,000

tonnes, Australian production is forecast to increase by 0.4 per cent in

2018–19, to 992,600 tonnes.

Refined copper exports declined in the March quarter

Australia’s copper export earnings declined by 13 per cent year-on-year

in the March quarter, to $975 million. The decline was due to lower

export volumes of both copper ores and concentrates, as well as refined

copper, which fell by 26 per cent year-on-year. Higher exports of copper

ores and concentrates to Japan (up by 21 per cent year-on-year to

125,000 tonnes) and China (up by 15 per cent over the same period to

204,000 tonnes), were offset by lower export volumes of copper ores

and concentrates to India, South Korea and the Philippines.

Australia’s copper exports (in metal-content terms) are forecast to

increase by 2.7 per cent in 2017–18, to 933,000 tonnes, with a value of

$8.1 billion (in real terms). Copper exports remain supported by

historically high consumption in China, which accounts for 47 per cent of

Australia’s copper exports. Australia’s copper exports are forecast to

increase by 1.6 per cent to 948,000 tonnes in 2018–19, valued at $7.8

billion (in real terms).

0

2

4

6

8

10

200

400

600

800

1,000

1,200

2005–06 2008–09 2011–12 2014–15 2017–18

2016–17 A

$ b

illions

Volume Value (rhs)

Meta

llic

conte

nt th

ousand tonnes




Production

– mine kt 20,753 20,407 21,184 21,531 -1.7 3.8 1.6

– refined kt 23,530 23,509 24,361 24,761 -0.1 3.6 1.6

Consumption kt 23,331 23,402 24,197 24,855 0.3 3.4 2.7

Closing stocks kt 1 095 1 203 1 367 1 273 9.8 13.6 -6.9

– weeks of consumption 2.4 2.7 2.9 2.7 9.5 9.9 -9.3

Price LME

– nominal US$/t 4,863 5,667 5,568 5,672 16.5 -1.7 1.9

USc/lb 221 257 253 257 16.5 -1.7 1.9

– real b US$/t 4,972 5,667 5,438 5,415 14.0 -4.0 -0.4

USc/lb 226 257 247 246 14.0 -4.0 -0.4


Mine production kt 990 945 989 993 -4.5 4.6 0.4

Refined production kt 514 465 480 478 -9.5 3.2 -0.3

Export volume

– ores and conc. c kt 1,870 1,695 1,755 1,817 -9.4 3.5 3.5

– refined kt 507 411 421 419 -18.9 2.4 -0.3

– total metallic content kt 1,050 909 933 948 -13.4 2.7 1.6

Export value

– nominal A$m 8,110 7,439 8,062 8,148 -8.3 8.4 1.1

– real d A$m 8,252 7,439 7,892 7,804 -9.9 6.1 -1.1

Notes: b In 2017 calendar year US dollars; c Quantities refer to gross weight of all ores and concentrates; d In 2016–17 financial year Australian dollars; f Forecast; s estimate.

Source: ABS (2017) International Trade, 5465.0; LME (2017) spot price; World Bureau of Metal Statistics (2017) World Metal Statistics; Department of Industry, Innovation and Science (2017).

Table 12.1 Copper outlook


Figure 13.1: LME nickel spot price

Source: Bloomberg (2017) London Metal Exchange



Market summary

Australia’s nickel export earnings are estimated to have declined by 31

per cent to $2.1 billion in 2016–17, largely reflecting a decline in export

volumes. The cessation of production at Queensland Nickel’s Yabulu

refinery, as well as several mine closures in Western Australia,

contributed to the decline.

Over the next two years, nickel export values are forecast to be relatively

steady. The ramping up of production at Independence Group’s Nova

mine is expected to contribute to a moderate increase in volumes, but

this is forecast to be offset by a slight decline in nickel prices in real

terms.

Prices

LME nickel prices declined for the second consecutive quarter in the

June quarter 2017 — by an estimated 8.5 per cent — although they are

estimated to be 6.5 per cent higher than a year earlier.

The outlook for nickel prices over the next two years has been revised

down, following government policy announcements in the Philippines

and Indonesia that are expected to add more supply to the global

market. However, demand is still expected to remain relatively strong in

China — the world’s largest market for nickel.

On balance, nickel prices are forecast to remain close to current levels

over the next two years, decreasing marginally in real terms. However,

with a high degree of uncertainty surrounding the impact of political

decisions in the Philippines and Indonesia on nickel production, the price

outlook remains particularly uncertain and volatility may be high.

World consumption

World nickel consumption increased by 9.6 per cent year-on-year in the

March quarter 2017. Growth in world nickel consumption continues to be

driven by China, which accounted for 65 per cent of world nickel

consumption growth in the year to the March quarter. World nickel

consumption is forecast to moderate, but remain strong in 2017, growing

by 5.9 per cent. Nickel consumption growth is forecast to slow over the

next two years, to 4.7 per cent and 4.2 per cent in 2018 and 2019,

respectively.

Figure 13.2: Nickel stocks and price

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000


US

$ a

tonne

0

3

5

8

10

13

15

0

5,000

10,000

15,000

20,000

25,000

30,000

2008 2010 2012 2014 2016 2018

Weeks

2017 U

S$ a

tonne

Weeks of consumption (rhs) Price


Figure 13.3: World mined nickel production, monthly

Source: International Nickel Study Group (2017)

Source: ABS (2017) Mineral and Petroleum Exploration 8412.0

Nickel consumption growth in recent years has been supported by rapid

growth in stainless steel production in China (69 per cent of the China’s

nickel use is in the manufacture of stainless steel). In 2016, China’s

stainless steel production grew by 16 per cent to 25 million tonnes. India

replaced Japan as the world’s second largest stainless steel producer in

2016, with production growing by 9 per cent to 3.3 million tonnes.

World production

World mined nickel production declined year-on-year for the sixth

consecutive quarter in the March quarter 2017 to 462,000 tonnes.

However, at 0.8 per cent, the pace of decline has slowed considerably

compared to recent quarters. Falling output in the Philippines (down

19,000 tonnes) and in Russia (down 15,000 tonnes), as well as

elsewhere, more than offset an increase in output of 36,000 tonnes in

Indonesia.

In the Philippines, Regina Lopez — who as acting Secretary of the

Department of Environment and Natural Resources ordered 23 mine

closures, cancelled 75 mining exploration contracts and banned new

open-pit mines — was removed from her position on 2 May 2017. It now

appears that mining suspensions may be lifted and supply will return to

the market.

Further adding to global nickel supplies is Indonesia, which is beginning

to export nickel ores again. In January 2017, Indonesia eased its ban on

nickel ore exports, subject to certain conditions. The ban was introduced

in January 2014, to provide support to ‘higher value-added’ refining

industries.


Exploration expenditure

Nickel and cobalt exploration expenditure increased by 187 per cent

year-on-year to $20 million in the March quarter 2017 — the highest

quarterly expenditure on nickel and cobalt exploration in over two years.

Despite the recent increases in exploration activity, with nickel prices

forecast to remain low, it is unlikely that exploration activity will increase

substantially over the next two years.

0

50

100

150

200

250

300

Mar–13 Mar–14 Mar–15 Mar–16 Mar–17

Thousand tonnes

Indonesia Philippines Australia Rest of world

0

10

20

30

40

50

60

70

80

90

100


A$ m

illio

n

Figure 13.4: Australia’s nickel and cobalt exploration expenditure,

quarterly


Figure 13.6: Australia’s nickel export volumes and values


Australia’s nickel production forecast to increase in 2017–18

Australia’s refined and intermediate nickel production is estimated to

have declined sharply in 2016–17, but is forecast to increase in the next

two years. Intermediate and refined nickel production is estimated to

have declined by 20 per cent to 148,000 tonnes in 2016–17. The decline

in Australia’s refined nickel production in 2016–17 is largely attributable

to the closure of Queensland Nickel’s Yabulu refinery in early 2016.

Mined nickel production (metal content) declined by 4.5 per cent to

207,000 tonnes in 2016–17, but is forecast to increase in the next two

years. The decline in mined production is attributable to several mine

closures in Western Australia. In particular, Mincor’s Kambalda mine

and Panoramic Resources’ Savannah and Lanfranchi mines ceased

operations in late 2015 and early 2016.

Forecast growth in mined nickel production in the next two years is

largely attributed to the commissioning of Independence Group’s Nova

mine. However, with nickel prices expected to remain low, there may be

little incentive to recommence operations at mines currently placed as

being ‘ under care and maintenance’. As a result, Australia’s mined

nickel production is forecast to remain well below 2011–12 to 2014–15

levels.

Australia’s nickel production declined in the March quarter 2017

In the March quarter 2017, Australia’s refined nickel production declined

by 27 per cent year-on-year to 33,000 tonnes, while mined output is

estimated to have declined by 6.5 per cent to 50,000 tonnes.

Declining nickel production in the March quarter 2017 was largely

attributed to temporary disruptions. Glencore’s Murrin Murrin mine

reported a 33 per cent year-on-year drop in own-source nickel

production in the March quarter 2017, which it attributed to maintenance

stoppages. First Quantum reported a 21 per cent drop in output at

Ravensthorpe, which it attributed to equipment maintenance and

flooding.

Meanwhile, production at Western Areas NL nickel mines was little

changed in the March quarter. Nickel metal production at BHP Billiton’s

Nickel West facility declined by 2.4 per cent in the March quarter 2017,

although BHP expects production to increase by 10 per cent in 2016–17,

following ongoing debottlenecking activities.

Figure 13.5: Australia’s nickel production

0

10

20

30

40

50

60

70

80

90


Thousand tonnes

Mined Refined

0

50

100

150

200

250

300

0

2

4

6

8

10

12

2003–04 2006–07 2009–10 2012–13 2015–16 2018–19

Thousand tonnes

2016–17 A

$ b

illion

Volume (rhs) Value




Figure 13.7: Australia’s nickel exports, quarterly

Notes: The March quarter 2017 estimate for refined is not shown because data is subject

to a 6 month lag


Industry, Innovation and Science (2017); International Trade Centre (2017) International

Trade Statistics 2001-2017

Independence Group’s Nova mine, which commenced production in the

December quarter 2016, continued to ramp up production in the March

quarter 2017. It is expected to have an annual productive capacity of

30,000 tonnes when fully operational.

Export values forecast to be relatively flat in the next two years

Australia’s nickel export earnings are estimated to have declined by 31

per cent to $2.1 billion in 2016–17, largely reflecting a decline in export

volumes. The decline in export volumes is attributed to declines in both

refinery and mine output.

Exports of nickel ore and concentrates have declined particularly sharply

in 2016–17. In the September quarter 2016, exports of nickel ores and

concentrates declined to 25,000 tonnes (metal content) — the lowest

level since March quarter 1995. While nickel ore and concentrate export

volumes have recovered somewhat in recent months, in the March

quarter 2017 they were still down 47 per cent year-on-year.

Nickel exports values are forecast to be relatively stable in 2017–18 and

2018–19. This reflects a declining nickel price (in real terms) offsetting

the impact of a forecast increase in export volumes.

0

10

20

30

40

50

60

70


Thousand tonnes

Ores and concentrates (metal content) Refined




Production

– mine kt 1,990 2,150 2,273 2,369 8.0 5.7 4.2

– refined kt 1,984 2,135 2,257 2,352 7.6 5.7 4.2

Consumption kt 2,033 2,146 2,247 2,342 5.6 4.7 4.2

Stocks kt 555 533 533 533 -4.0 0.0 0.0

– weeks of consumption 14.2 12.9 12.3 11.8 -9.0 -4.5 -4.1

Price LME

– nominal US$/t 9,599 9,617 9,534 9,747 0.2 -0.9 2.2

Usc/lb 435 436 432 442 0.2 -0.9 2.2

– real US$/t 9,814 9,617 9,311 9,305 -2.0 -3.2 -0.1

USc/lb 445 436 422 422 -2.0 -3.2 -0.1

Notes: b In 2017 US dollars; c Nickel content of domestic mine production; d Includes metal content of ores and concentrates, intermediate products and nickel metal; e In 2016–17 Australian

dollars; f forecast; s estimate

Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; Company reports; Department of Industry, Innovation and Science; International Nickel Study Group

(2017); LME (2017); World Bureau of Metal Statistics (2017).

Table 13.1 Nickel outlook



Production b

– mine kt 216 207 230 238 -4.5 11.1 3.6

– refined kt 142 112 117 116 -21.1 4.8 -1.0

– intermediate kt 44 36 40 38 -16.6 10.0 -4.5

Export volume kt 250 183 202 201 -27.0 10.4 -0.2

– nominal value A$m 2,909 2,052 2,109 2,155 -29.5 2.8 2.2

– real value A$m 2,960 2,052 2,064 2,064 -30.7 0.6 0.0


Figure 14.1: Zinc monthly price

Figure 14.2: Annual zinc spot price and weeks of stocks

Source: LME (2017) zinc spot price

Source: LME (2017) zinc price; Department of Industry, Innovation and Science (2017)

Market summary

At present, fundamentals for zinc producers are among the strongest for

any base metal. Prices lifted sharply during 2016 — amidst strong global

demand and following a range of mine closures — and 2017 is shaping

up as a year of high prices. Influences include significant drawdowns in

inventories. Efforts are underway to increase extraction at a range of

mines and facilities around the world.

Australia faces some obstacles to capitalising on the current

opportunities in the global market. Export volumes in 2016–17 are

estimated to have fallen, due to some mine closures over the past two

years. However, price increases are expected to provide some windfall

to producers over the medium term. Exports of zinc (metallic content)

are forecast to lift to 1,008,000 tonnes in 2017–18 and to 1,169,000

tonnes in 2018–19. Real export earnings are forecast to decline slightly

in 2017–18 to $2,426 million, before recovering to $2,652 million in

2018–19.

Prices and stocks

Zinc prices have lifted strongly due to supply constraints and higher

demand

The LME zinc price averaged US$2,092 a tonne in 2016, with a sharp

spike late in the year. This spike largely reflected an acute production

shortage, which is expected to lead to a fall in global stocks during 2017.

The zinc price is estimated to average $US2,670 a tonne in 2017, as the

supply deficit increases. Further out, increased output from large

producers — including China — is expected to gradually bring the price

back down to $US2,525 a tonne in 2018 and $US2,475 a tonne in 2019.

There is little chance of any dramatic falls in zinc prices in coming years:

consumption growth in the automobile and infrastructure sectors is

generally expected to remain solid. One risk is that infrastructure

spending in the United States fails to occur, or fails to match the pace

currently anticipated by the market. Production at existing zinc mining

operations, particularly in China, is also expected to increase steadily

over time, constraining price gains over the longer term.

0

1

2

3

4

5

6

7

8

9

10

0

400

800

1,200

1,600

2,000

2,400

2,800

3,200

3,600

4,000

2002 2004 2006 2008 2010 2012 2014 2016 2018

Weeks o

f sto

cks

2017 $

US

a tonne

Stocks (RHS) Price (LHS)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2000 2002 2004 2006 2008 2010 2012 2014 2016

US

$ a

tonne


Growth in refined production is likely to continue to be checked in the

short term by constrained mined supply; some smelters are operating

below capacity, due to the difficulty in obtaining feedstock. Refined

production is expected to edge down by 1.2 per cent to 13.8 million

tonnes in 2017, before rebounding to 14.7 million tonnes in 2018 and

15.3 million tonnes in 2019.


The prospect of higher prices sustains exploration expenditure

Australia’s expenditure on zinc, lead and silver exploration is trending

down, with quarterly expenditure falling from $13.4 million in the

December quarter 2016 to $7.7 million in the March quarter 2017.

However, strong zinc prices are attracting more interest among resource

companies, and there are signs that exploration spending may start to

recover in the coming few quarters.

Figure 14.3: Australia’s silver, lead & zinc exploration expenditure

Source: ABS (2017) Mineral and Petroleum Exploration, 8412.0; LME (2017) zinc price

World consumption

Car manufacturing and infrastructure spending remain crucial to

consumption growth

Refined zinc consumption was virtually unchanged in 2016, at just under

14 million tonnes. China — which currently consumes around half of the

world’s refined zinc — is expected to continue driving demand in the

outlook period , through ongoing public sector investment. There is also

a potential for higher zinc demand in the US, should the Trump

Administration succeed in steering its investment proposals through

Congress.

Global consumption is forecast to rise to 14.4 million tonnes in 2017, and

to 14.9 million tonnes in 2018. Higher consumption is expected to

contribute to higher prices and sharp falls in inventories in 2017, though

an increase in supply in late 2017 and throughout 2018 will limit

inventory gains in 2018.

World production

Mined production has good growth prospects

Zinc production dropped during 2016, due to mine closures — notably in

China, where 26 zinc mines were shuttered due to severe environmental

problems. Other mines around the world are also facing ore depletion,

creating tight supply conditions. However, in light of higher prices, it is

likely that a range of expansion plans (some of which were previously

curtailed) will now be revisited. Efforts to source additional zinc deposits

are underway in several countries.

Mined zinc production is estimated to rise by 6 per cent to 13.6 million

tonnes in 2017 — notably short of global consumption. Production is

subsequently forecast to rise to 14.5 million tonnes in 2018, and to 15.1

million tonnes in 2019, gradually closing the gap with demand. Stocks

will remain relatively tight in 2017, but are expected to start to rebuild

during 2018.

Refined production is still constrained by mined supply

Refined zinc production is being constrained by mine closures, and by

the suspension of smelter operations — many of which have had

difficulties in accessing concentrates.

0

600

1,200

1,800

2,400

3,000

0

5

10

15

20

25

Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16

US

$ a

tonne

A$ m

illio

n

Silver, lead, and zinc exploration expenditure Zinc price (rhs)


Figure 14.4: Australia’s mine production by state

Figure 14.5: Australia’s zinc exports

Source: Company reports; Department of Industry, Innovation and Science (2017)



Australian output is rising despite issues with ore depletion

Australia’s mined zinc production is forecast to increase from 868,000

tonnes in 2015–16 to 916,000 tonnes in 2016–17.

Production is forecast to remain on an upward trend, rising to 1,049,000

tonnes in 2017–18 and to 1,054,000 tonnes in 2018–19. New mines

scheduled for completion — including MMG’s Dugald River, KBL’s

Sorby Hills and Independence Group’s Stockman operation — will help

to increase production, even as mines at Endeavour, Cannington,

Golden Grove and Jaguar reach the end of their operating life.

Australia’s refined production is set to increase marginally

Australia’s refined production is estimated to have increased slightly in

2016–17, to 465,000 tonnes, driven by a rise in output at the Port Pirie

smelter. Production is expected to lift gradually over the forecast period,

to 472,000 tonnes in 2017–18 and to 500,000 tonnes in 2018–19.

Export volumes are expected to rise gradually, after a large fall in 2016

Export conditions are strengthening, due to the projected increase in

zinc consumption in Emerging economies, and to the tightening global

availability of zinc concentrates. Despite these opportunities, Australia’s

export capacity will be constrained by the capacity of the remaining

mines: the closure of MMG’s 500,000 tonne Century mine in early 2016

significantly lowered the ceiling for potential exports.

A fall in export volumes to 1,026,000 tonnes (metallic content) is

estimated for 2016–17, due to earlier mine closures and production cuts.

Zinc export volumes are forecast to edge down to 1,008,000 tonnes in

2017–18, before rising to 1,169,000 tonnes in 2018–19 as new mines at

Dugald and Sorby Hills come online. Export earnings are forecast to

edge down from $2,521 million in 2016–17 to $2,426 million in 2017–18

(in real terms), before lifting to $2,652 million in 2018–19.

0

300

600

900

1,200

1,500

1,800

2001–02 2004–05 2007–08 2010–11 2013–14 2016–17

Thousand tonnes

QLD NT NSW WA TAS SA

0

1

2

3

4

5

6

7

0

300

600

900

1,200

1,500

1,800

2,100

2001–02 2004–05 2007–08 2010–11 2013–14 2016–17

2016-1

7 A

$ b

illion

Thousand tonnes

Volume Value (rhs)




Production

– mine kt 12,838 13,610 14,521 15,099 6.0 6.7 4.0

– refined kt 14,004 13,829 14,727 15,333 -1.2 6.5 4.1

Consumption kt 13,914 14,379 14,892 15,432 3.3 3.6 3.6

Stocks kt 1,375 825 990 1,089 -40.0 20.0 10.0

– weeks of consumption 5 3 3 4 -41.9 15.9 6.1

Price LME

– nominal US$/t 2,092 2,670 2,525 2,475 27.6 -5.4 -2.0

USc/lb 95 121 115 112 27.6 -5.4 -2.0

– real US$/t 2,139 2,670 2,466 2,363 24.8 -7.6 -4.2

USc/lb 97 121 112 107 24.8 -7.6 -4.2

Notes: b In 2017 US dollars; c. Quantities refer to gross weight of all ores and concentrates; d In 2016-17 Australian dollars; f forecasts

Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; Company reports; Department of Industry, Innovation and Science; International Lead

Zinc Study Group (2017); LME (2017); World Bureau of Metal Statistics (2017).

Table 14.1 Zinc outlook



Mine output kt 868 916 1,049 1,054 5.6 14.5 0.5

Refined output kt 459 465 472 500 1.2 1.6 6.0

Export volume

– ore and conc. c kt 2,222 1,537 1,611 1,906 -30.8 4.8 18.3

– refined kt 497 326 297 327 -34.4 -9.1 10.2

– total metallic content kt 1,507 1,026 1,008 1,169 -31.9 -1.8 15.9

Export value

– nominal A$m 2,628 2,521 2,478 2,768 -4.1 -1.7 11.7

– real d A$m 2,674 2,521 2,426 2,652 -5.7 -3.8 9.3


Table 15.1: Types of lithium-ion batteries

Source: DIIS (2017)

The potential of battery technologyGlobal battery markets have entered a period of extremely rapid growth

in recent years, and the implications for Australia are potentially highly

significant. This is partly due to the potential of battery technology itself,

and its capacity to revolutionise clean energy, vehicles, and consumer

products. However, battery growth also creates unique opportunities for

producers of key commodities, notably lithium, graphite and cobalt.

Australia has major deposits of some of these, and is well placed to

capitalise on the opportunities that increased battery demand is creating.

Lithium-ion batteries

Lithium-ion (Li-ion) batteries were first created by an American inventor

— John Goodenough — in 1980. The Li-ion battery used the movement

of lithium ions between positive and negative electrodes in a way which

created more power from a smaller source than any battery before it.

By the early 1990s, Li-ion batteries were being commercially used in

electronics such as hand-held video cameras. More recently, Li-ion

batteries have become ubiquitous in personal devices and portable

electronics.

However, it now appears that we may have barely scratched the surface

of the Li-ion battery’s potential. It is now clear that lithium-ion transfer —

which stores and releases power — can occur in a larger variety of

cathode, anode, and electrolyte environments than had been previously

understood. Cathodes — an internal mechanism in which ion transfer

occurs — are undergoing profound changes. There are many potential

combinations of metals a cathode can employ, and new research is

unlocking more diverse forms. This is creating more specialised and

powerful batteries, unlocking opportunities for new technologies.

The number of potential formulations for ion transfer mean that there are

countless types of lithium ion batteries, some of which are shown in the

table opposite. Energy density refers to the amount of energy stored per

unit of volume, while power density refers to the ability to deliver power.

While there are competing battery types — such as Nickel-Metal

Hydride batteries — Li-ion batteries have particular capability in areas,

such as energy density, which places them at the forefront of solar

energy storage and electric vehicle manufacturing.

The Li-ion market was less than 6 GWh 10 years ago; in 2016, this

market is estimated to have surpassed 70 GWh. The number of

applications for these batteries is also expanding rapidly, and their

market share is rising. In recent years, growth has also been propelled

by the use of Li-ion batteries in automotive powertrains for electric

vehicles. Companies such as Tesla and Enphase are also developing

large-scale residential batteries and solar roofing projects. These

batteries can correct the misalignment inherent to rooftop solar, by

enabling power generated during the day to be stored and used at night,

when power usage peaks.

Roskill are currently forecasting average annual battery market growth

of 14 per cent per year out to 2025, when the market is expected to

reach 223 GWh.

Batteries classed as Li-ion primarily use three commodities — lithium,

graphite and cobalt. Li-ion battery demand has effectively pulled these

commodities into a second commodity boom, with demand rising, prices

spiking, and investment gathering steam.

End-use products Characteristics

Lithium

Cobalt

Oxide

Mobile phones,

laptops

High energy density but incurs longer

charge times and shelf life of 1–3

years.

Lithium

Manganese

Oxide

Power tools, medical

instruments

Fast recharge and high current

discharge, but 1/3 of LCO’s energy

density

Nickel

Cobalt

Electric vehicle

powertrains, energy

storage

High energy density and long life

span; safety and cost were a concern

but now resolved.

Nickel

Manganese

Cobalt

Electric vehicle

powertrains, power

tools

Can be tailored to high energy or

power density; most Japanese and

Korean producers sell NMC into the

electric vehicle market.

Lithium Iron

Phosphate

Electric vehicle

powertrains, e-bikes

LFP batteries offer a safe alternative.


Table 15.2: Top five lithium mine reserves

Figure 15.1: World lithium production

Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2017

Source: USGS (2016) Commodity Summaries

Critical battery commodities

Lithium is experiencing rapid growth

Lithium is the lightest, or least dense, elemental metal, being about half

as dense as water. It is primarily used for steel making, aluminium

smelting, ceramics and glass, greases, and polymer production.

Batteries presently account for a small proportion of total lithium

demand, but this is set to change significantly over coming years.

The use of lithium in batteries has increased over the past 10 years, as

demand for rechargeable batteries in portable devices, electric tools,

electric vehicles, and grid/energy storage has risen. Batteries accounted

for 35 per cent of all lithium use in 2015, up from 25 per cent in 2007.

The major end-uses for batteries in 2015 were electric vehicles (25 per

cent), phones (19 per cent) and portable PCs (16 per cent).

The criticality of lithium (a measure used by Geoscience Australia and

based on importance in use and availability or supply risk) is rated as

‘high’.

The strongest demand growth for lithium over the next 10 years is

expected to come from lithium-ion batteries for electric vehicles

(including e-bikes) and energy storage applications, with other non-

batteries applications growing more slowly. This trend will be supported

by the lower cost of batteries and by global efforts to reduce carbon

emissions and improve self-sufficiency.

Lithium is the first battery component to face a significant price and

investment surge. Prices for lithium carbonate and lithium hydroxide —

the two most common forms used in batteries — have generally grown

substantially since 2014, though exact details on prices are difficult to

track, due to the way lithium is traded.

There are two major lithium deposit types: brine deposits and mineral

deposits. Brine deposits occur when lakes, geothermal waters or

petroleum brines are enriched with lithium, and are mainly found in

South American counties — Chile, Argentina and Bolivia.

Mineral deposits (spodumene or pegmatite) generally contain a mix of

rare metals, including lithium. Extraction from hard rock deposits is

expensive, but has the capacity to respond to increased demand much

faster than brine operations. As a result, spodumene resources have

become the most likely source of new material in the short-term.

0 10 20 30 40 50

Brazil

Portugal

Zimbabwe

China

Argentina

Chile

Australia

Per cent

Reserves (kt) Production (2016) (kt)

Chile 7,500 12.0

China 3,200 2.0

Argentina 2,000 5.7

Australia 1,600 14.3

Portugal 60 0.2


Table 15.3: Australian lithium projects

Source: DIIS (2017)

Australia is a key global source for lithium

Australia ranks fourth globally in its lithium deposits — behind Chile,

Argentina and China. Most of Australia’s economic demonstrated

resources ( EDR) of lithium occur within hard rock pegmatite deposits in

Western Australia, although other deposits have been found in the

Northern Territory, and further exploration is underway.

Australia is the largest producer of lithium, and significant resources of

spodumene mean Australia is well placed to remain a major producer

over the longer term. A host of companies in Western Australia are

already targeting near-term concentrate production for sale to Chinese

conversion facilities.

The Greenbushes deposit, which is the world’s largest and highest

grade spodumene deposit, contains around half of Australia’s lithium

EDR. It accounts for around 30 per of global lithium production. The

Mount Cattlin mine also began production in late 2016, while other

resources are being developed at Mount Marion and Pilgangoora, with

Pilgangoora now regarded as the world’s second largest deposit.

There is also a strong prospect of further operations being developed,

with positive definitive feasibility studies recently completed by Pilbara

Minerals Limited and Altura mining for mines in the Pilgangoora region.

The recent increase in the price of lithium has also increased interest in

operations where lithium has been produced as a by-product, such as

the Bald Hill tantalum mine. In March 2017, Talison Lithium Pty Ltd

announced that it had approved the expansion of Greenbushes to

double annual production. The expansion will supply a $400 million

lithium processing plant to be built at Kwinana, south of Perth.

Lithium exploration continues in other parts of Australia, including the

Bynoe pegmatite field near Darwin, where significant lithium-bearing

pegmatites have been identified. Australia has a range of salt lakes and

groundwater which also hold deposits of lithium, though the potential of

these sources has not yet been fully explored.

Australia is not alone in expanding its production. There are plans to

increase production in Chile from 48,000 tonnes of lithium to 63,000

tonnes by the end of 2018. Argentina is also planning to undertake big

expansions by 2022.

Project Name Location Stage Approximate Production

Greenbushes 250km S

of Perth

Operating ~400 thousand tonnes a

year (ktpa) of 6–7.5 per

cent spodumene

concentrate*

Mt Cattlin 2.2km N

of Ravensthorpe

Operating 137 ktpa of 6 per cent

spodumene concentrate

Mt Marion 40km SW of

Kalgoorlie

Committed 200 ktpa of 4–6 per cent of


Pilgangoora

Tantalite

150km SE of

Port Headland

Feasibility 314 ktpa of 6 per cent


Pilgangoora 120km SE of

Port Headland

Committed 219 ktpa of 6 per cent



Source: DIIS (2017)

Table 15.4: Top five graphite mine reservesDemand for graphite is growing, but not as fast as lithium

Graphite is a naturally occurring mineral that forms when carbon is

subjected to heat and pressure in the Earth's crust and in the upper

mantle.

Graphite is used for a range of products, including lubricants, foundry

operations, brake linings, and steelmaking, though use of graphite in

batteries is also on the rise. Advances in thermal technology and acid-

leaching techniques that enable the production of higher purity graphite

powders, are likely to lead to the development of new applications for

graphite in high-technology fields. Innovative refining techniques have

enabled the use of improved graphite in carbon-graphite composites,

electronics, foils, friction materials, and specialty lubricant applications.

Large-scale fuel-cell applications are also being developed, which could

consume as much graphite as all other uses combined.

The criticality of graphite is rated as ‘medium’ by GeoScience Australia.

While China currently dominates production of graphite, it is believed

that both Brazil and Turkey have greater reserves. The estimated world

total graphite reserve is 230 million tonnes.

New graphite deposits are being developed at various sites around the

world, and mines will soon begin production in Madagascar,

Mozambique, Namibia, and Tanzania. The global graphite market is

expected to lift from just under $14 billion in 2013 to almost $18 billion by

2020.

Australia has modest deposits of graphite

Australia’s reserves of graphite are comparatively modest, and there are

no operating graphite mining projects. However, a range of projects are

currently being progressed, with studies underway at sites in Oakdale

and Arno in South Australia, and McIntosh in Western Australia.

Table 15.5: Australian graphite projects



Turkey 90,000 32

Brazil 72,000 80

China 55,000 780

India 8,000 170

Mexico 3,100 22

Project Name Location Stage Production

Mount

Dromedary

Queensland (near

Cloncurry)

Feasibility Up to 50,000 tpa

Uley South Australia

(near Port Lincoln)

Care and

Maintenance

Up to 64,000 tpa

Campoona South Australia (near

Cowell)

Prefeasibility 140,000 tpa

Oakdale South Australia

(near Port Lincoln)

Prefeasibility 94,500 tpa over

three years

Arno South Australia

(near Arno Bay)

Prefeasibility Unknown

Koppio-

Kookaburry

Gully

South Australia

(near Port Lincoln)

Reserves

Development

30-40,000 tpa

McIntosh Western Australia

(near Halls Creek)

Prefeasibility unknown


Source: DIIS (2017)

Table 15.6: Top five cobalt mine reservesCobalt demand is rising tentatively

Cobalt is a chemical element generally found only in a chemically-

combined form. It can be smelted into a hard silvery metal, though it has

also been used to create pigments and various ores. Cobalt is also used

to create carbides for cutting, superalloys for aircraft engines, and

various other metallic and chemical applications.

Cobalt prices have been volatile for years, but appear to have settled

somewhat, with only tentative signs of supply issues emerging. Refined

cobalt supply is expected to fall below consumption, which is being

pushed up by demand from Li-ion batteries and aerospace industries.

Offsetting this slightly is a growing shift towards battery technologies

which require less cobalt. While this may lower cobalt demand growth in

batteries due to substitution, it is still likely that cobalt demand will grow

at an average annual rate of around 4 per cent over the next few years.

Prices are expected to lift slightly in 2017.

Criticality of cobalt is rated as ‘high’ by GeoScience Australia.

China is the world’s leading producer of refined cobalt, owning 70 per

cent of global refinery capacity. The bulk of cobalt is sourced from mines

in the Democratic Republic of Congo, though there is increasing concern

over the use of child labour (an estimated 40,000 miners are children)

and over environmental damage caused by the mines. Primary

production is also supplemented by increasing re-use of cobalt from

scrap and secondary sources.

Australian cobalt reserves are co-located with other commodities

Although Australia has significant cobalt reserves, there are no

dedicated cobalt mines in operation. Most cobalt is mined as a by-

product of copper, gold or nickel, and around 40 of Australia’s gold and

nickel operations are co-located with some form of cobalt deposit. These

mines produce varying quantities of cobalt as a secondary commodity.

Most deposits are located in Western Australia, though there are small

producers in Queensland, New South Wales and South Australia.

Australia accounted for 4 per cent of cobalt production in 2011.

With a deficit of 7000 tonnes of cobalt expected by 2020, and with some

suppliers facing environmental and human rights concerns, it is likely

that there will be emerging opportunities for new suppliers.

Table 15.7: Australian cobalt projects


Project Name Location Stage Outputs

Owendale New South

Wales

Feasibility

Started

Scandium, Platinum,

Nickel, Cobalt, Copper,

Palladium

Syerston New South

Wales

Feasibility

Started

Scandium, Nickel, Cobalt,

Platinum, Palladium

SCONI Queensland Feasibility

Started

Cobalt, Nickel, Scandium,

Iron Ore

White Range Queensland Feasibility

Complete

Copper, Cobalt, Gold,

Silver, Molybdenum,

Rhenium

Mount

Gunson

South Australia Feasibility Copper, Cobalt, Silver,

Gold, Iron Ore, U3O8

North Portia South Australia Feasibility

Started

Copper, Gold,

Molybdenum, Cobalt

Murrin Murrin Western

Australia

Expansion Nickel, Cobalt

Mulga Rock Western

Australia

Feasibility

Started

U3O8, Copper, Zinc,

Nickel, Cobalt, Scandium


Congo

(Kinshasa)3,400,000 66,000

Australia 1,000,000 5,100

Philippines 290,000 3,500

Canada 270,000 7,300

Zambia 270,000 4,600


The future of batteries

Batteries are an important enabler for new technology

Wind and rooftop solar accounted for 41 and 21 petajoules (respectively)

of Australia’s electricity generation in 2014–15. This amounts to a

relatively modest share of Australia’s total electricity use, which summed

to 908 petajoules over the year. However, solar and wind energy are

growing strongly, with solar growing by 60 per cent per year on average

over the past 10 years, while wind has grown at an average annual rate

of 24 per cent. Wind has reached one-third of total electricity generation

in South Australia.

As recent moves towards large battery facilities in South Australia

demonstrate, batteries have a significant role to play in supporting

emerging energy technologies. Upgrades to interconnectors will also

assist, by improving the management of variable generation. Batteries,

smart grids and interconnectors, have a mutually supportive function in

managing variability and ensuring smooth power provision over time.

Batteries are likely to also play an integral part in the potential

penetration of electric cars. As improvements to range take effect and

prices continue to fall, electric vehicles are forecast to grow in number,

from less than 15,000 in 2010 to almost 4 million (or 4 per cent of all

cars) by 2020.

The recent independent review into the National Electricity Market

(NEM) chaired by Alan Finkel, found that regulatory reform and

investment incentives will be important to help battery technology reach

its full potential. This potential is significant, with the report noting that

“Energy storage technologies can provide solutions to many of the

reliability and security challenges facing the NEM as it transitions to a

more variable, non-synchronous and distributed generation mix”.

Battery markets have some emerging issues, which could affect future

trends…

Although growth in demand is likely to pick up, there are emerging

challenges to the technology. Battery markets have become somewhat

skewed in recent years, with China becoming increasingly dominant

across a range of areas. China is now the biggest producer of flake

graphite, spherical graphite, lithium-ion anode material, lithium-ion

anodes and lithium-ion batteries. China is constructing several large

Li-ion factories, which are expected to push the country’s share of Li-ion

battery production to more than 60 per cent by 2020.

It is not clear yet how far Australia can progress beyond mining and into

other parts of the battery supply chain. Lithium concentrates produced

from mineral mines need to be further refined into higher purity lithium

products before they can be used in batteries. Most lithium concentrate

conversion plants are located in China, although two conversion plants

have been committed to in Australia. Should Australia attempt to expand

its role beyond extraction and further into production and manufacturing

of Li-ion batteries, there will be formidable issues around economies of

scale and labour cost.

Despite this, the undeveloped state of the supply chain may result in

opportunities emerging that are not yet apparent. Battery supply chains

are fragile and nascent at present, and improvements to the robustness

of these chains would do much to support long-term growth in the

battery industry.

… but technological change is a wildcard, and a potential game-changer

Technological change is bringing about significant disruptions and

improvements, despite ongoing issues in battery markets. Energy cell

costs have dropped by almost 75 per cent over the past six years, as a

result of cheaper materials, better manufacturing processes, higher

energy densities, better chemical formulations in battery cores, and

greater economies of scale.

Already, demand for batteries and associated technologies has changed

the game for producers of lithium, cobalt and graphite, turning them into

outliers at a time when other commodities are undergoing price falls and

declining investment. Time and technological change will show whether

the battery boom can drive wider change in global markets and energy

models. Investment is being drawn by the promise of electric vehicles,

and by the potential for community-generated solar power to displace

grid monopolies and fossil fuels. This investor interest is, in turn,

generating sizeable funds dedicated to further research and

development.

Commodity demand will be strong in the short term, but long-term

prospects for battery technology are still in motion. The potential

opportunities are vast, and investment and production decisions of today

could cast a long shadow into the future.

Trade summary charts and tables


Figure 16.1: Contribution to GDP

Source: ABS (2017) International Trade in Goods and Services, 5368.0



Source: ABS(2016) Australian National Accounts, National Income, Expenditure &

Production, 5204.0

37

107

59

26 6 8

62

0

20

40

60

80

Agriculture,forestry and

fishing

Mining Manufacturing Building andconstruction

Services

Per

cent

2005–06 2015–16

GDP: $1229 b

GDP: $1617 b

Figure 16.4: Principal markets for Australia’s energy exports,

2016–17 dollars

Figure 16.2: Principal markets for Australia’s resources and energy

exports, 2016–17 dollars

2023

1216

710

84

53

1510 7 6 6

2 1

0

20

40

60

China Other OtherAsia

Japan SouthKorea

EU28 India Thailand

Per

cent

2005–06 2015–16

Exports: $65 b

Exports: $103 b

Figure 16.3: Principal markets for Australia’s resources exports,

2017–17 dollars

41

3

12 14 15

610

38

1612 10 10 9

4

0

20

40

60

Japan China SouthKorea

OtherAsia

Other India EU28

Per

cent

2005–06 2015–16

Exports: $52 b

Exports: $61 b

12

27

19

129 10

71

39

1913

10 86 4

1

0

20

40

60

China Japan Other OtherAsia

SouthKorea

EU28 India UnitedStates

Per

cent

2005–06 2015–16

Exports: $117 b

Exports: $164 b


Figure 16.7: Proportion of goods and services exports by sector

Figure 16.8: Proportion of merchandise exports by sector

Source: ABS (2017) Balance of Payments and International Investment Position, 5302.0

Source: ABS (2017) Balance of Payments and International Investment Position, 5302.0



20

128 6 6 5 5

38

31

14

7 5 4 4 4

31

0

20

40

60

China Japan SouthKorea

UnitedStates

India HongKong

NewZealand

Other

Per

cent

2005–06 2015–16

Exports: $199 b

Exports: $247 b

Figure 16.5: Principal markets for Australia's total exports,

2016–17 dollars

14 1410

6 5 4 4

43

23

117 6 5 5 4

39

0

20

40

60

ChinaUnited States

JapanThailand

GermanySouth Korea

MalaysiaOther

Per

cent

2005–06 2015–16

Imports: $218 b

Imports: $268 b

Figure 16.6: Principal markets for Australia's total imports,

2016–17 dollars

12

58

1217

13

59

1217

13

54

12

2014

50

12

22

0

20

40

60

80

Rural Mineralresources

Othermerchandise

Services

Per

cent

2012–13 2013–14 2014–15 2015–16

14

70

1416

71

1415

67

1418

64

15

0

20

40

60

80

Rural Mineral resources Other merchandise

Per

cent

2012–13 2013–14 2014–15 2015–16


Unit 2011–12 2012–13 2013–14 2014–15 2015–16

Japan $m 9,058 8,335 8,048 7,324 6,961

South Korea $m 3,236 2,915 2,894 2,753 2,566

China $m 3,080 3,120 3,625 2,823 1,763

Chinese Taipei $m 2,003 1,794 1,733 1,823 1,603

Malaysia $m 392 292 361 602 500

Thailand $m 188 255 302 281 320

Total $m 18,971 17,465 17,528 16,576 15,009



Table 16.1: Principal markets for Australia’s thermal coal exports, 2016–17 dollars

Table 16.2: Principal markets for Australia’s metallurgical coal exports, 2016–17 dollars

Unit 2011–12 2012–13 2013–14 2014–15 2015–16

India $m 7,122 4,944 5,047 5,174 4,693

Japan $m 9,723 6,419 5,771 4,760 4,437

China $m 3,950 4,963 6,145 4,924 3,943

South Korea $m 4,222 2,618 2,579 2,456 2,124

Chinese Taipei $m 2,025 1,244 1,222 1,176 989

Netherlands $m 1,397 1,048 1,053 859 931

Total $m 33,838 24,178 24,399 22,501 20,136


Unit 2011–12 2012–13 2013–14 2014–15 2015–16

China $m 3,442 2,123 5 27 717

Thailand $m 1,075 879 1,714 1,301 706

Singapore $m 2,314 2,391 2,073 1,876 641

South Korea $m 1,291 1,667 668 1 457

Indonesia $m 577 324 324 34 360

United States $m 338 197 0 169 210

Total $m 13,185 11,258 11,662 8,929 5,540

Source: ABS (2017) International Trade in Goods and Services, 5368.0; International Trade Centre (2017) International Trade Statistics 2001–2017


Table 16.3: Principal markets for Australia’s crude oil and refinery feedstocks exports, 2016–17 dollars

Table 16.4: Principal markets for Australia’s LNG exports, 2016–17 dollars

Unit 2011–12 2012–13 2013–14 2014–15 2015–16

Japan $m 12,199 13,778 15,796 14,767 10,716

China $m 678 643 669 1,349 2,991

South Korea $m 292 678 460 981 1,708

Malaysia $m 0 0 0 115 191

Chinese Taipei $m 2 281 182 42 163

Total $m 13,171 15,379 17,107 17,428 16,866


Unit 2011–12 2012–13 2013–14 2014–15 2015–16

China $m 47,908 45,196 59,836 43,432 39,454

Japan $m 11,987 9,285 10,140 6,907 4,764

South Korea $m 7,128 5,310 6,398 4,175 3,106

Chinese Taipei $m 1,978 1,613 1,794 1,338 1,039

Indonesia $m 0 0 116 220 184

India $m 0 51 43 112 6

Total $m 69,104 61,509 78,347 56,239 48,635



Table 16.5: Principal markets for Australia’s iron ore exports, 2016–17 dollars

Table 16.6: Principal markets for Australia’s aluminium exports, 2016–17 dollars

Unit 2011–12 2012–13 2013–14 2014–15 2015–16

Japan $m 645 730 715 792 1,135

South Korea $m 1,457 1,082 1,169 1,503 709

Chinese Taipei $m 410 491 466 504 303

Thailand $m 361 393 318 295 273

China $m 209 161 244 52 95

Indonesia $m 333 268 205 142 96

Total $m 4,185 3,531 3,650 3,944 3,298


Unit 2011–12 2012–13 2013–14 2014–15 2015–16

China $m 2,751 3,272 4,132 3,761 3,650

Japan $m 1,638 1,740 1,704 2,052 1,453

Malaysia $m 773 729 641 543 628

India $m 1,600 1,196 992 829 522

South Korea $m 949 472 613 377 499

Philippines $m 21 152 299 265 225

Total $m 9,370 8,669 9,135 8,736 8,252



Table 16.7: Principal markets for Australia’s copper exports, 2016–17 dollars

Table 16.8: Principal markets for Australia’s gold exports, 2016–17 dollars

Unit 2011–12 2012–13 2013–14 2014–15 2015–16

China $m 4,698 6,450 8,482 7,173 8,918

United Kingdom $m 4,985 2,819 671 601 4,008

Hong Kong $m 180 119 158 196 2,569

Singapore $m 1,237 1,018 2,385 3,212 1,217

Thailand $m 1,771 1,370 466 925 258

Switzerland $m 37 308 362 15 88

Total $m 17,043 16,226 13,650 13,459 15,961


Notes: fob free-on-board; kc calorific content; a At 62 per cent iron content, estimated netback from Western Australia to Qingdao China; b Australia's export unit values; c Premium hard coking

coal fob East Coast Australia; d Average of weekly restricted spot price published by The Ux Consulting Company; f forecast; s estimate

Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; LME; London Bullion Market Association; The Ux Consulting Company; US Department of Energy;

Metal Bulletin; Japan Ministry of Economy, Trade and Industry; Department of Industry, Innovation and Science (2017).

Table 16.9: Spot prices, nominal quarterly average

Unit Jun–17 s Sep–17 f Dec–17 f Mar–18 f Jun–18 f Sep–18 f Dec–18 f Mar–19 f Jun–19 f

Alumina fob Australia US$/t 323 324 340 334 327 320 322 319 316

Aluminium LME cash US$/t 1,870 1,888 1,907 1,926 1,888 1,831 1,758 1,749 1,740

Copper LME cash US$/t 5,643 5,603 5,584 5,589 5,590 5,573 5,521 5,490 5,557

Gold LBMA PM US$/t 1,260 1,265 1,270 1,247 1,236 1,231 1,220 1,193 1,157

Iron ore fob Australia a US$/t 60 56 55 50 49 49 49 49 49

Nickel LME cash US$/t 9,400 9,372 9,425 9,477 9,553 9,553 9,553 9,747 9,747

Zinc LME cash US$/t 2,750 2,600 2,550 2,525 2,525 2,525 2,525 2,475 2,475

LNG fob b US$/MMBtu 7.5 7.1 7.4 7.6 7.7 7.7 7.9 7.9 8.0

Metallurgical coal c US$/t 187 140 137 136 135 135 128 120 119

Thermal coal fob

Newcastle 6000 kc US$/t 77 75 73 71 70 70 70 70 69

Crude oil (WTI) US$/bbl 50 52 54 55 55 56 58 59 61

Crude oil (Brent) US$/bbl 51 53 56 57 56 58 59 60 63

Crude oil (Japan

Customs Cleared) US$/bbl 51 53 56 57 56 58 59 60 63

Uranium d US$/t 21 23 24 24 24 25 27 28 28


Notes: b In 2016–17 Australian dollars; f forecast; s estimate

Source: ABS (2017) International Trade in Goods and Services, Australia, Cat. No. 5368.0; Department of Industry, Innovation and Science (2017)

Table 16.10: Australia's export values, nominal quarterly

Unit Jun–17 s Sep–17 f Dec–17 f Mar–18 f Jun–18 f Sep–18 f Dec–18 f Mar–19 f Jun–19 f

Iron ore $m 16,849 16,304 16,151 13,233 13,785 14,289 14,349 13,827 14,674

Gold $m 4,008 4,059 4,079 4,332 4,387 4,423 4,441 4,677 4,589

Copper $m 1,972 2,099 1,998 1,977 1,988 2,098 1,977 2,013 2,060

Alumina $m 1,460 1,412 1,552 1,585 1,518 1,421 1,561 1,594 1,527

Aluminium $m 874 897 957 888 852 833 846 817 817

Zinc $m 639 539 612 673 654 592 698 766 713

Bauxite $m 236 232 236 236 236 236 241 271 271

Nickel $m 102 105 108 123 120 121 121 124 123

Other resources $m 4,032 3,922 4,120 3,692 4,039 3,899 4,111 3,693 4,051

Total resources $m 30,174 29,571 29,817 26,748 27,590 27,927 28,360 27,801 28,844

Metallurgical coal $m 9,535 8,932 8,387 7,585 7,232 7,368 7,063 6,779 6,442

Thermal coal $m 5,222 5,122 5,138 4,783 4,471 4,549 4,403 4,492 4,315

LNG $m 6,822 7,704 8,285 7,921 8,107 9,131 9,806 10,112 9,626

Crude oil $m 1,407 1,530 1,513 1,503 1,599 1,881 2,054 2,265 2,305

Uranium $m 245 251 255 244 244 264 267 258 258

Other energy $m 565 563 561 541 607 612 620 607 720

Total energy $m 23,795 24,102 24,138 22,577 22,259 23,805 24,212 24,513 23,667

Total resources and energy $m 53,969 53,673 53,955 49,326 49,850 51,732 52,573 52,314 52,511

Appendix


Resources (non-energy) Energy

Definition

Resource commodities are non-energy minerals and

semi-manufactured products produced from non-

energy minerals

Energy commodities are minerals and petroleum

products that are typically used for power generation

Australian Harmonised Export Commodity

Classification (AHECC) chapters

25 (part); 26 (part); 28 (part); 31 (part); 71 (part); 73

(part); 74; 75; 76; 78; 79; 80; 8127 (part)

Commodities for which data is published, forecasts

are made and are analysed in detail in this report

Alumina; aluminium; bauxite, copper; gold; iron ore;

crude steel; nickel; zinc

Crude oil and petroleum products; LNG; metallurgical

coal; thermal coal; uranium

Commodities for which data is published and forecasts

are made. Lead; silver; tin; salt; diamonds; other resources Other energy

Notes: The AHECC chapter is the first two digits of the trade code. Groupings are made at the 8-digit level.


Table 17.1: Resource and energy commodities groupings and definitions

Methodology and key assumptions

Commodity classifications

In this report, exports for each commodity are defined by a selected set

of 8-digit Australian Harmonised Export Commodity Classification

(AHECC) codes. Where possible, the choice of AHECC codes is based

on alignment with international trade data, to ensure that direct

comparisons can be made. For example, groupings for various

commodities are aligned classifications used by the International Energy

Agency, World Steel Association, International Nickel Study Group,

International Lead and Zinc Study Group, International Copper Study

Group and World Bureau of Metal Statistics.

In this report, benchmark prices and Australian production and exports

are forecast for 21 commodities, as shown in Table 16.1 below. In

estimating a total for Australia’s resources and energy exports, the

remaining commodities, defined as ‘other resources’ and ‘other energy’,

are forecast as a group.

Real dollars

In this report, all value and price data (unless otherwise specified) is in

real 2016–17 Australian dollars or real 2017 US dollars. The conversion

from nominal to real dollars is based on the Australian and US consumer

price indices.

Prices in future years are based on the median of economic forecasters

at the time that this report was prepared. The source for this is

Bloomberg’s survey of economic forecasters.

Exchange rates

In this report, the exchange rate forecasts for the Australian/US dollar is

based on the median of economic forecasters at the time that this report

was prepared. The source for this is Bloomberg’s survey of economic

forecasters.

resources and energy quarterly june 17 · macroeconomic outlook: kristy krautler steel and iron...

Documents