On Monday, Australia’s Department of Industry, Science and Resources published its quarterly commodity outlook. The news was compounded by the report’s prediction of a $16 billion loss in earnings from commodity exports. The department is forecasting that Australia will generate around $372 billion Australian dollars worth of exports – by this time next June. This new sum represents a 10% decrease from the Administration’s earlier estimate of $380 billion.
The anticipated drop in earnings is largely due to depressed prices for major commodities, especially iron ore and coal. Australia is the world’s largest and most profitable iron ore exporter—iron ore being the key ingredient of steel. The country’s economic wellbeing depends on the world’s appetite for these resources. In much the same way, the country’s other mainline natural resources—coal, its second largest export, and uranium—have experienced a dramatic drop in price, severely undercutting total revenue earnings.
The new outlook reflects a downward drift in expected earnings in US dollar terms. The department projects that revenue receipts will hit $258 billion. This figure represents a significant drop from the last estimate. That was $380 billion Australian dollars, or $258 billion US dollars.
Even accounting for the difficulties created by declining commodity prices, all is not lost for Australia’s export market. And more recently, analysts have indicated China’s economic stimulus efforts will significantly increase demand for key minerals. This explosion in demand would provide a huge boost to Australian exporters. At present, the Chinese government is very actively implementing new measures to stimulate its economy. In turn, this frequently results in an increase of demand for raw materials which we use to build, manufacture and produce goods.
The future of commodity prices remains uncertain at best. As a major global supplier of iron ore and coal, Australia’s role is even more critical. The nation needs to be able to deftly handle extreme volatility in international markets. Weaning it off will be key to stabilizing, if not improving its net export earnings in the months ahead.