Resources and energy quarterly: March 2024

Latest developments

Australian resources and energy exports are set to ease after the extraordinary surge of 2022–23.

• In net terms, the near-term outlook for Australian resource and energy commodity exports has improved slightly since the December 2023 edition of the REQ. Central banks have managed inflation without shrinking GDP in major economies. World economic growth is expected to improve in 2025 once restrictive monetary policy eases. The global energy transition along with firm growth in China and India will maintain demand for minerals over the rest of the outlook period.
• The latest forecast is for weak growth in world demand and rising world commodity supply to reduce Australia’s resource and energy exports from $466 billion in 2022–23 to $417 billion in 2023–24. In 2024–25, a further decline is likely, as commodity prices fall and the AUD/USD lifts. Further out, lower bulk commodity prices will impact export earnings.
• Further falls in nickel and lithium prices have been observed with higher supply than demand. Weakness in the real estate sector in China has softened iron ore prices.

Latest developments

The International Monetary Fund (IMF) forecasts the world economy to grow by 3.1% in 2024, rising to 3.2% in 2025.

This is an improvement of 0.2 percentage points for 2024 compared to the IMF’s October 2023 outlook, reflecting strong consumption in the United States, China and other emerging economies in 2023. The IMF has higher confidence of a soft landing, stating the balance of risks is less negative than in October, but are more likely to worsen than improve.

• Global industrial production and manufacturing activity recovered in late 2023 and early 2024, because of improving global goods demand.
• The outlook for global growth in 2024 improved slightly, with the balance of risks remaining moderately tilted to the downside. As inflation returns to target levels, central banks will be able to adopt less restrictive stances, allowing growth to pick up in 2025.
• Despite better-than-expected growth in the December quarter 2023, the main downside risks challenge China’s growth outlook, including ongoing issues in the real estate sector.
   

Latest developments

World steel demand continues to be impacted by high inflation and interest rates in most advanced economies.

This has added to weaker industrial output over the past year. Over 2024, growth is expected to stabilise and increase in ex-China global manufacturing, with further stimulus-related infrastructure projects expected to support stronger steel demand.  

• World steel production was flat in 2023 following large falls in 2022. An expected increase in global steel demand should see annual growth in steel production of almost 2% in 2024 and 2025.
• Projections suggest world steel production will reach 2.1 billion tonnes by 2029. New capacity will support the growth with projects in the pipeline in Asia, North America, Europe and the Middle East. 
• Global steel consumption is forecast to grow 1.4% year-on-year in 2024. The weakness in China’s property sector over the past couple of years is expected to persist this year. Less restrictive monetary policies in advanced economies should see demand recover in 2025 and 2026. The global energy transition will support the continued consumption of steel.

Latest developments

Global iron ore demand is expected to increase steadily over the outlook to 2029.

Falling demand from China will be offset by increases in regions such as emerging Asia and the Middle East. Iron ore prices have since fallen following China’s restock of its supplies. China’s portside stock returned to average levels in March following a 5-year low.

• Spot iron ore prices strengthened in early 2024, after steady rises in the second half of 2023. Prices were driven by positive sentiment linked with policy stimulus in the Chinese economy. Prices fell to 7-month low in March following a rapid increase of Chinese iron ore inventory. This occurred during sluggish growth in steel output in early 2024.
• Australian export volumes increased by 1.1% (year-on-year) to 893 million tonnes. As additional greenfield supply comes online, export volumes are forecast to increase by 1.6% annually through to 2029.
• Lower prices projected over the outlook period will lower Australia’s iron ore export earnings in real terms. Earnings are predicted to fall from $136 billion in 2023–24 to $107 billion in 2024–25, and to $83 billion by 2028–29.

Latest developments

Global demand for metallurgical coal reached 317 million tonnes in 2023, growing by 8% from 2022. 

India and China drove most of this growth, with China drawing in growing coal flows from Mongolia through upgraded rail links. India overtook China is the world's number one importer of seaborne metallurgical coal in 2023. China remains the largest importer for overall metallurgical coal imports (land and sea).

• Metallurgical coal prices are falling slowly as supply disruptions reduce. Prices are expected to ease from US$277 a tonne in 2024 to US$185 a tonne (in real terms) by 2029.
• Export earnings are expected to decline to $56 billion in 2023–24, before stabilising around $40 billion (in real terms) in the second half of the outlook period. 
• Export volumes are expected to increase from 161 Mt in 2023–24 to 175 Mt by 2028–29, as mines in NSW and Queensland ramp up. 

Latest developments

Thermal coal markets have been stable over the March quarter 2024.

The 6,000 kcal Newcastle price has averaged $US127 a tonne so far in 2024, compared with $US135 a tonne in the December quarter 2023. Seaborne thermal coal imports are expected to be reduced in the short term. This is because of high inventories across several markets and decreased demand from China.

• A possible La Niña weather event in 2024 could result in weather-induced disruptions to coal supply. Forecasted thermal coal export earnings will ease from $36 billion in 2023–24 to around $21 billion by 2028–29 in real terms.
• The thermal coal spot price is expected to fall over the coming years, from US$133 a tonne in 2024 to US$105 a tonne (in real terms) by 2029. Contract prices are predicted to fall from around US$200 a tonne (in Japanese Fiscal Year 2023–24), converging on spot prices.
• Export volumes are expected to hold steady at around 205 million tonnes (Mt) per year through the outlook period. Mine depletions and ramp-ups are forecast to be balanced.

Latest developments

Gas markets have stabilised over the past few quarters, with price impacts from the Russian invasion of Ukraine now subsiding. 

The scale of the price shocks is expected to have a long-term effect on gas markets. 

Growth in markets has been structurally slower for the past 2 years and is expected to continue.

• Gas consumption is expected to grow at an average of 1.6% per through to 2029. This is lower compared to 2016-2021 average of 2.5% per year. Australia’s LNG export revenues are expected to decline from $72 billion in 2023–24 to just under $45 billion by 2028–29. Export volumes are forecast to hold around 80 Mt annually during the outlook period. Growing pressure is expected as some gas reserves start to deplete in the future.
• Gas prices eased from the records of 2022 but have risen slightly as conflicts in Ukraine and Gaza continue. 
• New supply from the US and Qatar should help to bring prices down in the second half of the outlook period. Prices are forecast to ease from around US$16/MMBtu in 2024 to just under US$11/MMBtu by 2029 (in real terms).

Latest developments

Lithium export revenue has been revised downward with prices falling faster than expected. Slowing electric vehicle demand has placed pressure on prices.

Lower prices will be partly offset through rising export volumes and growth in onshore value-added processing.

• Australia's lithium export earnings are projected to fall by more than half over the forecast period. Earnings a predicted to fall from A$21 billion in 2022-23 to A$9 billion in 2028-29 (in real terms). Prices are difficult to forecast given the rapid pace of supply and demand growth. A projected 70% increase in Australian lithium production over the period should partially offset the impact of lower prices.
• Between 2023 and 2029, Global lithium demand is predicted to more than double with the increase of electric vehicles. However, new battery technologies could reduce lithium usage.
• Sizeable project pipelines continue among large producers such as Australia and China, along with new and emerging producers. Global lithium supply will broadly keep pace with rising demand because of these projects.

Latest developments

Australian gold export earnings are forecast to increase by 14% to $28 billion in 2023–24. 

The figure is higher than expected from the December 2023 Resources and energy quarterly. Export earnings are forecast to decline in real terms over the outlook period to around $20 billion by 2028–29. This is largely because of expected declines in real gold prices.

• Gold prices averaged US$1,940 an ounce in 2023, supported by strong demand from investors and central banks. Prices are forecast to remain elevated throughout 2024 and 2025, before softening in real terms to average around US$1,750 an ounce by 2029.
• Australian gold production decreased to 294 tonnes in 2023, impacted by adverse weather events in H1 2023. Lower grades and planned maintenance in H2 2023 also added to the production decrease. Production is forecast to grow over the long-term as major new projects and expansions come on-stream.
• Gold earnings are forecast to decline in real terms, from $28 billion in 2023–24 to around $20 billion in 2028–29. Higher export volumes are predicted to outweigh the impact of lower Australian gold prices in real terms.

Latest developments

Export earnings for 2023–24 have been revised up from the December quarter 2023.

Primary aluminium prices are expected to rise through to 2029, with growing demand for new energy-efficient cars and technologies.

• Aluminium prices are forecast to remain stable at around US$2,300 a tonne in 2024. An influx of Russian aluminium into the market will reduce the impact of higher demand from China. But with growing demand for new energy-efficient cars and technologies, the aluminium price is forecast to rise to US$2,437 a tonne in 2029 (in real terms).
• Australia's primary aluminium output is projected to be 1.6 million tonnes (Mt) a year. Alcoa's decision to limit its Kwinana alumina refinery in WA will likely bring Australian alumina output below 19 Mt a year in 2024. Mine expansion and new mines are expected to boost Australian bauxite output to 122 Mt by 2029.
• The ramp up of high purity alumina output is expected to add about $1.5 billion a year to Australia’s aluminium, alumina and bauxite (AAB) exports from 2025–26. Australian AAB exports are projected to reach $17 billion (in real terms) by 2028–29.

Latest developments

Export volumes are forecast to reach 845,000 tonnes in 2023–24, little changed from 2022–23. Lower copper prices will see export earnings for 2023–24 forecast around $12.1 billion, a 1.2% contraction compared to 2022–23.

Australian mine production is projected to grow by 6.2% per year over the outlook period, to reach 1,160,000 tonnes in 2028–29. Over the same period, Australian refined output is expected to grow by around 0.7% annually.

• Despite strong growth in copper consumption in China, copper prices trended down throughout 2023 and into 2024. The fall was caused by weakness in construction and manufacturing in advanced nations including US, EU, and Japan. Benchmark LME copper is estimated to average US$8,340 a tonne in 2024 and is expected to reach US$9,200 a tonne in 2029 (real terms).
• Global mined and refined copper production are expected to grow by 2.4% and 2.0% in 2024, respectively. This growth will be led by new greenfield projects, a rise in production capacity, and increased automation in production.
• Australian copper export earnings are forecast to reach around $12.1 billion in 2023–24. Higher export volumes and rising prices are expected see export earnings reach $16.8 billion in 2028-29 (real terms).

Latest developments

Higher projected prices from 2026 will support larger production volumes, with several projects set to come online in coming years. 

By 2029, Australian mined nickel production is projected to grow to 230,000 tonnes in 2028–29. This includes new output from several large and mid-tier producers.

New projects aiming to produce intermediate products (such as Mixed Hydroxide Precipitate) and nickel sulphate (an emerging alternative in cathode materials for lithium-ion batteries) will add to this production increase. Australia's refined production is projected to grow to 113,000 tonnes over the same period.

• Strong supply growth in recent years has created a global nickel surplus expected to persist over the next few years. This surplus has put downward pressure on the nickel price over the past year, leading to a fall of 40% in the 12 months to February 2024.
• Continued growth in global demand is expected to see a reduced global balance for nickel in the latter half of the outlook period, even with the near-term oversupply.
• Current weaker prices and reduced production are expected to see Australian nickel export earnings fall to $3.6 billion in 2023–24 and $2.5 billion in 2024–25. However, improved prices toward the end of the outlook period will see Australian exports reach around $4.4 billion in 2028–29 (in real terms).

Latest developments

Australia’s export earnings for zinc concentrates and refined zinc (combined) fell 24% year-on-year to $1.0 billion in the December quarter 2023.

Falling prices over the period led to this decrease, with prices received for exports of ore down 23% and refined zinc down 16%. Falls in export volumes also reduced export revenue in the December quarter 2023. Zinc ore exports fell 7% year-on-year, while export volumes of refined zinc metal fell 1.0% year-on-year.

• The outlook for zinc demand remains reduced because of slowing global growth and ongoing weakness in China’s property market. The zinc price is forecast to rise in real terms over the outlook period, from around US$2,400 a tonne to around US$2,700 a tonne by 2029. 
• Australia’s zinc production is forecast to grow over the next 2 years, with the Century mine expansion and higher Golden Grove mine output. Output is expected to then ease from 2026 as production falls in older zinc mines.
• Australia’s zinc exports are forecast to decline from $4.0 billion in 2023–24 to $3.3 billion in 2028–29 in real terms. Lower volumes will be partially offset by a moderate increase in price over the period.