The June 2020 edition of the Resources and Energy Quarterly (REQ) was released today by the Office of the Chief Economist, within the Department of Industry, Science, Energy and Resources (DISER). The latest REQ explores the outlook for, and impacts of, the COVID-19 pandemic on Australia’s resources and energy production and exports.
This edition shows that COVID-19 is affecting commodities in a wide variety of ways, but the overall outlook for Australia’s resources and energy exports is still relatively strong: Australia’s resources and energy exports have been largely resilient, and are estimated to have reached a record $293 billion in 2019-20. Resource and energy earnings will be almost 50 per cent higher – in real terms – than during the GFC.
The diversity of Australia’s resources and energy sector has shone through: strength in iron ore and gold prices have helped outweigh falling prices for energy commodities. Gold – a safe haven in uncertain times – is set to be a strong performer, with the US dollar price surging to 8-year highs, and export earnings now on track to set a new record (of $32 billion) in 2020-21. In 2019-20, iron ore earnings have grown strongly, as supply problems in Brazil boosted seaborne prices. And despite falling prices for other commodities such as coal and LNG, export volumes for most commodities have been resilient in the first half of 2020.
Over the next two years, Australia’s resources and energy export earnings are forecast to fall from record highs, but remain relatively strong, at $263 billion in 2020-21 and $255 billion in 2021-22. Lower prices for iron ore, LNG and coal are expected to reduce earnings, offsetting modest growth in export volumes. These forecasts come with significant risks: a second outbreak of COVID-19, another surge in trade tensions, or an unexpectedly slow global recovery. But on balance, it remains likely that Australia’s resources and energy sector will once again buffer the Australian economy against external headwinds.