Resource and energy profits will decline as global demand slows

The March 2024 Resources and Energy Quarterly Report, released today by the Department of Industry, Science and Resources, contains a 5-year outlook which suggests that Australia's resource and energy export earnings energy costs are expected to decrease after the extraordinary increase in 202223.

Raw material export earnings are expected to reach $417 billion in 202324, about 10 percent lower than the record $466 billion recorded in 202223. The continued decline in bulk raw material prices is expected to further reduce revenues to around $300 billion in real terms by 202829.

This decline is driven by lower global prices, with Australian export volumes remaining stable over the forecast period.

The outlook for Australian exports of energy resources and commodities has improved slightly since the December 2023 edition.

Global economic growth has slowed over the past year, in response to restrictive monetary policy by many central banks. Central banks have managed to bring inflation back to target levels and may soon adopt a neutral stance.

With monetary policy likely to become less restrictive, the global manufacturing sector has better prospects for recovery, which could boost demand for raw materials.

China faces ongoing challenges in its real estate sector and demographics, both of which affect demand for raw materials. Conflicts in Ukraine and Gaza add considerable uncertainty to the outlook. But the global energy transition requires a wide range of natural resources, many of which are abundant in Australia.

Highlights of the March REQ are:

• Iron ore remains Australia's largest export resource, with expected revenues of $136 billion in 2023-2024, up from $124 billion in 202223. Revenues are expected to decline to $111 billion in 2024- 25 and fall to around $83 billion by 202829.
• Gas and coal prices are expected to continue to fall as global markets adjust to the aftermath of Russia's invasion of Ukraine.
• Revenues from metallurgical coal, used to make steel, are expected to reach $56 billion in 2023.24 This figure is down from $62 billion last year and is expected to decline further in during the forecast period. Thermal coal revenues are expected to reach $36 billion in 202324, up from $66 billion last year, before declining further over the forecast period.
• The global energy transition is likely to support demand for raw materials used in low-emission technologies, including iron ore, aluminum, copper, nickel and lithium. However, nickel and lithium prices fell to five-year lows as market surpluses grew.
• Nickel exports are expected to reach $3.6 billion this fiscal year and $2.4 billion next year, up from $5.0 billion in 202223.
• Lithium export revenues are expected to fall to $11.3 billion this year from $20.1 billion in 202223, despite a slight increase in export volumes.
• India is expected to account for a significantly larger share of global commodity demand by the end of the forecast period.

Risks to the forecast include an expansion of Western countries' sanctions against Russia to include base metals. This would have significant implications for Australian nickel and aluminum producers. Any further expansion of the conflict in Gaza could disrupt oil and LNG supplies to the Middle East and drive up prices, hurting global economic growth.

The El Nio weather event appears set to end by mid-2024, with a higher than normal chance of a La Nia event developing in the second half of 2024. This is likely to cause a return of wet weather and floods which heavily impacted mines, transport routes and ports in Australia during the period 2021-2023.