Resources and Energy Quarterly September 2019 4
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Notwithstanding, the Commonwealth of Australia, its officers, employees, or agents disclaim any liability, At the coal face: mine-level productivity in Australia: Rayeed Rahman including liability for negligence, loss howsoever caused, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon any Acknowledgements of the information or data in this publication to the maximum extent permitted by law. No representation expressed or implied is made as to the currency, accuracy, The authors would like to acknowledge the contributions of: reliability or completeness of the information contained in this publication. The David Turvey, Melissa Bray, Will Young, Ken Colbert, Lauren Pratley, Lou Brooks. reader should rely on their own inquiries to independently confirm the information and comment on which they intend to act. 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ISSN 1839-5007 Vol. 9, no. 3 © Commonwealth of Australia 2019 Ownership of intellectual property rights Unless otherwise noted, copyright (and any other intellectual property rights, if any) in this publication is owned by the Commonwealth of Australia. 2 Contents Foreword 4 Resources insights About the edition 5 Thermal Coal Box 6.1: Coal in India 49 Overview 6 Macroeconomic Outlook 15 Gas Box 7.1: The title of the world’s largest LNG exporter 63 Steel 23 Iron Ore 28 Metallurgical Coal 36 Thermal Coal 44 Gas 55 Oil 66 Uranium 74 Gold 80 Aluminium 89 Copper 98 Nickel 104 Trade summary charts and tables 135 Zinc 110 Appendix A: Definitions and classifications 143 Lithium 116 Appendix B: Glossary 145 Special topic At the coal face: mine-level productivity in Australia 123 Appendix C: Contact details 150 3 Foreword governments still have firepower to deploy to prevent a major slowdown, Australian resource exports appear likely to hold up in 2019–20, in the though perhaps less ammunition than was available 10 years ago. face of volatile commodity markets. Our new projection of $282 billion in exports in 2019–20 has shaved just $3 billion from our June 2019 Oil prices have declined in recent months, building on the longer-term Resources and Energy Quarterly projection. Export earnings in 2020–21 price impact of higher US supply. Technological investment in electric have been revised down by a similar amount, to $258 billion. The decline vehicles and energy storage is improving the prospects for several in earnings in 2020–21 will mainly reflect the impact of the steady return of emerging commodities, offsetting the impact of trade concerns. Nickel is Brazilian iron ore production to normal, following the fallout from the set to jump in the rankings of significant export earners, as a direct result Brumadinho mine tailings dam collapse. of this phenomenon. More established commodities, such as steel and aluminium, are set to benefit from some carefully chosen Chinese stimulus An increase in gold export earnings and the depreciation of the Australian measures. dollar will help counter the impact of escalating US-China trade tensions. While the trade tensions have led to a weaker outlook for our base metal The latest data suggest that mining investment in Australia has turned the and energy exports, as the world’s 2nd largest gold producer, Australia is corner. For the first time in six years, mining companies are planning to benefitting from investors’ flight to safety. Our gold earnings are set to increase their annual spend on building new mines/wells and on surge by one third to $25 billion in 2019–20. More generally, as US-China expanding and replacing their fleet of plant, machinery and equipment. trade tensions see US dollar commodity prices fall, the Australian dollar This edition includes a special topic on mining productivity. The research has also dropped, holding up Australian resource and energy commodity suggests that productivity in major parts of the Australian mining sector producers’ returns. could be significantly stronger than traditional measures suggest. In While the IMF is forecasting world GDP growth to hold up well over the globally uncertain times, the factors under our control — such as next year, the outlook for world industrial production has deteriorated, productivity — become increasingly important. taking with it some of the buoyancy of resource and energy commodities in recent years. David Turvey The data in this edition shows that global cutbacks in manufacturing production are already flowing through into commodity markets. The importance of China’s burgeoning middle class means that any further decline in Chinese economic growth could have even more significant effects on global supply chains for a range of technology and other products. Head of Analysis and Insights Division and Chief Economist Thus far, problems within the global economy remain somewhat Department of Industry, Innovation and Science quarantined. The usual catalysts for global downturns — miscalculations with interest rates, financial freeze-ups, abrupt collapses in investment — have not yet materialised. But uncertainty is growing. Central banks and Resources and Energy Quarterly September 2019 4 About this edition The Resources and Energy Quarterly (REQ) contains the Office of the The global environment in which Australia’s producers compete can Chief Economist’s forecasts for the value, volume and price of Australia’s change rapidly. Each edition of the Resources and Energy Quarterly major resources and energy commodity exports. factors in these changes, and makes appropriate alterations to the forecasts/projections, by estimating the impact on Australian producers A ‘medium term’ (five year) outlook is published in the March quarter and the value of their exports. edition of the Resources and Energy Quarterly. Each June, September and December edition of the Resources and Energy Quarterly features a In this report, commodities are grouped into two broad categories, ‘short term’ (two year) outlook for Australia’s major resource and energy referred to as ‘resources’ and ‘energy’. ‘Energy’ commodities comprise commodity exports. The December Resources and Energy Quarterly also metallurgical and thermal coal, oil, gas and uranium. ‘Resource’ includes the annual Major Projects update. commodities in this report are all other mineral commodities. Underpinning the forecasts/projections contained in the Resources and Unless otherwise stated, all Australian and US dollar figures in this report Energy Quarterly is the Office of the Chief Economist’s outlook for global are in nominal terms. Inflation and exchange rate assumptions are resource and energy commodity prices, demand and supply. The provided in the Appendix to the ‘Macroeconomics’ chapter. forecasts/projections for Australia’s resource and energy commodity Data in this edition of the Resources and Energy Quarterly is current as of exporters are reconciled with this global context. 20 September 2019. Re source s and Energy Quarterly publication schedule Publication Expected release date Outlook period Australian data: 2020–21 September 2019 30 September 2019 World data: 2021 Australian data: 2020–21 December 2019 19 December 2019 World data: 2021 Australian data: 2024–25 March 2020 30 March 2020 World data: 2025 Australian data: 2021–22 June 2020 29 June 2020 World data: 2022 Source: Department of Industry, Innovation and Science (2019) Resources and Energy Quarterly September 2019 5 6 1.1 Summary Figure 1.1: Australia’s resource and energy export values/volumes . The world industrial production cycle has continued to slow in recent 120 300 months, and looks set to slow further. The extent of any down-cycle in 100 resource commodities largely depends on whether China can avoid a 240 further slowing in growth, and a resolution of US-China trade tensions. 80 . The industrial production slowdown has seen the prices of Australia’s 20 = 100 20 = 180 – major resource commodities decline noticeably from