Forecaster ABARE said in a commodity outlook released today that production of metals and other minerals would still increase by 0.8% for the current financial year from 2007-08, due to increased production of iron ore and thermal coal.

And the last vestiges of the boom will carry over into earnings as well, with the economic forecaster expecting export earnings from energy and minerals to increase by 40% year on year to $A162 billion, thanks again to bulk commodities and also gold, with metals and other minerals accounting for $85 billion of this.

However, the metals and minerals share of this figure will fall by 9% in 2009-10 to $77 billion as base metals prices continue to wallow and iron ore prices also take a tumble.

Overall, the value of export earnings from energy and minerals will fall to $128 billion in 2009-10 as prices tank.

While the Australian dollar is expected to remain weak – averaging US70c in 2008-09 and US68c 2009-10 – this will not be nearly enough to shield the Australian mining industry from the impact of falling production and declining prices.

“This, together with lower export volumes, is forecast to more than offset the positive effect on earnings of an assumed depreciation of the Australian dollar,” ABARE said.

The forecaster is still optimistic in the longer term, predicting the production of energy and minerals commodities will increase by 20% in 2013-14 compared with 2008-09 volumes, with rising demand and the prices also increasing.

In fact, ABARE predicted earnings from energy and minerals commodities would grow at an average annual rate of 2.8% to $140 billion (in 2008-09 dollars) in 2013-14 as world economic growth strengthens to 4.3% in 2011, before easing gradually to around 4% a year toward 2014.

Coal outlook

With ABARE estimating Australia’s mineral and energy exports to fall by $35 billion in 2009-10 financial year from the current financial year, exports of coking coal and thermal coal are tipped to dive 48% and 28% respectively.

A recovery in thermal coal prices is long off according to ABARE, which has projected thermal coal contract prices to increase from the 2011 Japanese financial year onward.

But the forecaster still expects the 2011 prices to remain below the high prices of around $US125 a tonne settled last year.

“Strong demand growth from developing Asia is projected with many countries investing heavily in new coal-fired power generation capacity.

“However, the effect of climate change policies in some developed economies and uncertainty surrounding the global economic outlook present risks to these projections.”

In the current financial year ABARE is tipping Australian thermal coal exports to increase by 13% to 130 million tonnes, eclipsing the 3% growth in the previous year.

Competition from Indonesia and Colombia could heat up, with ABARE forecasting Indonesia’s thermal coal production to jump an average of 4% per annum to 250 million tonnes in 2014.

ABARE analysts noted that Indonesia’s growth could be offset by the potential for a rapid increase in domestic demand.

Mine expansions in Colombia, along with low costs of production and the high-energy, low-sulphur qualities of its thermal coal, have the analysts forecasting exports to increase by 7% per year to 102Mt in 2014.

In a positive development for the commodity’s demand, India’s plans to double electricity generation by 2017 has the analysts projecting the nation’s thermal coal imports to ramp-up to 80Mt in 2014 compared to an estimated 34Mt last year.

Meanwhile, coking coal will be affected by the collapse in steel demand, with ABARE forecasting global steel production to fall around 6% for this calendar year.

As a consequence, ABARE analyst Rohan Kendall said negotiated metallurgical coal and iron ore prices are expected to decline for several years beyond 2009.

However, he also projected world trade in met coal would grow by 2% per annum to around 260Mt over the next five years.

The European Union and India have been tipped as the main sources of demand, with Kendall noting India fulfilled half of its requirements for the commodity last year with imports.

“This proportion is projected to rise over the medium term as almost all coal reserves in India are of lower-grade coal.

“If India’s steel industry expands as expected, it will need to rely increasingly on imports of high-grade metallurgical coal.”

He projected Indian imports of met coal to rise by approximately 10% a year to 45Mt in 2014.

On the other hand, he expects EU imports to increase by an average of 4% a year over the next five years to around 64Mt in 2014, chiefly due to a decline in European coking coal production.

MCA response

Commenting on the ABARE report, Minerals Council of Australia warned Australia’s coal, gold and iron ore producers face emissions trading permit costs of billions of dollars during the 2010-11 financial year.

“In the first five years of the proposed ETS, Australia’s coal exporters alone face $5 billion in new carbon costs,” MCA CEO Mitchell Hooke said.

“None of their competitors in rich or poor nations face such costs.”

MCA also criticised the Rudd government’s Fair Work Bill, which it believes could wind the industrial relations clock back to an era when workplaces were dogged by disputation and confrontation.

“The ultimate cost of disruption in the workplace and new carbon costs will be jobs.”