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The future outlook for Australian commodity exporters remains steady

Urbanisation in Asia drives demand for Australian resources amid global economic growth...

April 4, 2024

 

 

Demand for Australia’s commodities will be underpinned by urbanisation and infrastructure investment in China, India and South East Asia.

  • Australian resource and energy exports were $466 B in 2022-23
  • China accounted for $165 B, followed by Japan at $99 B, and India at $21 B
  • China is driving commodity markets, but Indian demand is set to grow significantly
  • India’s economic growth is forecast to be 6.5 percent in 2024 and 2025
  • Central bank monetary policy easing in 2025 should support global economic growth
  • With an abundant supply of natural resources, Australia stands to benefit from an expanding world economy

 

 

 

Australian resource exports outlook

The latest forecast from the Office of the Chief Economist within the Department of Industry, Science and Resources anticipates a levelling out of Australian commodity export values at around currentlevels over the next 5 years to June 2029. This is mildly positive for Australian commodity exporters in that Australian resource export earnings are coming off record highs of $466 billion in 2022-23 when commodity prices spiked following the Russian invasion of Ukraine. China accounted for $165 billion (35 percent) of Australia’s total resource and energy exports in 2022-23, followed by Japan at $99 billion (21 percent) and India at fifth position on $21 billion (5 percent).

Despite the soft near-term global economic growth outlook, Australia’s key export markets remain steady and continue to support commodity demand. The world’s two largest economies – the US and China – are growing at about 2.5 percent and 5 percent respectively. In China, strong investment in infrastructure and manufacturing capacity has more than offset weak commodity demand from the residential and commercial property sectors. China’s economy grew by 1 percent in the December quarter of 2023, with strong household consumption being the key driver of growth.

According to the Office of the Chief Economist, China is likely to continue to shape commodity markets over the next 5 years. However, Indian economic growth is now the strongest in the world and by 2029 will account for a materially higher share of world commodity demand. India is expanding its manufacturing base, spending more money on infrastructure, and its changing demographics all point to rising per capita consumption of resources and energy commodities.

Another factor shaping future demand for Australia’s resource and energy commodities over the next 5 years is the global energy transition. The transition will increase demand for iron ore, aluminium, copper, nickel, and lithium, which are necessary for low emission technologies. However, the transition will reduce demand for some fossil fuels, including thermal coal.

Urbanisation and infrastructure investment driving commodity demand

The economies of China, India and Southeast Asia are projected to add 313 million people to their urban populations in the ten years between 2020 to 2030. Urbanisation within these three key Australian export markets will be a major driver of increased metal consumption for infrastructure and property construction. Despite China’s slowing property market, its urban population is still expected to continue growing — albeit at a slower rate than previously.

India’s future economic growth is being boosted by its young population which provides the country with a large and expanding labour force that is driving consumption and higher output. The IMF forecasts India’s economic growth at 6.5 percent in 2024 and 2025, supported by large-scale infrastructure investment, population, and productivity growth.

Technological change arising from the energy transition is driving demand for specific clean energy commodities such as lithium, nickel, and copper. Demand growth for these and other critical minerals is being supported by policies such as the US Inflation Reduction Act which will provide incentives for American manufacturers to use Australian critical minerals. The US Inflation Reduction Act aims to minimise US domestic inflation by lowering the cost of energy while tackling climate change by reducing carbon emissions.

Australian iron ore exports

Australia is the world’s largest iron ore producer and exported 895 million tonnes of iron ore in 2023, an increase of 1.1 percent year-on-year. Export volumes are expected to increase by 1.6 percent annually between now and 2029. However, lower iron ore prices are expected to see a decline in iron ore export earnings from $136 billion in 2023-24 to $107 billion in 2024-25 and to $83 billion by 2028-29. The Office of the Chief Economist doesn’t expect these declines to result in significant Australian iron ore production capacity being closed or cut back.

Risks to forecasts

  • There are always various factors that can quickly outdate these forecasts of Australian export commodity demand, including:
  • Any intensifying of the Hamas-Israel conflict that could disrupt Middle East oil/LNG supply and raise energy prices, diminishing global economic growth.
  • The advent of La Nina from the second half of 2024 which raises the likelihood of wet weather and flooding that may heavily impact mining operations, transport routes and ports.
  • A widening of Western sanctions on Russia to include base metals, which would positively impact Australian metal producers, especially of nickel and aluminium.

The Future

The long-term drivers of demand for Australia’s resource and energy commodities are population growth (total resource demand), income growth (consumption intensity), urbanisation (commodity intensity) and clean energy technology (changes in commodity mix). As economies around the world continue to grow, urbanise, and transition to clean energy, demand for Australia’s commodities should be sustained well into the future.

Australia, as an efficient commodity producer, with an abundant supply of natural resources, stands to prosper given the global economy is expected to improve in 2025 once restrictive monetary policies put in place by Central Banks begin to ease. This easing combined with the global energy transition along with firm economic growth in China and India should maintain steady demand for Australian minerals into the foreseeable future.

 

 

A Portrait photo of Michael Kodari, the guest author of this article. Michael Kodari is the KOSEC Founder

Michael Kodari is a globally recognised investor, philanthropist, and leading financial markets expert, renowned for his exceptional performance. With a strong foundation in financial markets, Michael has advised leading financial institutions and governments.

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