Australian resources export earnings tipped to tumble by $34 billion

Australian resources export earnings tipped to tumble by $34 billion

Export earnings from Australia’s resource sector are tipped to tumble significantly this financial year after soaring to record levels in 2019-20.

The Office of the Chief Economist expects mineral and oil and gas exports will slip from an all-time high of $290 billion – mainly due to record iron ore earnings of $102 billion last financial year – to $256 billion in the 12 months to June 30.

The outlook for 2021–22 is even softer at $252 billion.

The iron ore price has been held up by strong demand from China combined with lower supply from Brazil, where pandemic-related workplace restrictions have derailed efforts to recover from shutdowns in the wake of Vale’s Brumadinho tailings dam collapse, which was one of the South American nation’s worst environmental disasters.

But prices have eased this month, and earnings for the current financial year are forecast to dip to $97 billion.

The gold price has also softened after hitting record levels above $US2000 an ounce last month on the back of declining bond yields and rising safe haven demand.

But Australia’s annual earnings for the precious metal are still on track to reach an all-time high of about $31 billion.

“Further out, the price is likely to decline as equity markets recover more broadly and as bond yields rise,” the Office of the Chief Economist said in its latest figures.

The prices of energy commodities are steadily recovering, as the health crisis-induced plunge in global demand recovers and supply cuts cause markets to tighten.

The oil price should recover further but seems likely to be capped at the $US60 per barrel mark as American producers re-enter the market.

The value of Australian LNG exports is tipped to dip sharply this financial year, as three-quarters is sold under contract at prices linked to the oil price.

And thermal coal prices remain weak due to excess supply and power utilities switching to gas.

“The forecasts have notable risks on both sides: on the downside, a COVID-19-induced, protracted economic slump in the US would hurt Asia (and thus Australia),” the Office of the Chief Economist said.

“An upside risk is potential for a successful COVID-19 vaccine and/or treatment that would boost business and consumer confidence, and lift economic activity once a sufficient number of vulnerable people have been inoculated.”