After early predictions of a sharp decline in resource and energy commodity prices heading into 2024, measures introduced by the Chinese Government to stabilise the nation’s residential property sector, and the global focus on emissions reduction, have resulted in an elevated demand for a variety of commodities, stabilising the price fall. Despite this, the record $466 billion in earnings from commodity exports in 2022-23 is expected to drop to $417 billion in 2023–24 and $369 billion by 2024–25. This is linked to weaker global demand and improved supply for several commodities.
Commodities update
Metallurgical and thermal coal
Australian export earnings for thermal coal are projected to decrease from $36 billion in 2023-24 to $21 billion by 2028-29, while for steelmaking coal, export earnings are anticipated to drop from $64 billion to $35 billion. The expected decline in export earnings is due to a myriad of factors and is unlikely to be linear.
In particular, the worldwide availability of metallurgical coal is anticipated to experience a moderate increase in the next two years as Australian mines increase output, and steel production amongst major regional importers softens. However, during 2024-2025, the market is predicted to maintain a minor shortfall, keeping prices higher than those seen in 2019, though well below the high experienced in 2022. Australian mining companies will continue to benefit from that short fall, including due to Russia’s introduction (and removal) of export duties, exclusion from major Free Trade Arrangements and ongoing global sanctions. Looking longer term, the lower investment rates in expanding capacity and establishing new mines could ultimately result in decreased supplies of steelmaking coal.
Notably, in 2023, India’s seaborn imports of steelmaking coal exceeded that of China, a reflection of India’s significant investment in local steel production in recent years, part of the Indian Government’s commitment to doubling steel production capacity to 300 million tonnes by 2030. Though local metallurgical coal extraction has increased as a result, it is predicted that Indian demand for this coal will outstrip supply, with the gap to be filled by Russian and Australian exports. Conversely, China’s steelmaking industry remains constricted as a result of restrictive government policy.
The pace of the decline in the demand for thermal coal is difficult to predict and is based on stockpiling, energy transition policies, renewables uptake, and domestic production fluctuations both on and offshore. While domestic thermal coal consumption in most nations is diminishing, demand for coal-fired energy in some South East Asian nations continues to grow, and Australia is well positioned to meet this demand.
Oil and gas
Revenues across the oil and gas markets are predicted to continue to decline through 2024.
A sharp rise and fall in China’s oil market across 2023, primarily due to post-lockdown air travel and skyrocketing domestic petrochemical activity underpinned a significant reshuffle in global oil demand through the end of 2023. Oil supply is set to continue to outpace demand through 2024 as energy efficiency improves, electric vehicles (EVs) are adopted, petrochemical activity is concentrated and GDP growth declines.
Noting the decline in oil prices, the Organization of the Petroleum Exporting Countries (OPEC) has implemented initiatives to mitigate risks associated with a slump in oil prices by instigating supply cuts. Voluntary production cuts have commenced, led by Saudi Arabia, and have positively impacted oil pricing and demand because of the reduced supply. Non-OPEC countries are, however, tempering the cuts with their own increased production.
In 2023, global gas markets began to rebalance but remained tight primarily due to Russian LNG sanctions uncertainty. There is still high demand for natural gas within Australia as the gas paradox and domestic shortages continue to plague the nation. Australia is the largest exporter of LNG with extensive natural gas reserves, yet the domestic market continues to fall short of its needs. This has resulted in soaring gas prices across Australia. The east coast gas market is projected to meet demand until 2028, but southern states are likely to encounter significant shortages of locally produced gas as soon as Q3 2024, according to the ACCC in its most recent Gas Inquiry 2017-2030 report. To address this, transporting gas from Queensland to the southern regions is crucial. However, without a restriction on gas exports, new gas field development, expanded pipelines, or a substantial reduction in demand due to the adoption of renewables, the east coast will continue to grapple with sustained gas deficits, manufactured by an unbalanced export market.
Gold
Gold prices surged to an all-time high in December 2023, largely due to the continued economic uncertainty and its safe-haven status making gold an attractive asset. Recent events, such as the Israel–Hamas and Russia–Ukraine conflicts, have amplified geopolitical risks, fuelling demand for gold. In 2024, gold prices are likely to respond to these geopolitical dynamics, as well as a weakening US dollar in response to the predicted interest rate cuts. As geopolitical tensions persist, operating in conflict-affected regions will continue to pose safety, logistical, and supply chain challenges.
For Australia this means increased demand and potential profitability for gold mining companies. Australian gold miners stand to benefit by ramping up production and selling gold at elevated prices. Additionally, fluctuations in currency markets, particularly a weaker Australian dollar relative to other major currencies, can boost gold prices and provide miners exporting gold with a favourable exchange rate.
Lithium
Amid current market challenges, the commitment to global net zero emissions by 2050 is expected to sustain demand for lithium. Notably, long- term prospects remain strong, fuelled by growing EV adoption and global decarbonisation efforts. Strategic investments to secure future lithium supply are on the rise, with major automakers and lithium producers committing over $1 billion in 2023 alone. Despite short-term volatility, the long-term forecast for lithium remains positive, driven by its crucial role in decarbonisation efforts, especially within the EV sector. Global demand could surpass 2.4 million metric tons of lithium carbonate by 2030, doubling the 2025 forecast.
However, short-term changes in demand have influenced the need to produce lithium resulting in a decline in supply. In Australia, Core Lithium’s Finniss operation, which came online in 2023, has already suspended mining, instead processing stockpiled ore until prices improve. The decision to reduce production of battery minerals shows how the crash in battery mineral commodities is being seen throughout the resources sector. Although global EV sales rose 31% through 2023, this was below expectations and largely due to lithium-ion battery manufacturers having adequate stock, resulting in purchasing on an ‘as needed’ basis to take advantage of steadily falling prices. Lithium miners have responded to market conditions by reducing production and delaying expansion plans.
Both the US and EU have made moves to protect domestic markets with the US in particular releasing updated guidance for tax credits on EV purchases. The US Inflation Reduction Act has been a major driver for lithium companies in North America and is expected to influence global markets in the coming years. Further, from 2025, the US will place restrictions on the use of critical minerals contained in EV batteries where they are sourced from China, Russia, Iran or North Korea. However, there are fears that the result of the upcoming US presidential election in November 2024 may see current support and initiatives rolled back after some parties provided heavy criticism of the Inflation Reduction Act and EVs generally.
Iron ore
Economists anticipate a steadying of earnings from iron ore for at least the next three years due to softening demand, despite the forecast increase in export volumes by 1.6% annually to 2029.
After concerns that China was on the brink of a real estate market collapse, the Chinese government’s intervention in the market and new infrastructure projects spurred the economy and kept Chinese iron ore imports steady. Despite this, Chinese domestic steel consumption is likely to continue to fall, due
to a shift to a consumption-led economy, declining population, declining workforce and softening in the rate of urbanisation. Going forward, to further reduce supply to meet demand, it is expected that China will re-introduce controls on crude steel production for the remainder of 2024. These controls were previously introduced in 2021 to reduce carbon emissions from one of the more polluting industries and their re-introduction would signal that the oversupply issues with China’s steel making industry continues to be a significant issue.
At home, the shift to ‘green steel’ may reduce demand for Australia’s iron ore, putting pressure on Australian producers’ revenue and forcing some small miners to shut down. Overcoming this challenge presents opportunities for the industry and producers, if prepared to consider increasing the production and export of magnetite or build direct reduction plants here in Australia to improve the grade of ore produced for export.
Hydrogen
In February 2023, the Energy and Climate Change Ministerial Council agreed to a review of the National Hydrogen Strategy to ensure that it positions Australia on a path to be a global hydrogen leader by 2030. Since the publication of the State of Hydrogen 2022 report, over 15 projects have passed final investment decision and over 80 renewable hydrogen projects have been announced. Investment appetite into the hydrogen sector remains high, however challenges remain, including stalled advancements in the development of hydrogen in vehicles (noting the government’s focus on battery electric vehicles in its stead) and the application of hydrogen in the manufacture of steel and iron-making and industrial heating.
Nuclear
Holding approximately a third of the world’s known uranium resources, Australia remains a significant exporter of uranium oxide for use in nuclear power plants. Following the closure of the Ranger uranium mine in the Northern Territory (of which rehabilitation remains an ongoing issue) which saw uranium exports decrease by 14.3% from the preceding year, uranium production remains concentrated at the Olympic Dam and Beverley- Four Mile mines.
While Australia does not have any operating nuclear power plants, it remains to be seen whether this will change over the medium to longer-term, noting the recent return of the nuclear issue to the public debate.
The impact on the Australian market of geopolitical changes
After a nearly two year ‘unofficial’ ban, China imported 52 million metric tons of Australian coal in 2023. This was below previous import volumes largely because of Australia’s reduced market share in the face of emerging cheaper competitors, such as Mongolia and Russia. However, in January 2024 China reintroduced tariffs affecting Russia, Mongolia, South Africa, Colombia, the US and Canada, as they are not party to free trade agreements with China, like Australia. This has paved the way for Australian coal imports to regain a larger portion of the market share in China. Despite the commissioning of new plants to boost the security of energy supply, utilisation of coal-fired plants in China is expected to continue to fall because of China’s commitment to net zero by 2060, placing uncertainty on the long-term outlook for Australian coal exports to China.
Escalating geopolitical conflicts in the Middle East, responsible for a third of the world’s maritime oil commerce, have put markets on high alert as we enter 2024. An increasing number of ship owners are rerouting cargoes away from the Red Sea, impacting trade routes. As 2024 begins, the threat of worldwide oil supply disruptions due to the Middle East conflict is high, especially for oil flows through the Red Sea and, importantly, the Suez Canal. In 2023, approximately 10% of the world’s maritime oil commerce, or about 7.2 million barrels per day of crude and oil products, and 8% of the global LNG trade traversed this significant trade route. The primary alternative shipping path around Africa’s Cape of Good Hope extends journeys by up to two weeks, exerting strain on global supply chains and escalating freight and insurance expenses.
Future of resources in Australia
In recent years, we’ve witnessed fluctuations in the resources and energy sectors. Government efforts to stabilise these industries have garnered varying reactions. Ongoing geopolitical conflicts, demographic reshuffling and macroeconomic policy shifts will also have influence on the supply and demand for commodities generally, and in particular those which play a key part in the path to net zero. Australia is well positioned to take advantage of the ever-changing markets and demand for minerals, with both the Federal and State Governments introducing key policies, strategies and plans to encourage and support investment in and the development of mineral extraction, processing and manufacturing facilities throughout Australia.
Australia’s strategic focus on critical minerals aligns with the global imperative of transitioning towards a sustainable, low-carbon future. The abundance of these essential resources across the country positions Australia as a key player in the global supply chain. Through supportive initiatives and policy, and strong ESG credentials, Australia is proactively shaping its role in the emerging critical minerals economy.
This is an article from our 2024 Edition of Emerging Issues for the Australian Energy and Resources Industry. To read more from this publication, click here.