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PERTH (miningweekly.com) – Rallies in various commodity prices and continued strong prospects in the Chinese commodity markets are expected to benefit Australian resource companies.
The November ‘China Resource Quarterly (CRQ)’, which the Australian Department of Industry, Innovation and Science published on Friday, noted an “important” pickup in Chinese economic conditions since August, with gross domestic product growth stabilising and property prices rallying.
Further growth would depend on flow-through of stronger conditions to construction and consumer spending, the report said.
Following the declines of 2014/15, commodity prices have experienced a sharp rally through 2016, specifically coal and iron-ore. Sluggish real demand, high inventory levels and market analysis all indicate that financial speculation and US dollar asset demand have provided considerable support to prices.
“Into 2017 we expect prices to revert back towards cost curves, as the supply of key commodities adjusts to current windfall profits, and speculative demand softens under the weight of falling prices,” the CRQ report read.
It noted that Australian bulk commodity producers had taken great strides in lowering their production costs and increasing capacity, and that they were expected to play a significant role in the supply adjustment.
Coal and iron-ore producers, specifically, have been successful at lowering costs and improving their capacity, helping to insulate themselves from any potential downturn in prices.
China’s imports of iron-ore increased 8% year-on-year in the third quarter, with imports from Australia up 7%, and imports from Brazil up 12%. Imports from the rest of the world also increased, up 15%. Australia’s share of China’s imports was 63% in the third quarter, while Brazil and the rest of the world accounted for 21% and 16%, respectively.
Australia’s iron-ore export volumes into China increased by 2.5% on the previous quarter, and 2.9% year-on-year, to 169-million tonnes, during the third quarter, while export earnings decreased by 4.1% compared with the previous quarter, and 5.5% on the previous corresponding quarter, to A$11.1-billion.
China imported 17-million tonnes of metallurgical coal in the third quarter, up 12% year-on-year. China’s imports of metallurgical coal from Australia fell 8% over the same period to eight-million tonnes, accounting for 49% of China’s metallurgical coal imports.
Australia’s export earnings from metallurgical coal declined 2% over the same period to A$852-million, due to lower volumes.
The CRQ noted that Australian miners remained in a strong position to weather any undershoot in prices that might result from increased supply. However, those further up the cost curve, including private Chinese producers, were in a much more precarious position.