Commodities | Dec 06 2007
By Greg Peel & Rudi Filapek-Vandyck
The Australian Bureau of Agriculture and Resource Economics (ABARE) has indicated today that commodity earnings for the financial year 2007-08 will be much less than previously assumed.
In the September quarter report ABARE had forecast 3% growth in commodity earnings (agricultural and non-agricultural) but that figure has now been reduced by 66% to 1% growth. The reduction is a reflection of the deepening drought and the reduction in earnings affected by a stronger Aussie dollar.
Farm export earnings are expected to fall by 3% in FY08 to $26.8bn, which mostly reflects a 14% reduction in the grain crop.
The value of mineral exports in particular is expected to rise by 2% to $110bn but this figure has been adjusted from September largely due to the currency appreciation in that time but also due to some softening of metals prices.
Despite the haircut, ABARE highlights the benefits in recent high levels of business investment in the mining industry which is being reflected in stronger volumes.
Earnings from energy are expected to rise by 7% (apart from oil and LNG this includes thermal coal and uranium).
The value of metals and other minerals exports is forecast to contribute $68bn in FY08, a fall of 1%. It is not clear exactly what assumption ABARE has made about the iron ore price, which some analysts have forecast to rise by as much as 50% from April next year. However, a table on page 732 of the report “Australian Commodities – December Quarter 2007” suggests ABARE has (overly cautiously?) so far only penciled in a price rise of less than 10% for iron ore contract prices starting the new Japanese fiscal year.
Amongst the standout conclusions are the fact that aluminium prices are expected to decline in 2008 (with 2007 expected to be the peak in terms of pricing), while prices for alumina are expected to decline by another 10% next year, world nickel prices are anticipated to hold up relatively well even though they are expected to be lower nevertheless than this year, while for copper the difference should be rather minimal with the forecast average price for 2008 at US$6950 per tonne versus an estimated average of circa US$7200 this year.
Zinc prices should continue their trend lower into 2008.
