Australia sees iron ore exports rising, even as demand falters

Bureau of Resources and Energy Economics (BREE) forecasts iron ore exports of 610 million tonnes in next financial year

PUBLISHED : Wednesday, 26 June, 2013, 11:04am
UPDATED : Wednesday, 26 June, 2013, 11:04am

Australia, the world’s biggest producer of iron ore, forecast a 14 per cent rise in exports in the this year/14 fiscal year as the country’s big miners press ahead with multi-billion dollar expansions despite signs demand growth is softening.

Slower than expected economic growth in China is forecast to weaken prices for iron ore, Australia’s largest export earner, further next year.

The Bureau of Resources and Energy Economics (BREE) forecast iron ore exports of 610 million tonnes in the financial year that begins July 1 after upgrading its forecast for the current year by 11 million tonnes to 533 million tonnes.

“Concerns over moderating Chinese economic growth weigh on almost all commodity prices, and particularly iron ore which is forecast to trend downwards,” BREE said in its report.

The government agency also forecast a 5 per cent rise in exports of thermal coal and 6 per cent rise in metallurgical coal, despite softening demand and global oversupply.

“Thermal coal prices are expected to weaken as increased Australian supply competes with higher US exports,” BREE said in the report.

The forecast for higher coal output comes with the opening of new mines and despite job cuts in the sector. In the latest example, Peabody Energy Corp and Glencore Xstrata

plan to cut around 500 coal mining jobs in Australia, a company official and trade publication said.

Australian coal miners have cut an estimated 9.4 million tonnes of thermal and coking coal production through mine closures, but another 66.3 million tonnes of production is coming online through the end of this year, still leaving the market heavily over supplied, according to UBS.

Despite weakening prices, total energy and resource exports were forecast to rise 11 per cent to A$197 billion ($182 billion), helped by expectations of a depreciation in the Australian dollar.

A dip in the value of the local dollar from A$1.03 to the US dollar last year-this year to A$0.94 this year-next year could increase the value of Australia’s iron ore exports by around A$6 billion, according to BREE.

Iron ore prices have gone from boom to bust and partly back again - hitting a high above $190 a tonne in 2011 and a low under $90 last year - in the three years since the sector switched from once-a-year fixed pricing to a spot market.

BREE forecast contract prices for iron ore at around $117 a tonne this year, while spot prices for next year are forecast to dip, averaging around $112 a tonne due to increased supply.

Benchmark 62-per cent grade iron ore <.IO62-CNI=SI> was trading around $116.60 a tonne this week, its lowest in more than a month, according to data provider Steel Index.

Most of the additional tonnage from Australia this year/14 will come from expansions by Rio Tinto , BHP Billiton and Fortescue Metals Group, with smaller producers including Atlas Iron and Gindalbie Metals contributing to a lesser extent.

Mining executives have argued that the expansion is needed to ensure their companies are positioned to take advantage of the next upturn in the market and benefit from better economies of scale.