Australia is enjoying a windfall commodities boom, but it won't last: Russell
(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Clyde Russell
SINGAPORE, March 29 (Reuters) - The good news for Australia
is that it can expect a flood of cash from resource exports this
fiscal year because of rising exports and relatively strong
prices for iron ore, coal and liquefied natural gas (LNG).
The bad news is this windfall is unlikely to be sustained
for long, and export earnings are likely to fall in four of the
five years after the current 2018/19 fiscal year.
The risk for Australia is that its politicians will be
tempted to lock in permanent tax cuts and spending measures
based on a likely temporary windfall, especially given the
expected federal general election in May.
The Australian government's Resources and Energy Quarterly,
released on Friday, forecasts total earnings from commodity
exports at A$277.8 billion ($196 billion) in 2018/19, up 22
percent from the prior fiscal year's A$227.5 billion.
Australia is the world's largest exporter of iron ore and
coal, and is on the verge of overtaking Qatar as the biggest
shipper of LNG.
It's little surprise that these three commodities make up
the lion's share of resource earnings, with iron ore expected to
contribute A$74 billion, coal A$70 billion and LNG A$50 billion.
Much of the strength in earnings from these three
heavyweights is down to demand from China, the world's biggest
The quarterly report said China's efforts to stimulate its
economy will be positive for commodity demand, but Beijing also
faces risks from the as yet unresolved trade dispute with the
But while Australia is enjoying the boost to earnings from
higher export volumes, and rising prices for some commodities,
as well as a weaker domestic currency, the government's
forecaster doesn't expect this to persist.
The nominal value of commodity exports are expected to drop
to A$271.7 billion in the 2019/20 fiscal year and to A$256.1
billion by 2023/24.
The decline in earnings is despite rising volumes for the
three major export commodities, with the report pointing to
weakening prices as the main culprit.
ACROSS THE BOARD DECLINES
The report expects iron ore prices to drop to $63 a tonne by
2023/24 from its forecast of $66 in the current fiscal year, and
LNG is slated to drop from the current A$12.60 per gigajoule to
The price of coking coal used to make steel is expected to
slip from $202 a tonne in the current year to $172 by 2023/24,
while that for thermal coal is forecast to dip from $101 to $88
over the same time period.
The decline in prices for most commodities is likely because
of global supply additions and moderating demand growth from
major importers such as China.
The quarterly report makes for somewhat gloomy reading even
beyond the major three commodities, with lower earnings forecast
in real terms by 2023/24 for gold, alumina, copper, crude oil,
aluminium and zinc.
The only two commodities where earnings are expected to
increase over the forecast period are nickel and lithium, which
not coincidentally are also two of the main metals used in
batteries for electric vehicles and power storage.
The key takeaway from the report is that Australia's
resource sector is enjoying good times right now, but will have
to work harder in the future, and even that is unlikely to be
enough to stop declining earnings.
That should be a concern for politicians, but given the
short, by world democratic standards, three-year terms for the
federal government, it's more likely that both major parties
will be tempted to boost popularity by spending the current
windfall as if it is a permanent structural change.
(Editing by Christian Schmollinger)
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