LAUNCESTON, Australia, (Reuters) - It’s become conventional wisdom that the commodities boom is over, and while the era of rising prices is gone, figures from the Australian government suggest the surge in volumes is well under way.
Exports of iron ore will jump 22.5 percent between the 2014-15 fiscal year and 2019-20, while liquefied natural gas (LNG) shipments will triple, according to the latest quarterly report from official forecaster, the Department of Industry.
Even the pressured coal sector is expected to post gains, with thermal coal exports climbing 16.6 percent over the period and those of metallurgical grades rising 7.3 percent.
Australia is the world’s top shipper of iron ore and metallurgical coal, number two in thermal coal and soon to take the lead in LNG, once the seven gas projects under construction are completed.
But while the report, released on Wednesday, is relatively bullish about the outlook for export volumes, it’s another matter when it comes to prices.
Iron ore will average $60.40 a ton in 2015, dropping to $56.80 next year before recovering to $64.60 in 2017, the department said.
It expects the price recovery to continue to 2020, when it will reach $81.80 a ton.
With Asian spot iron ore dropping to $54.50 a ton on Wednesday, the lowest since the data series began in late 2008, the forecast for this year already looks optimistic.
And the price increases from 2017 onwards are based on the view that Chinese imports will rise to 1.2 billion tonnes in 2020, from a forecast 935 million this year.
Again, this may be overly bullish as it assumes rising steel output in China as well as the shutting down of higher-cost domestic iron ore mines.
Staying with the steel industry, the department also expects Australia’s exports of metallurgical coal to rise to 203.9 million tonnes by the 2019-20 fiscal year, from 190 million in 2014-15.
The price is estimated to rise from $115.80 a ton this year to $128 by 2020, supported by rising demand for the steel-making fuel from India and a lack of new sources of cost-competitive supply outside of Australia.
In thermal coal, the department takes the view that prices are going to remain depressed for an extended period, amid ongoing oversupply even as coal-fired power generation increases in Asia.
Prices will average $70 a ton this year, falling to $65 next year and $64 in 2017, before staging a mild recovery to $67 in 2018, $69 in 2019 and $72 by 2020.
With the benchmark Newcastle weekly index at $65.11 a ton on March 13, the forecast for this year assumes a price recovery, for which there is little evidence so far, with import demand remaining weak in China and steady elsewhere.
Still, the addition of coal-fired power plants across Asia, particularly in Southeast and South Asia, does support the department’s view that Australian export volumes can go from 201 million tonnes in 2014-15 to 234.4 million by 2019-20.
LNG is the biggest mover in Australia’s resource sector, with exports expected to jump to 76.6 million tonnes in 2019-20 from 25.5 million in 2014-15.
The department also expects the price of LNG to hold up, with the value of exports in 2019-20 estimated at A$52.2 billion ($40.75 billion), up from A$18.15 billion in 2014-15.
The figures show that while export volumes are estimated to rise three times, the value will rise by 2.8 times, indicating only slightly lower prices over the forecast period.
This view is predicated on Chinese import demand jumping from 19.8 million tonnes last year to 61 million tonnes in 2020, thus absorbing most of the additional supply, not only from Australia but also from the United States and elsewhere.
The risk is that Chinese demand disappoints, but with LNG prices falling along with oil and the surge in supply, this likelihood is mitigated.
Overall, the picture the department paints is one of steady demand for commodities, with slight growth to already high volumes. Prices are largely expected to be weaker over the next few years, before recovering slightly.
While one can quibble with some of the individual forecasts, especially the price forecasts for this year for iron ore and coal, the department’s outlook confirms that the commodity boom is still alive, but it’s now a volume and cost-control exercise.
(Clyde Russell is a Reuters columnist. The views expressed are his own.)
Editing by Tom Hogue