The Department of Industry’s Resources and Energy Quarterly-December Quarter 2014 report has forecast that Australia’s resources and energy export earnings will decline by 10 per cent in 2014-15 to $176 billion.
Chief Economist Mark Cully said that export volumes are forecast to grow for key commodity exports, but weaker commodity prices will weigh on export earnings.
The key driver in the total earnings’ decline is a decline in iron ore export values, underpinned by reduced iron ore prices.
“The surge in iron ore supply has coincided with a cyclical downturn in the key Chinese housing market, contributing to a 50 per cent drop in iron ore prices over the course of 2014,” Mr Cully said.
“A reversal of the bearish market sentiment in commodity markets is unlikely until consumption growth picks up or supply conditions tighten due to higher cost suppliers closing down in response to the prevailing low prices.”
LNG export earnings will begin to increase in 2014-15 when first shipments from the east coast commence as Australia sets on a path to becoming the world’s largest LNG producer. While earnings are forecast to increase, low oil prices will remain a challenge to the sector in the near term.
The investment in new capacity in the Australian resources sector, combined with efficiency improvements achieved over the past year, is contributing to a forecast strong increase in export volumes.
“While the environment of weaker commodity prices is creating a more challenging operating environment for Australian producers, increased export volumes will continue to support high export earnings in the near term,” Mr Cully said.
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