Australia’s Federal Treasurer Wayne Swan points out in the latest Budget papers the resources sector has responded to the unprecedented growth in demand for resources from Asia with the largest investment boom in Australian history.
“Total resources investment surged to over $100b in 2011 12, more than 600% higher than it was a decade ago. LNG projects are increasingly dominating the pipeline of investment, driven by the demand for energy in Asia, but large scale investment in iron ore and coal extraction and transportation is also contributing to a lift in export capacity,” he said.
“Resources investment is expected to peak in 2013 14 at record highs, and then remain elevated through to at least the middle of the decade. The pipeline of resources investment remains substantial, with over $260b of investment either committed to or under construction.
“While resources investment will begin to detract from growth after it passes its peak, the resources sector will continue to make an important contribution to growth as the record level of investment fuels exceptional growth in resources production and exports. Non rural commodity export volumes are expected to grow by more than 30% from 2011 12 to 2014 15.”
The Budget papers contend iron ore exports are forecast to increase by more than 40% over the next three years, with total volumes reaching double their 2008 09 level in 2014 15. Coal export volumes are also expected to increase significantly, growing by almost 35% over the same period to reach volumes around 60% higher than in 2008 09.
Coal exports are expected to grow by 12% in 2013 14 and 10% in 2014 15.
Treasury forecasts commodity prices by drawing on consensus forecasts, BREE forecasts, commodity price futures, Treasury liaison and analysis. Treasury's forecasts of iron ore, metallurgical coal and thermal coal export prices are consistent with private sector forecasts.
Seasonally high Chinese steel demand and ore stocking by Chinese steel mills are expected to continue to support iron ore prices during the first half of 2013. Nevertheless, the substantial increase in iron ore supply (particularly from Australia) and high global steel inventories are expected to lead to a decline in prices in the second half of 2013. Further increases in supply are expected to place downward pressure on prices over the forecast period.
The papers point out the price of metallurgical coal has diverged from the iron ore price in recent quarters, despite it also being a key input to steel production.
“Prices of both metallurgical coal and thermal coal (which is used in electricity generation) appear to more widely reflect marginal producer costs, and are expected to remain around their current levels, with increasing production costs expected to lead to only a modest increase in prices over the forecast period,” the Treasurer reports.
Meanwhile, in its response to the budget the Australian Coal Association (ACA) argues the Federal government missed a golden opportunity to improve the competitiveness and productivity of the Australian coal industry.
The ACA’s acting CEO Greg Sulivan said: “With around 9,000 jobs lost in the last 12 to 15 months and the recent postponement of multi-billion dollar projects, a priority for the government should have been to build the Australian coal industry’s competitiveness and productivity.
“Instead this government has delivered more tax, more regulation and more uncertainty. This simply adds up to fewer jobs, less growth and less investment for the future,” he said.
“To deliver a stronger economy the government needed to create a stable and competitive taxation regime, certainty and efficiency in regulation and long term investment in innovation and technology.
“Instead the government had again undermined long-standing bipartisan taxation arrangements for the industry by changing thin capitalization rules and exploration tax arrangements. These detract from Australia’s reputation and attractiveness for investment.”
“Australia is one of the world’s highest cost locations and with low coal prices and a high Australian dollar, the industry is facing the most difficult operating conditions for more than a decade. The government has missed the opportunity to deliver stability and certainty to encourage growth for the long term.”
The ACA argues the decision to cut $500m from the Carbon Capture and Storage (CCS) Flagships program was short sighted given the International Energy Agency’s recent call for governments around the world to increase their investment in CCS.
This article first appeared in the Australian Coal Report. Energy Publishing Asia Pacific is a Brisbane-based internationally renowned publisher of leading coal industry publications and reports covering Asia Pacific. In addition to the weekly Australian Coal Report, our publications include the weekly Coalfax, Indian Coal Report, South African Coal Report, and importantly, we also deliver key market price indicators for all regions, including the Newcastle Export Index (NEX) and the world's first Coking Coal Index as well as a Database of Prices & Indices.
To receive a free trial copy of one of our reports, please email epi.coalinfo@ihs.com, call +61 7 3020 4000 or visit http://www.coalportal.com/.
