Ebbs and flows: Australia’s mining outlook

Australia’s mining sector contributes to some 13.4% of the country’s GDP.

It remains a major player in the global market in terms of supplying key minerals and metals beyond just those needed for the green energy transition and shift towards decarbonisation.

However, the global economic slowdown and fewer supply disruptions generally reduced commodity prices over the past quarter, with Australia’s resource and energy exports down $58 billion year-on-year.

In the Department of Industry, Science and Resources (DISER) quarterly report released on 18 December 2023, figures show the Resources and Energy Export Values Index fell 20% from the September quarter 2022 — a small rise in volumes partly offset the impact of a sharp fall in prices. 

DISER notes there is only a modest change in the aggregate forecasts since September. Resource and energy exports are forecast to be $408 billion in 2023–24, down from a record $466 billion in 2022–23. 

“Weak demand and improved global commodity supply imply a fall in prices, more than offsetting the impact of a forecast small rise in export volumes. Export values are forecast to fall by 15% to $348 billion in 2024–25: prices will fall but volumes will be flat,” DISER reports.

Global demand for commodities has surged in recent years, and Australia has been well-placed to benefit from this despite the challenging economic conditions, according to The Perth Mint General Manager of Commercial Development Cameron Alexander. 

“Base metals and critical minerals such as lithium are crucial in the push to clean energy and Australia has emerged as a leader in this field, with production volumes growing strongly in recent years as new projects come on stream.

“This emerging industry, coupled with strong demand for more traditional commodities such as iron ore, LNG and coal, has helped drive export earnings to record levels.”

Western Australia’s resource sector alone reached a new peak during 2022-2023 of $245 billion in sales, according to the Department of Mines, Industry Regulation and Safety (DMIRS). 

Supported by record high prices and expanding production, the value of lithium (spodumene concentrate) sales increased to a record $21 billion, making it Western Australia’s second most valuable mineral after iron ore.

The result is also supported by strength in several other commodities such as gold, where sales were valued at a record $18.6 billion on the back of the highest Australian dollar prices in history. The value of nickel sales was $5.7 billion, which is among the highest levels in the past 15 years and was achieved largely due to historically high prices, particularly in late 2022 and early 2023, as well as a rebound in production.

Eye of the storm

Australia Institute Centre for Future Work Director Jim Stanford says while sales in some commodities may be rising, it seems that production output is not following suit.

Stanford points out the distortion in his written piece Surging mining sector profits are distorting Australia’s economy on the Australia Institute Centre, saying the sector is merely amid a ‘paper boom’, as it reflects rising prices, not real production. 

Among resource commodities, iron ore remains the largest earner by far and is forecast to earn about $131 billion in 2023–24 in Australia. However, it is poised to fall to $102 billion in 2024–25. 

DISER notes a sharp retracement in lithium prices is also expected to see lithium exports fall from $20 billion in 2022–23 to $14 billion in 2023–24. Although export values should stabilise at around $15 billion in 2024–25. 

This suggests to some that the market has some headwinds ahead.

Barton Gold (ASX:BGD) Managing Director and Chief Executive Officer (CEO) Alex Scanlon says: “We are in for a global hard landing recession.

“I think people who have predicted a soft landing are neither heeding the lessons of history, nor basic mathematics

I think people who have predicted a soft landing are neither heeding the lessons of history, nor basic mathematics. There are several things … that could act as a considerable drag on the consumer or production economies.”

As DISER reports, global industrial production and manufacturing activity have continued to soften in H2 2023, due to falling goods demand in major economies. 

The core outlook for growth worldwide in 2024 has weakened slightly, with the balance of risks surrounding the forecast remaining tilted to the downside. 

“As inflation returns to target levels, central banks will be able to adopt less restrictive stances, allowing growth to pick up in 2025. Despite better-than-expected growth in the September quarter 2023, key downside risks challenge China’s growth outlook, including ongoing issues in the real estate sector.”

The International Monetary Fund (IMF) forecasts the global economy to grow by 3% in 2023 and 2.9% in 2024, with growth then rising to 3.2% in 2025. Compared to the July 2023 World Economic Outlook, DISER says this represents a downgrade of 0.1 percentage points for 2024 but no change for 2023 and 2025. 

“Over the next couple of years, the IMF continues to expect a notable divergence to emerge between the performance of advanced and emerging economies. The US economy has surprised on the upside with resilient consumption and investment this year, however European economies appear to have slowed substantially in 2023 under the weight of tighter monetary policy. 

Weaker consumer demand for goods relative to services over the past year in the US and Europe has weighed on the economic growth of manufacturing exporters — including China, Japan and Korea. 

Demand for services now also looks to be weakening, with manufacturing in a prolonged slowdown, suggesting a slowing of global growth over the remainder of the year and into 2024.”

The Perth Mint’s Cameron Alexander says the weakening economic conditions in China weigh heavily on demand and commodity prices.

“This regional slowdown, combined with only modest global economic growth and an improved commodities supply chain is also expected to soften demand for Australian raw materials.”

Commodities prosper or rupture?

Speaking to Mining.com.au about the ideology of Australia’s resources export earnings declining in 2024, Great Boulder Resources (ASX:GBR) Managing Director Andrew Paterson says it may not be too bad, as it would take years to switch off reliance on coal and gas altogether. 

“Forecasters will always assume a declining price because they’re conservative, but in the short to medium term the fundamentals are still very strong.”

Paterson adds that the numbers in Australia are always skewed in that export figures are largely driven by iron ore. 

The iron ore industry this year experienced a high sales value of $125 billion, supported by a record production of 861 million tonnes (Mt), according to the Department of Mines, Industry Regulation and Safety. 

According to Market Index, the iron ore price today is currently sitting at US$134.65.

Paterson says that 4 years ago, there were ‘really strong’ iron ore prices, and though Chinese demand seemed to slow down, it was presumed to soon go back to the ‘status quo’ of 3 major companies chipping away and juniors would begin to fade. 

“By and large, that hasn’t happened, and that is just because the iron ore price has remained pretty strong, and it’s been under $100 a tonne. It’s really held pretty steady — despite kind of negative expectations.”

Barton Gold’s Scanlon says although Australia has benefited ‘dramatically’ from iron ore, there is a crucial input to this record of export revenue — and that is gold. 

“In an era of all-time average high prices, gold is probably around 10% of the export figure. So that is a very significant input. Gold is starting to be a player again in the revenue realm

“In an era of all-time average high prices, gold is probably around 10% of the export figure. So that is a very significant input. Gold is starting to be a player again in the revenue realm.”

Perth Mint’s Cameron Alexander says despite a slight dip in production during the first half of 2023, export earnings from Australian gold have remained strong. 

“Investment demand for gold is expected to remain high as the US economic activity shows and the threat of inflation remains. Should the US economy falter in 2024 and the Fed look to lower interest rates, this could feed into a higher gold price.”

Booms spark light 

Charger Metals (ASX:CHR) Managing Director and Chief Executive Officer (CEO) Aidan Platel says from a junior explorer’s perspective, executives can only concentrate on what they can control and the market will take care of itself on its own front. 

“If you had asked me (some) weeks ago, everything looked quite gloomy. But, certainly, there is a spark, especially in the lithium exploration space, and everything is quite hot again.”

“The boom and bust cycle will continue and there are plenty more booms to come. The mistake we make is to assume booms will go forever — I remember in 2008 people were saying the iron ore boom was going to last 25 years and it lasted for about 4 years

Great Boulder’s Paterson adds: “The boom and bust cycle will continue and there are plenty more booms to come. The mistake we make is to assume booms will go forever — I remember in 2008 people were saying the iron ore boom was going to last 25 years and it lasted for about 4 years.”

Ultimately, the boom and bust cycles of mining are dependent on a plethora of external forces that often change as quickly as the wind changes direction.

There is a high chance of drier-than-normal conditions in eastern Australia over the next 3-6 months, which lowers the risk of wet weather and flooding that have adversely affected mines and transport routes since 2020. 

However, the El Niño-driven drought in Indonesia is lowering river levels, making it increasingly difficult to barge thermal coal to export ports.

Write to Aaliyah Rogan at Mining.com.au

Images: iStock & Barton Gold
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Written By Aaliyah Rogan
Relocated from the East Coast in New Zealand to Queensland Australia, Aaliyah is a fervent journalist who has a passion for storytelling. When Aaliyah isn’t writing stories, she is either spending time with friends and family or down at the beach.