Resources
and Energy
Quarterly
March Quarter 2013
Acknowledgements
The macroeconomic outlook, the individual commodity outlooks and the reviews
have identified BREE authors. The statistical tables were compiled and generated by
the Data & Statistics Program at BREE and led by Geoff Armitage. Design and
production was undertaken by the Media and Parliamentary team at the
Department of Resources, Energy and Tourism, Tom Shael and the BREE Data &
Statistics Program.
BREE 2013, Resources and Energy Quarterly, March Quarter 2013, BREE, Canberra,
March 2013.
© Commonwealth of Australia 2013
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ISSN 1839-499X (Print)
ISSN 1839-5007 (Online)
Vol. 2, no. 3
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Foreword
This is BREE’s second five-year projection of mineral and energy production, exports
and values. In addition to a five-year outlook for each of Australia’s major mineral
and energy exports, an overview of the global macro-economy is provided along
with three review articles and a set of detailed statistical tables from 2010–11 to
2012–13 on production, export volumes, prices and values of key resource
commodities. The three reviews include contributions on: global thermal coal
markets, a short history of nickel in Australia, and an overview of biofuels.
Over the outlook period (2012–13 to 2017–18) both the real and nominal values of
Australian mineral and energy exports are projected to increase. The real value of
Australia’s energy exports are expected to rise by over half from 2011–12 and 2017–
18. The biggest single contributor to this growth is LNG exports which are expected,
in both nominal value and volume terms, to increase at an annual rate of over 30 per
cent over the next five years, and be worth more than $60 billion in 2017–18. Both
thermal coal and metallurgical coal exports are also expected to rise in nominal value
terms by, on average, 8 per cent and 4 per cent per year over the outlook period.
The nominal value of mineral exports is projected to increase by about 15 per cent
from 2011–12 to 2017–18, but the real value of mineral exports in Australian dollars
is expected to peak in 2014–15 at around $123 billion (in $2012–13). The assumed
continuation of a high-valued Australian dollar and a fall in the US$ price of iron ore
over the outlook period are the principal cause of this dip in the real export values of
minerals from 2014–15. This expected decline in real terms occurs despite a
projected average annual increase in the volume of iron ore exports from Australia
of about 10 per cent per year from 2011–12 to 2017–18.
A fall in the export price of key Australian mineral exports from their peaks in 2011,
coupled with a high Australian dollar, is expected to result in a 3 per cent decline in
the nominal export value (in Australian dollars) of resources and energy exports in
2012–13, relative to 2011–12. The total projected value of resources and energy
exports in 2012–13 is about $186 billion, some $6 billion less than in 2011–12. As a
result of a strong projected increase in export volumes of Australia’s bulk
commodities the nominal value of Australia’s energy and mineral exports is expected
to reach a record $205 billion ($199 billion in $2012–13) in 2013–14.
Quentin Grafton
Executive Director/Chief Economist
Bureau of Resources and Energy Economics
3
Contents
Foreword ................................................................................................................................... 3
Energy outlook ........................................................................................................................ 17
Oil ........................................................................................................................................ 17
Gas ....................................................................................................................................... 26
Thermal coal ........................................................................................................................ 33
Uranium ............................................................................................................................... 40
Resources outlook ................................................................................................................... 47
Steel and steel-making raw materials ................................................................................. 47
Gold ..................................................................................................................................... 58
Aluminium ........................................................................................................................... 64
Alumina ............................................................................................................................... 68
Copper ................................................................................................................................. 71
Nickel ................................................................................................................................... 78
Zinc ...................................................................................................................................... 84
Reviews.................................................................................................................................... 90
An introduction to thermal coal markets ............................................................................ 91
Nickel: a short history .......................................................................................................... 97
Biofuels: An overview ........................................................................................................ 103
Statistical tables..................................................................................................................... 111
BREE contacts ........................................................................................................................ 113
4
Macroeconomic outlook update and energy and
minerals overview
Nhu Che, Quentin Grafton, Pam Pham, and Tom Willcock
Global economy: increased confidence but risks remain
Global economic growth is projected to improve and is assumed to be 3.6 per cent
for 2013, to increase to 4.1 per cent in 2014, and to reach 4.5 per cent in 2018.
Despite better global growth prospects, risks remain, particularly in Europe. The
Eurozone economy is likely to shrink in 2013 with further contractions in Italy, Spain,
Portugal and Greece this year while France’s output is expected to barely grow and
result in a delay in the implementation of its planned austerity targets. The outcome
of the February 2013 election in Italy also casts doubt on the ability of democratically
elected governments to implement fiscal consolidation and austerity measures and
to be subsequently re-elected.
The ongoing debt crisis in the European Union (EU) and its spill-over to the real
economy and large exporting countries, such as China, along with lingering worries
about US fiscal consolidation remain key concerns for the short-term economic
outlook. Spill-overs from below trend economic growth in developed economies in
2012 and domestic challenges, especially inflation concerns, have constrained
activity and fiscal flexibility in some emerging market and developing economies.
Nevertheless, robust growth in developing economies of 5.8 per cent in both 2012
and 2013 is expected by the IMF and should support resource and energy prices and
volumes over the foreseeable future.
On the positive side, and within developed economies, the spread between bonds
issued by debt-troubled Euro members and German bonds have noticeably fallen
since the European Central Bank announced its Outright Monetary Transactions
program and is prepared to undertake an unlimited asset purchases program.
Perceived inter-bank risk has also diminished with a decline in the spread between
the London interbank offered rate (Libor) and the overnight indexed swap rate (OIS).
Equity markets, especially in the US, have also recovered sharply over the past few
months—a proximate cause is the record monthly inflows into US-listed mutual
funds and exchange traded funds. These inflows indicate a growing confidence by
investors of future earnings growth. Supporting this investor confidence is recordlow interest rates in most developed economies that have made the cost of debt
servicing the lowest it has been for decades.
Overall, growth in the developed economies is expected to increase to 2.1 per cent
in 2013 and to rise to 2.4 per cent over the period 2014–2018. Japanese growth
remains weak, but the 11 January 2013 announcement by the Abe government of a
20 trillion yen stimulus package and the announcement on 22 January 2013 by the
Bank of Japan to change its inflation target to 2 per cent from its current 1 per cent,
and also undertake asset purchases, have contributed to greater investor confidence.
The declared fiscal expansion and anticipated monetary easing have helped to
5
increase valuations in Japanese equities and contributed to a decline in the yen
against most major currencies. It is too soon to judge whether the planned monetary
easing and what will be the 15th stimulus package since 1999, will contribute to
higher sustained higher economic growth. Assumed GDP growth for Japan for 2013
is 1.3 per cent with an average growth of about 1.1 per cent assumed for the period
2014–18.
Better than average growth performance of developed economies is expected for
the Russian Federation, the US and the UK. Despite a slight fall in output in the
fourth quarter 2012, attributed to a decline in exports and a fall in government
spending, US growth is expected to increase from its level in 2012. Positive aspects
of the US growth trend include increasing business investment which is rising at
about 8 per cent per year and consumer spending growing at an annual rate of 2.2
per cent in the fourth quarter 2012. Other positive news for the US includes private
debt levels as a proportion of GDP returning to 2003 levels and after-tax income is
growing at its fastest rate since the Global Financial Crisis. Further, at the start of the
New Year the White House and Congress came to an agreement on fiscal
consolidation that, in the absence of an accord, would have resulted in spending cuts
and tax increases that may have been detrimental to short-term growth and
business confidence.
Emerging economies, particularly those in Asia are expected to contribute an
increased share of world economic output over the outlook period and the prospect
for emerging-market economies remains strongly positive. Most of Latin America
experienced robust economic growth in 2011 and while this moderated in 2012, it is
expected to regain strength and an average growth rate of around 4 per cent per
year is assumed over the outlook period.
Figure 1:
World economic growth
Please refer to page 3 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
In non-OECD Asia, economic growth is expected to recover slightly from 2012 with
an overall average annual growth rate of almost 7 per cent. India and China, in
particular, are expected to maintain very high growth rates. India is assumed to grow
at 6 per cent per year over the period 2013–18 while China’s assumed growth rate is
7.5 per cent is consistent with the Chinese government target for GDP growth in
2013. This target represents stated Chinese government policy to ensure strong
economic growth and price stability.
Near-term growth in ASEAN countries that include Indonesia, Malaysia, Philippines,
Thailand, and Vietnam is assumed to be around 6.0 per cent supported by strong
domestic and foreign investment. Robust economic growth from the Republic of
Korea is expected with an assumed GDP growth of 3.6 per cent in 2013, and an
average assumed growth of about 4.1 per cent over the period 2014–18.
6
Table 1:
Key macroeconomic assumptions for resources and energy
unit
2011
2012
2013 a
2014 a
2015 a
2016 a
2017 a
2018 a
%
%
%
%
%
%
%
%
%
%
1.3
1.8
–0.8
1.3
3.2
1.7
0.8
0.4
3.6
1.1
1.4
2.2
2.3
0.3
1.0
0.1
–0.4
–2.3
2.7
2.2
2.1
2.1
1.3
1.1
0.9
0.4
1.1
–0.7
3.6
3.1
2.4
3.0
1.1
1.5
1.4
1.1
2.2
0.5
4.1
2.7
2.4
3.4
1.2
1.6
1.4
1.5
2.6
1.2
4.1
2.6
2.4
3.4
1.1
1.6
1.4
1.8
2.6
1.4
4.1
2.3
2.4
3.3
1.1
1.6
1.3
1.9
2.7
1.4
4.1
2.3
2.4
3.3
1.1
1.6
1.3
1.9
2.7
1.4
4.1
2.3
%
6.6
5.8
5.8
5.8
5.9
5.9
5.9
5.9
%
%
%
%
%
%
%
%
%
%
%
7.7
4.5
9.2
4.1
5.0
6.8
4.5
3.5
4.3
5.2
5.3
6.5
5.4
7.8
1.3
2.1
4.9
4.5
3.3
3.7
3.0
5.3
6.8
5.8
7.5
4.0
3.0
6.0
3.2
5.3
3.8
3.5
2.0
6.8
5.7
7.5
4.6
3.7
6.0
3.9
3.6
3.9
3.5
2.6
6.9
5.7
7.5
4.8
3.8
6.0
4.1
3.8
3.9
3.5
3.2
6.9
5.9
7.5
4.9
3.9
6.0
4.0
4.3
3.8
3.5
3.5
6.9
6.0
7.5
5.1
4.0
6.0
4.0
4.5
3.8
3.5
3.7
6.9
6.0
7.5
5.1
4.0
6.0
4.0
4.5
3.8
3.5
3.7
World c
%
3.8
3.3
3.6
4.1
4.3
4.4
4.5
4.5
Industrial
production b
OECD
Japan
China
%
%
%
–0.5
–0.9
9.9
1.0
7.1
8.8
1.2
5.9
9.4
1.2
5.3
9.4
1.1
4.5
9.3
1.1
4.0
9.2
1.1
4.0
9.1
1.1
4.0
9.1
Inflation rate b
United States
%
4.3
3.1
1.9
1.0
1.0
1.3
1.4
1.4
Interest rate
US prime rate g
%pa
3.3
3.3
3.3
3.4
3.5
3.5
3.5
3.5
Economic growth
bc
OECD
United States
Japan
Western Europe
Germany
France
United Kingdom
Italy
Korea, Rep. of
New Zealand
Developing
countries
Non-OECD Asia
South East Asia d
China e
Chinese Taipei
Singapore
India
Latin America
Middle East
Russian Federation
Ukraine
Eastern Europe
a BREE assumption. b Change from previous period. c Weighted using 2012 purchasing
power parity (PPP) valuation of country gross domestic product by IMF. d Indonesia,
Malaysia, the Philippines, Thailand and Vietnam. e Excludes Hong Kong. g Commercial bank
lending rates to prime borrowers in the United States.
Sources: BREE; Australian Bureau of Statistics; International Monetary Fund; Organisation for
Economic Cooperation and Development; Reserve Bank of Australia.
Economic prospects in Australia’s major mining export markets
Non-OECD economies
A number of Chinese Government policies are expected to constrain growth in 2013
to levels below the average rate over the past decade. Key stated objectives of the
Chinese government include keeping the annual inflation rate at or below 3.5 per
cent and the fiscal deficit at about 2 per cent of GDP. Fixed asset investment (FAI) in
7
2013 is expected to rise to 21 per cent from 18 per cent in 2012 which will stimulate
infrastructure investment and help to offset a dip in a key index of Chinese
manufacturing in February 2013.
Over the longer term, as outlined in its five year plan, the Chinese government is
specifically focusing on ‘higher quality growth’ that includes further actions to
improve air quality and reduce the growth in greenhouse gas emissions, tax reform,
the promotion of market-based reform in terms of the setting of interest rates and
foreign exchange rates, and steps to resolve increasing wealth disparity.
The current annual inflation rate in China, based on the most recent monthly
statistics, is 3.2 per cent and is close to the targeted maximum of 3.5 per cent. Much
of the recent rise in the price level is attributable to food prices which have
increased about 6 per cent over the past year. A matter of concern is that new credit
on an annual basis has quadrupled since 2007 while private credit has risen to about
180 per cent from 130 per cent in 2008. Consistent with the Chinese government’s
stated aim to achieve price stability, current price and credit growth is likely to limit
the scope for fiscal expansion possible such that economic growth is assumed to be
at its target level of 7.5 per cent.
The continued expansion of industrial production and infrastructure developments
in China are expected to support growth in energy and minerals consumption over
the medium term. The growth of resource intensive industries such as electricity
generation and steel, pig iron and cement production is expected to remain robust
over the outlook period even if investment as a share of GDP were to decline to preGFC levels by 2018. Over the long term, China’s growing technological prowess will
support structural change in the economy. Continuing strength of the Chinese
economy, Australia’s largest export market for resources and energy, will be
important to maintain projected volumes and high commodity prices over the
outlook period.
Figure 2:
markets
Economic growth in Australia’s major resource and energy export
Please refer to page 6 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Box 1:
Fiscal Cliff and US Sequestration
Fiscal consolidation is the process of reducing the government deficit and growth in
the public debt. It represents the reversal of fiscal expansion which is the typical
response to reduced domestic and external demand. Fiscal consolidation is under
way in most G20 countries, but at different speeds. In the US, the Republican
controlled House of Representatives has wanted fiscal consolidation to occur at a
faster rate than that proposed by President Obama. This dispute recently came to a
head with the so-called ‘fiscal cliff’ which would have resulted in tax increases and
spending cuts of about US$600 billion and may have adversely affected growth in
2013. In a last minute agreement both the White House and Congress at the start of
8
2013, agreed to compromise on fiscal austerity. As part of this agreement,
sequestration—automatic spending cuts set to take place across the federal
government—were delayed for two months. As of March 12 2013, the US sequester
is being implemented and involves across-the-board cuts in key agencies of about
$85 billion in 2013 as well as additional cuts worth $109 billion over the next 8 years.
The current sequester crisis is reminiscent of the 2011 debt ceiling crisis which was
also a dispute about the direction of fiscal policy between the President and
Congress and which contributed to the downgrade of US debt by a key ratings
agency.
Sources: IMF; Reserve Bank of Australia; National Bureau of Statistics of China.
Over 2012 Indian economic growth moderated, in part, as a result of government
policies intended to combat rising inflationary pressures, but also due to weaker
external demand and a decline in business confidence. Economic growth, however,
is expected to pick up and is assumed to be 6.0 per cent in 2013 and to remain at
that level from 2014–2018.
OECD economies
The German economy remains central to Western European demand for resources
and energy commodities. It is a matter of some concern, therefore, that according to
the German Federal Statistical Office its economy contracted 0.60 per cent in the
fourth quarter of 2012. The German economy is heavily export-oriented and is the
second largest exporter in the world with exports accounting for more than onethird of national output. As a result of weaker global demand in 2012 and the
European sovereign debt crisis Germany’s economy shrank at the end of 2012, but
data from January 2013 indicate that its exports are rising at the fastest rate for the
past 5 months. Further improvements in export growth should support faster growth
in 2013 assumed to be 0.9 per cent, and a higher average growth rate assumed to be
about 1.4 per cent over the period 2014–2018.
In Greece, Italy, Portugal, and Spain, fiscal tightening, banking system concerns, low
consumer confidence and high unemployment are still having a negative impact on
domestic demand. Outside of the Eurozone, the UK economy is assumed to improve
over the medium term and to grow, on average, about 2.6 per cent over the period
2014–18. France, the second largest economy in the Eurozone, experienced stagnant
economic growth in 2012, but its prospects are expected to improve over the
outlook period and its growth is assumed to be 1.9 per cent per year by 2018. Over
the period 2014–18, annual economic growth in Western Europe is assumed to be
1.6 per cent per year, a level slightly above the assumed German growth rate.
The US economy continues to recover supported by increases in consumption and
business investment, and forward-looking indicators of economic activity are
improving. Its unemployment rate is declining and there are increasing signs of
recovery in the housing sector. Growing strength in both the US housing market and
its manufacturing sector should increase demand for mining and energy
commodities. In particular, housing starts increased from 478 000 units at the height
9
of the global financial crisis to 720 000 units in January 2012 and 954 000 December
2012. Assumed very low nominal interest rates over the next two years are also
expected to provide on-going stimulus to business investment.
Despite its growing strength the US economy faces some short-term downside risks.
The primary challenge is to undertake fiscal consolidation without jeopardising
economic growth. The March 2013 sequester – which legislates arbitrary
Government spending cuts – has created uncertainty about how fiscal consolidation
will occur and whether the cuts will be directed to where they are most needed. On
the basis that a sustainable plan for fiscal consolidation will be implemented over
the outlook period it is assumed that US GDP grows at 2.4 per cent year over the
period 2014–18.
Commodity prices
Commodity prices increased substantially in 2010 and rose again, but at a slower
rate, in 2011. As a result of weakness in the global economy prices of most
commodities declined in 2012 relative to their peaks, but still remained at
historically high levels. In addition to a dip in prices 2012–13, relative to their peaks,
there has been increased volatility in the USD prices of some key commodities
exported by Australia, most notably iron ore.
Gold demand as a reserve and for speculative purposes provided underlying support
for gold prices throughout much of 2012. Increasing confidence in the global
economy, especially the belief by some investors that the worst of the European
debt crisis is over, has prompted some investors to move from gold to other assets.
This should contribute to a decline in the gold price over the outlook period. By
contrast, most other metals (aluminium, lead, nickel and zinc) are expected to
maintain current price levels although the copper price is projected to decline over
the 2014–18 period.
In terms of bulk commodities, both thermal coal and metallurgical coal are projected
to, more or less, maintain their first quarter 2013 price levels. The exception to this
trend is iron ore which is projected to maintain its price volatility, but its average
price level is expected to decline over the outlook period.
Figure 3:
Metal prices
Please refer to page 8 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Figure 4:
Bulk commodity prices
Please refer to page 9 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
10
Demand for resources and energy commodities
Global resource and energy commodity demand is expected to increase marginally in
2013 despite notable downside risks associated with recovery in Europe and political
debate about the speed of fiscal consolidation in the US.
An apparent resolution of the fiscal cliff (see box) combined with improving GDP
growth, stabilising unemployment, and rebounding industrial production following a
sharp dip caused by October’s Hurricane Sandy, bode well for increased US
prosperity. Nevertheless, some concerns remain, particularly in terms of ensuring a
stable and sustainable fiscal environment over the outlook period.
Recent production growth in Japan, spurred by reconstruction activity, is likely to
moderate in 2013. Offsetting this effect is the recent announcements of a stimulus
package that is expected to support economic growth in 2013.
Chinese growth remains the lynchpin of global bulk commodity demand. Asian
demand will also be supported by non-OECD growth, particularly within ASEAN
countries. In particular, Thailand and Vietnam are likely to be key growth economies
with industrial production assumed to increase from 4 to 5.5 per cent and from 6.5
to 7.2 per cent, respectively in 2013. Indian growth is also expected to improve from
2012 and is assumed to grow at a robust 6 per cent from 2013 to 2018.
Crude oil, gas and thermal coal demand are all expected to grow over the outlook
period. Much of the growth will occur in the Asia Pacific, and in particular in China
and India.
Supply for resources and energy commodities
The global supply of resource and energy commodities is expected to grow at a
faster rate than the previous decade. In particular, resources and energy projects
financed during the record high commodity prices of 2011, and before, will come to
fruition during the outlook period. Global growth in iron ore production is projected
to be particularly strong. Fortescue Metals Group, Rio Tinto and BHP Billiton, three
dominant players in the world’s largest iron ore export market—Australia—continue
to expand their capacity through mine, transport and export infrastructure
investments. Brazilian miner Vale is also expected to substantially expand its iron ore
production, particularly later in the outlook period.
Metallurgical coal supply, linked to iron ore because of their concurrent use in the
steal making process, will be supported by substantially higher Australian output
over the outlook period. Thermal coal supply has grown strongly over the past
decade, but its growth may begin to slow by the end of the outlook period as a result
of fuel switching and increased electricity generation from renewables.
Growth in oil supply is expected over the outlook period, especially from non-OPEC
sources including the US, Canada and Russia and also from a key OPEC member, Iraq.
Increased unconventional gas production in North America and high gas prices in
11
potential export markets is expected to result in substantial LNG export volumes by
the end of the outlook period, particularly into the Asia Pacific region.
Australia’s economic prospects
Based on ABS data, the Australian economy grew 0.6 per cent over the last quarter
of 2012 and enjoyed a growth rate of 3.1 per cent for 2012. In terms of real GDP,
based on purchasing power parity (PPP), Australian economic growth for 2011–2012
was 2.9 per cent. Based on IMF forecasts, it is assumed that Australian economic
growth will improve slightly to 3 per cent in 2012–13, and average 3.3 per cent over
the period 2013–14 to 2017–18.
Recent economic data suggest that the mining sector will continue to perform
strongly in terms of both volumes of exports and growth in capital investments.
Overall, Australian domestic demand continues to grow at a positive rate, although
the high level of the exchange rate, and changes in household spending and
borrowing behaviour has had a negative effect on some sectors. As a result, the
Reserve Bank Board lowered its target for the cash rate by 25 basis points in October
2012 and by the same amount in December 2012 to its current level of 3.00 per cent,
but has so far kept the cash rate unchanged in 2013.
Over the outlook period, growth in the Australian economy is expected to be
supported by mining-related activities. Historically high levels of mining investment
are expected to continue, but are likely to peak over the next couple of years. In
particular, large expansions to gas, iron ore and coal production capacity are
underway, and are expected to contribute to robust growth in resource export
volumes over the foreseeable future.
Table 2:
energy
Australia’s key macroeconomic assumptions for resources and
Economic growth b c %
Inflation rate b
%
Interest rates d
% pa
Nominal exchange rates e
US$/A$
US$
Trade weighted
index
index for A$ g
2011–
10
1.8
3.1
6.6
2011–
12
2.9
2.7
6.1
2012–
13 a
3.0
2.9
5.7
2013–
14 a
3.3
2.9
5.7
2014–
15 a
3.3
2.9
5.7
2015–
16 a
3.3
2.9
5.7
2016–
17 a
3.3
2.9
5.7
2017–
18 a
3.3
2.9
5.7
0.99
1.03
1.03
1.00
1.01
1.02
1.02
1.02
74
76
76
74
74
75
75
75
a BREE assumption. b Change from previous period. c Weighted using 2012 purchasing
power parity (PPP) valuation of country gross domestic product by IMF. d Large business
weighted average variable rate on credit outstanding. e Average of daily rates. g Base: May
1970 = 100.
Sources: BREE; ABS; RBA.
The Australian dollar increased slightly over the past six months from US 101c in
June to US 104c in December 2012. In the March quarter 2013, the Australian dollar
traded at around US 104c while the trade-weighted index was 78, or at levels very
similar to the final quarter of 2012.
12
Over the outlook period, it is assumed that the Australian dollar will remain at close
to historic highs due to expected stronger economic growth in Australia, recovery in
the EU economy and relatively low on-going interest rates in the US that should
dampen demand for US dollars (see Figure 5). The demand for Australia’s exports in
Asia, and market expectations about minerals and energy commodity prices, are also
factors that will influence the value of the Australian dollar over the outlook period.
Competitive currency devaluations that some countries view as a means to stimulate
demand will also support the Australian dollar over the outlook. Factors that may
cause the Australian dollar to weaken include reduced risks in the world economy
that will undermine Australia’s status as a ‘safe haven’, a recovery of the US
economy and further declines in domestic interest rates.
Figure 5:
Australian exchange rate
Please refer to page 11 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
The Australian mining industry
The gross value added, by chain volume measures, of the Australian mining industry
was about 142.6 billion (in 2012–13 prices) in 2011–12, equivalent to about 10 per
cent of Australia’s GDP. Of this total, mining activities and exploration and mining
support services contributed $132.2 and $10.5 billion, respectively.
Figure 6:
measures
Australian mining industry gross value added, chain volume
Please refer to page 12 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Energy and minerals commodity exports account for a large proportion of Australia’s
commodity exports. In 2011–12, energy and minerals commodity exports totalled
$192.6 billion (in nominal dollars), and accounted for about 83 per cent of Australian
total value of commodity exports. The principal importers of Australian energy and
mineral commodities include China, Japan and the Republic of Korea.
Despite the fact that commodity prices moderated in 2012, relative to 2011, overall
private new capital expenditure in the Australian mining sector continues to rise and
in 2011–12 and was around $84.4 billion (in 2012–13 prices) with expected
investment in 2013 to be in excess of $100 billion. The share of the mining sector as
a proportion of new capital expenditure of Australia’s total industries has increased
substantially over the past decade, rising from 15 per cent in 2001–02 to over 50 per
cent in 2011–12. Much of this growth is underpinned by liquefied natural gas (LNG),
coal and iron ore projects. Over the outlook period annual capital expenditures
should remain at historic high levels as the mega LNG projects are completed
although the stock of planned capital expenditures may be expected to peak in the
near future and then gently decline.
13
Figure 7:
Investment in private new capital expenditure
Please refer to page 13 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
As a capital-intensive industry, the share of the Australian mining industry in total
employment is low, approximately 2 per cent over the past three years. The industry
directly employed around 249 000 people in 2011–12, with the metal ore industry
employing the largest number of people, followed by the coal industry, and the oil
and gas extraction industry.
Figure 8:
Employment in the Australian mining industry
Please refer to page 13 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Australian resources and energy commodities production and
exports
In 2011–12, the overall index of Australian mine production was relatively stable,
increasing by less than one per cent from 2010–11. This was the result of increased
minerals production marginally offsetting a small dip in energy commodities
production (primarily due to flooding in Queensland that reduced coal production).
Total Australian mine production is forecast to increase by 7 per cent in 2012–13
relative to 2011–12, primarily due to a 13 per cent increase in the output of energy
commodities, particularly thermal coal, metallurgical coal and uranium. Also
contributing to this growth will be a 2 per cent increase in the production of metals
and other minerals, strongly supported by supply growth in iron ore.
Figure 9:
Australian mine production
Please refer to page 14 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Export earnings from energy and minerals commodity exports increased by 5 per
cent in real terms between 2010–11 and 2011–12, reaching some $198 billion (in
2012–13 dollars) in 2011–12. Of this total, export earnings from minerals
commodities contributed $119 billion, accounting for about 60 per cent of the total.
Export earnings from energy commodities accounted for a smaller share, 40 per cent,
and contributed approximately $79 billion in real terms to the total value of
Australian energy and minerals exports.
Figure 10:
Australian energy and minerals export earnings
Please refer to page 15 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
14
In 2012–13, the total export earnings for energy and minerals commodities are
forecast to decrease by 6 per cent to $186 billion due to slight falls in the export
values for both energy and minerals commodities. Energy commodity export
earnings are forecast to fall by 5 per cent to $74 billion in real terms, primarily as a
result of falling commodity prices. A large drop in metallurgical coal earnings (down
25 per cent to $23 billion) will be somewhat offset by gains in thermal coal (up 3 per
cent to $17.6 billion), LNG (up 36 per cent to $16.2 billion) and oil (up 8 per cent to
$14.3 billion).
In 2012–13, minerals commodity export earnings are forecast to decrease by 4 per
cent to $111 billion as a result of decreases in the export value of iron ore (down 9
per cent to $57 billion), aluminium (down 11 per cent to $3.4 billion and nickel
(down 18 per cent to $3.3 billion). Partially offsetting the decreased export earnings
for mineral commodities will be higher forecast export earnings for alumina (up 19
per cent to $6.1 billion), and gold (up 10 per cent to $17 billion). Over the outlook
period, the real value of mineral export earnings is projected to peak at $123 billion
(in 2012–13 dollars) in 2014–15 before declining to $116 billion in 2017–18. A fall in
iron ore prices after 2014–15 is the principal cause of the decline in export earnings.
Over the medium term, the outlook for energy and minerals commodity exports
remains robust. Investment in LNG production facilities will drive a surge in LNG
exports over the outlook period and the commissioning of the Pluto LNG project in
2012 is expected to boost exports in 2013. Based on mining, rail and port
infrastructure expansions currently under way, or in planning, significant growth in
coal export capacity is expected over the next three years. The detailed outlook for
major energy and minerals commodities is outlined in the following Resources
Outlook and Energy Outlook sections of this report.
Table 3:
Australia’s resources and energy commodity exports, by selected
commodities
Volume
Value
Annual
growth
Commodity
Alumina
Aluminium
Copper
Gold
Iron ore
Nickel
Zinc
LNG
Metallurgical
coal
Thermal
coal
Oil
Uranium
unit
2011–
12
2017–
18 z
%
kt
kt
kt
t
Mt
kt
kt
Mt
16592
1693
889
304
470
240
1572
19
20392
1488
1155
362
821
276
1586
88
Mt
142
Mt
ML
t
Annual
growth
unit
2011–
12
2017–18
z
%
3.7
–2.1
4.5
3.0
9.8
2.5
0.5
31.3
$m
$m
$m
$m
$m
$m
$m
$m
5146
3797
8501
15462
62695
4056
2292
11949
7774
3336
11027
15028
71054
5381
2967
60953
7.4
–2.0
4.6
–0.3
2.4
5.5
4.8
33.3
214
7.1
$m
30700
34692
3.0
158
304
11.5
$m
17118
26770
7.8
19212
6917
22404
10140
3.2
7.4
$m
$m
13205
607
15478
1050
3.2
10.1
15
z BREE projection.
Sources: BREE; Australian Bureau of Statistics.
Table 4:
Medium term outlook for Australia’s resources and energy
commodities
unit
2010–
11
2011–
12
2012–
13 f
2013–
14 z
2014–
15 z
2015–
16 z
2016–
17 z
2017–
18 z
Commodity exports
Exchange rate
US$/A$
0.99
1.03
1.03
1.00
1.01
1.02
1.02
1.02
Value of exports
Resources and energy
– real a
A$m
A$m
179237
188622
192583
198167
186452
186452
205054
199275
221100
208813
240744
220958
259030
231041
276205
239417
Energy
– real a
A$m
A$m
70143
73816
77029
79263
75314
75314
81074
78790
90870
85820
114431
105027
127871
114054
142844
123818
A$m
109094
115553
111138
123979
130230
126313
131159
133361
A$m
114806
118904
111138
120485
122993
115931
116987
115598
92.9
93.2
100.0
105.3
112.1
116.4
123.3
125.7
88.8
88.3
100.0
103.4
108.8
114.5
127.0
133.5
96.7
98.1
100.0
106.9
114.7
118.0
120.4
120.0
A$m
172067
184879
178993
196851
212256
231114
248669
265157
A$m
181077
190241
178993
191304
200461
212119
221799
229840
Metals and other
minerals
– real a
Resources and energy sector
Volume of mine
index
production b
– energy
index
– metals and other
index
minerals
Gross value of mine
production
– real a
a In 2012–13 Australian dollars. b Base: 2012–13 = 100. f BREE forecast. z BREE projection.
Sources: BREE; Australian Bureau of Statistics.
Major Australian commodity exports
Please refer to page 17 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
16
Energy outlook
Oil
Nhu Che, Pam Pham and Alex Feng
Oil prices
The real WTI crude oil price averaged US$95 a barrel (in 2013 dollars) in 2012, or a
decrease of 3 per cent relative to 2011. The Brent price fell slightly by 1 per cent in
2012, relative to 2011 to average US$112 a barrel. Lower prices are attributed to
weak economic growth in major economies, a recession in the euro zone and lower
economic growth in China.
The real WTI price is forecast to remain at an average of US$95 a barrel in 2013,
while the real Brent price is forecast to increase slightly, averaging US$113 a barrel in
the same year. Crude oil prices edged higher as 2012 drew to a close, supported by
stronger than expected winter demand and geopolitical concerns (see Figure 1). By
mid-January, prices were trading above December levels, with the Brent price at
$110.75 per barrel and the WTI price around $95.15 per barrel.
Oil prices are projected to fall in 2014, as a result of an increased supply of liquid
fuels by non-OPEC countries. By 2014, several US pipeline projects from the Midcontinent to the Gulf Coast refining centres are expected to come online that will
reduce the cost of transporting crude oil to refiners. This, in turn, should result in a
fall in the discount of WTI to Brent over the forecast period.
Over the long-term period to 2035, the International Energy Agency’s (IEA) latest
New Policies Scenario projections have oil prices rising steadily to reach US$146 and
US$215 a barrel by 2020 and 2035, respectively. Both WTI and Brent prices are
projected to follow this trend. Over the medium term outlook period from 2015 to
2018, the WTI and Brent prices are projected to increase steadily by an average of 1
per cent per year. In 2018, the WTI price and Brent price are assumed to average
US$89 and US$113 a barrel, respectively (see Figure 2).
Figure 1:
Weekly WTI oil price
Please refer to page 19 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
There are two significant risks to the outlook for oil prices. The first risk relates to
potential escalations of tensions in the Middle East that could cause production
disruptions, and put upward pressure on oil prices. The second risk is weaker than
assumed world economic growth over the next 12 to 18 months, which may put
downward pressure on oil prices.
17
Figure 2:
Annual WTI and Brent oil prices
Please refer to page 19 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
World oil consumption
World oil consumption increased by 1 per cent in 2012, relative to 2011, to average
89.6 million barrels a day (see Figure 2). Increases in non-OECD consumption
compensated for the declines in OECD consumption associated with lower economic
growth and the debt crisis in Europe.
In 2013, economic activity is assumed to pick up and world oil consumption is
forecast to increase by 3 per cent to average 92.1 million barrels a day. Robust
growth in non-OECD consumption is expected to offset moderate falls in OECD
consumption. By the end of 2013, oil consumption in non-OECD economies is
forecast to surpass OECD oil consumption. Beyond 2013, world economic growth is
assumed to strengthen further. Over the outlook period 2014–2018, world oil
consumption is projected to grow at a rate of 1 per cent a year, to reach 95.3 million
barrels a day in 2018.
Figure 3:
Oil consumption in OECD and non-OECD economies
Please refer to page 20 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Oil consumption in Non-OECD economies
In 2012, consumption in non-OECD economies averaged 43.6 million barrels a day,
up 3 per cent relative to 2011. In 2013, oil consumption in non-OECD economies is
forecast to increase by 7 per cent, and to average 46.8 million barrels a day following
an assumed improvement in economic growth. In the medium term, stronger
assumed economic and population growth is projected to support additional oil
demand in industrial production and transport. During 2014–2018, non-OECD oil
consumption is projected to grow at a rate of 2 per cent a year, to average 51.7
million barrels a day in 2018. Most of the growth is projected to come from China
that will contribute a third of the incremental consumption increase over the
outlook period.
China’s oil consumption rose by 3 per cent in 2012, relative to 2011, to average 9.5
million barrels a day. The IEA reported that consumption of major oil products
(except naphtha) increased in 2012 and that demand of motor gasoline and jet fuel
kerosene increased substantially. In 2013, China’s oil consumption is forecast to
increase at a similar rate and average 9.9 million barrels a day with strong demand
for naphtha, gas/diesel oil and motor gasoline.
Despite being the world’s second largest oil consumer, China’s per capita
consumption of oil is around half of the world average. Economic growth in China is
assumed to be robust over the medium term which will increase per capita incomes
18
and support increased fuel demand in transport activities and a growing
petrochemical sector. Between 2014 and 2018, China’s oil consumption is projected
to increase at an average annual rate of 3 per cent to total 11.5 million barrels a day
in 2018.
Oil consumption in India averaged 3.7 million barrels a day in 2012, up 4 per cent
from 2011. Consumption growth in recent years has been supported by economic
and population growth. Beyond 2012, India’s oil consumption is projected to
increase by 3 per cent a year to average 4.3 million barrels a day by 2018.
In 2012, oil consumption in the Middle East rose by 3 per cent, relative to 2011, to
total 7.6 million barrels a day. The expansion of oil powered generation activity is
likely to continue to support oil demand and the Middle East’s oil consumption is
forecast to average 7.8 million barrels a day in 2013. Over the remainder of the
outlook period, oil consumption in the Middle East is projected to grow at an
average annual rate of 2 per cent per year to total 8.6 million barrels a day by 2018.
Oil consumption in OECD economies
Oil consumption in OECD economies averaged 46 million barrels a day in 2012, down
by 1 per cent relative to 2011. Increased demand in the OECD Pacific, particularly
Japan, offset lower consumption in the US and Europe. In the short to medium term,
oil consumption is projected to be supported by continued oil-fired electricity
generation demand in Japan as a result of the temporary shutdown of many of its
nuclear power plants. Over the outlook period 2013–2018, OECD oil consumption is
projected to decrease by 1 per cent a year to total 43.7 million barrels a day in 2018.
Oil consumption in OECD-Europe has declined steadily since 2006, due to weak
economic growth and on-going efficiency gains in the transport sector and the
declining use of oil in electricity generation and heating. The declining demand trend
is projected to continue over the outlook period. Short term falls in consumption are
expected to be magnified by weak economic growth. In 2012, OECD-European oil
consumption averaged 13.8 million barrels a day, down 4 per cent relative to 2011.
In 2013, OECD-European oil consumption is forecast to contract further to total 13.6
million barrels a day. Between 2014 and 2018, oil consumption in OECD-Europe is
projected to decrease at an average annual rate of 1 per cent, totalling 12.9 million
barrels a day by 2018.
Oil consumption in North America averaged 23.8 million barrels a day in 2012, down
by 2 per cent from 2011. Lower oil consumption in the US, in particular, contributed
to this decline. In 2013, oil consumption is projected to stay at a similar level, but
over the remainder of the outlook period, oil consumption in North America is
projected to fall by 1 per cent a year and to average 23 million barrels a day by 2018.
Since late 2005, oil demand in the US has been on a structural decline. In 2012, the
US’ oil consumption averaged 18.7 million barrels a day, decreasing by 2 per cent
relative to 2011. Oil consumption is forecast to increase slightly in 2013 and 2014 as
the result of increases in distillate and liquefied petroleum gas consumption.
19
Between 2015 and 2018, oil consumption in the US is projected to decrease
marginally to average 18.6 million barrels a day in 2018.
Oil consumption in the Pacific region is projected to increase in the short term and
decline over the medium term. Changes in oil consumption are expected as the
result of changes in the energy mix in Japan, the largest oil consuming country in the
Pacific region. In 2012 Japan’s oil consumption was 4.7 million barrels a day, which
was an increase by 5 per cent from 2011. In 2013, a gradual recovery in the Japanese
nuclear capacity is forecast to reduce oil demand by 4 per cent to average 4.5 million
barrels a day. Over the period 2014–2018, Japan’s oil consumption is projected to
decrease at an average annual rate of 2 per cent to total 4.1 million barrels a day by
2018. The factors influencing a decrease in demand in Japan include an
improvement in fuel efficiency and the gradual replacement of high cost oil-fired
electricity generation by natural gas.
World oil production
World oil production is estimated to have increased by 1 per cent, relative to 2011,
to average 85.3 million barrels a day in 2012. Production from non-OPEC countries
accounted for nearly 60 per cent of the total world oil production. In 2013, world oil
production is forecast to average 86.1 million barrels a day, with non-OPEC countries’
production averaging 50.7 million barrels a day. Production from OPEC countries is
forecast to average 35.4 million barrels a day in 2013, or an increase of 1 per cent
relative to 2012.
Over the remainder of the outlook period from 2014 to 2018, world oil production is
projected to increase at an average annual rate of 1 per cent to reach 90.1 million
barrels a day in 2018. The growth in world oil production is supported by projected
increases in production from both OPEC and non-OPEC countries during this period,
particularly unconventional oil production. In 2018, OPEC production is projected to
be around 36.4 million barrels a day, largely supported by capacity increases in Iraq
and Libya. Non-OPEC production is projected to grow at an average rate of 1 per
cent a year over the outlook period 2014–2018 to average 53.8 million barrels a day
in 2018.
Figure 4:
World oil supply in OPEC and non-OPEC economies
Please refer to page 23 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Oil production in non-OPEC economies
In 2012, non-OPEC production is estimated to have increased by 1 per cent, relative
to 2011, averaging 50.1 million barrels a day. Strong growth in oil shale and oil sand
developments in North America supported the production increase and offset
output decline in the North Sea fields due to unplanned outages and delayed startup of several oil fields.
20
In 2013, non-OPEC’s oil production is forecast to grow at a similar rate to 2012 and
total 50.7 million barrels a day. The increase is due to rising unconventional supplies,
mainly from the US’ light tight oil, Canadian oil sands, natural gas liquids, and a surge
in deepwater oil production in Brazil. The production gains from the US, Canada and
Brazil are forecast to contribute over 60 per cent of the incremental increase in nonOPEC production between 2012 and 2013.
Over the outlook period 2014–2018, non-OPEC oil production is projected to grow at
an average rate of 1 per cent per year to reach 53.8 million barrels a day in 2018. The
US and Canada are expected to lead non-OPEC production growth in the medium
term. From 2014 to 2018, North America’s oil production is projected to increase by
1.6 million barrels a day to total 20.8 million barrels a day in 2018.
Latin America is projected to be the fastest growing region in term of oil production
over the outlook period. From 2013 to 2018, Latin America’s oil production is
projected to increase at an average annual rate of 4 per cent to total 5.4 million
barrels a day by 2018. Brazil oil production is projected to contribute most of the
growth in the region.
Oil production in the US averaged 14.9 million barrels a day in 2012, increasing by 2
per cent relative to 2011. High oil prices and new technologies have made the
extraction of oil and gas from shale rock commercially viable in recent years and
contributed to the rise in production. US Oil production is forecast to continue to
increase in 2013, by 2 per cent, relative to 2012, to total 15.1 million barrels a day.
Over the remainder of the outlook period, US oil production is projected to grow at
an average rate of 2 per cent a year. By 2018, US oil production is projected to be
around 16.6 million barrels a day, an increase of 1.7 million barrels a day from the
2012 production level. Higher production volumes are primarily the result of
increased onshore oil production, predominantly from tight (very low permeability)
formations. Over the longer term, the IEA projects that the US will surpass Saudi
Arabia to become the world’s biggest oil producer by 2020.
Canada’s oil production has grown robustly in recent years. Production growth is
supported by a rebound in oil sands production activity, increases in the levels of
domestic and foreign investment, and the successful application of horizontal drilling
and multi-stage hydraulic fracturing methods. In 2012, oil production in Canada was
around 3.6 million barrels a day, with oil sands production accounting for just under
half of this amount. In 2013, Canada’s oil production is set to rise further to total 3.7
million barrels a day as the result of production from Hibernia, Terra Nova, and
White Rose fields. Towards 2018, Canada’s oil production is projected to increase at
an average rate of 3 per cent a year to total 4.2 million barrels a day in 2018. The
Hebron field, scheduled to begin production in 2017, will offset declining production
from the Newfoundland and Labrador offshore fields.
Brazil’s oil production is forecast to increase by 7 per cent in 2013, relative to 2012,
to reach 2.5 million barrels a day. Crude output growth is supported by the addition
of the FPSO Cidade de Anchieta at the Parque das Baleias group of fields and the
21
start of production from Sapinhoa and Roncador’s P-55 platform on the assumption
that the Frade field will not restart until late 2013. Most of the growth in Brazil’s oil
production is driven by the development of deepwater discoveries in the Campos
and Santos basins, located off its southeast coast.
In the medium term, Brazil is set to become the fastest-growing oil producer outside
the Middle East. Over the outlook period 2014–2018, Brazil’s oil production is
projected to grow at an average annual rate of 7 per cent, reaching 3.6 million
barrels a day in 2018. Production increases will be underpinned by the installation of
additional production systems in several offshore oil fields including Baleia Azul,
Guara North, Cernambi, Lula Central, Lula High and Maromba.
After reaching a record level of production in 2011, Russia’s oil production fell by 1
per cent to average 10.5 million barrels a day in 2012. In 2013, oil production is
forecast to decline further to average 10.4 million barrels a day. In the medium term,
production from maturing fields is projected to fall and will more than offset the
increases in production from new fields. Although new fields are still being
developed, the rate of growth is likely to be slow because these fields are often
located in remote areas. Between 2014 and 2018, Russia’s oil production is projected
to fall steadily at a rate of 1 per cent a year to average 10 million barrels a day in
2018.
Oil production in OPEC economies
OPEC oil production was 35.2 million barrels a day in 2012, an increase of 1 per cent,
relative to 2011, supported by increased output from Saudi Arabia, Angola, Algeria
and Libya. These increases offset the decline in Nigeria’s production because of
severe flooding in November 2012 and a fall in Iran’s production. In 2013, OPEC oil
production is forecast to grow at a similar rate to average 35.4 million barrels a day.
In the medium term, OPEC member countries continue to invest in refining,
transportation, exploration and development activities intended to support oil
market stability. Over the outlook period 2014–2018, OPEC production is projected
to grow at an average rate of 1 per cent a year to reach 36.4 million barrels a day in
2018. Nearly half of the production increase is projected to come from natural gas
liquids (NGLs), with crude oil and Venezuelan extra-heavy oil accounting for another
30 and 20 per cent, respectively, of the additional supply.
The projected growth in OPEC production will primarily come from the Middle East,
predominantly Iraq. Iraq production is forecast to grow robustly by 8 per cent,
relative to 2012, to total 3.1 million barrels a day in 2013. In the medium term, Iraq
is likely to lead the growth in the Middle East production. Between 2014 and 2018,
oil production from Iraq is projected to grow at an average annual rate of 8 per cent
to be about 4.6 million barrels a day in 2018.
The Middle East is projected to dominate oil production of OPEC over the outlook
period, accounting for about 75 per cent of total OPEC production by 2018. Outside
22
the Middle East, production is expected to rise in all member countries with the
exception of Angola and Ecuador.
Oil production in Saudi Arabia is forecast to remain at an average of 11 million
barrels a day in 2013, due to lower output from maturing fields. An increase in
production in 2014 will be underpinned by the commencement of the Manifa
offshore field ahead of schedule in 2014. In the medium term, production growth is
assumed to be constrained by resource depletion. Over the remainder of the outlook
period, production in Saudi Arabia is projected to decline steadily by 1 per cent a
year. By 2018, oil production in Saudi Arabia is projected to average 10.7 million
barrels a day.
In 2012, Iran’s oil production dropped well below its 2011 production level of 4.2
million barrels a day as a result of international oil sanctions imposed on Iran’s oil
exports. Latest Iran’s oil supply is estimated to average 2.7 million barrels a day. In
2013, oil production from Iran is projected to fall further as a result of the US’s
additional financial sanctions which began in February 2013. Between 2013 and 2018,
Iran’s oil production is projected to decrease by 7 per cent a year to average 1.8
million barrels a day by 2018 on the assumption that sanctions imposed on Iran
remain in place during the outlook period.
Libya’s oil production has rapidly recovered after the end of the 2011 civil war
although production has still not yet reached the pre-war level. The IEA reported
that Libyan oil supply in recent months averaged around 1.4 million barrels a day,
and output is expected to reach about 1.6 million barrels a day in 2012, slightly
below the 1.7 million barrels a day produced in 2010. During the outlook period
2013 to 2018, Libya’s oil production is projected to remain relatively flat at the 2012
production level. Oil production from the United Arab Emirates is expected to
remain relatively stable at 3.3 million barrels a day over the outlook period as the
government has delayed a plan to increase its crude oil capacity to 3.5 million barrels
a day in 2014 to 2018.
Australian production and exports
Australia’s production of crude oil and condensate is estimated to have decreased by
9 per cent in 2011–12, relative to 2010–11, to total 22.4 gigalitres. Lower production
is the result of planned maintenance on the North West Shelf, multiple unplanned
shut-ins throughout the Carnarvon Basin during cyclone season, and declines in
production from maturing fields. Output from the Kitan project in the Bonaparte
Basin, which commenced in October 2011, partially offset this decline. In 2012–13,
Australia’s crude oil and condensate production is forecast to increase by 3 per cent,
relative to 2011–12, as a result of the commencement of crude production from the
Montara-Skua project and condensate from the Kipper gas project.
Over the period from 2013–14 to 2015–16, Australian production of crude oil and
condensate is projected to decrease at an average annual rate of 7 per cent.
Declining production from maturing fields is projected to more than offset new
production from several small fields including Coniston, Fletcher-Finucan, Turrum,
23
Crux and Balnaves in 2014–15 and 2015–16. In 2016–17 and 2017–18, Australia’s
crude oil and condensate production is projected to rebound to 25.8 and 24.5
gigalitres, underpinned by condensate production associated with the Prelude and
Ichthys projects. Beyond 2018, higher Australian oil production maybe supported by
production from shale oil resources from the Arckaringa Basin surrounding Coober
Pedy, although the start date for production and size of the resources remain
unclear.
In 2011–12, Australia’s exports of crude oil and condensate decreased by 2 per cent
to 19.2 gigalitres, relative to 2010–11 (see Figure 5). Despite the fall in the export
volume, the value of Australia’s crude oil and condensate exports increased by 5 per
cent to $13.6 billion (in 2012–13 dollars) in 2011–12. Australia’s exports of crude oil
and condensate are forecast to increase by 13 per cent in 2012–13, with the export
value increasing by 5 per cent, relative to 2010–11. From 2013–14 onwards to 2015–
16, crude oil and condensate exports are projected to fall by 2 per cent per year to
total 19.2 gigalitres in 2015–16. Australia’s crude oil and condensate exports are
projected to rebound to 23.6 and 22.4 gigalitres in 2016–17 and 2017–18.
In value terms, Australia’s crude oil and condensate export earnings were about
$13.6 billion (in 2012–13 prices) in 2011–12, an increase of 5 per cent relative to
2010–11. Between 2012–13 and 2015–16, the real value of Australian crude oil and
condensate exports are projected to decline by an average of 6 per cent a year, as a
result of projected lower export volumes (see Figure 5). Export earnings are
projected to rebound to total $14.5 billion in 2016–17 and $13.4 billion in 2017–18
(in 2012–13 dollars), supported by exports from the Prelude and Ichthys projects.
Figure 5:
Australian crude oil and condensate exports
Please refer to page 27 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Table 1:
World
Production b
Consumption
West
Texas
Intermediat
e crude oil
price
– nominal
– real c
Brent crude oil price
– nominal
– real c
Oil outlook
unit
2011
2012
2013 f
2014 z
2015 z
2016 z
2017 z
2018 z
mbd
mbd
84.5
88.8
85.3
89.6
86.1
92.1
86.9
92.8
87.7
93.4
88.5
94.0
89.3
94.7
90.1
95.3
US$/bbl
US$/bbl
95
98
93
95
95
95
85
84
86
85
87
85
88
84
89
84
US$/bbl
US$/bbl
110
114
110
112
108
108
107
106
109
107
111
107
112
107
113
106
2010–
11
2011–
12
2012–
13 f
2013–
14 z
2014–
15 z
2015–
16 z
2016–
17 z
2017–
18 z
Australia
Crude oil and
condensate
24
Production b
Export volume
Export value
– nominal
– real d
Imports
LPG
Production e
Export volume
Export value
– nominal
– real d
Petroleum products
Refinery production
Exports g
Imports
Consumption h
ML
ML
24745
19638
22408 i
19212
22988
18502
24031
20075
22022
18397
20940
17493
25769
21528
24481
20451
A$m
A$m
ML
12245
12887
32225
13205
13588
29495
12407
12407
30683
14091
13694
27168
12884
12168
27584
12159
11160
27847
15026
13402
27138
14274
12373
27350
ML
ML
3907
2471
3652
2115
3836
2090
4117
2280
3773
2090
3588
1987
4415
2445
1104
2445
A$m
A$m
1068
1124
971
1000
994
994
1171
1138
1070
1010
1010
927
1248
1113
1248
1082
ML
ML
ML
ML
38393
760
18762
52095
36081
1151
22194
53797
35163
1104
24984
56333
32966
1059
29569
57386
33049
1082
30535
58712
33131
1084
31999
60078
33214
1087
33610
61478
33214
1087
35346
62929
b One megalitre a year equals about 17.2 barrels a day. c In 2013 US dollars. d In 2012–13
Australian dollars. e Primary products sold as LPG. g Excludes LPG. h Domestic sales of
marketable products. i Energy Quest. f BREE forecast. z BREE projection.
Sources: BREE; ABARES; Australian Bureau of Statistics; International Energy Agency; Energy
Information Administration (US Department of Energy); Energy Quest; Geoscience Australia.
25
Gas
Pam Pham, Nhu Che and Tom Willcock
World gas consumption
Global gas consumption has grown rapidly over the past two decades, increasing at
an average annual rate of 2.6 per cent from 2500 billion cubic metres in 2000 to
3400 billion cubic metres in 2011. This growth is projected to continue at an average
annual rate of around 1.8 per cent over the medium term, to reach a total level of
annual consumption of 3800 billion cubic metres in 2018 (see Figure 1).
The attractiveness of gas fired electricity generation has been a key contributing
factor to increased global demand. First, improved identification and extraction
technologies have dramatically increased and reduced the cost of gas in key markets,
such as the US. Second, the faster ramp-up speeds of gas powered plants allows
them to respond quickly to peak demand, an increasingly desirable property for
electricity grids. Third, gas is a relatively low emission technology relative to other
fossil fuels.
Future gas demand is expected to be supported by growth in consumption in nonOECD economies that is projected to grow at 2.8 per cent annually to 2018. China
underpins a large proportion of the rising demand with 12 per cent gas growth per
annum. This will more than double China’s gas demand from 123 billion cubic metres
in 2011 to 275 billion cubic metres in 2018. Gas consumption in India, Africa and the
Middle East will grow substantially at about 3 per cent per annum. Demand growth
from OECD nations is expected to develop more moderately, or around 0.7 per cent
per year, over the same time period. Falling European demand, a result of strong
competition from renewables and assumed weak economic growth, will be offset by
increased American and OECD-Asian growth, primarily from electricity generation.
Figure 1:
World gas consumption
Please refer to page 29 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Global LNG trade
World gas production is concentrated in the Former Soviet Union, North America
and the Middle East. Gas consumption, however, occurs in many regions. Projected
increases in global gas consumption, production in a few key locations and
associated regional price disparities are projected to underpin an expansion of global
gas trade.
The current global capacity for LNG trade is around 288 million tonnes per year.
Qatar has the largest LNG export capacity of 77 million tonnes per year and accounts
for about 27 per cent of the global capacity, followed by Indonesia which has some
13 per cent of the global capacity.
26
Australia is currently ranked third in terms of LNG export capacity. Australia’s current
export capacity of LNG is about 24 million tonnes per year, and represented 8 per
cent of global LNG exports. Australian LNG is mainly delivered to Japan, South Korea,
China, Chinese Taipei and India. These markets accounted for about 64 per cent of
world LNG imports in 2011.
Investment in inter- and intra-regional transport capacity will facilitate trade and
enable greater gas consumption, particularly in Asia. Greater transport capacity will
take the form of additional pipelines and the construction of LNG liquefaction and
regasification terminals.
In 2011, world LNG trade totalled 241 million tonnes, and represented an increase of
about 10 per cent relative to 2010. The Asia-Pacific region, which accounted for
about 64 per cent of total world LNG imports, largely contributed to this growth (see
Figure 2). In 2011, LNG imports in the Asia-Pacific region increased by 17 per cent,
relative to 2010, to total 168 million tonnes. The recent growth of LNG imports to
the Asia-Pacific region has, in part, been driven by increased gas demand for power
generation in Japan, the largest LNG importer in the world, following the closures of
most of its major nuclear facilities after the March 2011 earthquakes. Rapid growth
in gas consumption in China has, in part, been met by LNG imports which has also
contributed to the growth in the Asia-Pacific region.
Figure 2:
LNG imports in 2011, by region
Please refer to page 31 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
LNG imports in the Asia-Pacific have grown rapidly at an average rate of 7 per cent
per year over the period 2000-2011. In 2012, the Asia-Pacific’s LNG imports are
estimated to have increased by 10 per cent, relative to 2011, and totalled around
185 million tonnes, with the largest increase being LNG imports into India and China
(see Figure 3). Over the medium term, LNG trade is expected to comprise an
increasing proportion of the global gas trade, as it can be transported over longer
distances and allows for a greater diversification of supply compared with gas
transported through pipelines.
Overall, LNG imports into the Asia-Pacific are forecast to increase by 9 per cent in
2013 and to total 200 million tonnes, underpinned by demand for gas-fired
electricity generation and higher industrial and residential consumption in existing
and emerging LNG importing economies. Over the medium term, gas is expected to
play a greater role in the power generation, as well as the residential and industrial
sectors, and to eventually replace high cost fired-oil electricity generation. Between
2014 and 2018, the growth of LNG imports in the Asia-Pacific are projected to slow
but still grow at a robust average rate of 7 per cent per year to reach 272 million
tonnes in 2018.
27
Figure 3:
LNG imports into the Asia-Pacific
Please refer to page 32 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Japan is currently the largest LNG importer in the world. In the absence of domestic
gas production and international pipelines, Japan is completely reliant on LNG
imports to meet domestic consumption requirements. In 2011, Japan remained the
largest LNG importer in the world, with a volume of LNG imports of around 86
million tonnes. In 2012 Japan’s imports of LNG are estimated to be about 87 million
tonnes, an increase of 2 per cent relative to 2011.
Robust growth in LNG imports has followed the closure of most of Japan’s nuclear
reactors caused by the March 2011 earthquakes and tsunami (as gas is a substitute
for power generation). Although two reactors in Fukui Prefecture were restarted in
2012, 48 of Japan’s nuclear reactors still remain switched off, subject to safety
testing. Until the safe start up of its nuclear plants, higher consumption of LNG
growth is anticipated to continue. Over the outlook period 2013-18, Japan’s LNG
imports are projected to increase at an average rate of 8 per cent per year to total
122 million tonnes by 2018.
The Republic of Korea is the second largest LNG importer in the world and, like Japan,
its gas consists entirely of LNG imports. In 2012, its LNG imports are reported to be
around 36 million tonnes, down by 1 per cent from 2011. The Republic of Korea’s
LNG imports are forecast to increase by 6 per cent in 2013 to reach 38 million tonnes.
The growth is underpinned by a rise in gas use for electricity generation and growing
consumption of residential and commercial gas. Gas is also expected to continue to
play a critical role in peak load electricity generation. Between 2014 and 2018,
Korea’s LNG imports are projected to increase by an average of 5 per cent annually
and to total 49 million tonnes in 2018.
China only started importing LNG in the past decade, but its LNG imports have grown
rapidly. In 2011, China was the world’s fifth largest LNG importer, by volume. China’s
LNG imports are reported to have increased by 30 per cent between 2011 and 2012,
reaching 29 million tonnes in 2012. The growth in China’s LNG imports is expected to
moderate as a result of the natural gas pipeline linking Myanmar with China in 2013.
The pipeline runs from Kyaukpyu in Myanmar to Yunnan province in China with a
capacity of 12 billion cubic metres per year. Despite this, China’s LNG imports are set
to continue rising in 2013, by a robust 10 per cent, to reach 32 million tonnes.
The Chinese government is focused on developing domestic its gas supply to meet
rising demand for gas consumption in the industrial, residential, and power, gas and
water sectors. A large proportion of this demand is likely to be met by increasing
imports through an extensive network of national and regional gas pipelines, with
the total capacity of the main pipeline network exceeding 100 billion cubic metres
per year. Over the remainder of the outlook period (2014 to 2018), China’s LNG
imports are projected to grow at an average annual rate of 6 per cent to total 46
million tonnes in 2018.
28
India’s LNG imports have increased at an average rate of 8 per cent per year over the
period 2006-2011, underpinned by rising gas consumption in the electricity,
industrial and residential sectors. In 2012, India’s LNG imports were estimated to be
about 19 million tonnes. Rising demand for gas use will need to be met by both
increased domestic production and imports. While India is expanding pipeline
capacity over the medium term, LNG imports are forecast to supplement supply in
the short term. In 2013, India is projected to add an additional 7.5 million tonnes to
the total volume of LNG imports. Over the outlook period (2014-18), India’s LNG
imports are projected to increase at an average rate of 4 per cent per year to reach
31 million tonnes in 2018.
Chinese Taipei’s LNG imports are reported to be around 13 million tonnes in 2012,
up by 7 per cent from about 12 million tonnes in 2011. Demand for LNG in Chinese
Taipei is projected to increase over the medium term. Increasing gas-fired electricity
generation capacity is assumed to meet most of the expected increase in electricity
demand. Uncertainty in the nuclear sector, where the 2.7 GW Lungmen plant has
experienced a number of delays and public opposition, will likely support gas imports
in the short to medium term.
From 2013, Chinese Taipei will be entitled, under contract, to an additional 1.5
million tonnes of LNG a year from Qatar. Total imports into Chinese Taipei in 2013
are projected to increase by 12 per cent, totalling 14 million tonnes. Between 2014
and 2018, additional demand for gas will be supported by increased electricity
generation demand. Over the outlook, LNG imports into Chinese Taipei are projected
to increase by 4 per cent a year to reach 16 million tonnes in 2018.
Imports into the Asia-Pacific region are expected to be further supported by growing
demand from Asian economies, particularly LNG projects in Malaysia, Singapore, the
Philippines and Indonesia. These projects are expected to add an additional 8 million
tonnes per year into the Asia-Pacific region LNG import capacity from 2015.
World gas and LNG production
Global gas supply typically correlates closely to global demand with some
fluctuations due to a change in stocks. The global gas supply increased from 2500
billion cubic metres in 2000 to 3400 billion cubic metres in 2011. Much of this
growth has come from the Middle East, the Former Soviet Union, China and the
United States. According to the International Energy Agency (IEA) the bulk of future
growth in gas supply will come from these areas as well as Australia and Africa.
Global gas supply is forecast to be 3800 billion cubic metres in 2018. The largest two
producers in 2018, as in 2012, will be the United States and Russia with production
of 728 and 686 billion cubic metres, respectively. Countries with the highest growth
rates, in terms of production from 2012 to 2018, include Australia, Brazil, China, Iraq,
Nigeria, Saudi Arabia, Turkmenistan and Qatar.
Global LNG supply is, in part, determined by the cost of liquefying and transporting
natural gas. Australia exports more than half of its extracted gas due to relatively low
domestic demand and the higher prices available overseas. Countries with larger
29
domestic gas demand, the US for example, have not been an active participant in the
LNG market. Other large suppliers with extensive land borders, such as the Russian
Federation, have focused their exports via pipelines to consumers and given less
emphasis to the LNG trade.
Australia is the most important country globally in terms of LNG capacity under
construction with around 60 million tonnes of liquefaction capacity to come online
by 2017. Other countries with LNG liquefaction projects under construction in 2013
include Algeria, Angola, Papua New Guinea and Indonesia. Over the longer term
Australia, Russian Federation, Nigeria, Canada and the US all have a significant
number of large LNG projects at the planning stage.
Gas supply growth from North America will have a profound effect on global LNG
flows. Traditionally a gas importer, the US is currently the world’s largest consumer
of gas. However, a trend of decreasing gas imports over the past decade has recently
changed because a large number of unconventional gas resources have begun to be
exploited. If this supply growth continues over the medium term it could turn North
America into a sizeable LNG exporter. Projects once planned for regasification (LNG
import) are currently being redesigned for liquefaction (LNG export). The US’ low gas
price as defined by the Henry Hub benchmark, combined with rapid growth in
demand from East Asia and relatively high prices are likely to result in considerable
LNG exports from North America to the region. The knock-on effect of this additional
supply will be increased competition for other Asia-Pacific producers, notably
Australia, and lower landed gas prices in the leading LNG importing countries.
Figure 4:
World gas production
Please refer to page 35 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Australian gas production
In 2011–12, Australian gas production was about 51 billion cubic metres, including
production from the newly commenced Bass Gas (Yolla Mid Life Enhancement) in
the Bass Strait. In 2013, a number of new projects and expansions are expected
including Macedon (WA) and North Rankin (WA). In 2012–13, Australia’s gas
production is forecast to increase by 20 per cent to 61 billion cubic metres. Increases
in production are expected to be underpinned by the commissioning of a number of
new fields. In 2014, the major projects expected to commence are the Surat Gas
Project and Queensland Curtis LNG in Queensland. These projects are expected to
underpin an additional 17 per cent increase in Australian gas production in 2013–14
to total 71 billion cubic metres.
Over the remainder of the outlook period (2014–15 to 2017–18), Australia’s gas
production is projected to increase at an average annual rate of 11 per cent and to
reach 135 billion cubic metres by 2017–18. Increased gas production is projected to
be facilitated by new LNG capacity as well as demand for gas from the electricity
generation, industrial and residential sectors. Between 2015 and 2018, a number of
30
major projects will commence and will contribute significantly to Australian gas
production and exports (see Table 2).
A substantial portion of Australia’s investment pipeline is comprised of LNG projects
at both the Feasibility and Committed Stages. Development costs for new LNG
projects in Australia have increased substantially.
Australian LNG exports
Australia’s LNG exports are estimated to be about 19 million tonnes in 2011–12, or
some 4 per cent lower than 2010–11. This decline is due to maintenance at the
North West Shelf LNG plant in the second half of 2011 and at the Darwin LNG plant
in the second quarter of 2012.
Australian exports of LNG are forecast to increase significantly by 26 per cent in
2012–13 to total 24 million tonnes. In 2013–14, Australian exports are forecast to
increase by a further 4 per cent to total 25 million tonnes as the result of production
at the Pluto facility being scaled up towards capacity.
Over the remainder of the outlook period (2014–15 to 2017–18), Australian exports
of LNG are projected to increase at an average rate of 36 per cent a year to reach 88
million tonnes in 2017–18 (see Figure 4). Projected increases in export volumes are
expected to be underpinned by the commissioning of several LNG projects that are
currently under construction, as shown in Table 2.
Figure 5:
Australia’s LNG exports
Please refer to page 36 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
LNG prices under long-term contracts in the Asia-Pacific are generally linked to the
price of oil. During the medium term outlook, higher forecast oil prices are expected
to support higher LNG prices. Increasing LNG prices, combined with increasing
export volumes, are forecast to underpin growth of Australian LNG export earnings
significantly during the medium term outlook. In 2012–13, the value of Australian
LNG exports is forecast to total $16.3 billion. Between 2013–14 and 2017–18,
Australia’s export earnings are projected to increase by an average of 31 per cent a
year to total $52.8 billion (in 2012–13 dollars) in 2017–18. Increases in export
earnings are the results of projected significant increases in Australian export
volumes and projected higher LNG prices over the outlook period from 2012–13 to
2017–18.
Table 1:
Australia
Production
LNG export
volume
Gas outlook
unit
2010–
11
2011–
12
2012–
13 f
2013–
14 z
2014–
15 z
2015–
16 z
2016–
17 z
2017–
18 z
Gm3
53.1
50.5
60.8
71.3
96.2
115.2
124.5
134.5
Mt
20.0
19.3
24.3
25.2
33.1
62.8
71.7
87.9
31
LNG export value
– nominal
A$m
– real b
A$m
10437
10984
11949
12296
16199
16199
17944
17438
23471
22167
43592
40009
49678
44310
60953
52835
b In 2012–13 Australian dollars. f BREE forecast. z BREE projection.
Sources: BREE; ABARES; Geoscience Australia.
Table 2:
Committed Australian gas and LNG projects
Project
State
Location
Type
Estimated
Start Up
Estimated
New
Capacity
Australia Pacific LNG
Gladstone LNG
Qld
Qld
new project
new project
2016
2015
9 Mt
7.8 Mt
Gorgon LNG
WA
Gladstone
Gladstone
Barrow
Island
Carnarvon
Basin
Darwin
180 km NW
of Dampier
42 km
offshore
Gippsland
100 km W of
Onslow
150 km NW
of Dampier
Browse
Basin
Indicative
Cost
Estimate
$m
23000
18000
new project
2015
15 Mt
43000
expansion
2016
n/a
2300
new project
2017
8.4 Mt
33000
new project
2016
1.65 Mt
1200
new project
2016
30 PJ pa
1700
new project
2013
75 PJ pa
1470
expansion
2013
967 PJ pa
5000
new project
2016
3.6 Mt
12600
Greater Western
Flank - Phase 1
Ichthys LNG
Julimar Development
Project
WA
NT
WA
Kipper Gas Project
(stage 1)
VIC
Macedon
WA
NWS North Rankin B
WA
Prelude Floating LNG
WA
Queensland Curtis
LNG project
Qld
Gladstone
new project
2014
8.5 Mt
19800
Spar
WA
120 km N of
Onslow
new project
2013
18 PJ pa
117
Turrum
VIC
Bass Strait
new project
2013
11 kbpd, 77
PJ pa
2600
Wheatstone LNG
WA
145 km NW
of Dampier
new project
2016
8.9 Mt
29000
Source: BREE.
32
Thermal coal
Tom Shael and John Barber
Prices
In 2012, increased competition in key Asia-Pacific markets from suppliers in the US
and Colombia led to lower coal spot prices. The Newcastle thermal coal price (FOB)
averaged US$94 a tonne, a 22 per cent decrease relative to 2011. Prices reached a
low of US$78 a tonne in October, but recovered to around US$91 by December 2012
due to Chinese buyers increasing purchases of cheaper foreign coal. The 2012
Japanese Financial Year (JFY, April 2012 to March 2013) benchmark contract price
settled at US$115 a tonne, 15 per cent lower than the previous JFY contract.
The JFY 2013 benchmark contract price is forecast to settle 14 per cent lower than
the JFY 2012 benchmark at around US$99 a tonne. The decline is expected as a result
of lower spot prices over the past 6 months and the expectation that spot prices will
stay around current levels for the remainder of 2013. Thermal coal consumption
demand is forecast to increase in 2013, but competition to supply seaborne trade
markets is expected to limit the prospects of higher prices during the 2013.
In the medium term, thermal coal prices (in JFY 2013 dollars) are projected to
increase slightly in the short term, before decreasing later in the outlook period
when large additions to supply are projected to come online. Consumption demand
in key markets is projected to grow substantially over the next five years, but strong
competition among coal producers is expected to moderate any price growth. In JFY
2013 US dollars, thermal coal contract prices are projected to peak in JFY 2015 at
US$102 a tonne, before decreasing to US$90 in JFY 2018.
Figure 1:
JFY thermal coal prices
Please refer to page 38 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
World thermal coal imports
World thermal coal trade is estimated to have increased by 11 per cent in 2012,
relative to 2011, to total 958 million tonnes. Increased consumption demand in nonOECD economies, particularly China and India, was the primary driver of the increase
in trade. In China, lower thermal coal prices in 2012 made imports more
commercially viable than domestic production sourced from some inland areas of
the country.
Over the outlook period both world thermal coal consumption and trade are
projected to increase, underpinned by robust energy demand growth in emerging
economies. The low-cost and reliability of coal-fired electricity generation, as well
abundance of fuel, will continue to make it appealing to emerging economies looking
for cost-effective ways to meet rapid increases in energy demand. The New Policies
33
Scenario in the IEA World Energy Outlook 2012 projects world coal consumption will
increase from 4963 million tonnes of coal equivalent in 2010 to around 5831 million
tonnes of coal equivalent in 2020. The projected increase in energy consumption
from coal is the largest of all fuel sources analysed in the New Policies Scenario,
including gas.
Figure 2:
Major thermal coal importers
Please refer to page 39 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
China
In China, sustained growth in electricity demand, infrastructure constraints and the
relatively low cost of overseas coal supported substantially higher demand for
thermal coal imports in 2012. China’s thermal coal imports are estimated to have
totalled 210 million tonnes in 2012. Thermal coal imports are forecast to increase in
2013, albeit at a lower rate compared with the growth in 2012, to total 228 million
tonnes. The growth is forecast as a result of the continued availability of relatively
cheap imported coal in the Asia-Pacific market.
In the medium term, growth in China’s coal consumption is projected to moderate.
Climate change policies, such as the recently proposed carbon price, and energy
targets are assessed as having more effect on coal consumption in the later years of
the outlook period, but will not reduce China’s overall coal consumption from
current levels. Coal is expected to continue to have a large, but declining, share of
China’s energy mix in 2018, with the share of gas, nuclear and renewables growing
over the period.
Energy conservation targets announced by the State Council in February 2013 are
not expected to cause a decline in coal consumption. The targets, which are based
on tonnes of coal equivalent, rather than tonnes of coal by weight, still allow for
growth in both total primary energy and also electricity consumption. Energy targets
in previous Five-Year Plans have been exceeded by considerable margins and BREE
assesses that the most recently announced target would require a substantial, and
highly unlikely, decrease in assumed economic growth.
China is expected to remain by far the world’s largest producer of coal over the
outlook period, but to become more reliant on imports to meet its requirements.
Rising domestic production costs associated with increased safety regulations,
transport system development and increasing transport distances from new mines
to customers are expected to make cheaper imports more appealing to China’s coalfired power plants. After the estimated large surge in imports in 2012, growth in
China’s thermal coal imports is projected to moderate to an average annual rate of 3
per cent over 2013 to 2018, and to total 257 million tonnes in 2018.
34
India
In 2012, India’s thermal coal imports are estimated to have increased by 17 per cent,
relative to 2011, to total 101 million tonnes. India’s thermal coal consumption is
projected to increase substantially over the outlook period, underpinned by planned
expansions to the country’s coal-fired electricity generation capacity. India currently
has around 210 gigawatts of coal-fired electricity generating capacity which provides
around 56 per cent of its electricity requirements. By 2018 this capacity is projected
to increase 55 per cent to around 330 gigawatts to meet the increasing electricity
demands of India’s growing middle class and manufacturing industries.
While India is the world’s third largest producer of coal, growth in domestic
production over the outlook period is not projected to be sufficient to meet
increasing consumption demand. Recently announced investment plans to unlock
substantial coal resources in Odisha, Jharkhand, and Chhattisgarh are not expected
to be developed by 2018 given the difficulty associated with acquiring land in India
and the lengthy approval process for the development of new mines and
infrastructure networks. Accordingly, imports of thermal coal in India are projected
to grow at an average annual rate of 11 per cent and to total 185 million tonnes in
2018.
Japan
In 2012, Japan’s imports of thermal coal are estimated to have totalled 133 million
tonnes, around 9 per cent higher than in 2011. Japan’s nuclear power industry
remains mostly offline and gas and oil have been the primary substitutes for nuclear
in the country’s energy mix. Infrastructure constraints for the importation of coal are
expected to continue limiting the prospects for growth in Japan’s thermal coal
consumption and imports. In 2013, imports of thermal coal are forecast to total
around 130 million tonnes. Over the outlook period, thermal coal imports are
projected to decline by less than 1 per cent a year and to total 127 million tonnes in
2018.
Republic of Korea
In 2012 the Republic of Korea’s thermal coal imports are estimated to have totalled
95 million tonnes, a slight decrease from 2011. In 2013, continued expansion of the
country’s coal-fired electricity generation capacity is forecast to support thermal coal
imports growing by 3 per cent to total 98 million tonnes. Over the medium term, the
Republic of Korea’s coal-fired electricity generation capacity is expected to increase
by a further 2000 megawatts. The new capacity is projected to support thermal coal
imports increasing at an average annual growth rate of 4 per cent and to total 117
million tonnes in 2018.
European Union
Imports in to EU in 2012 are estimated to have increased by 5 per cent, relative to
2011, to total 173 million tonnes. The increase is a result of estimated higher imports
into the UK, Italy and Spain, compared with 2011. Over the period 2013 to 2018,
35
imports into the EU are projected to remain stable at around 166 million tonnes a
year.
World thermal coal exports
Over the outlook period increased world demand for thermal coal is projected to be
met by higher exports from countries that already export substantial quantities of
thermal coal including Australia, Indonesia, Colombia and South Africa (see Figure 3).
Competition between these exporters is expected to increase because all exporters
have plans to expand mine and infrastructure capacities.
Australia
Thermal coal exports from Australia are estimated to have increased 16 per cent in
2012 to total 171 million tonnes. Japan remained the principal destination for
Australia’s thermal coal exports and imported 75 million tonnes of Australian coal,
15 per cent higher than its 2011 imports. Exports to China increased by 73 per cent
to total 34 million tonnes, and accounted for the largest share of additional export
volumes. Exports to the Republic of Korea increased by 2 per cent, relative to 2011,
to total 30 million tonnes.
In 2013, Australia’s thermal coal exports are forecast to increase by 11 per cent,
relative to 2012, to total 189 million tonnes. The increase is forecast to be supported
by the start-up of recently completed projects, such as Rio Tinto and Mitsubishi’s
Hunter Valley Operations Expansion, stage two of Whitehaven Coal’s Narrabri Coal
Project and BHP Billiton’s Mount Arthur project. China is forecast to be the main
source of growth in export volumes, but Japan is still expected to remain the
principal export market for Australian producers.
Figure 3:
Major thermal coal exporters
Please refer to page 42 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
A slowing in new coal mine investment that has occurred over the past 18 months is
expected to slow the rate of growth in Australia’s thermal coal exports between
2013 and 2016. Although there remains a large number of planned coal mining
projects in Australia, rising construction and operating costs have reduced the
financial viability of many projects. Recently, many Australian coal producers have
been targeting efficiency and cost cutting programs in response to lower received
prices and deferred decisions on new mines and/or expansion programs.
Expected foreign direct investment in greenfield developments in Queensland’s
Galilee Basin could lead to the opening of a series of new and very large mines later
in the outlook period. Such projects could include GVK-Hancock’s Alpha mine
(annual capacity of 30 million tonnes), Adani’s Carmichael mine (60 million tonnes)
and Waratah Coal’s China First coal project (40 million tonnes).
36
Over the outlook period, Australia’s thermal coal exports are projected to increase to
315 million tonnes by 2018, supported by robust growth in exports to both India and
China. By 2018, both India and China are expected to overtake Japan as Australia’s
leading thermal coal export markets.
Indonesia
Indonesia’s exports of thermal coal are estimated to have increased by 2 per cent in
2012, relative to 2011, to total 315 million tonnes. In 2013, Indonesia’s exports of
thermal coal are forecast to increase by a further 6 per cent to total 335 million
tonnes, supported by robust world import demand. Over the medium term,
Indonesia’s domestic reservation policy to ensure coal supply to electricity
generators, the lower quality of domestic coal compared with other world suppliers
and higher transport costs from new mines that will be located further inland are
expected to result in Indonesia’s exports growing at a slower rate than in previous
years. Over the outlook period, Indonesia’s exports are projected to grow at an
annual rate of around 2 per cent, and to total 361 million tonnes in 2018.
The US
Exports from the US in 2012 are estimated to have increased by 47 per cent, relative
to 2011 and to total 50 million tonnes. The second consecutive year of a marked
increase in exports is a result of much lower natural gas prices due to large increases
in unconventional gas production. Low gas prices have led to a substitution away
from coal in domestic electricity generation, with displaced coal production being
exported. However, higher production costs and transportation issues make the
large-scale exportation of thermal coal unsustainable beyond the short term. As a
result, over the medium term exports from the US are projected to decline to total
around 23 million tonnes in 2018, having peaked at 55 million tonnes in 2013.
Colombia
Colombia’s thermal coal exports are estimated to have not grown in 2012, staying
around 76 million tonnes, due to labour disputes and lower demand in North
America. In 2013, Colombia’s thermal coal exports are forecast to return to growth
and to total around 79 million tonnes. However, recent strikes at the Cerrejón coal
mine in north Colombia and a one month operating suspension at Drummond’s coal
port near Santa Marta in February 2013 will limit growth.
In the medium term, Colombian exporters are assumed to begin exporting larger
quantities to the Asia-Pacific market as a result of weak import demand in the EU
and the US. Although transportation costs from Colombia to East Asia are relatively
high, export growth will be supported by low operating costs and high quality coal
(low sulphur content and high calorific value) as well as policies in some Asian
countries that promote diverse import supply bases. Scheduled expansions to
infrastructure and mines in Colombia will underpin thermal coal exports growing at
an average annual rate of 7 per cent to total 112 million tonnes in 2018.
37
South Africa
In 2012, exports from South Africa are estimated to have increased by 5 per cent,
relative to 2011, to total 75 million tonnes. Exports in 2013 are forecast to increase
by a further 4 per cent to total 78 million tonnes. Over the medium term, growth in
export volumes is expected to be limited by a recently announced government policy
that will aim to secure coal supply for stated-owned electricity generator, Eskom. As
a result, exports are projected to increase at around 1 per cent a year between 2013
and 2018, to total 80 million tonnes in 2018.
Australia’s export volumes and values
Australia’s thermal coal export volumes are forecast to increase by 18 per cent in
2012–13, relative to 2011–12, to total 187 million tonnes. The value of exports in
2012–13 are forecast to increase by 3 per cent to total $17.6 billion, with the
increase in volumes more than offsetting the lower Australian dollar thermal coal
price.
Over the remainder of the outlook period, Australia’s thermal coal exports are
projected to grow at an annual rate of around 11 per cent to total 304 million tonnes
in 2017–18. Export earnings are projected to grow at around 5 per cent a year to
total $23.2 billion dollars (in 2012–13 dollars).
Figure 4:
Australia’s thermal coal exports
Please refer to page 44 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Table 1:
Thermal coal outlook
unit
2011
2012
2013 f
2014 z
2015 z
2016 z
2017 z
2018 z
World
Contract prices b
– nominal
US$/t
– real c
US$/t
130
134
115
117
99
99
102
101
104
102
105
101
99
94
96
90
Coal trade
Mt
866
958
988
1014
1040
1068
1098
1125
Mt
Mt
577
146
665
210
696
228
724
243
750
250
774
252
800
255
824
257
63
86
122
63
101
133
62
113
130
60
124
129
59
137
129
59
153
128
58
169
128
57
185
127
97
21
42
211
95
21
42
218
98
22
43
218
102
22
44
218
106
23
46
220
110
24
48
222
113
26
51
225
117
27
54
227
165
173
167
166
166
166
166
166
46
45
51
52
54
56
59
61
Imports
Asia
China
Chinese
Taipei
India
Japan
Korea,
Rep. of
Malaysia
other Asia
Europe
European
Union d
other
Europe
Mt
Mt
Mt
Mt
Mt
Mt
Mt
Mt
Mt
Exports
38
Australia
China
Colombia
Indonesia
Russian
Federatio
n
South
Africa
United
States
Australia
Productio
n
Exports
Volume
Value
– nominal
– real e
Mt
Mt
Mt
Mt
148
11
75
309
171
10
76
315
189
10
79
335
202
10
87
345
223
9
98
352
256
9
107
356
283
9
110
359
315
9
112
361
109
110
110
112
114
116
114
112
72
75
78
78
79
79
80
80
34
50
55
51
47
45
31
23
2010–
11
2011–
12
2012–
13 f
2013–
14 z
2014–
15 z
2015–
16 z
2016–
17 z
2017–
18 z
Mt
206.1
222.9
251.7
258.3
278.7
302.5
333.3
369.1
Mt
143.3
158.4
186.7
193.3
213.6
237.2
268.0
303.8
A$m
A$m
13956
14686
17118
17614
17615
17615
17660
17162
19934
18826
22365
20527
24876
22188
26770
23204
Mt
Mt
Mt
b Japanese Fiscal Year, starting April 1, fob Australia basis, BREE Australia–Japan average
contract price assessment. For steaming coal with a calorific value of 6700 kcal/kg (gross air
dried. c In JFY 2012 US dollars. d Regarded as 27 countries for all years. e In 2012–13
Australian dollars. f BREE forecast. z BREE projection.
Sources: BREE; ABARES; International Energy Agency; Coal Services Pty Ltd; Queensland
Department of Mines and Energy.
39
Uranium
John Barber
Prices
The uranium spot price averaged around US$48 a pound for 2012, a decrease of 15
per cent from 2011. While the uranium spot price remained relatively stable for the
first half of 2012, subdued demand associated with the continued shut-down of
Japan’s nuclear power industry led to a price decline in the second half of the year.
Prices fell from around US$52 a pound in the first quarter to around US$42 a pound
in the last quarter of 2012.
In 2013, the average spot price of uranium is forecast to decline a further 10 per cent,
relative to 2012, to around US$45 a pound. Delays in the start-up of new nuclear
reactors since the 2011 Fukushima Daiichi reactor incident, the continued shut-down
of Japanese nuclear reactors until at least the second half of 2013 and large
inventories of uranium are expected to limit the prospects for spot price growth in
the first half of 2013. In the second half of 2013 reactor start-ups in several countries,
the re-start of some Japanese reactors and opportunistic buying ahead of the
expected tightening of supply associated with the end of the current US-Russian
Highly Enriched Uranium (HEU) deal are expected to support higher uranium spot
prices.
The supply situation is projected to tighten substantially over the outlook period to
2018. The combination of an increase in consumption demand due to a substantial
rise in the number of operating nuclear reactors, lower supplies from secondary
sources and delays in the development of major uranium mining projects around the
world, are expected to support uranium prices rising from their current levels. Over
the outlook period, the uranium spot price is projected to increase at an average
annual rate of around 6 per cent to US$70 a pound (in 2013 dollars) in 2018.
Figure 1:
Quarterly uranium price
Please refer to page 46 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Consumption
World uranium consumption for civilian electricity generation purposes is estimated
at 75 100 tonnes in 2012, a 1.8 per cent increase from 2011, but 6 per cent lower
than 2010. The overall drop in consumption since 2010 is attributable to the shutdown of most of Japan’s nuclear power industry following the 2011 Fukushima
incident and early closure of eight reactors in Germany. These have more than offset
the additional uranium requirements associated with the 15 new and refurbished
reactors that achieved first power over the same period.
40
In 2013, world uranium consumption is forecast to increase by 9 per cent, relative to
2012, to total 82 100 tonnes. The re-commitment of several countries to expand
their nuclear power generating capacities is expected to result in up to 13 new
reactors either starting commercial operations or achieving first power in 2013.
Some of these nuclear power plants had been delayed pending the outcome of
Government energy policy reviews, but are now scheduled to start up in 2013. China
accounts for most of this growth with 6 new nuclear reactors that have a combined
capacity of around 7 200 megawatts-electric with a potential start-up in 2013.
Japan’s energy policy and regulations will be a key determinant of uranium demand
in the short term. As at 1 January 2013, only 2 of Japan’s 50 nuclear power reactors
were operating with the remainder shut down for safety inspections. Their
immediate future will be determined by the set of safety regulations to be finalised
by the newly established Nuclear Regulatory Authority (NRA). Based on the draft
proposal produced by the NRA in January 2013 it is expected that only a small
portion of Japan’s nuclear reactors may re-enter service in 2013.
The majority of Japan’s nuclear reactors are projected to re-start later in the outlook
period following further construction works necessary for compliance with the
mandated safety requirements. Key factors underpinning a restart of some reactors
are the recent rises in Japan’s carbon emissions, limited availability of electricity to
support economic growth and high LNG prices associated with the increase in the
use of gas in Japan’s energy mix while its nuclear industry has been idled. Given the
age of some reactors and the potential costs of complying with the new safety
regulations, not all of Japan’s nuclear power generating capacity is likely to be restarted over the outlook period and may, instead, be de-commissioned.
The outlook period from 2013 to 2018 is projected to be a period of substantial
expansion in nuclear power generating capacity, particularly in emerging economies.
The low carbon emissions, reliability as a source of base-load power and
comparatively cheap operating cost have made nuclear power an appealing source
of power to countries with few energy resource endowments of their own, or with
rapidly growing energy demand. Total world uranium consumption is projected to
increase at an average annual rate of 5 per cent to total around 100 000 tonnes in
2018. Driving this increase in consumption will be 75 new reactors with a combined
capacity of around 80 Gigawatts-electric (GWe) that are projected to start-up by the
end of 2018.
Figure 2:
Net additional nuclear power capacity by 2018
Please refer to page 48 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
China will be the largest contributor to the ‘nuclear resurgence’ over the outlook
period. There are currently 28 nuclear reactors under construction in China with
plans for an additional 8 reactors that may start-up by 2018, based on current
construction rates. China’s uranium consumption is projected to increase at an
41
annual average rate of over 9 per cent over the outlook period, from around 7 700
tonnes of U3O8 in 2012 to around 13 500 tonnes of U3O8 in 2018.
Although robust growth in nuclear power is projected for China, the US will remain
the largest producer of nuclear power in the medium term. The availability of cheap
shale gas supplies is not expected to substantially displace nuclear energy in the US
in the medium term due to the low operating cost of producing nuclear power and
the high decommissioning costs associated with shutting down nuclear power plants.
The number of reactors in the US is projected to increase over the outlook period
with three reactors already under construction. Consumption of U3O8 is projected
to increase at an average annual rate of 1.9 per cent to total around 26 000 tonnes in
2018. There are plans to construct additional reactors in the US; however, based on
current planning and construction times these are more likely to start up after 2018.
Like China, India has energy policies that support substantial increases in nuclear
power generating capacity to provide energy to its growing economy and population.
Although most of this additional capacity is likely to start-up after the outlook period,
six nuclear reactors are already under construction in India with an additional three
being planned that could start operating by 2018. These will lead to India’s nuclear
power capacity increasing from around 4 300 MWe in 2012 to over 12 000 MWe in
2018. Uranium consumption is projected to increase at an average annual rate of 19
per cent to support this capacity expansion, from 1 100 tonnes in 2012 to around 3
200 tonnes in 2018.
In Europe, nuclear power capacity is projected to grow over the outlook period to
2018 with increases in the Russian Federation and eastern European countries more
than offsetting the planned reductions in Germany and Belgium. France is expected
to remain the largest consumer of uranium in Europe, but with consumption
remaining stable at around 11 000 tonnes. The Russian Federation will be the
principal driver of growth in terms of European uranium consumption with up to
nine additional operating reactors expected to start up by 2018. Uranium
consumption in the Russian Federation is projected to increase at an annual average
rate of 3 per cent from 2012 to total 7 800 tonnes in 2018.
Beyond 2018, the expansion of nuclear power is expected continue, potentially at an
even greater rate. While the Fukushima Daiichi incident led a number of countries to
review their energy policies, most have re-affirmed their commitment to increasing
the role of nuclear power in their energy mix. In addition to the emerging economies
driving the current expansion of nuclear power, several other nations appear likely
to develop new nuclear power industries after 2020, particularly in the Middle East.
The United Arab Emirates has already committed to building its first nuclear reactor
and has advanced plans for further reactor approvals. The oil-rich nation of Saudi
Arabia also has well-advanced plans to start its own nuclear power industry as a
means of reducing its use of oil in its energy mix in the long term. These expansion
plans indicate world uranium consumption will continue to grow in the long term.
42
Production
In 2012, world uranium mine production is estimated to have increased despite
weak world demand. Most of this growth is attributable to previously established
mines, such as Paladin Energy’s Langer Heinrich mine in Namibia, ramping up
towards full production or mines recovering from production disruptions. Total
primary uranium production is estimated to have increased 6.5 per cent in 2012,
relative to 2011, to total 67 000 tonnes.
Subdued world demand and high levels of existing inventories are expected to limit
further production growth in 2013. Primary uranium production is forecast to
increase by 0.8 per cent in 2013 to around 68 000 tonnes, underpinned by further
production ramp-ups at existing mines in Kazakhstan, Niger and Namibia. Heavy
storms in Kazakhstan’s Sozak region in February 2013 are not expected to have any
notable effect on its uranium production. Partially offsetting the production
increases in Kazakhstan, Niger and Namibia is forecast lower production in Australia
associated with the cessation of ore production at pit 3 of ERA’s Ranger mine in
December 2012.
In the medium term, world primary uranium production is projected to increase at
an average annual rate of 5 per cent to total around 92 000 tonnes in 2018. Canada
is the main contributor to this projected growth in production with the start-up of
Cameco’s Cigar Lake mine underpinning a 6 300 tonne per year, or 60 per cent,
increase in uranium output in 2018, relative to 2012.
Over the outlook period, Kazakhstan will remain the world’s largest supplier of
uranium. Although no new mines in Kazakhstan are viewed as likely to start up
before 2018, existing mines are expected to continue expanding production in this
period. In 2018, Kazakhstan is projected to produce around 29 000 tonnes of U3O8,
a 17 per cent increase relative to 2012.
Niger and Namibia are both projected to have substantial increases in their uranium
production over the outlook period, underpinned by the assumed opening of the
large Imouraren (Niger) and Husab (Namibia) mines after 2015. Uranium production
in Namibia is projected to total around 8 800 tonnes in 2018, a 78 per cent increase
relative to 2012. Similarly, production in Niger is projected to increase 60 per cent
over the outlook period to total 8 100 tonnes. There are additional projects being
developed in these regions, such as Bannerman Resources Etango project in Namibia,
which may commence operations before 2018 and further increase production.
Box 1:
Demand and supply balance
For uranium markets, 2011 was the year of unanticipated demand shocks in the
form of energy policy changes in response to the Fukushima Daiichi reactor incident.
Japan shut-down almost its entire nuclear power industry, Germany brought forward
the closure of several nuclear reactors and a number of countries halted the
development of their nuclear energy programs to review safety guidelines. In coming
43
years the supply-side is expected to become the more central issue for the market
and principal driver of price changes.
The first supply issue facing the uranium market is an expected, sharp drop in
sources of secondary supplies at the end of 2013. The US-Russian HEU agreement,
which removes highly-enriched uranium from Russian nuclear weapons and downblends it to levels that are suitable for use in American nuclear power plants, is
scheduled to expire at the end of 2013. So far there is little evidence to suggest the
agreement will be renewed and, without it, the supply of around 9 000 tonnes of
U3O8 equivalent will be removed from the market in 2014.
In the short-term, the drop in supply due to the end of the US-Russian HEU
agreement can most likely be absorbed by the market as there are currently
sufficient inventories to cover the supply dip in 2014. The more significant issue is
that over the medium term many of the large uranium mining projects that were
scheduled to respond to the growth in the number of nuclear reactors have been
delayed.
The most significant of these was the cancellation of Areva’s $1 billion Trekkopje
mine in Namibia. Despite being near completion, the mine, that was to provide
around 3000 tonnes a year, was placed under care and maintenance in October 2012
in response to low market prices that had prevailed throughout the year. Areva’s
Imouraren mine in Niger has also been delayed, but is still expected to commence
initial production by 2015.
Project delays have not been isolated to those under construction in Africa and a
series of uranium mining projects at less advanced stages of development in
Australia have also been delayed. Cameco announced the Kintyre mine in Western
Australia required a price of around $67 a pound to be feasible and has subsequently
slowed the development of the mine. BHP Billiton’s decision to consider different
ways to proceed with the Olympic Dam expansion project in South Australia
indicates it is unlikely to increase production of uranium in the outlook period. BHP
Billiton’s sale of its Yeelirrie project to Cameco is also likely to lead to a delayed start
up for the mine.
The aggregate effect of project delays has been to remove around 10 000 tonnes of
primary uranium production that was at one point scheduled to enter the market
around 2015. Commensurate delays in developing nuclear power plants in the wake
of energy policy reviews and re-starting Japan’s nuclear power industry are likely to
limit the prospect of supply shortfalls in the near term. However, given uranium
mine development lead times, particularly in Australia which has the world’s largest
identified uranium reserves, the delays to major projects have increased the risk of
future market imbalances and price spikes. This risk increases in the long-term as the
current uranium price, which has been subdued in 2012, is not sufficient to support
the development of the next wave of new projects that will be needed to supply the
growing nuclear power industries of China and India after 2018.
44
Australia
Production
In the past twelve months there have been major policy changes in Australia in
relation to uranium production. In October 2012 the Queensland Government
announced it would overturn a ban on uranium mining that had been in place since
1989. As uranium exploration was not included in the ban, there are several known
sites in the Mt Isa region of Queensland, such as Paladin Energy’s Valhalla and
Laramide Resources’ Westmoreland deposits, that have the potential to increase
Australia’s production of uranium.
Based on current market conditions and the lead time to bring a uranium mine into
operation in Australia it is unlikely that production from Queensland will start within
the next 5 years. Similarly, the announced introduction of uranium exploration in
New South Wales is not expected to result in uranium production before 2018.
Western Australia is expected to the be the next state to commence uranium mining
with Toro Energy’s Wiluna mine assumed to start initial production in late 2014.
Australia’s production of uranium in 2011–12 increased 8 per cent, relative to 2010–
11, to total 7 657 tonnes. The increase in production is attributable to higher
production at ERA’s Ranger mine in the Northern Territory which was affected by
heavy rainfall in the first half of 2011. In 2012–13 Australia’s uranium production is
forecast to decrease 15 per cent due to Ranger ceasing ore extraction activities in
December 2012 and relying on previously mined ore and tailings. The recently
approved Four Mile mine in South Australia is not expected to start initial production
until 2013–14 and, like all uranium mines, will need some time to ramp up to full
production.
Between 2011–12 and 2017–18 Australia’s uranium production is projected to
increase at an average annual rate of 6 per cent to total 10 100 tonnes. Initial
production at ERA’s Ranger 3 Deeps is expected to start in late 2015, although full
production capacity is estimated to be lower than the Ranger 3 pit it is replacing.
New projected production at the Honeymoon, Four Mile and Wiluna mines will be
partially offset by the assumed closing of the Beverley mine in South Australia. The
expansion of BHP Billiton’s Olympic Dam mine is not expected to occur in this
outlook period and only one of Cameco’s Kintyre and Yeelirrie projects is assumed to
start initial production late in the period.
Exports
Australia’s energy policy gives a clear indication that there are no plans for a
domestic nuclear power industry. Therefore, all uranium produced in Australia is still
assumed to be provided to export markets throughout the outlook period.
Supported by higher production, Australia’s uranium export volume is forecast to
increase to around 8 500 tonnes in 2012–13, an increase of 22 per cent compared to
2011–12. The value of uranium exports from Australia is forecast to increase by 13
45
per cent in 2012–13 to total $686 million with the lower price of uranium limiting
growth.
Over the outlook period, Australia’s uranium export volumes are projected to
increase at an average annual rate of 6.5 per cent to total around 10 100 tonnes in
2017–18. This increase in export volume and projected increases in uranium prices
underpin higher export values which are projected to increase to around $910
million (in 2012–13 prices) in 2017–18.
Figure 3:
Australia’s uranium export volumes and values
Please refer to page 52 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Table 1:
Uranium outlook
World
Production
Africa b
Canada
Kazakhstan
Russian Federation
Consumption
China
European Union c
Japan
Russian Federation
United States
Spot price
– real d
Australia
Production
Export volume
– nominal value
– real value e
Average price
– real e
unit
2011
2012
2013 f
2014 z
2015 z
2016 z
2017 z
2018 z
kt
kt
kt
kt
kt
kt
kt
kt
kt
kt
kt
US$/lb
US$/lb
63.3
10.4
10.8
22.9
3.5
73.8
4.8
23.4
3.3
5.8
21.7
56.8
58.5
67.2
11.9
10.2
24.6
3.3
75.1
7.7
22.6
0.4
6.5
23.3
48.5
49.4
67.9
12.7
10.4
25.1
3.5
82.1
7.5
23.4
3.9
6.7
23.1
44.6
44.6
72.1
13.2
11.9
26.0
3.9
87.2
11.4
22.9
8.4
6.3
21.8
54.8
54.2
78.2
13.7
14.3
27.3
4.2
89.0
10.7
22.6
10.3
5.8
22.6
64.0
62.7
83.5
14.8
16.6
28.6
4.4
89.9
9.7
25.0
9.0
6.9
22.0
60.5
58.5
87.9
16.6
16.7
28.8
4.9
94.9
12.5
23.3
8.3
7.7
23.7
66.3
63.2
92.1
19.8
16.5
28.8
5.3
100.6
13.5
23.9
7.8
7.8
26.1
73.8
69.4
2010–
11
2011–
12
2012–
13 f
2013–
14 z
2014–
15 z
2015–
16 z
2016–
17 z
2017–
18 z
7069
6950
610
642
87.7
92.3
7657
6917
607
625
87.8
90.3
8177
8492
686
686
80.8
80.8
6875
6975
611
594
87.6
85.2
7490
7490
714
675
95.4
90.1
8390
8390
837
768
99.7
91.5
9240
9240
901
804
97.5
87.0
10140
10140
1050
910
103.6
89.8
t
t
A$m
A$m
A$/kg
A$/kg
b Includes Niger, Namibia, South Africa, Malawi and Zambia. c Regarded as 27 countries for
all years. d In 2013 US dollars. e In 2012–13 Australian dollars. f BREE forecast. z BREE
projection.
Sources: BREE; ABARES; Australian Bureau of Statistics; Department of Resources, Energy
and Tourism; Ux Consulting.
46
Resources outlook
Steel and steel-making raw materials
Tom Shael
World steel consumption
World steel consumption in 2012 is estimated to have increased by 3 per cent,
relative to 2011, to around 1.5 billion tonnes. Lower rates of growth are estimated
for most major steel consuming economies which can be attributed to lower
investment growth in infrastructure and fixed assets as well as uncertainty
surrounding economic prospects for key OECD economies.
In 2013, world steel consumption is forecast to increase by 3 per cent, relative to
2012, to total 1.6 billion tonnes. Forecast growth will be supported by increased
infrastructure construction activity in emerging economies, although potentially
lower rates of investment in residential construction in China represent a downside
risk to this growth.
Over the period 2014 to 2018, world steel consumption is projected to increase at an
average annual rate of 3 per cent to total 1.8 billion tonnes in 2018 (see Table 1).
Growth in steel consumption in OECD economies is projected to be subdued due to
the effects of austerity programs on steel-intensive capital formation and assumed
lower economic activity. By contrast, growth in non-OECD steel consumption is
projected to be robust, supported by sustained economic growth, higher rates of
fixed capital formation and on-going urbanisation.
Table 1:
World steel consumption and production (Mt)
Crude steel
consumption
European Union 27
US
Brazil
Russian Federation
China
Japan
Korea, Rep. of
Chinese Taipei
India
World steel
consumption
Crude steel production
European Union 27
US
Brazil
Russian Federation
2011
2012
2013 f
2014 z
2015 z
2016 z
2017 z
2018 z
169
96
28
47
650
70
59
22
74
167
98
28
49
669
73
59
22
78
168
100
30
50
697
75
63
23
84
170
103
31
52
725
77
65
24
89
172
105
32
53
751
78
67
25
95
175
107
33
54
776
80
69
25
101
177
109
34
55
800
81
72
26
106
180
111
35
56
822
83
74
27
112
1485
1527
1584
1641
1688
1737
1792
1846
176
86
35
69
167
89
35
71
167
90
37
73
169
92
39
76
172
94
41
79
175
96
42
83
179
98
44
86
182
100
45
89
47
China
Japan
Korea, Rep. of
Chinese Taipei
India
683
108
68
23
72
709
107
69
21
77
737
109
72
21
82
765
110
74
22
88
792
112
77
22
92
816
113
80
23
98
840
114
83
23
104
862
116
86
24
111
World steel production
1510
1533
1583
1636
1684
1738
1793
1845
Sources: BREE; World Steel Association.
China was the world’s largest consumer of steel in 2012, accounting for around 44
per cent of total global consumption. However, the rate of growth in steel
consumption was slower than in 2011 due to the tailing off of Government spending
programs initiated in response the global financial crisis. In 2013, China’s steel
consumption is forecast to increase 4 per cent, relative to 2012, to total 697 million
tonnes. The announced approval of infrastructure investment packages in late 2012,
particularly expansions to rail networks, as well as continued growth in commercial
and residential construction are expected to support higher steel consumption.
Over the remainder of the outlook period (2014 to 2018), China’s steel consumption
is projected to continue increasing, underpinned by the construction of housing and
infrastructure to support China’s increasing urban population. Although steel
demand in China is projected to increase over the outlook period, the rate of growth
is expected to be lower. The lower growth rate reflects an expected slowing in
housing and property investment brought about by government policies designed to
reduce over-investment in the property sector and a gradual shift towards a more
consumption, rather than investment, driven economy in China. Between 2014 and
2018 China’s steel consumption growth is projected to average 3 per cent a year to
total 822 million tonnes in 2018. If the Chinese economy were to undergo a
structural shift and reduce its rate of fixed asset investment sooner, China’s steel
consumption (and production) could be substantially lower than its projected level
by the end of the outlook period.
In 2013, India’s steel consumption is forecast to increase 7 per cent, compared to
2012, to total 84 million tonnes. Higher consumption is expected as a result of
assumed robust economic growth associated with government spending on
infrastructure and higher consumption of consumer durables. Over the period 2014
to 2018, consumption growth is projected to increase at an average annual rate of 6
per cent a year to total 112 million tonnes in 2018. Increases in India’s steel
consumption are expected to be supported by government efforts to increase the
coverage and quality of road networks (including bridges), rail systems, electricity
generation and other infrastructure as well as a gradual increase in consumption of
consumer durables in response to rising incomes.
In Brazil, steel consumption is projected to grow strongly over the outlook period,
increasing at a projected average rate of 3 per cent a year to total 35 million tonnes
in 2018. The construction of infrastructure that will be required to host the 2014
FIFA World Cup and then the 2016 Olympic Games is expected to provide strong
support for steel consumption growth.
48
Over the outlook period, steel consumption growth in OECD economies is projected
to be slower than non-OECD economies. Steel consumption in the US and the EU is
projected to increase at an average annual rate of 2 per cent and 1 per cent,
respectively, to 2018. In Japan, steel consumption is forecast to increase by 2 per
cent a year over the outlook period. In Japan, higher steel consumption will be
supported by rebuilding activity across its earthquake and tsunami affected regions
in the first half of the outlook period. Japan’s steel consumption growth is projected
to moderate in the second half of the outlook period as reconstruction comes to an
end. In 2018, Japan’s consumption is projected to total 83 million tonnes, 10 million
tonnes higher than 2012. Steel consumption in the US and the EU is projected to
total 111 and 180 million tonnes, respectively. Neither is expected to have rates of
fixed asset investment that would support substantially higher growth in steel
consumption.
World steel production
World steel production in 2012 is estimated to have been 2 per cent higher than in
2011, at 1.5 billion tonnes. The slower rate of growth compared with 2011 is
attributed to uncertainty about world economic growth and the future prospects for
world steel industries. In 2013, world steel production is forecast to increase by 3 per
cent, relative to 2012, to total 1.6 billion tonnes. Over the outlook period, global
steel production is projected to grow at an average rate of 3 per cent a year, to reach
1.8 billion tonnes in 2018. The projected growth reflects primarily strong growth in
production in emerging economies, particularly China and India.
Figure 1:
Quarterly steel production
Please refer to page 57 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
In 2013, China’s steel production is forecast to increase by 4 per cent, relative to
2012, to total 737 million tonnes. After growing at an annual average rate of 15 per
cent from 2002 to 2012, the rate of growth in China’s steel production is projected
to moderate over the outlook period. Over the period 2014 to 2018, China’s steel
production is projected to grow at 3 per cent a year to total 862 million tonnes in
2018. The moderation in production growth is expected as a result of government
measures to curb production overcapacity issues (particularly in some low-value
steel products) and to increase the overall efficiency of the domestic steel industry.
Over the outlook period, India’s steel production is projected to increase at an
average annual rate of 6 per cent, to reach 112 million tonnes in 2018. The increase
in steel production is expected to be bolstered by demand from both the public and
private sectors. The government-owned corporations Steel Authority of India Limited
(SAIL) and Rashtriya Ispat Nigam Limited (RINL) have expansion plans to increase
combined production capacity by around 15 million tonnes across a number of
states by 2015. Private steel producers also have plans to increase their steel
production, including Tata Steel, Essar Steel and Jindal Steel Power Limited (JSPL).
49
In OECD economies, only a moderate increase in steel production is projected to the
end of 2018. Steel production in both the US and Japan is projected to grow at an
average rate of 2 per cent a year, to reach 100 million tonnes and 116 million tonnes,
respectively, in 2018. Capacity utilisation rates at steel mills in the EU are expected
to begin increasing in 2014, in line with assumed stronger economic growth in key
producing regions following weak economic activity in 2011, 2012 and 2013. Steel
production in the EU is expected to increase at an average annual rate of 1 per cent
between 2013 and 2018 and to total 182 million tonnes in 2018.
Iron ore prices
In 2012, iron ore contract prices averaged US$129 a tonne, a decrease of 16 per cent
from the historic record of US$153 a tonne for 2011. Spot prices for cargoes of 62
per cent iron content basis, FOB Australia averaged US$122 a tonne in 2012, with
higher prices in the first half of 2012 being counterbalanced by a substantial
downturn in the September quarter. The sharp drop in spot prices, to a low of
around US$81 a tonne FOB Australia, was a result of de-stocking activities by traders
in China and negative sentiment surrounding the Chinese steel industry, particularly
production overcapacity. Iron ore price volatility has been increasing over the past
four years which has coincided with the increased use of shorter term contracts and
spot trading. Price swings of 30 per cent, or more, in response to stock cycles and
sentiment are becoming regular features of the market.
The sharp, yet protracted, recovery in iron ore spot prices in the December 2012
quarter resulted in spot prices finishing 2012 at over US$130 a tonne. The recovery
has continued strongly into the March quarter 2013, reaching a high of US$152 a
tonne (FOB) in mid-February and are estimated to average around US$145 a tonne
for the March quarter. The recovery in prices up to February 2013 can be attributed
to improved sentiment surrounding China’s outlook for steel demand combined with
re-stocking of ore at Chinese ports and steel mills. Spot prices, however, have
declined in March 2013 due to surging inventories of steel products. For 2013 as a
whole, contract and spot prices are forecast to average US$119 a tonne (see Figure
2).
Over the remainder of the outlook period, contract and spot prices are both
projected to decline year-on-year and to average around US$90 a tonne in 2018 (in
2013 US dollars). The decrease in prices is expected in response to moderating
demand, particularly in China, and substantial supply increases from mining projects
that are already under construction and scheduled to commence operation over the
medium term.
Figure 2:
Iron ore contract prices, FOB Australia
Please refer to page 58 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
50
World trade in iron ore
In 2013, the world iron ore trade is forecast to increase by 5 per cent, compared with
2012, to total 1.2 billion tonnes. Over the medium term, the world iron ore trade is
projected to increase at an annual average rate of 5 per cent to reach 1.5 billion
tonnes in 2018 (see Table 2). China’s imports are projected to grow strongly, while
the majority of additional iron ore exports are expected to come from Australia and
Brazil.
Table 2:
World iron ore trade (Mt)
Iron ore imports
European Union
27
Japan
China
Korea, Rep. of
Chinese Taipei
Iron ore exports
Australia
Brazil
India (net exports)
Canada
South Africa
Guinea &
Mauritania
World trade
2011
2012
2013 f
2014 z
2015 z
2016 z
2017 z
2018 z
135
128
687
65
20
128
131
745
66
18
130
132
773
68
20
131
134
805
70
19
133
136
832
73
20
135
137
873
76
21
138
139
916
79
21
140
140
966
82
22
438
331
48
32
42
488
327
23
34
47
554
333
2
34
49
662
366
–13
35
51
715
391
–17
35
54
760
395
–18
35
56
812
405
–13
35
58
831
411
–4
35
60
11
12
12
13
14
16
17
24
1083
1123
1176
1267
1326
1379
1434
1475
Sources: BREE; UNCTAD.
Iron ore imports
In 2013, China’s imports of iron ore are forecast to increase 4 per cent, relative to
2012, to total 773 million tonnes. The key factor determining Chinese imports is the
cost and quality of domestic production. China’s iron ore production tends to be of a
low quality relative to imports and there are a number of mines with high marginal
costs of production. As a result, the proportion of Chinese consumption supplied by
imports can fluctuate substantially depending on China’s domestic swing production,
which responds to prevailing iron ore import prices.
Over the medium term, Chinese steel producers are expected to increase their
reliance on imported ore due to declining ore grades of domestic ores, an increasing
concentration of steel mills on the eastern coast with easy access to ports and
efforts being made to increase the average grade of steel produced in China (which
requires higher grade ores, such as those from Australia and Brazil). Although
projected to increase its reliance on imports, China aims to have around 40 per cent
of its imports supplied by Chinese owned foreign projects by 2015. From 2014 to
2018, China’s imports are projected to increase at an annual average rate of 5 per
51
cent to reach 966 million tonnes in 2018, accounting for around 65 per cent of global
imports.
Imports into the Republic of Korea are projected to increase at around 4 per cent a
year over the outlook period, supported by robust steel demand by car and ship
manufacturers. Imports into the EU and Japan are expected to continue to increase
in line with modest growth in steel production. Iron ore imports for both the EU and
Japan are projected to increase at an annual average rate of around 1 per cent over
2013 to 2018 to total 140 million tonnes in 2018.
Iron ore exports
In 2013, Australian iron ore exports are forecast to increase by 12 per cent,
compared with 2012, to total 554 million tonnes. The increase will be supported by
forecast higher production at a number of mines including those operated by Rio
Tinto and BHP Billiton as well as the ramp up of production at Fortescue’s Chichester
Hub and Solomon Hub expansion projects. As a result of robust investment at the
start of this decade, expansions and new mines in existing regions in Australia are
expected to support strong growth in iron ore exports from Australia in the first half
of the outlook period. Australia’s iron ore exports are projected to increase at an
average annual rate of 8 per cent a year over the period 2014 to 2018 to total 831
million tonnes in 2018 (see Figure 3).
Brazil is the world’s second largest exporter of iron ore and is projected maintain this
position over the medium term. In 2013, Brazil’s iron ore exports are forecast to
increase by 2 per cent, relative to 2012, to total 333 million tonnes. Over the
remainder of the outlook period, Brazil’s exports are projected to increase at an
annual average rate of 4 per cent and to reach 411 million tonnes in 2018. A
substantial proportion of this growth in exports is expected to be sourced from
expansions located in the Carajas and South-East iron ore systems that are
scheduled for completion over the next five years. The largest of these projects is the
90 million tonnes annual capacity Serra Sul project that is scheduled to commence
operation towards the end of the outlook period; however, a mining project of this
size and technical complexity has substantial schedule risks.
Figure 3:
Major iron ore exporters
Please refer to page 61 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
India’s exports of iron ore are projected to decrease over the outlook period due to
government policies. In the short term, India’s iron ore exports are forecast to
decrease substantially due to Government mandated mining bans in the key iron ore
mining states of Odisha and Goa. The ban on mining, as recommended by the Shah
Commission, is expected to remain in place in the short term, as measures are taken
to eliminate illegal mining of iron and manganese ores. The ban is forecast to result
in a substantial decrease in India’s domestic iron ore production, which, in turn, will
cause a reduction in exports rather than domestic consumption. Another factor
52
affecting exports in the short term is the continuation of the 30 per cent excise tax
on iron ore exports designed to discourage exports.
Indian iron ore exports over the remainder of the outlook period will be negatively
affected by Indian Government policies that aim to ensure sufficient iron ore supply
for domestic steel producers. Combined with projected strong growth in India’s steel
production, these policies are expected to result in India becoming a net importer of
iron ore during the outlook period.
India’s iron ore exports are forecast to total 9 million tonnes in 2013, decreasing
from an estimated 26 million tonnes in 2012. India’s exports are projected to remain
low for the remainder of the outlook period, with net imports expected to peak at
around 18 million tonnes in 2016 before domestic supply begins to ramp up.
Exports from West Africa (primarily Guinea and Mauritania) are not projected to
have a substantial impact on world markets within the medium term. The large
amount of required infrastructure and associated investment to enable large-scale
exports is not expected to be developed fully within the outlook period. Although
BREE projects that there will be some additional exports from this region, sovereign
risks and infrastructure delays are expected to limit the development of a substantial
iron ore export industry over the outlook period.
Metallurgical coal prices
Contract prices for high quality metallurgical coal for delivery in the March quarter
2013 were settled at around US$165 a tonne, a slight decrease from US$170 a tonne
in the December quarter. Contract prices are forecast to increase over the remainder
of 2013 and to average US$172 a tonne for 2013 as a whole (see Figure 4). Over the
period 2014 to 2018, metallurgical coal prices are projected to increase slightly (in
2013 US dollars) and to average US$177 in 2018, with prices supported by high costs
of marginal supply, given a growing demand.
Figure 4:
Metallurgical coal benchmark prices, FOB Australia
Please refer to page 62 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
World trade in metallurgical coal
In 2013, world metallurgical coal trade is forecast to grow by 4 per cent, relative to
2012, to total 283 million tonnes. Over the remainder of the outlook period, world
trade of metallurgical coal is projected to increase at an average annual rate of 5 per
cent to reach 357 million tonnes in 2018 (see Table 3). China and India are projected
to have the largest growth in imports to 2018 while growth in exports is projected to
be primarily sourced from Australia.
Table 3:
World metallurgical coal trade (Mt)
2011
2012
2013 f
53
2014 z
2015 z
2016 z
2017 z
2018 z
Metallurgical coal imports
European Union 27
Japan
China
Korea, Rep. of
Chinese Taipei
India
Brazil
47
54
38
32
4
19
12
42
53
52
33
7
16
13
44
53
61
34
7
22
14
47
54
73
35
7
23
15
47
55
83
37
8
26
16
51
56
93
38
8
28
16
51
56
97
39
8
29
17
51
57
105
41
8
32
17
Metallurgical coal exports
Australia
Canada
US
Russian Federation
133
28
63
14
144
28
69
17
158
29
66
16
176
30
63
17
191
31
60
17
200
32
56
17
208
32
52
18
218
32
48
18
World trade
253
273
284
305
322
338
345
356
Sources: BREE; IEA.
Metallurgical coal imports
Between 2013 and 2018, China’s metallurgical coal imports are projected to increase
12 per cent a year to reach 105 million tonnes by 2018. The growth in China’s
imports is the result of several factors. First, domestically produced coal in China is of
lower quality and higher cost than imports. Second, domestic coal reserves are large
distances from steel mills in the southern coastal region of China. Third, new steel
production capacity will be increasingly located in the western regions of China due
to Government plans for shifting future industrialisation and urbanisation further
west. While there are some metallurgical coal reserves in China’s west, the region is
relatively close to the Mongolian border and steel mills would likely source imports
from Mongolia, which has substantial reserves. Fourth, the Chinese Government has
adopted a policy of trying to use imported metallurgical coal before drawing on
domestic reserves.
India’s imports of metallurgical coal are projected to increase at an annual average
rate of 12 per cent over the outlook period to reach 32 million tonnes in 2018.
Imports into Brazil are projected to increase at an average annual rate of 5 per cent
between 2013 and 2018 and to total 17 million tonnes in 2018. Imports into the EU
are projected to increase slightly over the outlook period, growing at an average of 3
per cent a year to reach 51 million tonnes in 2018. The strong growth in imports into
Brazil and India reflect projected strong growth in steel production. The import
growth into the EU is a consequence of moderate growth in steel production
combined with lower metallurgical coal production.
Metallurgical coal exports
Metallurgical coal exports from Australia in 2013 are forecast to increase by 9 per
cent to total 158 million tonnes, around the level of exports prior to the 2011
Queensland floods. The impact of the 2013 storms and floods in Queensland on
exports is forecast to be minimal. Over the period 2014 to 2018, Australia’s exports
of metallurgical coal are projected to increase at an average annual rate of 7 per
54
cent to reach 218 million tonnes in 2018 (see Figure 5). The strong growth will be
supported by new and expanded mining projects such as BHP Billiton Mitsubishi
Alliance’s (BMA) Caval Ridge (8 million tonnes a year) and Daunia projects (4.5
million tonnes); Anglo American’s Grosvenor underground mine (5 million tonnes);
and the Jellinbah Group’s joint venture Lake Vermont expansion (4 million tonnes).
Additional mine output will be supported by expansions to port and rail capacity on
the Queensland coast, such as developments at the Port of Hay Point.
Figure 5:
Major metallurgical coal exporters
Please refer to page 64 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Exports of metallurgical coal from Canada and the Russian Federation are projected
to increase slightly over the medium term and to total, respectively, 34 million
tonnes and 18 million tonnes in 2018. Exports from Mongolia are projected to
increase at around 3 per cent a year to 2018, reaching around 25 million tonnes. The
rate of growth is expected to be lower than in recent years due to a substantial
cooling in the investment climate in Mongolia.
Exports from the US are forecast to decline in 2013, compared with 2012, and are
projected to continue declining year-on-year to total 48 million tonnes in 2018.
Infrastructure constraints and associated high freight costs are expected to make US
exports less commercially competitive in the medium term.
Australian exports
In 2012–13, Australia’s export volumes of iron ore are forecast to increase by 11 per
cent, relative to 2011–12, to total 522 million tonnes, supported by higher
production from Fortescue and Rio Tinto. The value of Australia’s iron ore exports in
2012–13 is forecast to decrease by 9 per cent, compared with 2011–12, to total
$57.0 billion. The decrease can be attributed entirely to lower forecast prices,
despite higher volumes relative to 2011–12.
Over the medium term, projected growth in export volumes from expansions to
capacity at a number of mines, such as Fortescue’s Chichester Hub and Solomon Hub
expansions, will underpin higher export earnings in 2017–18. However, the effect of
higher export volumes on total export earnings will be offset by a projected decline
in real iron ore prices. Export volumes are projected to increase to 821 million by
2018 tonnes (see Figure 6) or an average growth of 10 per cent a year over the
outlook period. Iron ore export values are projected to trend higher over the
medium term and to total $61.6 billion (in 2012–13 dollars) in 2017–18.
Figure 6:
Australia’s iron ore exports
Please refer to page 66 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
55
Australia’s metallurgical coal export volumes in 2012–13 are forecast to increase by
8 per cent to total 153 million tonnes. Despite the higher export volumes, lower
forecast prices are expected to result in export earnings for metallurgical coal
declining to $23.0 billion, down from $31.6 billion (in 2012–13 dollars) in 2011–12.
Over the remainder of the outlook period export volumes of metallurgical coal are
forecast to increase by 7 per cent a year and to total 214 million tonnes in 2017–18.
Higher export volumes and relatively stable year-on-year projected prices are
expected to result in Australia’s export earnings from metallurgical coal increasing to
around $30 billion (in 2012–13 dollars) in 2017–18 (see Figure 7).
Figure 7:
Australia’s metallurgical coal exports
Please refer to page 66 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Table 6:
World
Contract prices b
Iron ore c
– nominal
– real d
Metallurgical coal
e
– nominal
– real d
Steel, iron ore and metallurgical coal outlook
unit
2011
2012
2013 f
2014 z
2015 z
2016 z
2017 z
2018 z
US$/t
US$/t
153
158
128
131
119
119
114
113
105
103
99
96
97
93
96
90
US$/t
US$/t
289
298
210
214
172
172
179
177
180
176
180
174
184
175
188
177
2010–
11
2011–
12
2012–
13 f
2013–
14 z
2014–
15 z
2015–
16 z
2016–
17 z
2017–
18 z
Australia
Production
Iron and steel gs
Iron ore
Metallurgical coal
Mt
Mt
Mt
7.31
447
147
5.39
504
147
4.80
538
157
4.71
617
169
4.65
708
188
4.59
745
200
4.54
798
207
4.48
831
218
Exports
Iron and steel gs
Nominal value
Real value h
Mt
A$m
A$m
1.78
1303
1371
1.19
983
1012
1.00
835
835
0.89
806
783
0.85
774
731
0.83
757
695
0.82
746
666
0.80
729
632
Iron ore
Nominal value
Real value h
Mt
A$m
A$m
407
58387
61444
470
62695
64513
522
56971
56971
604
64005
62202
698
69371
65516
735
66395
60938
788
69691
62161
821
71054
61590
Metallurgical coal
Nominal value
Real value h
Mt
A$m
A$m
140
29793
31353
142
30700
31590
153
22976
22976
165
26177
25439
184
29297
27669
196
30882
28344
203
32217
28736
214
34692
30071
b fob Australian basis, BREE Australia–Japan average contract price assessment. c Fines
contract, 62% iron content basis. d In 2013 US dollars. e High-quality hard coking coal. For
example, Goonyella export coal. g Includes all steel items in ABS, Australian Harmonized
Export Commodity Classification, chapter 72, ‘Iron and steel’, excluding ferrous waste and
scrap and ferroalloys. h In 2012–13 Australian dollars. f BREE forecast. s BREE estimate. z
BREE projection.
56
Sources: BREE; ABARES; International Iron and Steel Institute; Coal Services Australia;
Queensland Coal Board; United Nations Conference on Trade and Development.
57
Gold
Adam Bialowas
Gold prices
In 2012 the gold price averaged US$1699 per ounce (in 2013 dollars), a 5 per cent
increase relative to 2011. By the end of 2012 the average price of gold had increased
for eleven consecutive years; however, 2012 was the lowest average annual increase
in the gold price over this period. Over the course of 2012, the gold price displayed a
lower degree of volatility than in 2011, with the standard deviation in average daily
prices in 2012 less than half that of 2011.
Figure 1:
Quarterly gold price
Please refer to page 68 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
In 2012, the increase in the gold price was supported primarily by the official sector
which increased their net purchases of gold relative to 2011. This increase was able
to more than offset the effects on the gold price of lower jewellery and flat
investment demand for gold. The decline in jewellery demand for gold was largely
the result of a high domestic price of gold in India. Investment demand had a neutral
effect on gold prices with a decrease in the demand for bars and bullion being
counterbalanced by increased demand for gold backed exchange traded funds (ETFs).
In 2013, the gold price is forecast to decline by 4 per cent per cent relative to 2012 to
average around US$1638 an ounce. Prices are expected to fall in response to a
decrease in the investment demand for gold expected to decline further if instability
in global financial markets diminishes, reducing the appeal of gold as a safe haven
investment. The magnitude of the decline in the gold prices is expected to be
moderated by net purchases of gold by the official sectors, which are forecast to
increase relative to 2012.
Over the remainder of the outlook period (2014 to 2018), the price of gold is
projected to continue to decline and average around US$1315 in 2018. The
investment demand for gold is expected to decrease in response to an assumed
improvement in macroeconomic conditions over the outlook period. First, stability in
global financial markets is projected to reduce investment demand for gold based
upon its properties as a safe haven investment. Second, improving economic
conditions will lead to a willingness among investors to hold a greater share of their
wealth in assets other than gold, such as equities and property. Concerns that
expansionary monetary programs will lead to high inflation are not expected to be
realised over the outlook period, reducing the demand for gold as a hedge against
inflation.
58
Fabrication demand
Gold fabrication demand comprises gold used in the manufacture of jewellery,
electronics, dentistry, medals, coins and other industrial applications. In 2012 gold
fabrication is estimated to have declined by 5 per cent relative to 2011 to 2614
tonnes. Jewellery, which represents the largest component of gold fabrication
demand, declined by 4 per cent relative to 2011 to total 1885 tonnes. The majority
of this decline is attributed to India where a combination of a higher domestic price
for gold and government policies designed to reduce imports of gold led to an 11 per
cent decrease in fabrication demand for gold. Demand for gold in other industrial
and decorative uses also declined in 2012. Economic conditions in the Eurozone
reduced demand for gold by the electronics sector which declined by 5 per cent to
304 tonnes. High prices resulted in a reduction in the demand for gold for decorative
purposes, such as gold thread and gold plating, decreasing by 4 per cent to 86 tonnes.
Total world fabrication demand for gold in 2013 is forecast to decrease by 1 per cent,
relative to 2012, to total 2580 tonnes. Fabrication demand for gold in 2013 will be
heavily influenced by India which is the world’s largest single consumer of fabricated
gold. Indian authorities’ concerns about the negative impacts of gold purchases on
the economy have led to the implementation of a range of policies aimed at
reducing domestic gold demand. Policies already implemented include an increase in
the import duty on gold from 4 per cent to 6 per cent, a ban on jewellery imports
from Thailand and restrictions upon the ability of banks to make loans for the
purpose of purchasing jewellery. A range of financial products designed to make gold
less attractive as a store of wealth have also been proposed. These are expected to
have a negative impact on Indian jewellery demand in 2013 overriding the effects of
a lower gold price.
In China, rising income levels are expected to contribute to increased jewellery
demand. However, the speculative component of jewellery demand, which has been
a characteristic of Chinese jewellery demand over the past five years, is expected to
be reduced.
Over the remainder of the outlook period (2014 to 2018) gold fabrication
consumption is forecast to increase at an average annual rate of 3 per cent to total
2978 tonnes in 2018. This projected increase is due to a forecast increase in the
demand for jewellery, underpinned by a declining price of gold and a growing middle
class. In particular, Indian demand for jewellery is projected to recover in 2014 after
recovering from policies introduced in 2013. While Indian consumers may
temporarily respond negatively to exogenous shocks in the short term, India’s
cultural affinity with gold should help demand return to longer term consumption
trends. Chinese demand for jewellery is projected to increase over the outlook
period due to weaker gold prices and rising incomes that makes jewellery and other
fabricated gold products more affordable for an increasing numbers of consumers.
59
Official sector purchases
Central banks expanded their gold holdings in 2012 with net purchases increasing by
17 per cent, relative in 2011, to total 536 tonnes. Purchases of gold were
underpinned by central banks in emerging economies that have used gold as a
means of diversifying their reserve asset portfolios away from traditional reserve
assets such as the US dollar, the euro and the Yen. Central banks that purchased
large quantities of gold in 2012 included Russia (55 tonnes), the Philippines (35
tonnes) and Brazil (34 tonnes).
A forecast reduction in both investment and fabrication demand for gold in 2013 is
expected to provide scope for central banks to increase their purchases of gold
without distorting the market. In 2013, official sector gold purchases are expected to
increase to 550 tonnes as central banks continue to diversify their asset portfolios.
Central banks in emerging economies are expected to continue as the main buyers.
Over the outlook period, the official sector is expected to remain a net purchaser of
gold. Increasing levels of foreign exchange reserves among developing nations
suggest that the official sector will remain a net purchaser, assuming central banks
maintain the existing ratios of gold in their portfolios. The size of the gold market
relative to global reserve holdings implies official sector purchases need to be
distributed over an extended period of time to avoid distorting the gold market. The
magnitude of these net purchases, however, are expected to decline over the
outlook period as improving economic conditions make other forms of assets held by
central banks more attractive. As official sector purchases of gold depend on a
variety of special domestic circumstances, there is still considerable uncertainty over
central bank gold purchases over the outlook period.
Scrap sales
In 2012, the supply of gold from secondary sources, such as the recycling of gold
jewellery and electronics, declined by 2 per cent, relative to 2011, to total 1642
tonnes. This occurred despite an increase in the price of gold. The only major market
to record an increase in scrap sales was India where the domestic price of gold
increased by 24 per cent, providing an indication of the price increase necessary to
encourage increased sales from remaining stocks.
In 2013, the quantity of gold sourced from scrap is forecast to decrease 5 per cent,
relative to 2012, to total 1560 tonnes in response to lower forecast gold prices. More
stable economic conditions in in key gold markets are also expected to reduce
financial distress as an incentive for selling gold. Over the remainder of the outlook
period the supply of scrap gold is expected to follow changes in the price of gold and
to decline to a low of around 1000 tonnes in 2018.
Gold mine production
In 2012, world gold mine production increased by less than one per cent, relative to
2011, to total 2836 tonnes. This result can be attributed to underperformance at
60
existing mines through either mine sequencing or other delays and production
interruptions. These offset production from new mines that either commenced
production or ramped up towards full production in 2012. In particular, labour
disputes in South Africa are estimated to have reduced South African gold
production by approximately 20 tonnes in 2012.
World gold mine production in 2013 is forecast to grow by 4 per cent, relative to
2012, to total 2956 tonnes. This increase will be supported by a number of large
operations commencing production around the world including Barrick Gold and
Goldcorp’s joint venture Pueblo Veijo mine in the Dominican Republic (30 tonnes),
Detour Gold’s Detour Lake operation in Canada (20 tonnes), Rio Tinto and Turquoise
Hill’s Oyu Tolgoi in Mongolia (13.5 tonnes). The growth from new mines will be
augmented by existing operations increasing production levels after abnormally low
production in 2012 including Freport McMoran’s Grasberg mine in Indonesia and
Centara Gold’s Kumtor mine in Kyrgyzstan.
Over the remainder of the outlook period, global gold mine production is projected
to increase at an annual average rate of 3 per cent to total 3345 tonnes in 2018.
China is expected to remain the world’s largest gold producer; however, the outlook
period is expected to see a reordering of the rankings amongst other major gold
producing nations.
Gold mine production in the Russian Federation is projected to increase at an annual
average rate of 6 per cent to total 307 tonnes by 2018. This will result in Russia
overtaking both Australia and the US to become the world’s second largest gold
producer. Supporting this increase will be new production from a number of new
operations which are due for completion in the outlook period. These include
Kinross’ Dvoinoye mine (7 tonnes), Polyus Gold’s Natalka mine (15 tonnes) and
Norlisk Nickels Bystrinskoye mine (6 tonnes) which are due to be completed in 2017.
Canada has a number of gold mines, either under construction or committed, that
will support production growing at an annual average rate of 9 per cent to total 193
tonnes in 2018. This will result in Canada surpassing South Africa and Peru to
become the world’s fourth largest gold producer. Increased production will be
supported by Detour Gold Detour Lakes mine (20 tonnes), Goldcorps Elanore mine
(18 tonnes) and Newgold’s Blackwater mine (17 tonnes).
Australia’s gold production
Australian gold mine production is expected to increase by 1 per cent, relative to
2011–12, to total 255 tonnes in 2012–13. This marginal increase in supply is a
reversal of the previous year which recorded a decline in Australian gold production.
New production is expected to come from Regis Resources’ Garden Wells mine (6
tonnes), Millennium Gold’s Nullagine mine (2 tonnes annual production) and Reed
Resources’ Meekatharra mine (4.5 tonne annual production). Increased production
from Newcrest Mining’s Cadia East and Citigold’s Charters Towers gold mines are
also projected. Both of these mines are underground operations and are not
scheduled to achieve full production levels until the second half of the outlook
61
period. These production increases will be offset by a number of mines that will be
reducing production in 2012–13 including St Barbara’s Southern Cross, Rand
Mining’s Raleigh, Ramelius Resources Wattle Dam and Polymetals White Dam.
In 2013–14 Australian gold mine production is forecast to increase a further 6 per
cent, relative to 2012–13, to total 270 tonnes. Increased production is expected from
a number of new mines which are scheduled to commence operations in 2013–14.
These include Alkane Resources’ Tommingly mine (1.5 tonnes), Doray Minerals’ Andy
Well mine (2 tonnes), Mutiny Gold’s Deflector mine (2 tonnes) and Southern Cross
Resources’ Marda mine (1 tonne). The largest new mine scheduled to commence
production in 2013–14 is the Tropicana joint venture project by AngloGold Ashanti
and Independence Group (14 tonnes) which is expected to be the largest gold mine
to be constructed in Australia over the outlook period.
Over the remainder of the outlook period (2014–15 to 2017–18) Australian gold
mine production is projected to continue increasing until 2016–17 when it will peak
at 299 tonnes. Production increases over this period will be supported by Newcrest
Mining’s Cadia East (additional 8 tonnes) and Citigold’s Chaters Towers (10 tonnes)
operations reaching full production levels. In 2017–18, Australian gold mine
production is forecast to decline to 291 tonnes from its 2016¬17 peak due to a
scheduled decline in output from AngloGold Ashanti and Independence Groups’
Tropicana mine.
Australia’s gold exports
Australian exports of refined gold are produced from ore from domestic mine
production as well as imports of gold dore (impure gold) and scrap which are
imported before being refined into gold bullion and re-exported.
In 2012–13 the volume of Australian gold exports is forecast to increase by 6 per
cent, relative to 2011–12, to total 320 tonnes. This reflects a combination of
increased mine production over the period and above average levels of
internationally sourced gold. In aggregate, the projected volume should support a 10
per cent increase in the value of Australian exports of gold in 2012–13, relative to
2011–12, to total $17 billion.
In 2013–14, an increase in Australian mine production is forecast to result in a 8 per
cent increase in the volume of Australian gold exports, relative to 2012–13, to total
347 tonnes. The value of gold exports is forecast to increase by 7 per cent, relative to
2012–13, to total $17.7 billion (in 2012–13 dollars).
Over the remainder of the outlook period, the volume of Australia’s gold exports is
expected to peak in 2015–16 at 371 tonnes and then decline to 362 tonnes in 2017–
18. This decline reflects lower Australian mine production towards the end of the
outlook period and lower volumes of gold sourced from overseas in response to a
fall in the gold price over the outlook period. By 2017–18 the value of Australia’s
gold exports is projected to be around $13 billion (in 2012–13 dollars).
62
Figure 2:
Australian gold exports
Please refer to page 73 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Table 1:
World
Fabrication
consumption
Mine production
Scrap sales
Residual net
stock
official sector
private sector
producer
hedging
Price b
– nominal
– real c
Australia
Mine production
Export volume
Export value
– nominal
– real d
Price
– nominal
– real d
Gold outlook
unit
2011
2012
2013 f
2014 z
2015 z
2016 z
2017 z
2018 z
t
t
t
2760
2833
1661
2614
2836
1642
2580
2956
1560
2642
3099
1400
2741
3217
1300
2848
3304
1200
2917
3338
1100
2978
3345
1000
t
(1734)
(1864)
(1936)
(1858)
(1776)
(1655)
(1521)
(1367)
t
t
(457)
(1283)
(536)
(1308)
(550)
(1396)
(525)
(1358)
(450)
(1351)
(425)
(1280)
(400)
(1171)
(400)
(1017)
t
6
(20)
10
25
25
50
50
50
US$/oz
US$/oz
1569
1618
1668
1699
1638
1638
1574
1558
1440
1411
1375
1330
1351
1289
1315
1237
2010–
11
2011–
12
2012–
13 f
2013–
14 z
2014–
15 z
2015–
16 z
2016–
17 z
2017–
18 z
t
264
253
255
270
291
299
299
291
t
301
304
320
347
369
371
364
362
A$m
A$m
13016
13697
15462
15910
16971
16971
18230
17717
17631
16651
16266
14929
15695
13999
15028
13027
A$/oz
A$/oz
1389
1462
1621
1668
1605
1605
1633
1587
1485
1402
1365
1253
1342
1197
1292
1120
b London Bullion Market Association AM price. c In 2013 US dollars. d In 2012–13 Australian
dollars. f BREE forecast. z BREE projection.
Note: Net purchasing and dehedging shown in brackets.
Sources: BREE; ABARES; Gold Fields Mineral Services; Australian Bureau of Statistics; London
Bullion Market Association.
63
Aluminium
Simon Cowling
Prices
The spot price for aluminium averaged US$2055 a tonne in 2012, a decrease of 17
per cent compared to 2011. Prices peaked in February 2012 at around US$2260 a
tonne before decreasing to around US$1750 a tonne by August 2012 and finishing
2012 at US$2031 per tonne.
In 2013, the average spot price of aluminium is forecast to increase to around
US$2075 a tonne, a rise of around 1 per cent relative to 2012. Forecast consumption
growth in emerging economies and lower production growth due to plant closures in
Europe and North America are expected to reduce stock holdings and support higher
prices in 2013. Scheduled start-ups of new smelters in the second half of 2013 in Asia
and the Middle East region are expected to offset some of the production
curtailments and limit the prospects of higher price growth in the latter half of 2013.
Over the outlook period (2013 to 2018), the aluminium spot price is projected to
increase at an average annual rate of 1 per cent to total US$2178 in 2018. Projected
growth in aluminium prices are a result of higher supply costs and demand rising at a
faster rate than supply over the medium term. The growing incomes and size of the
middle classes in China and India are expected to result in higher demand for
automobiles and other aluminium-intensive consumer products over the outlook
period and support higher consumption. New smelters are scheduled to start up in
response to this growing demand, but curtailments and closures of aluminium
smelters in OECD economies are likely to offset this additional production.
Figure 1:
Annual aluminium prices and stocks
Please refer to page 75 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Consumption
In 2012, world aluminium consumption is estimated to have increased around 4.5
per cent, relative to 2011, to total 44.3 million tonnes. Robust growth in Asian
emerging economies more than offset decreases in consumption in Europe
attributed to the sovereign debt crisis and onset of austerity measures. Total
consumption in Asia is estimated to have increased 10 per cent to 29 million tonnes,
underpinned by growth of 13 per cent in China (20 million tonnes in total) and 8.2
per cent in India (1.7 million tonnes in total). Total European consumption decreased
10 per cent to total 7.5 million tonnes, underpinned by substantial drops in demand
in Italy (36 per cent compared to 2011) and Belgium (20 per cent). Consumption in
the US increased 12.7 per cent to total 4.5 million tonnes as a result of on-going
recovery in its automotive and construction industries.
64
World aluminium consumption is forecast to increase to around 46.2 million tonnes
in 2013, an increase of 4.1 per cent relative to 2012. This will be driven by further
growth in Asia and an expected rebound of economic growth in Europe. China is
forecast to be the principal driver of growth in consumption demand, increasing by
around 8 per cent, compared to 2012, to total 21.5 million tonnes. China will remain
the largest consumer of aluminium, accounting for 46 per cent of total world
consumption in 2013. The US is forecast to increase its demand by around 0.5 per
cent to total 4.6 million tonnes, underpinned by moderate growth in consumer
spending, construction and automobile manufacturing.
Over the outlook period (2013 to 2018), world aluminium consumption is projected
to increase at an average annual rate of 5.0 per cent to total around 59.2 million
tonnes in 2018. Robust growth in emerging economies will be the main drivers of
consumption growth. Consumption in OECD countries is projected to increase, but at
much lower rates than non-OECD countries.
Aluminium consumption in China is projected to increase at an average annual rate
of 7.7 per to around 31 million tonnes over the outlook period (2013 to 2018). The
projected increase will be underpinned by substantial growth in construction as well
as demand for cars and other aluminium-intensive consumer products. Unlike
consumers in western economies, demand for larger luxury car models is projected
to grow in China as per capita incomes continue to increase.
Over the outlook period, consumption demand in the US is projected to be
supported by growth in the construction and automotive sectors. Production and
sales of vehicles are expected to increase in response to improving economic
conditions; however, policies limiting carbon emissions and preferences for smaller,
more fuel efficient cars are expected to result in less aluminium used per vehicle.
Consumption demand is expected to increase at an average annual rate of 3.3 per
cent to total around 5.6 million tonnes in 2018.
A decrease in consumption demand is forecast in Europe in the short term, with a
recovery projected to occur later in the outlook period. Estimated consumption
demand in Europe fell around 10 per cent in 2012, relative to 2011. Consumption is
forecast to decrease a further 1.2 per cent in 2013 to total 7.5 million tonnes due to
the expected impacts of austerity measures in several key economies. Over the
entire outlook period however, aluminium consumption in Europe is projected to
grow, increasing at an average annual rate of 1.1 per cent to around 8 million tonnes
in 2018. This growth is principally due to higher consumption in Germany and an
assumed improvement in economic conditions.
Production
Global aluminium production is estimated to have increased to around 45.8 million
tonnes in 2012, an increase of 2.4 per cent from 2011. Higher production in Asia and
the Middle East offset declines in Europe where higher energy costs and subdued
demand have led to production curtailments and smelter closures. European
aluminium production is estimated to have decreased around 3.5 per cent, relative
65
to 2011, to total 8.7 million tonnes. Cost issues also led to production curtailments in
both Canada and Australia in 2012.
In 2013, world aluminium production is forecast to increase to around 46.3 million
tonnes, 1.2 per cent higher than 2012. Growth in production will be supported by
increased output from China, India and the Middle East which is expected to offset
further production decreases in OECD economies. Over the outlook period, world
production is projected to increase at an average annual rate of around 4.4 per cent
to total 59.2 million tonnes. Production is projected to continue growing in China,
India and the Middle-East and lead to an eventual shift in shares of world production.
In 2018 China is likely to remain the world’s largest aluminium producer; however
projected robust growth in India, supported by the scheduled start-up of several
new smelters will see it surpass Canada, the US and Australia to become the world’s
third largest aluminium producer.
China’s aluminium production is projected to increase at an average annual rate of
around 4.6 per cent over the outlook period to total 26 million tonnes in 2018. The
increase is due to vertical integration of the production process through investments
in power suppliers, and change in the central Government policy on new aluminium
projects. In India, production is projected to increase at an average annual rate of
around 14.4 per cent to total 3.8 million tonnes in 2018. The increase over the
outlook period is supported by new smelters with large production capacities coming
online to reach full capacity around 2016.
Aluminium production is expected to increase in North America at an average annual
rate of around 3.7 per cent over the outlook period to total 6 million tonnes.
Projected lower energy costs associated with the emergence of abundant shale gas
supplies are expected to improve the commercial viability of the US aluminium
industry and support growth in production. Production of aluminium in the US is
projected to increase at average annual rate of 2.6 per cent to total 2.5 million
tonnes in 2018. Production in Canada is projected to increase at an average annual
rate of 4.6 per cent to total 3.6 million tonnes in 2018, underpinned by new project
start-ups.
The Middle East is projected to increase production to 7.2 million tonnes over the
outlook period at an average annual rate of around 8.9 per cent. Large scale capital
investment in production facilities over the outlook period and access to cheap
energy are expected to be the substantial drivers of the production increase. The
Middle East region is projected to account for around 16 per cent of global primary
production by 2018.
Australia
Production
In 2012–13, production in Australia is forecast to decrease by 6.5 per cent, relative to
2011–12, to total 1.8 million tonnes. The decrease is due to the closure of the Kurri
Kurri smelter in New South Wales that removed around 177 000 tonnes of
66
aluminium production from Australia’s production capacity. Alcoa is currently
undertaking a review of their Point Henry smelter in Victoria. Operations are
expected to continue to at least mid-2014 as a result of a Government industry
assistance package by the Federal and Victorian Governments. In June 2012, the
Victorian and Federal Government provided assistance to the Point Henry smelter in
Victoria in the form of capital expenditure for repairs and maintenance of the
smelter, investment in workplace skills and training, and additional undisclosed
activities to improve competitiveness. These assistance measures are expected to
remain in place until at least mid-2014.
During 2012, Pacific Aluminium and the Tasmanian State Government were able to
secure a power deal which provided for lower energy costs from Hydro Tasmania
and resulted in a reduction in production costs for the Bell bay smelter. The deal
provides for reduced energy costs to 2025. Due to the Government assistance
provided (for the operations in Tasmania and Victoria) allowing on-going operations
in these states to continue, no further smelter closures are forecast in the short term.
However, higher production costs due to rising energy prices may result in minor
production curtailments in 2012–13.
Over the outlook period (2012–13 to 2017–18), Australia’s aluminium production is
projected to decrease at an average annual rate of around 2.8 per cent to total 1.6
million tonnes in 2017–18. Government assistance, in the form of lower energy costs
and capital injections, is assumed to continue over the outlook period. Nevertheless,
an expected drop in total primary production is projected with no new aluminium
smelters assessed as likely to start-up over the outlook period.
Exports
Forecast lower production in 2012–13 is expected to cause the volume of Australia’s
aluminium exports to decrease 3 per cent, relative to 2011–12, to total 1.5 million
tonnes. Export earnings are forecast to decrease 14 per cent to $3.3 billion (2012–13
dollars) due to a combination of lower export volumes and a lower Australian dollar
aluminium price.
Over the outlook period, Australian aluminium export volumes are projected to
decrease at an average annual rate of around 2.1 per cent, from 2012–13, to around
1.5 million tonnes in 2017–18. The value of Australian aluminium exports is
projected to decrease to $2.9 billion (in 2012–13 dollars) with lower export volumes
offsetting projected price increases over the outlook period.
Figure 2:
Australia’s aluminium exports
Please refer to page 79 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
67
Alumina
Prices
Alumina spot prices decreased by around 16 per cent in 2012, relative to 2011, to
reach US$325 a tonne (in 2013 dollars). In 2013 alumina spot prices are forecast to
increase to around US$342 a tonne, a 5 per cent increase relative to 2012. The
forecast increase is a result of growth in demand as higher global aluminium
production translates into an increased requirement for alumina as an input into
production. Over the outlook period the spot alumina price is projected to increase
at an average annual rate of 2.5 per cent to around US$381 a tonne in 2018.
Australia’s alumina production
In 2012–13 Australia’s alumina production is forecast to increase by around 19 per
cent, relative to 2011–12, to total 22.9 million tonnes. The commissioning of Rio
Tinto Alcan’s Yarwun refinery near Gladstone is the principal driver of the increase
and will add around 2 million tonnes of additional Australian alumina production
capacity. Production at BHP Billiton’s Worsley refinery in Western Australia is
expected to reach full capacity by the end of 2012–13 after completion of the 1.1
million tonne a year expansion. Pacific Aluminium’s Gove refinery near Nhulunbuy
will continue to operate after the Northern Territory Government agreed to release
supplies of gas to power the refinery. The use of heavy oil as a fuel source was a
major cost driver affecting the commercial viability of the Gove refinery which is now
expected to remain open through the outlook period.
Australia’s alumina production is forecast to increase by 3 per cent in 2013–14 to
total 23.6 million tonnes. The ramping up of recent expansions to full capacity will be
the principal source of this growth. Over the remainder of the outlook period from
2014–15 to 2017–18, no additional expansion projects are expected to start up and
alumina production is forecast to remain stable at 23.6 million tonnes.
Australia’s alumina exports
Projected decreases in Australian aluminium production are expected to result in
additional surplus alumina production being exported to growing Asian markets.
Alumina export volumes are forecast to increase by 19 per cent in 2012–13, relative
to 2011–12, to total 19.7 million tonnes. Over the outlook period (2013 to 2018),
alumina export volumes are projected to increase to around 20.4 million tonnes
based on an average annual rate of around 3.5 per cent.
The value of Australia’s alumina exports is forecast to increase by around 14 per cent
in 2012–13, relative to 2011–12, to total $6.1 billion dollars. Forecast higher export
volumes and prices will both support this increase. Alumina export values are
projected to increase to around $6.7 billion (in 2012–13 dollars) over the outlook
period (2012–13 to 2017–18), with an average annual growth rate of 4.1 per cent.
68
Bauxite exports
Australian bauxite exports are projected to increase over the outlook period,
underpinned by the expected start-up of new mines such as Cape Alumina Pisolite
Hills mine (7 million tonnes per annum) and Rio Tinto’s South of Embley mine (22.5
million tonnes per annum). Bauxite export volumes are forecast to increase by
around 6 per cent in 2012–13, to total 11.1 million tonnes. Exports volumes are
projected to increase at an average annual rate of 9 per cent over the outlook period,
to around 17.9 million tonnes in 2017–18.
In 2012–13, Australia’s bauxite export earnings are forecast to increase by around 3
per cent, relative to 2011–12, to total $314 million dollars, supported by higher
production. The increase in export values is projected to continue over the outlook
period (2013 to 2018), with the value of bauxite exports increasing at an average
annual rate of 6.0 per cent to around $434 million (in 2012–13 dollars).
Figure 3:
Australia’s alumina exports
Please refer to page 81of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Table 1:
Aluminium and alumina outlook
unit
2011
2012
2013 f
2014 z
2015 z
2016 z
2017 z
2018 z
kt
44568
45782
46340
49533
52571
55149
57744
59254
kt
42398
44327
46162
49216
52259
54947
57636
59262
kt
wks
6999
8.6
7860
9.2
8037
9.1
8355
8.8
8667
8.6
8868
8.4
8976
8.1
8968
7.9
US$/t
USc/lb
US$/t
USc/lb
2402
109
2476
112
2017
91
2055
93
2075
94
2075
94
2137
97
2116
96
2187
99
2142
97
2255
102
2181
99
2289
104
2183
99
2315
105
2178
99
Alumina
– nominal spot
– real spot d
US$/t
US$/t
374
386
2010–
11
319
325
2011–
12
342
342
2012–
13 f
385
381
2013–
14 z
390
382
2014–
15 z
389
376
2015–
16 z
399
380
2016–
17 z
405
381
2017–
18 z
Australia
Production
Primary aluminium
Alumina
Bauxite
kt
kt
Mt
1938
19041
69
1938
19283
73
1812
22881
79
1800
23580
81
1773
23580
83
1736
23580
84
1644
23580
85
1635
23580
85
Consumption
Primary aluminium
kt
252
235
164
162
160
156
148
147
Exports
Primary aluminium
Nominal value
kt
A$m
1686
4178
1693
3797
1646
3344
1638
3446
1613
3456
1579
3448
1496
3326
1488
3336
World
Production
Primary aluminium
Consumption
Primary aluminium
Closing stocks
Primary aluminium b
– weeks consumption
Prices
World aluminium c
– nominal
– real d
69
Real value e
Alumina
Nominal value
Real value e
Bauxite
Nominal value
Real value e
Total value
– nominal
Real value e
A$m
kt
A$m
A$m
kt
A$m
A$m
4397
16227
5218
5491
8595
229
241
3907
16592
5146
5295
10518
296
305
3344
19737
6050
6050
11127
314
314
3349
20070
7179
6976
13134
368
358
3263
20123
7326
6919
14254
400
377
3164
20195
7494
6878
15483
434
398
2967
20374
7701
6869
17403
488
435
2892
20392
7774
6738
17874
501
434
A$m
A$m
9625
10129
9239
9507
9708
9708
10993
10683
11182
10560
11375
10440
11515
10271
11611
10065
b Producer and LME stocks. c LME cash prices for primary aluminium. d In 2013 US dollars. e
In 2012–13 Australian dollars.
f BREE forecast. z BREE projection.
Sources: BREE; ABARES; London Metal Exchange; World Bureau of Metal Statistics.
70
Copper
Oliver Hough
Prices
In 2012 copper prices averaged US$8098 per tonne (in 2013 dollars), an 11 per cent
decrease from the 2011 average price. In 2012 prices peaked at US$8650 before
finishing 2012 at US$8046. Reported copper stocks at the end of 2012 remained at a
similar level to the end of 2011 at 2.7 weeks of consumption.
Copper prices are forecast to average around $US7778 a tonne in 2013, a decrease
of 4 per cent compared to 2012. This forecast decrease in prices is the result of
copper supply growing faster than copper consumption. The increase in supply will
come from a number of large recently commissioned mines in Indonesia, Peru and
Mongolia ramping up to full production in 2013. Copper consumption is forecast to
grow, primarily in emerging economies, but by a lower amount than the increase in
production. As a result, copper stocks are forecast to increase to 3.2 weeks of
consumption in 2013.
Figure 1:
Quarterly copper prices
Please refer to page 83 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
For the outlook period (2013 to 2018), copper prices (in 2013 dollars) are projected
to decrease to around US$6900 per tonne in 2016, as a result of increased
production, and then recover to around US$7100 per tonne in 2018 due to projected
higher demand growth. Stocks are projected to peak at 3.9 weeks of consumption in
2015 before declining to around 1.5 weeks of consumption in 2018.
Figure 2:
Annual Prices and Stocks
Please refer to page 84 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Consumption
In 2012, world copper consumption is estimated to have increased by over 5.5 per
cent, compared with 2011, to total 20.5 million tonnes. Higher consumption was
driven mainly by China which increased its consumption by 12 per cent to 8.8 million
tonnes and accounted for around 43 per cent of world copper consumption in 2012.
Copper consumption in other emerging economies also continued to grow in 2012.
In particular, consumption increased by 13 per cent in India (454 thousand tonnes), 9
per cent in Brazil (457 thousand tonnes) and 73 per cent in Mexico (402 thousand
tonnes).
71
In the European Union, copper consumption decreased 7 per cent in 2012, relative
to 2011, to total around 3.1 million tonnes, mainly due to lower consumption in
Germany. Consumption in Japan and the Republic of Korea also decreased by 2 per
cent and 3 per cent, respectively. In the US, consumption was 3 per cent higher in
2012, relative to 2011, to total 1.8 million tonnes.
World consumption in 2013 is forecast to increase 4 per cent, relative to 2012, to
around 21.4 million tonnes. Growth will continue to be supported by higher
consumption in China and other emerging economies. Consumption in Europe, the
US and other OECD countries is forecast to grow moderately and in some cases,
decline.
Over the outlook period (2013 to 2018) world copper consumption is forecast to
grow at an average annual rate of 4.6 per cent to total around 26.6 million tonnes in
2018. Growth in copper consumption is expected to come primarily from emerging
economies such as China and India. Consumption in some OECD countries is
expected to recover as general economic conditions improve, but growth rates are
projected to remain low over the outlook period.
Copper consumption in China is projected to increase at an annual average rate of
6.7 per cent over the outlook period to total around 13 million tonnes in 2018.
Robust growth in residential construction and electricity transmission networks will
be the principal drivers of the increase in China’s copper consumption. Based on
projected growth rates, China’s share of world copper consumption will increase
from 43 per cent in 2012 to 49 per cent in 2018.
China’s 12th Five-Year Plan outlined targets and policies for 2011 to 2015 and
included a planned urbanisation rate of 51.5 per cent and the building of an
additional 36 million apartments for low income earners. Preparation for this rapid
rate of shift and population increase in urban and industrial areas include plans to
expand infrastructure by improving and increasing the size of electricity networks,
transit systems and housing.
Planned infrastructure improvements in China demand significant copper usage
which is the underlying reason behind the large growth in demand for copper in
China. This anticipated growth and demand is expected to continue for the outlook
period and beyond. This demand is complemented by higher demand for electronic
goods, and other durable goods that require copper and are supported by an
emerging larger middle class.
Over the outlook period, increased copper consumption is projected for other
emerging economies such as India, Brazil, and Turkey. Consumption for these
emerging economies, as in China, is projected to grow at average rates between 7
and 9 per cent out to 2018. This growth will be a result of increased demand for
consumer durables, improvements to infrastructure and increased development of
housing. India, in particular, is expected to implement large infrastructure upgrades
over the outlook period to improve the reliability and extent of its electricity
transmission networks.
72
Copper consumption in Europe in 2013 is forecast to increase 0.7 per cent to total
around 3.8 million tonnes; although higher than 2012, this is still below total
consumption in 2011. Improved economic activity in Germany and the Russian
Federation will underpin moderate growth in European consumption in 2013;
however this will be mostly offset by decreased consumption in other European
countries that are expected to have lower investment rates as a result of assumed
low or negative growth..
For the remainder of the outlook period, copper consumption in Europe is projected
to increase at an average annual growth rate of 1.5 per cent a year to total 4.2
million tonnes in 2018. Although projected to increase, copper consumption in
Europe will remain lower than the high levels of the previous decade due to lower
levels of housing construction and infrastructure investment, particularly in
countries that currently have substantial sovereign debt issues to manage. Germany
is projected to be the principal contributor to growth in Europe’s copper
consumption in the medium term, supported by sustained growth in its exportfocused manufacturing industries.
In the US, copper consumption is projected to rise at an average annual rate of
around 0.5 per cent over the outlook period to total 1.9 million tonnes in 2018.
Eventual improvements in economic activity, particularly residential construction,
manufacturing and fixed asset investment, will support moderate increases in
copper consumption. As with Europe, copper consumption in the US is not projected
to return to the high levels of the previous decade over the 2013 to 2018 outlook
period.
Production
Mine Production
In 2012, estimated global copper mine production increased by 4.7 per cent relative
to 2011, to total 17 million tonnes. This increase is attributable primarily to mines in
South America resuming production following the resolution of labour disputes. In
addition, production from China and the Democratic Republic of Congo increased
more than 25 per cent due to the commissioning of new mines, capacity expansions
at existing mines and higher utilisation rates.
In 2013 world copper mine production is forecast to have its largest increase since
2004 as a result of new mines starting or ramping up to full production across Asia,
Africa, Oceania and Latin America. These include the Grasburg mine in Indonesia
(750 000 tonnes capacity per year), Konkola copper mines in Zambia (380 000 tonnes
capacity per year) and the Antapaccay mine in Peru (160 000 tonnes capacity per
year). Turquoise Hill Resources’ Oyu Tolgoi mine (400 000 tonnes capacity per year)
in Mongolia is expected to started commercial production in June 2013 after
experiencing projects cost increases and disputes with the Government of Mongolia
over the distribution of the mines earnings. These have also led to delays in
feasibility studies for the second stage of development.
73
World copper mine production is projected to increase at an average annual rate of
6 per cent to total around 24.4 million tonnes in 2018. This output growth will be
driven by additional, large copper mines opening in Peru, Chile and Indonesia over
the outlook period.
Peru has the projected fastest average growth rate of mined copper between 2013
and 2018. Production is projected to increase at an average annual rate of 14 per
cent to total 3 million tonnes by 2018. New mines scheduled to commence
production during this period include Xstrata’s Las Bambas mine (up to 400 000
tonnes capacity per year), Monterrico Metals’ Rio Blanco mine (190 000 tonnes
capacity per year), and Chinalco’s Toromocho mine (250 000 tonnes capacity per
year).
Chile produced around 5.4 million tonnes of mined copper in 2012 and accounted
for 32 per cent of total world production. Chile’s copper production is projected to
grow at an average annual rate of 1.5 per cent to total around 5.9 million tonnes by
2018. A number of large copper mines are also scheduled to start production within
the outlook period including Codelco’s Mina Minestro Hales mine (170 000 tonnes
capacity per year), Pan Pacific Copper’s Caserones mine (180 000 tonnes capacity per
year), Teck’s Quebrada Blanca Phase 2 expansion (200 000 tonnes capacity per year),
and the KGHM-Sumitomo Sierra Gorda mine (227 000 tonnes capacity per year).
Refined Production
World production of refined copper in 2013 is forecast to increase 5.6 per cent,
relative to 2012, to 21.6 million tonnes. This increase is driven primarily by China,
which accounts for almost half of the additional production in 2013. China’s
production of refined copper is forecast to increase 9 per cent, to total 6.4 million
tonnes. This expansion is primarily due to 3 refineries increasing their capacity,
Shandong Fangyuan (additional 100 000 tonnes per year), Guangxi Wuzhou
(additional 100 000 tonnes per year) and Daye/Hubei (additional 200 000 tonnes per
year). A number of small solvent extraction-electrowinning (SX-EW) - a process that
involves leeching of copper from the soil into solvents and then depositing the
copper onto cathodes through an electrolyte process - refineries in Africa (Zambia
and Democratic Republic of Congo) and Mexico are also expected to start-up and
support higher refined copper production in 2013.
Over the remainder of the outlook period, world refined copper production is
projected to increase at an average annual rate of about 3 per cent, to total 26
million tonnes in 2018. China is expected to be the main contributor to growth in
world refined copper production with its share of total world production increasing
from 29 per cent in 2012 to 32 per cent in 2018. India’s production of refined copper
is also projected to increase substantially over the period, growing at an average
annual rate of 10 per cent to total 1.2 million tonnes in 2018. Previously anticipated
growth in SX-EW technology within Chile has slowed, however, there is still growth
anticipated in other Latin American countries (Mexico and Peru) and Africa (Zambia
and Democratic Republic of Congo).
74
Australia
Production
Australian copper mine production in 2012–13 is forecast to increase 8 per cent,
relative to 2011–12, to total around 1 million tonnes. Forecast higher production is
expected to come mainly from Western Australia as the recently commissioned
Sandfire Resources’ DeGrussa mine (77 000 tonnes capacity per year) ramps up to
full production.
Copper mine production in Australia for 2013–14 is forecast to increase by 14 per
cent, relative to 2012–13, to total 1.1 million tonnes. Additional production is
forecast to come from various mines across Australia increasing their production
rates. This includes MMG Limited’s Golden Grove mine focussing on copper, Sandfire
Resources’ DeGrussa mine ramp up to full capacity, Ernst Henry underground
expansion ramp up (50 000 tonnes capacity per year) and Newcrest’s Cadia Valley
mine which includes the old Cadia Hill, Cadia East and Ridgeway mines increasing
production.
In the medium term, Australian copper mine production is projected to increase at
an average annual rate of 4.4 per cent to total around 1.2 million tonnes in 2017–18.
Average annual growth out to 2015–16 is projected to average 4.5 per cent to total
1.2 million supported by anticipated production from Pilbara VMS. Production is
projected to decline after 2015–16 due to a change of focus from copper to
magnetite at IMX Resource’s Cairn Hill mine and scheduled scale down of Sandfire
Resources’ DeGrussa mine.
Unlike other major copper producing countries, Australia’s does not currently have
large copper projects (capacity of over 100 000 tonnes per year) under development
that are likely to start-up during the outlook period. BHP Billiton’s Olympic Dam
expansion project was postponed in 2012 to consider more cost effective
development options. The project may still proceed in a different form, but
production from the expansion is not expected to start until after 2018.
Australian production of refined copper in 2012–13 is expected to decrease relative
to 2011–12 by 5.5 per cent, to total to 459 000 tonnes. This decrease is due power
outages disrupting output at Olympic Dam and also at the Port Pirie refinery.
Production at Xstrata’s Townsville refinery has also been lower than expected due to
lower concentrate production at the Ernest Henry mine and lower planned
processing of oxide ores at the Tintaya mine which is approaching the end of its mine
life.
In 2013–14, Australian production of refined copper is forecast to increase by 9 per
cent, to total 500 000 tonnes. This will be supported by Olympic Dam returning to
full production following power outages in 2012–13, and the Townsville refinery
forecast production returning to capacity. Over the outlook period, Australia’s
refined copper production is projected to decrease to 221 000 tonnes in 2017–18 as
a result of the Townsville copper refinery closing at the end of 2016. Higher than
75
expected development costs for Ivanhoe Australia’s Mt Dore SX-EW operation has
delayed the only new planned SX-EW refining capacity in Australia.
Exports
In 2012–13, the volume of Australian copper exports (in metallic content) are
forecast to increase 3 per cent, relative to 2011–12, to total 951 000 tonnes. This
increase will be supported by higher exports of copper ores and concentrates, but
will be partly offset by lower levels of refined exports. Australia’s copper export
earnings are forecast to decrease 3 per cent in 2012–13 to around $8.6 billion.
Forecast lower copper prices received by Australian producers are expected to offset
the projected increase in copper export volumes.
The value of Australia’s copper exports are forecast to rebound 11 per cent in 2013–
14 to total $9.5 billion (in 2012–13 dollars). This will be the result of a forecast 10 per
cent increase in the volume of Australia’s copper exports (by metallic content). Over
the remainder of the outlook period, the volume of Australia’s copper exports is
projected to increase at an annual average rate of 2.3 per cent to total 1.3 million
tonnes in 2017–18. In 2017–18, the value of Australia’s copper exports is projected
to remain broadly consistent with 2013–14, in real terms, with higher export
volumes offsetting lower real prices.
Figure 3:
Australia’s copper exports
Please refer to page 89 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Table 1:
World
Production
– mine
– refined
Consumption
Closing stocks
– weeks
consumption
Price LME
– nominal
– real b
Australia
Mine output
Refined output
Exports
– ores and conc. c
– refined
Nominal value
Copper outlook
unit
2011
2012
2013 f
2014 z
2015 z
2016 z
2017 z
2018 z
kt
kt
kt
kt
16245
19791
19481
985
17019
20424
20549
1078
18053
21571
21396
1252
19011
22355
22279
1328
21259
23674
23273
1729
22859
24082
24340
1471
23701
25316
25452
1335
24386
26044
26631
748
wks
2.6
2.7
3.0
3.1
3.9
3.1
2.7
1.5
US$/t
USc/lb
US$/t
USc/lb
8852
401.5
9126
413.9
7948
360.5
8098
367.3
7788
353.2
7788
353.2
7575
343.6
7498
340.1
7075
320.9
6931
314.4
7225
327.7
6988
317.0
7475
339.1
7131
323.5
7625
345.9
7175
325.5
2010–
11
2011–
12
2012–
13 f
2013–
14 z
2014–
15 z
2015–
16 z
2016–
17 z
2017–
18 z
kt
kt
952
485
926
486
1001
459
1144
500
1186
501
1204
491
1195
311
1197
221
kt
kt
A$m
1750
375
8422
1814
395
8501
2146
372
8562
2383
404
9734
2536
405
9738
2640
396
9434
3273
251
10391
3614
178
11027
76
Real value d
A$m
8863
8748
8562
9460
9197
8659
9269
9558
b In 2013 US dollars. c Quantities refer to gross weight of all ores and concentrates. d In
2012–13 Australian dollars. f BREE forecast. z BREE projection.
Sources: BREE; ABARES; Australian Bureau of Statistics; International Copper Study Group;
World Bureau of Metal Statistics.
77
Nickel
Simon Cowling
Prices
Nickel spot prices averaged US$17 835 a tonne in 2012 (in 2013 dollars), 23 per cent
lower than 2011 (see Figure 1). Lower prices through the year were underpinned by
higher production of refined nickel and rising nickel stocks. Prices peaked in February
at around US$21 393 a tonne before gradually decreasing to around US$14 734 a
tonne in August 2012 and finishing the year at US$17 085 a tonne.
Figure 1:
Quarterly nickel prices
Please refer to page 90 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
The average spot price of nickel is forecast to decrease around 2.3 per cent in 2013
to US$17 586 a tonne. Weak business sentiment is expected to keep nickel prices
low, although the volatility that has characterised nickel prices in recent years may at
times push prices to higher levels for short periods of time. Nickel stocks which are
forecast to increase to 7.8 weeks of consumption in 2013 (see Figure 2).
The nickel spot price is projected to increase over the outlook period (2013 to 2018)
at an average annual rate of 2.5 per cent to around US$20,728 (in 2013 dollars) in
2018. Projected demand growth, underpinned by increased construction activity in
China and India, and rising industry supply costs will support higher prices over the
medium term. Global stocks are projected to decrease marginally over the outlook
period (2013 to 2018) as the increase in nickel consumption outpaces increases in
refined production, supporting slightly higher prices (see Figure 2). New nickel
refineries in Asia, Africa and South America (including full production at Onça Puma)
are scheduled to start up over the outlook period to provide for the growing demand.
Figure 2:
Annual nickel prices and stocks
Please refer to page 91 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Consumption
In 2012, world nickel consumption is estimated to have increased around 3 per cent,
relative to 2011, to total 1.7 million tonnes. Consumption decreases in the European
Union associated with the onset of Government austerity measures were offset by
growth in emerging Asian economies, particularly China and India. Consumption in
China increased 9 per cent (770 000 tonnes in total) and in India increased 24 per
cent (43 000 tonnes in total), supporting a total demand increase in Asia of around 5
per cent to 1.1 million tonnes. Total European Union consumption decreased by 1
per cent relative to 2011, to total 331 000 tonnes in 2012, underpinned by a 5 per
78
cent fall in demand by the European Union’s largest consumer, Germany.
Consumption in the US increased by around 2 per cent to total 136 000 tonnes in
response to higher steel production.
World nickel consumption is forecast to increase to around 1.7 million tonnes in
2013, an increase of 3 per cent relative to 2012. Growth in nickel demand will be
underpinned by growing world steel production, particularly in emerging economies
such as China, with a forecast 5 per cent increase in demand to 810 000 tonnes, and
India, with a forecast 12 per cent increase to 48 000 tonnes. Consumption in Japan is
forecast to increase by around 8 per cent compared to 2012 to total 145 000 tonnes
in 2013. The US is forecast to increase consumption by 2 per cent to total 138 000
tonnes. In the Republic of Korea, consumption is forecast to increase to 83 000
tonnes, an increase of around 3 per cent relative to 2012. However, consumption in
the European Union is forecast to decrease by 3 per cent in 2013, relative to 2012,
and to total 320 000 tonnes.
Over the outlook period (2013 to 2018), world nickel consumption is projected to
increase at an average annual rate of 3 per cent to around 1.9 million tonnes in 2018.
Consumption in emerging economies is projected to continue growing at a faster
rate than developed economies as a result of substantially higher rates of fixed
capital investment and growth in steel production.
Over the outlook period (2013 to 2018), nickel consumption in China is projected to
increase at an average annual rate of around 3 per cent to total around 905 000
tonnes. Projected robust growth in steel consumption to support infrastructure
construction and housing investment will lead to higher consumption of nickel. The
use of nickel pig iron (NPI) is projected to make up a proportion of the nickel
consumed in China. NPI is a ferronickel pig iron produced by smelting low grade
nickel ores (often nickel laterite) as a substitute for conventional refined ferronickel
(25–40 per cent nickel). Estimates of the amount of NPI projected to be used are
uncertain, and will be affected by global nickel supply and price swings.
India’s nickel consumption is projected to increase over the period to support its
projected growth in steel production. Nickel consumption is projected to grow over
the outlook period at an average annual rate of 7 per cent, the fastest demand
growth of any economy, to total 65 000 tonnes by 2018.
Projected growth in the US construction and steel sectors associated with assumed
improvements economic conditions, will support higher nickel consumption in the
US. Over the outlook period, consumption in the US is projected to increase at an
average annual rate of 1 per cent to total 142 000 tonnes in 2018.
Consumption demand in Europe is forecast to increase over the outlook period at an
average annual rate of 2 per cent to total 405 000 tonnes by 2018. The main
contributor to growth in Europe will be Germany where nickel consumption is
projected to increase at an average annual rate of 3 per cent to around 103 000
tonnes. Consumption in the United Kingdom is projected to increase to 26 000
tonnes in 2018, at an average annual rate of around 2 per cent. Ongoing sovereign
79
debt challenges and austerity programs are key downside risks to increased
European consumption.
Mine production
Mined nickel production increased to around 2 million tonnes in 2012, an increase of
5 per cent compared to 2011. Curtailment of production in the European Union due
to increased production costs and depressed demand were offset by increased
production in Indonesia and the Philippines. Indonesia increased production by 13
per cent to total 335 000 tonnes, with the Philippines increasing its output by 11 per
cent to total 305 000 tonnes. In both countries, higher production has supported
increased exports of laterite ore to China.
Production in the European Union decreased around 24 per cent, relative to 2011, to
total 44 000 tonnes with the principal driver reduced production at the Talvivaara
mine in Finland due to natural weather occurrences and then environmental
concerns. Increased production costs and lower prices also led to mine closures and
suspensions in Canada where mine production decreased 7 per cent to total 203 000
in 2012.
In 2013, world nickel production is forecast to increase to around 2.1 million tonnes,
0.6 per cent higher than 2012. A ramp up in production at Skerritt International’s
joint venture Ambotovy mine in Madagascar (60 000 tonnes), restart of full
production at the Talvivaara mine in Finland and start-up of First Quantum’s Kevista
project (10 000 tonnes), also in Finland, are expected to offset forecast lower
production in Australia.
Over the outlook period, world nickel production is projected to increase at an
average annual rate of around 2 per cent to 2.3 million tonnes. New mines in Canada,
and the Philippines, underpin the growth in production. Ramp up at Skerritt
International’s joint venture Ambotovy mine in Madagascar is projected to underpin
the increased production from Africa over the outlook period.
Production in Asia is projected to increase at an average annual rate of 2 per cent
between 2013 and 2018 to total 812 000 tonnes. Increased production in Indonesia
and the Philippines, generated from laterite reserves, are projected to underpin the
increase in production. Supporting higher production in Asia will be PT Vale
Indonesia’s Sulawesi mine expansion in Indonesia (47 000 tonnes), and the CTP
Construction and Mining Corporation’s Adlay Cagdianao Tandawa mine (30 000
tonnes) in the Philippines. A large percentage of the mine production from these
emerging economies is projected to be exported to China for refinement.
Production in Europe is projected to increase at an average annual rate of around 1
per cent in the medium term to total 367 000 tonnes in 2018. Finland will be the
main driver of growth due to the ramp-up of production at the First Quantum
Kevista mine (initial capacity 10 000 tonnes with a view to increase to 15 000 tonnes).
80
Refined production
Production of refined nickel increased to around 1.7 million tonnes in 2012, 9 per
cent higher than 2012 as a result of higher production in Brazil, Colombia, China and
Australia. These increases offset lower refined production in Europe which
decreased by 2 per cent, relative to 2011, to total 516 000 tonnes. Production in
China increased by 19 per cent, relative to 2011, to total 520 000 tonnes. This made
China the largest refined nickel producer in the world with a market share of 30 per
cent.
World refined nickel production is forecast to be more or less unchanged compared
to 2012, and to total 1.7 million tonnes in 2013. A production ramp up at the Skerritt
International’s joint venture Ambatovy (60 000 tonnes) refinery in Madagascar,
increased demand for nickel in China as a production input for stainless steel and
expansion of the Niihama plant in Japan (30 000 tonnes) are forecast to be the main
drivers behind the increase. The on-going shut down of the Vale Onça Puma refinery
in Brazil due to smelter problems, and curtailments in Australian production are
forecast to offset these production increases.
Over the outlook period, refined production is projected to increase at an average
annual rate of 2 per cent to total 1.9 million tonnes in 2018. The restart of the Onça
Puma mine and continued production from the Ambatovy refinery, in addition to
start-up of the second POSCO plant in the Republic of Korea (24 000 tonnes), are
projected to support these higher volumes.
China is projected to remain the largest contributor to global refined production in
the medium term. Its refined nickel production is projected to increase to 555 000
tonnes in 2018 at an average annual rate of around 1 per cent. The start-up of the
Jinchuan Fangchengang smelter and refinery (30 000 tonnes) is assumed to be a
main driver of this growth. Supply of refined production materials for China is
projected to come from laterite deposits in Indonesia and the Philippines. The use of
nickel pig iron within China for stainless steel production is projected to continue
over the outlook period.
Production in South America is projected to increase at an average annual rate of 2
per cent over the outlook period to total 90 000 tonnes in 2018. The increase is
driven by the assumed restart of Vale’s Onça Puma nickel project in Pará, Brazil
following the shutdown of operations in June 2012. Production of nickel is not
projected to restart until the first half of 2014.
Production in Europe is projected to decrease between 2012 and 2018 at an average
annual rate of –0.2 per cent and to total 509 000 tonnes. No new refineries are
projected to start-up over the outlook period due to limited demand growth and
rising production costs. Some production ramp ups at European refineries are
projected over the outlook period, but these will not be enough to offset projected
production curtailments in other European countries.
81
Australia
Production
Mined nickel production in Australia during 2012–13 is estimated to decrease 3 per
cent, relative to 2011–12, to total 229 000 tonnes. The decrease is due to a 30 per
cent reduction in output at Nickel West’s Mt Keith mine and Xstrata Nickel Australia
placing its Cosmos mine on care and maintenance. In 2013–14, mined nickel
production in Australia is forecast to decrease by a further 6 per cent, compared to
2012–13, to total 216 000 tonnes. This decrease is forecast to be underpinned by an
ongoing 30 per cent reduction at Nickel West’s Mt Keith mine.
In the medium term, from 2013–14 to 2017–18, Australian mine production is
projected to increase at an average annual rate of 2 per cent to around 265 000
tonnes. The projected opening of Norlisk’s Honeymoon Well mine later in the
outlook period is projected to offset production decreases within Australia due to
increased production costs and depleted ore bodies. The Honeymoon Well mine is
projected to provide around 24 000 tonnes of nickel ore when opened and operating
at full production.
Refined production
Refined production in Australia during 2012–13 is forecast to increase 2 per cent,
relative to 2011–12, to total 124 000 tonnes. Higher production from Minara
Resources’ Murrin Murrin refinery in Western Australia following technological and
engineering improvements will be the main source of this growth. Output at First
Quantum’s Ravensthorpe mine in Western Australia is forecast to increase in 2012–
13 as a result of a ramp-up in production. Refined nickel production at Nickel West’s
Kwinana refinery is forecast to remain around 2011–12 levels. Production of
intermediate product from Nickel West’s Kalgoorlie smelter is expected to decrease
by around 65 per cent compared to 2011–12, to total 17 000 tonnes. This decrease
will be underpinned by an estimated on-going shift by Nickel West to concentrate
production operations on the higher added value refined nickel.
Over the outlook period (2012–13 to 2017–18), refined nickel production is
projected to remain relatively stable and to total 125 000 tonnes in 2017–18. The
projected increase is a result of increasing efficiencies and no new refineries are
anticipated to start up during the period. Higher energy, labour and operating costs
are a downside risk, and could result in production curtailments across the outlook
period.
Exports
Forecast higher production of refined nickel in 2012–13 is expected to support
higher volumes of Australian nickel exports which are forecast to increase 2 per cent,
relative to 2011–12, to around 246 000 tonnes (see Figure 3). The growth over 2011–
12 is underpinned by increased production in 2012–13 of refined nickel at Minara
Resources’ Murrin Murrin refinery in Western Australia. Export earnings are forecast
82
to decrease 12 per cent to $3.3 billion (2012–13 dollars) due to a lower forecasted
Australian dollar nickel price in 2012–13.
Australian nickel export volumes are projected to increase at an average annual rate
of around 2 per cent to total 276 000 tonnes in 2017–18. The increase will be
supported by the Ravensthorpe project ramping up to full production and the
projected start-up of the Honeymoon Well mine late in the outlook period. The value
of Australian nickel exports is projected to increase at an average annual rate of 2
per cent to $4.7 billion (in 2012–13 dollars) in 2017–18, supported by increased mine
production and a higher real Australian nickel price over the outlook period.
Figure 3:
Australian nickel exports
Please refer to page 96 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Table 1:
World
Production
– mine
– refined
Consumption
Stocks
– weeks
consumption
Price LME
– nominal
– real b
Australia
Production
– mine cs
– refined
– intermediate
Export volume ds
Export value
– nominal s
– real es
Nickel outlook
unit
2011
2012
2013 f
2014 z
2015 z
2016 z
2017 z
2018 z
kt
kt
kt
kt
1932
1613
1607
172
2034
1750
1661
217
2048
1754
1715
256
2110
1782
1784
254
2160
1821
1833
242
2219
1873
1872
243
2273
1907
1903
247
2295
1917
1938
226
5.6
6.8
7.8
7.4
6.9
6.8
6.7
6.1
22854
1037
23560
1069
17505
794
17835
809
17586
798
17586
798
18932
859
18741
850
20282
920
19870
901
20925
949
20240
918
21436
972
20450
928
22028
999
20728
940
2010–
11
2011–
12
2012–
13 f
2013–
14 z
2014–
15 z
2015–
16 z
2016–
17 z
2017–
18 z
kt
kt
kt
195
101
60
236
122
70
229
124
51
216
122
48
233
126
48
238
126
47
251
127
54
265
125
64
kt
210
240
246
238
251
252
263
276
A$m
A$m
4096
4311
4056
4174
3321
3321
3883
3774
4419
4173
4617
4238
4949
4415
5381
4665
US$/t
Usc/lb
US$/t
Usc/lb
b In 2013 US dollars. c Nickel content of domestic mine production. d Includes metal content
of ores and concentrates, intermediate products and nickel metal. e In 2012–13 Australian
dollars. f BREE forecast. s BREE estimate. z BREE projection.
Sources: BREE; ABARES; Australian Bureau of Statistics; International Nickel Study Group;
London Metal Exchange; World Bureau of Metal Statistics.
83
Zinc
Adam Bialowas
Prices and stocks
In 2012, zinc prices decreased by 12 per cent relative to 2011, to average US$1984 a
tonne (in 2013 dollars (see Figure 1). Downward pressure was placed on prices
throughout the year by on-going economic uncertainty in the Eurozone and an
easing of economic growth in China. These factors reduced global zinc demand in
2012, and led to an increase in global stocks. Zinc stocks, already at high levels, rose
to an equivalent of 9 weeks of global consumption at the end of 2012.
Figure 1:
Quarterly zinc prices
Please refer to page 97 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
The price of zinc is forecast to average around US$1983 in 2013, more or less
unchanged from 2012. This result is underpinned by forecast higher consumption in
China and OECD nations as a result of an assumed improvement in economic
conditions. Forecast growth in global refined zinc production in 2013 is expected to
result in stocks increasing to 10.3 weeks of consumption.
Over the remainder of the outlook period, the price of zinc is projected to increase at
an average annual rate of 5 per cent to average US$2588 (in 2013 dollars) in 2018.
The price of zinc is projected to rise in response to an emerging imbalance in the
underlying fundamentals of the zinc market. Global zinc consumption is projected to
increase at an average annual rate of 5 per cent between 2014 and 2018. Over the
same period refined zinc production is projected to grow at an average annual rate
of 3 per cent. At these rates of growth the zinc market is expected approach balance
by 2015 before moving into deficit from 2016. Over the second half of the outlook
period, it is assumed that the global demand for zinc will be met by the drawing
down stocks which are projected to decrease to 4 weeks of consumption, down from
a peak of 11 weeks of consumption in 2014.
Figure 2:
Annual zinc prices and stocks
Please refer to page 98 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Consumption
In 2012, world zinc consumption is estimated to have decreased by 3 per cent
relative to 2011 to total 12.4 million tonnes. This decrease was evenly distributed
between OECD European countries and China. European demand for zinc in 2012
declined 7 per cent, relative to 2011, to total 2.4 million tonnes as on-going
sovereign debt issues and austerity measures limited investment and manufacturing
84
activity that supports zinc consumption. In China, a slowdown in economic growth in
2012 led to zinc consumption decreasing by 3 per cent in 2012, relative to 2011, to
total 5.3 million as a result of lower Chinese production of refined zinc.
World zinc consumption is expected to return to growth in 2013, with demand
forecast to increase by 6 per cent relative to 2012 and to total 13.1 million tonnes.
China is expected to generate much of this growth. Announced spending on
infrastructure projects and higher demand for consumer goods are forecast to
support a 7.5 per cent increase in zinc consumption, relative to 2012, and to total 5.7
million tonnes. At this level of consumption, China alone will account for around 43
per cent of global zinc demand, almost doubling its share of the market relative to
2003 (see Figure 3).
In OECD economies, increased consumption in 2013 is forecast to come from the
Republic of Korea as improving economic conditions in export markets, such as the
US, increase the demand for zinc-intensive exports such as automobiles. In the US, a
recovering economy and an improving housing market are forecast to result in a 2
per cent increase in zinc demand, relative to 2012, to total 918 000 tonnes.
Over the remainder of the outlook period (2014–2018) refined zinc consumption is
projected to increase at an average annual rate of 5 per cent a year to total 16.8
million tonnes in 2018. Increased consumption of refined zinc is expected to be
driven primarily by higher zinc demand in emerging economies. Within these
economies, the building of infrastructure needed to support expansion of the
industrial base requires zinc intensive materials.
Around half of all world zinc consumption occurs through galvanising, an
anticorrosive coating for steel. Galvanised steel is extensively used in structural
applications such as telecommunications and electricity infrastructure, housing,
railways, and bridges. Zinc based alloys are also widely used in the manufacturing
industry for the production of household appliances, electronics, and automobiles.
China’s consumption of refined zinc is projected to increase at an average annual
rate of 8 per cent over the outlook period to total 8.2 million tonnes in 2018.
Underpinning this growth are the central Government’s policy commitments in the
12th Five-Year plan (2011–2015) that include the expansion of its electricity and
telecommunication distribution infrastructure, large scale construction of
accommodation for low-income households in urban and rural areas, and initiatives
to increase rail capacity by up to 30 000 kilometres by 2020.
Figure 3:
Shares of world zinc consumption
Please refer to page 100 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
India’s consumption of refined zinc is projected to increase at an annual average rate
of 6 per cent and to total 880 000 tonnes by 2018. Starting from a low base, this
growth path will have India emerge as the world’s third largest consumer of zinc
85
behind China and the US by 2018. Supporting this growth are expected expansions in
India’s road and rail networks as well as investment to increase and modernise
power generation and transmission infrastructure. Additionally, an emerging middle
class in India will increase demand for other zinc intensive products such as
automobiles and other consumer durables.
Zinc consumption in OECD economies is expected to grow at an annual average rate
of around 3 per cent to total 5.3 million tonnes by 2018. In the US, zinc consumption
is forecast to grow at an average annual rate of 3 per to total 1.1 million tonnes by
2018. This growth will be supported by assumed improved economic conditions that
will increase the purchases of consumer durables as well as a recovery in the housing
market. In the Republic of Korea, demand for zinc is forecast to increase at an
average rate of 4 per cent per year to total 725 000 tonnes by 2018. In general,
however, demand for zinc in OECD nations will increase at a lower rate than for
emerging economies due to the already high existing level of zinc intensive
infrastructure in developed economies.
Mine production
In 2012, world zinc mine production is estimated to have increased by 5 per cent,
relative to 2011, to total 13.6 million tonnes. Much of this growth occurred in China
where its mine production increased 14 per cent in 2012, relative to 2011, to total
4.9 million tonnes. In Canada, new mines commissioned in 2012, such as Hudbay
Minerals’ Lalor mine (35 000 tonnes), Nyrstar’s Langlois mine (35 000 tonnes) and
Trevali Mining’s Halfmile Lake (55 000 tonnes) offset declining production from
existing mines.
In 2013, world zinc mine production is forecast to increase by 3 per cent relative to
2012 to total 14 million tonnes. The largest mines expected to commence operations
in 2013 are Xstrata’s Bracemac-McLeod mine (90 000 tonnes) and Blackthorn
Resources and Glencore’s Perkoa mine (95 000 tonnes) in Burkina Faso. There are a
number of additional mines scheduled to start-up in 2013, although most are
substantially smaller with production capacities of less than 50 000 tonnes per
annum. Production will also be supported by mines which commenced in 2012 as
they ramp up towards full capacity. Partially offsetting this growth will be the closure
of Xstrata’s Brunswick and Perseverance mines in Canada which are both scheduled
to cease operations in early 2013.
Over the remainder of the outlook period world zinc mine production is expected to
increase at an average annual rate of 2.5 per cent to total 15.8 million tonnes by
2018. Higher production will be supported by new operations in a range of countries.
In the Russian Federation, zinc mine production is expected to increase as a result of
the development of East Siberian Metal’s Ozernoye mine (350 000 tonnes). This is
the largest project which is expected to be completed over the outlook period. After
declining in response to the closure of two large mines in 2013, Canada zinc
production is expected to increase with the commissioning of new projects,
including Xstrata’s Hackett River mine (250 000 tonnes), Canadian Zinc’s Prarie Creek
mine (50 000 tonnes) and Chieftain Metals Tulsequah Chief mine (40 000 tonnes). In
86
Australia, new production from MMG’s Dugald River (230 000 tonnes) and Xstrata’s
McArthur River expansion (200 000 tonnes) are expected to offset the closure of
MMG’s Century mine.
Offsetting the increased production from new mines are a number of closures of
large zinc mines. Major zinc mines scheduled to close over the outlook period as
their reserves are economically exhausted include MMG’s Century mine (500 000
tonnes) in Australia, Vedanta Resources’ Lisheen mine (170 000 tonnes) in Ireland
and the Skorpion (170 000) mine in Namibia.
Refined production
In 2012 world refined zinc production is estimated to have fallen by 4 per cent,
relative to 2011, and to total 12.7 million tonnes. Production was lower primarily as
a result of a decrease in Chinese refined zinc production where smelters reduced
production in response to weaker global demand for refined zinc. This is the first
decrease in Chinese refined zinc production in over 20 years.
Refined zinc production is forecast to recover in 2013, increasing by 6 per cent to
total 13.5 million tonnes. This will be supported by an expected increased utilisation
rate in China as well as increased capacity due to the commissioning of new smelters.
While much of the additional smelting capacity has occurred in China in recent years,
in 2013 increased refined zinc production is expected in the US (160 000 tonnes), the
Republic of Korea (180 000 tonnes) and Peru (80 000 tonnes).
Over the outlook period, world refined zinc production is projected to increase at an
average annual rate of 3 per cent to total 15.9 million tonnes. The majority of this
increased production is from new capacity that is expected to come from China
which currently has over ten zinc smelter projects either currently committed or
under consideration. Over the outlook period China’s share of world refined zinc
production will increase from 38 per cent in 2012 to 41 per cent by 2013. Outside of
China, increases in refinery capacity will tend to be the result of expansions to
existing operations rather than from new smelters.
Australia
Australian zinc mine production in 2012–13 is forecast to decrease by 3 per cent
relative to 2011–12 to total 1.5 million tonnes. This decrease can be attributed to
recent zinc mine closures including Bass Metal’s Hellyer mine (25 000 tonnes) and
Kagara’s Mt Garnet (40 000 tonnes) and Thalanga (15 000) mines. Reduced
production from MMG’s Century mine due to a major scheduled maintenance
outage will also contribute to lower domestic zinc production. These decreases are
expected to outweigh production from new mines expected to ramp up production
in 2012–13. These include CBH Resources’ Rasp mine (34 000 tonnes) as well as
Xstrata’s Lady Loretta (126 000 tonnes) and George Fisher mines (64 000 tonnes).
Consequently, Australia’s refined zinc production is forecast to remain virtually
unchanged in 2012–13 at 504 000 tonnes.
87
In 2013–14, Australian zinc mine production is forecast to increase by 10 per cent to
1.7 million tonnes. New production is expected to come from the expansion of
Xstrata’s McArthur River operation (200 000 tonnes) and additional production at
Xstrata’s George Fisher and Lady Loretta mines.
Over the outlook period Australian zinc mine production is projected to peak in
2014–15 at 1.8 million tonnes. This level of production will be supported by new
mines including TriAusMin’s Woodlawn operation (22 000 tonnes), YTC Resources’
Hera mine (10 000 tonnes) and by Xstrata’s McArthur River Phase 3 expansion when
they reach full production levels. Australian zinc mine production is projected to
decrease over the remainder of the outlook period due to MMG’s Century mine (500
000 tonnes) winding down production before ceasing operations in 2016–17. This
decrease will be partially offset by new production by MMG’s Dugald River mine
(200 000 tonnes) which is due to commence production in 2016. By 2017–18
Australian zinc mine production is forecast to be 1.6 million tonnes. Australian
refined zinc production is projected to remain at around 504 000 tonnes as no major
expansion or new refineries are scheduled to commence over the outlook period.
In 2012–13, Australian zinc exports (total metallic content) are forecast to decline by
7 per cent compared with 2011–12, to total 1.5 million tonnes, as the result of
recent mine closures. Over the remainder of the outlook period, export volumes are
projected to peak in 2014–15 at 1.8 million tonnes. By 2017–18 Australian exports of
zinc are projected to total 1.6 million tonnes.
In 2012–13, Australian export earnings from zinc are expected to decrease by around
6 per cent, relative to 2011–12, to total $2.1 billion, as a result of lower domestic
production. In 2017–18, Australian export earnings are projected to total $2.6 billion
(in 2012–13 dollars) with projected substantially higher zinc prices sufficient to offset
the effect of lower export volumes.
Figure 4:
Australia’s zinc exports
Please refer to page 103 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Table 1:
World
Production
– mine
– refined
Consumption
Closing stocks
– weeks
consumption
Price
– nominal
– real b
Zinc outlook
unit
2011
2012
2013 f
2014 z
2015 z
2016 z
2017 z
2018 z
kt
kt
kt
kt
12948
13120
12769
1769
13604
12660
12394
2195
13959
13479
13090
2584
14284
14065
13674
2975
14820
14512
14389
3098
15107
14894
15153
2839
15438
15411
15967
2282
15776
15905
16825
1362
wks
7.2
9.2
10.3
11.3
11.2
9.7
7.4
4.2
US$/t
USc/lb
US$/t
USc/lb
2191
99
2258
102
1947
88
1984
90
1983
90
1983
90
2031
92
2011
91
2156
98
2112
96
2388
108
2309
105
2488
113
2373
108
2750
125
2588
117
88
Mine output
Refined output
Exports
– ore and conc. c
– refined
– total metallic
content
Total value
– nominal
– real d
kt
kt
2010–
11
–11
1479
499
2011–
12
–12
1567
505
2012–
13 f
–13
1522
504
2013–
14 z
–14
1677
504
2014–
15 z
–15
1845
504
2015–
16 z
–16
1769
504
2016–
17 z
–17
1711
504
2017–
18 z
–18
1622
504
kt
kt
2317
410
2382
456
2242
431
2571
437
2929
438
2769
438
2642
436
2453
436
kt
1494
1572
1480
1643
1812
1736
1675
1586
A$m
A$m
2373
2497
2292
2358
2071
2071
2400
2332
2738
2586
2847
2613
2941
2623
2967
2572
b In 2013 US dollars. c Quantities refer to gross weight of all ores and concentrates. d In
2012–13 Australian dollars. f BREE forecast. z BREE projection.
Sources: BREE; ABARES; Australian Bureau of Statistics; International Lead Zinc Study group.
89
Resources
and Energy
Quarterly
Reviews
90
An introduction to thermal coal markets
Ian Cronshaw
International trade in coal is embedded in global energy markets and industrial
demand for products such as steel and cement. Globally, coal use is growing rapidly,
and accounted for nearly half of incremental energy use in the last decade. Coal use
has grown by 4.3 per cent per year since 2000, and provides about 28 per cent of the
global energy supply, second only to oil. Globally, thermal coal use in 2011
accounted for three-quarters of total coal demand.
Thermal coal and power markets are closely linked
By far the most important use of thermal coal is power generation: in 2010, some 83
per cent of thermal coal use in OECD countries was in power production. In the US,
around 90 per cent of coal use is in power production, accounting for just under half
of power output in 2010. In non OECD countries, coal provides a similar proportion
of power output, but is increasing.
A key to understanding thermal coal markets is that coal can be substituted by gas
directly, and indirectly by alternative power sources such as nuclear and renewables.
The short term dynamics of gas and coal competition are especially important
because most other sources of power generation have relatively low variable costs,
and are likely to be dispatched first, such as renewables, nuclear, and some hydroelectric power.
Most coal is used in countries outside the OECD, especially China
The second important factor in understanding global coal use is the importance of
non OECD consumption. While in in terms of oil and gas, non OECD countries
account for roughly half of energy use, for thermal coal the ratio is closer to three
quarters, having grown from about half in the mid-1990s. Paramount in this growth
in coal has been increases in both China and India. In absolute tonnage terms,
Chinese thermal coal use was more than half global thermal coal consumption in
2011, having more than doubled since 2000, while India accounted for 10 per cent,
having doubled since 2000 (see Figure 1). By comparison, the US, the largest OECD
coal consumer, used some 15 per cent of global thermal coal output, its share having
peaked at more than 21 per cent around 2005.
In the US, in the last two years, gas has increased its market share over coal in the
power sector, to the point where for a few months in 2012, gas and coal supplied
about equal amounts of power. By contrast, as recently as 2005, coal had provided
over half US power needs, with gas at around 18 per cent. This is also true in most
OECD countries, where new generation has been dominated by gas over the last 15
years or so, with renewables also growing rapidly. However, the power sectors of

The views expressed in this review are those of the author alone and are not necessarily those of the
Bureau of Resources and Energy Economics, the Department of Resources, Energy and Tourism nor
the International Energy Agency.
91
India, and to a far greater extent China, have been dominated by massive building of
new coal fired plant. Plants built over the last 10–15 years, or under construction,
are likely to total some 800 GW even allowing for decommissioning of older, less
efficient plant. By comparison, Australia’s coal capacity is 30 GW.
Figure 1:
Coal consumption
Please refer to page 107 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Trade is a small part of global thermal coal use
Historically, seaborne and other international coal trade has made a relatively small
contribution to total coal use. Nevertheless, seaborne thermal coal trade more than
doubled between 2000 and 2011, reaching an estimated 791 million tonnes, or
around 14 per cent of world thermal coal use in 2011 (see Figure 2). Three quarters
of global coal trade is in thermal coal. In 2011, the largest thermal coal exporters
were Indonesia (310 million tonnes), Australia (144 million tonnes) and the Russian
Federation (110 million tonnes) (see Figure 3). Of particular interest is the rapid
growth of thermal coal exports from the US; 2012 shipments are estimated at some
50 million tonnes, more than double 2010 levels.
Figure 2:
Seaborne thermal coal trade
Please refer to page 108 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Figure 3:
Thermal coal exporters
Please refer to page 108 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
First Japan, then Korea entered the market as buyers; China and India have
followed
On the import side, Japan has historically dominated both coking and later thermal
coal imports. Japanese imports were the foundation of seaborne thermal coal trade,
especially as its power sector rapidly diversified away from oil following the oil
shocks of the 1970s. Thermal coal imports trebled from 1990 to 128 million tonnes in
2010. Korea has also doubled its thermal coal imports to 97 million tonnes over the
period 2000–2011.
Beginning in early 2009, China has rapidly ramped up its thermal coal imports, to an
estimated net 200 million tonnes in 2012, making it the world’s largest thermal coal
importer. China had been a major exporter as recently as 2003 (see Figure 4). More
than half of its thermal coal imports come from Indonesia. India also rapidly
increased its imports, from 28 million tonnes in 2007 to 86 million tonnes in 2011,
which look set to rise to around 101 million tonnes in the year ending March 2013.
The speed and size of these changes in China and India have been a powerful
92
dynamic in traded coal markets. Coupled with the sheer size of their total demand,
both China and India are central to any analysis of global thermal coal markets. At
current import levels they are respectively number 1 and 3 thermal coal buyers
globally. Nevertheless, imports represent a relatively small part of total coal use,
around 4 per cent and 14 per cent respectively in 2010. Consequently, even quite
small changes in demand or supply, can have a large effect on import levels. As an
illustration, a 1 per cent drop in coal demand in China, if met completely by reduced
imports, would see imports decline by one fifth, or around 40 million tonnes,
equivalent to more than half South Africa’s total exports. Given China’s efforts to
slow its coal demand growth, China is by far the most significant source of
uncertainty in any global coal trade projections.
Figure 4:
China net thermal coal imports
Please refer to page 109 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Climate change policies
A key factor affecting future coal use and trade will be the effects of policies
designed to reduce energy related carbon dioxide emissions. Effective policies aimed
to mitigate anthropogenic greenhouse gas emissions must address energy based
CO2 emissions from fossil fuel combustion, namely oil, gas and coal. In practice, oil
use is increasingly concentrated in the transport sector, where, for the moment,
substitution is difficult. In the case of gas, owing to its generally higher efficiency in
use, plus lower emissions, most energy projections continue to see greater gas use,
based around cheaper unconventional supplies. Stable or growing oil demand, plus
higher gas use, require reductions in coal based emissions to achieve international
emissions targets.
In the absence of technologies that actually reduce CO2 emissions from coal
combustion, notably carbon capture and storage technologies, actual coal use will
need to decline from projected levels, and in some forecasts declining in absolute
terms. Indeed, most models show effective greenhouse gas control from the energy
sector based on a combination of measures, including energy efficiency (especially
targeted at power production and use), plus decarbonisation of the power sector
through zero or low carbon power sources such as hydro, advanced renewables,
nuclear, and greater use of high efficiency combined cycle gas, generally replacing
older less efficient coal fired power plant.
So where is thermal trade headed?
While a number of global energy forecasts exist, including from the US Energy
Information Administration (EIA), and large hydrocarbon companies such as BP, Shell
and Exxon Mobil, those of the International Energy Agency (IEA) are amongst the
most complete and respected globally. The IEA produces two coal forecasts annually,
one covering the short to medium term outlook, extending out five years into the
future, and its longer term outlook, the World Energy Outlook (WEO), to 2035. In the
93
short term, both reports highlight the on-going growth in thermal coal use in all
major markets, with the exception of the US, where cheap gas, currently priced at
around one sixth the price of oil on an energy equivalent basis, is displacing coal in
the power sector in a number of regions. Low US gas prices are also depressing
world coal prices as US net coal exports have risen sharply.
Coal use continues to grow, but not as fast as in the last decade
In the IEA’s most recent medium term forecast (IEA 2012a), global coal use grows by
around one sixth by 2017, driven by non OECD growth, with Chinese demand
expected to grow by 25 per cent over that period, dominated by a near one third
increase in coal demand from the power sector, largely based on increases in coal
fired plant already under construction. This would take total coal use in China to
around 4.6 billion tonnes. Nonetheless, this is a marked slowdown from the average
10 per cent per year growth over the first decade of the century, reflecting a
consensus view amongst forecasters that the Chinese economy will slow somewhat
over the next five years, and become less energy intensive. Energy efficiency and
energy diversification policies, especially in the power sector, (nuclear, renewables
and gas) can be expected to moderate thermal coal demand, the latter group of
policies by around 500 million tonnes compared to a business as usual approach.
Coal demand from the Chinese power sector is expected to grow at only around 5
per cent per annum, as power demand in general slows from the breakneck speed of
63 per cent (around 1800 Twh) observed between 2005 and 2011. Non-power coal
demand in China, which until recently was half of total coal demand (steel, coke, but
also cement and chemicals and even household use) is also likely to moderate, as
more modern energy sources such as gas increase penetration, and cement output
slows. Indian thermal coal demand is projected to grow by some 36 per cent to 2017,
based on rapid expansion of the coal fired fleet and increases in non-power use,
especially cement. Coupled with on-going declines in US coal use, India should
overtake the US to become the second largest coal user globally by 2017.
But coal trade still grows strongly….
The IEA projects that global seaborne coal trade will grow by around one quarter
over 2011–17, with thermal coal accounting for three quarters of this trade
throughout the forecast period. Growth in thermal coal export shipments at 4 per
cent per annum, is a little slower than in the previous decade, when growth was
nearer to 5 per cent. Before 2017, India is expected to overtake China as the biggest
thermal coal importer, as its own mines will not be able to supply its increasing
demand. According to the IEA, thermal coal imports are projected to more than
double, and India accounts for more than half of incremental steam coal trade. India,
China, Southeast Asia (Malaysia, Thailand, Philippines) and Chinese Taipei account
for almost all the net growth in thermal coal import demand. In absolute terms,
Indonesia and Australia each meet about one third of incremental thermal coal
demand. Colombia will see a 30 per cent increase in thermal coal exports, with the
US playing an increasing role as a thermal coal exporter. Depending on the evolution
94
of freight rates, both Colombia and the US may become more prominent in Pacific
markets.
…but is very sensitive to Chinese developments
The IEA evaluates the impact of Chinese coal demand on world markets by analysing
a second scenario, based on slower Chinese economic growth of around 5 per cent
per annum, compared to current levels nearer 8 per cent, and its current targeted
levels of 7.5 per cent. Unsurprisingly, given China’s heavy reliance on coal and coal
based power, this has a marked impact on coal use and import levels. Chinese coal
demand growth is halved, with the power sector taking a major part of reduced
demand, so that imports would fall to only around one-third of current levels. Global
thermal coal trade growth is expected to be some 30 per cent lower over the period
to 2017 compared with the base case, highlighting the sensitivity of global coal
markets to the evolution of China’s energy sector. In general, low cost producers
close to Asia (Indonesia and Australia) can expect to maintain strong shares of
thermal coal export markets, while higher production and shipping cost suppliers will
see their exports reduced.
Longer term is much more uncertain
The IEA produces annually longer term global energy projections in its World Energy
Outlook (WEO) (IEA 2012b). The IEA bases its projections around three levels of
Government policy intervention. The Current Policies Scenario (CPS) assumes no
implementation of policies beyond those adopted by mid-2012. It corresponds
loosely to the Reference Case of the EIA and the Business as Usual case adopted by
private sector forecasters (eg BP and Shell). The IEA’s second and central policy case,
the New Policies Scenario (NPS), takes into account existing policy commitments and
announcements, cautiously implemented, in particular a more widespread carbon
price after 2020. The third scenario, the 450 scenario, assumes policy action
designed to limit global temperature increases to 2 degrees C, based on ultimate
stabilisation of greenhouse gases in the atmosphere at 450 ppm CO2 equivalent.
In all scenarios, world energy demand grows over the forecast period, 2010–35, for
CPS, NPS and 450 scenarios respectively, by 47 per cent, 35 per cent, and 16 per cent,
with a generally increasing trend, although with obviously different growth rates.
The corresponding growth rates for coal are respectively 59 per cent, 21 per cent,
and for 450, a decline of 33 per cent from 2010 levels, back to levels last seen
globally in the early 1990s.
The trajectories of coal demand growth differ markedly across the three scenarios.
All cases show a roughly 15 per cent growth from 2010 to 2015–16, due to the
inertia of existing and under construction power generation infrastructure.
Thereafter, the three scenarios diverge. CPS, with the fastest coal demand growth,
shows a moderation from 2000–10 growth rates after 2015, in keeping with the
anticipated slowing of Chinese coal demand growth, so that compound annual
average growth rate is less than half that observed over the last 11 years. In NPS,
annual global coal demand growth averages only 0.9 per cent, with almost all growth
95
concentrated in the period up to 2015. In the 450 scenario, coal use begins to
decline soon after 2015, so that by 2035, coal use is below half that projected in CPS,
a difference almost equal to total 2010 global coal use. In all three scenarios China,
India and the US account for more than two thirds of global coal use, making policies
in these countries pivotal in understanding coal markets and pricing, and coal based
emissions.
Unsurprisingly, the impact on global coal trade in each of the three scenarios differs
markedly. Thermal coal trade over the decade to 2020 is projected to grow by 65 per
cent, 44 per cent, and 10 per cent in the CPS, NPS, and 450 scenarios respectively.
For thermal coal trade post 2020, the differences become much greater. Australia, in
the NPS, is projected to retain its dominance of non-thermal coal markets, although
market share may fall somewhat from 2010 levels of 60per cent, even as tonnage
actually increases. For thermal coal, tonnages to 2020 can be expected to rise by
around 75 per cent, and Australia is anticipated to grow its share of global thermal
coal markets from the current 20 per cent to nearer 30 per cent over the forecast
period.
Conclusion
Coal use has grown rapidly since 2000, at a rate of 4.3 per cent per annum. The
astonishing growth in the Chinese economy, the world’s largest energy user, and by
far the biggest coal user, equal to half global coal demand, has been the major factor
in this rise. Seaborne thermal coal trade has grown even faster than global coal use,
more than doubling between 2000 and 2011, with only some signs of slowing in
2012.
Despite this recent growth in coal use, there is considerable uncertainty about future
coal use and trade. These uncertainties include the possibility of a more marked
slowing and also maturing in the Chinese economy. Equally important are climate
change policies. If climate change mitigation policies are strongly implemented in
line with the pledges made by developed and developing countries alike, this will
have a larger and more negative impact on coal than on other fossil fuels, in the
absence of carbon capture and storage type technologies.
References
International Energy Agency (IEA) 2012a. Coal Medium Term Market Report 2012
International Energy Agency (IEA) 2012b. World Energy Outlook 2012
96
Nickel: a short history
Simon Cowling
Nickel, through its various uses, plays a large part in the development of capital
infrastructure in economies worldwide. Due to its resistance to corrosion, nickel is
primarily used in the production of stainless steel and alloys which are an integral
ingredient for many infrastructure projects. To a lesser extent, nickel is also used in
the production of nickel-metal hydride rechargeable batteries and electroplating
other metals, such as steel for uses in construction and automotive purposes.
Australia is one of the largest nickel suppliers to the world market. The
establishment of Australia’s nickel industry, however, has not been straight-forward
and the industry has faced numerous challenges. The nickel market is characterised
by extreme volatility evidenced by large and rapid swings in demand, production and,
ultimately, prices. This review provides an overview of how key events in nickel
markets since the 1960s have affected the development of Australia’s nickel industry.
The early days—pre-1965
The Australian nickel industry first emerged at the start of the 20th century with
mining starting at the Zeehan field in western Tasmania in 1910. This followed the
development of technologies that employed nickel as an alloying agent in steel
towards the end of the 19th century (Mudd 2010) Between 1910 and 1938,
approximately 568 tonnes of Nickel was intermittently produced from nickel copper
sulphide ore extracted from the Five Mile group of mines in Tasmania (Mudd 2007).
The small and scattered nature of the deposits made the mining and extraction of
nickel challenging at Zeehan. Production at Zeehan field eventually became
uneconomic and although world demand for steel alloys and nickel continued to
grow, nickel operations ceased in 1938 (Mudd 2007).
World consumption grew by more than 130 per cent between 1953 and 1965 as the
result of the increased use of steel in western economies (see Figure 1). As a result,
the price of nickel trended upwards from the late 1940s to the mid 1970s (see Figure
2).
Figure 1:
World refined consumption—1950 to 2012
Please refer to page 115 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Figure 2:
Nickel price and major nickel events—1950 to 1990
Please refer to page 115 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.

The views expressed in this review are those of the author alone and are not necessarily those of the
Bureau of Resources and Energy Economics nor the Department of Resources, Energy and Tourism.
97
Boom time—1966 to mid-1970s
Demand for nickel during the 1960s and early-1970s was driven by the steel
consumption demand associated with robust economic growth and investment in
fixed capital in Japan, Europe and the US. For example, Japan’s Gross Domestic
Product grew by around 10 per cent each year during the 1960s. Consumption of
steel in the US was also driven by the manufacturing of steel-intensive military
equipment used in the Vietnam War.
Increased global demand for nickel supported Australia’s nickel industry which
established itself after a number of years of exploration. The first major event of this
period was the discovery by the Western Mining Company (WMC) of a substantial
nickel sulphide ore deposit at Kambalda, near Kalgoorlie in Western Australia in 1966.
The discovery signalled the start of a period of rapid growth in Australia’s nickel
industry that coincided with a rapid increase in the price of nickel (see Figure 2).
Between 1967 and 1973 Australian nickel production increased more than 1 400 per
cent, from 2 600 tonnes in 1967 to over 40 000 tonnes in 1973. Although global
production also increased over this period, strong growth in demand and rising
production costs caused the price to rise (in 2013 dollars) from US$13 500 at the end
of 1966 to a peak of US$17 600 in 1974.
Figure 3:
Australia’s refined and mine production—1967 to 2012
Please refer to page 116 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
The discovery at Kambalda by WMC initiated a ‘rush’ in base metal and nickel
exploration in Australia, primarily focussed within Western Australia. Expenditure on
nickel exploration prior to the Kambalda discovery was 2 per cent of total base
metals exploration expenditure, or 1.5 per cent of total minerals exploration. This
increased to more than 55 per cent of total base metals exploration and over 30 per
cent of total expenditure on minerals exploration in 1970 (Jacques et al. 2005). This
equates to approximately $485 million worth of exploration expenditure in 2013
dollars (Jacques et al. 2005).
A number of large deposits in Australia that would contribute to nickel production in
the coming decades were discovered during this first nickel boom. Of the known
global resources of nickel sulphide, more than 90 per cent were discovered during
the period of 1966 to 1973 (Hoatson et al. 2006). Significant deposits in Australia
that were discovered during this period included: Mt Keith; Perseverance;
Yakabindie; and Honeymoon Well. All of these deposits are located in Western
Australia.
In 1966, Canada was one of the major producers of nickel in the world. The rapid
development of the nickel industry in Australia during the ‘boom’ of the 1960s
coincided with protracted labour strikes in Canada between 1966 and 1969. Due to
the labour strikes, WMC was able to establish itself in the global nickel market with
the Kambalda mine and ensure it became a successful and profitable operation
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(Mudd 2007). Profits were boosted by an increase in nickel prices and over this
period Australian production of nickel ore increased by 400 per cent, to total 11 200
tonnes in 1969 (see Figure 3). World mine production during this period grew by 23
per cent (see Figure 4).
The rocky years—mid-1970s to early 1990s
Following the first oil shock in 1973 there was a global slowdown in the nickel
market that lasted for about two decades covering the period 1975 to 1987. During
this time depressed global prices, for nearly all metals, led to a substantial decline in
exploration activity. The higher levels of world economic growth during the 1960s
had, for the most part, come to an end. Economic growth and investment in the US,
Japan, Europe and Australia all slowed during the 1970s. The end of the Vietnam
War also led to a downturn in steel used in manufacturing military materiel and
contributed to a drop in the demand for nickel.
Between 1975 and 1987, Australia produced between 75 000 to 85 000 tonnes of
contained nickel per year. In 1987, global stocks of nickel fell to 92 000 tonnes (5.3
weeks consumption), less than half the level of world stocks of 202 000 tonnes at the
end of 1982 (14.5 weeks consumption) (see Figure 5). A reduction in nickel
production capacity, caused by closures of high energy consuming operations started
in the early 1970s (Ashok et al. 2004). Prices increased from US$9900 per tonne
(2013 dollars) in 1987 to US$27 800 per tonne in 1988. As a result, the value of
Australian nickel exports over the five years starting in 1988 increased despite a
decline in the production of Australian nickel.
Figure 4:
World refined and mine production—1950 to 2012
Please refer to page 118 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Figure 5:
World nickel stocks—1975 to 2012
Please refer to page 118 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
An abrupt decline in the discovery of new nickel deposits during the ‘rocky years’
affected the available global nickel supply. Very few major deposits were discovered
in Australia between 1975 and 1987, although previously identified resources within
Australia were able to sustain Australian production during this period. Technological
advancements in processing nickel laterite ore, such as high pressure acid leaching
(HPAL) and electric furnaces, were able to contribute to an increase in production
capacity. These advances made the complex process of production of nickel from
laterite ore more economically viable. The processing of nickel laterites has
historically been more expensive compared to nickel sulphides, although mining
nickel sulphide ores can be more capital intensive due to deposit depths. Australia’s
nickel focus has predominantly been on the production and export of nickel derived
from nickel sulphides due to the greater abundance of nickel sulphide resources.
99
These technological advancements meant that some previously discovered, but
uneconomic, resources could be extracted profitably.
Bigger, higher, longer—early 1990s to 2008
Beginning in the early 1990s the nickel industry in Australia underwent an expansion
that could be characterised as the ‘second’ nickel boom. This was driven by a
number of global factors. The emergence of China as an economic superpower in the
1990s and 2000s coincided with a surge in fixed asset investment on steel-intensive
infrastructure projects and resulted in higher demand for nickel. Refined nickel
consumption in China grew by more than 900 per cent between 1990 and 2008. This
increase in consumption encouraged investment and the opening of new mines,
both in Australia and globally.
World nickel prices began to rise steadily from the late 1990s and continued into the
2000s (see Figure 6), with global production reaching more than 1.5 million tonnes
by the end of 2006. As a consequence of both higher prices and production,
Australian nickel export values peaked in 2007 at a value of $8.1 billion (2013 dollars),
with 211 000 tonnes exported (see Figure 7).
Figure 6:
Nickel prices and major Nickel events—1991 to 2012
Please refer to page 120 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Figure 7:
Australia’s export volumes and values—1990 to 2012
Please refer to page 120 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
The second nickel boom, in part, was supported by further development of high
pressure acid leaching (HPAL) technology in the early 1990s. High pressure acid
leaching is associated with lower grade nickel laterite ores that were historically
more difficult and expensive to process. The outcome of this leaching process is an
intermediate product for further refining which is rich in nickel. During the first
nickel boom, initial nickel ore discoveries were of a high grade and contained
approximately 4 per cent nickel (Mudd 2007). Ore grades have been gradually, but
steadily, in decline since this time. One of the drivers influencing this decline is the
increasing extraction of nickel from lateritic ores. In the late 1990s, three new
laterite projects were developed in Western Australia based on HPAL technology.
Base metal exploration expenditure also increased during the second nickel boom to
levels comparable to the first nickel boom of the late 1960s. For instance,
exploration expenditure in Australia increased 400 per cent from FY1992 to FY2008
(in 2013 dollars). This was driven by increased global prices for nickel and the
expectation of strong consumption demand continuing into the future.
Large amounts of capital were injected into nickel mine developments in Australia.
One of the largest of these was at Nickel West’s Ravensthorpe mine in Western
100
Australia. This investment included a nickel and cobalt processing plant worth more
than US$1.3 billion in 2013 dollars.
A number of mines started or increased production following the upswing in prices
in the 2000s. The mines, all located in Western Australia, included Murrin Murrin, Mt
Keith, Silver Swan, Cosmos, Emily Ann, and the re-opening of Kambalda. The
conversion of previously sub-economic resources to economic resources was a direct
result of the upturn in the Australian nickel market. In addition, the on-going
development of HPAL technology was a contributing factor as it made previously
discovered, but uneconomic deposits, such as Murrin Murrin, economically viable.
World nickel price and production reached an historical high in 2007 and peaked at
US$61 300 per tonne in 2013 dollars on 16 May 2007. World nickel production in
that year also reached, a then record high, of 1.6 million tonnes.
The peak of the boom in 2007 was largely driven by demand growth underpinned by
robust economic growth in China, and moderate growth in the US and Europe.
Emerging economies, especially China, experienced substantial increases in
economic growth that increased the need for infrastructure and stainless steel.
Another key factor explaining the historically high prices of 2007 was the existence
of supply constraints. In particular, world stocks were below 150 000 tonnes from
1999 through to 2008. In response to these higher prices and reduced stocks, China
responded by increasing its use of ‘nickel pig iron’.
Nickel pig iron (NPI) I is a form of pig iron that is produced by smelting iron-rich, low
grade nickel ores, often from nickel laterite. NPI is commonly produced in two
varieties, a low nickel variety with between 4–6 per cent nickel and a high nickel
variety containing 8–13 per cent nickel. This compares to conventionally produced
ferronickel which is between 25–40 per cent nickel. The use of laterite ore provides a
cheaper alternative to using the more expensive ferronickel and refined nickel inputs.
The rise of the NPI industry in China has allowed some exporting countries to sell
nickel ore without the need to build capital intensive refining facilities and has
boosted exports from Indonesia, the Philippines and New Caledonia.
The increase in the use of NPI has had a substantial impact on the Australian nickel
industry. With the emergence of NPI as a substitute for ferronickel and refined nickel
in stainless steel making in China, demand for Australian refined nickel reduced.
Peak nickel—2008 and 2009
The price and production prices of early 2000s were driven by a relative shortage of
global nickel supply. By 2007 global mine production peaked at 1.6 million tonnes
and the nickel price peaked at around $62 000 per tonne (2013 US dollars) in May of
that year.
As a result of the global financial crisis (GFC), economic growth declined was and
became negative in key industrialised countries. Demand for stainless steel and
nickel fell and resulted in nickel prices decreasing by more than 40 per cent from
101
2007 to 2008, with a further decline of over 30 per cent from 2008 to 2009.
Numerous mine closures occurred, such as Cawse and Black Swan within Australia,
as a direct result of the fall in nickel prices. In 2009, Nickel West announced that
production at the Ravensthorpe mine would be suspended indefinitely and the site
would be placed on care and maintenance. Similarly, Norlisk suspended operations
at its four mines in 2009 due to very low nickel prices. In 2011, Norlisk restarted
production at the Maggie Hays mine near Lake Johnson in Western Australia.
Nickel, back to stay?—Post 2009
The price trough for nickel continued through most of 2009, with prices averaging
around $16 000 a tonne for the year, in 2013 US dollars (see Figure 5). The price falls
led to the total value of Australia’s nickel exports falling by 6.5 per cent in 2009
compared with 2008 (see Figure 7), despite increased export volumes. At the start of
2010, global stocks of nickel were at a 10-year high of 234 000 tonnes, or around 10
weeks of consumption.
Since 2009 the nickel market has experienced a steady increase in prices and world
refined nickel consumption grew 19 per cent and 8 per cent in 2010 and 2011,
respectively. The effects of the euro zone crisis in 2012 reversed the steady increases
in prices since late 2009. In 2012, refined nickel consumption increased by 3 per cent,
although the average price was 26 per cent lower than in 2011 at $17,200 (2013
dollars). Both global and Australian nickel production increased in 2012, with nickel
sulphide ores accounting for around 40 per cent of known nickel resources
worldwide, with laterite ores accounting for the remaining 60 per cent (USGS, 2013).
Projected growth in emerging economies should support higher world consumption
of nickel. However, fluctuating demand and price volatility are likely to continue
characterising the nickel market in the future.
References
Dalvi, A. D., Bacon, W. G., & Osborne, R. C. (2004). The Past and Future of Nickel
Laterites. PDAC 2004 International Convention (p. 27). Toronto, Ontario, Canada:
Prospectors and Developers Association of Canada.
Hoatson, D. M., Jaireth, S., & Jaques, A. L. (2006). Nickel sulfide deposits in Australia:
characteristics, resources, and potential. Ore Geology Reviews, 29, 177-241.
Mudd, G. M. (2007). An analysis of historic production trends in Australian base
metal mining. Ore Geology Reviews, 32, 227-261.
Mudd, G. M. (2010). Global trends and environmental issues in nickel mining:
Sulfides versus laterites. Ore Geology Reviews, 38, 9-26.
U.S. Geological Survey. (2013). Mineral Commodity Summaries, January 2013. U.S.
Geological Survey.
102
Biofuels: An overview
Alan Bartmanovich
Background
Biofuels are liquid fuels, such as ethanol, that are derived from biomass. In 1826,
Samuel Morey used ethanol in the first American internal combustion engine
prototype. In 1896, Henry Ford designed his first car, the ‘Quadricycle’ to run on
pure ethanol. In 1908, the ‘revolutionary’ Model T Ford was capable of running on
ethanol, gasoline or any combination of those fuels. Rudolf Diesel, who designed the
original diesel engine, had it run on peanut oil and was quoted as saying at the time;
‘The diesel engine would help considerably in the development of agriculture of the
countries which use it’ (Kovarik). Due to the low cost of petroleum at the time,
however, the diesel engine was modified to run on petroleum derived fuel.
Power ethanol was used in Australia from 1927 until after the end of World War 2.
The Australian National Power Alcohol Company, built in Sarina, Queensland, started
with a capacity of two million gallons per year and produced ethanol from molasses,
along with cassava (manioc) and sweet potatoes grown in rotation with sugarcane.
The use of power alcohol was mostly confined to Queensland, but the Motor Spirits
Vendors Act of 1933, mandated that ethanol be blended with petrol. Shell Oil Co.
marketed ‘Shellkol’ fuel which was a 15-35 per cent blend in petrol during this time
(Kovarik).
Australian overview
Australia has developed a growing reliance on petroleum fuels that are increasingly
imported, either as crude oil for local refining or as finished fuel products.
In terms of biofuels, Australia has a number of natural advantages for increased
biofuel production including: substantial agricultural and forestry biomass resources;
marginal land suitable for energy crops; a high number of sunshine days; and a
relatively well developed rural infrastructure that could support new industries. The
availability of adequate water resources to support biomass crops, however, is a
limiting factor in some geographic areas.
The potential benefits to Australia from growing biofuel production include
increased domestic supply security for fuels, enhanced regional development
opportunities and the potential for the reduction of Australia’s carbon footprint with
the direct reduction of fossil fuel consumption.
Commercial production of Australian biofuels in 2012 was limited to fuel ethanol
fermented from wheat, sorghum and c-grade molasses and biodiesel from processed
waste materials such as used cooking oil and tallow. Fuel ethanol is supplied as a 10
per cent ethanol blend in petrol (E10), with some limited volumes of E85 (i.e. blend

The views expressed in this review are those of the author alone and are not necessarily those of the
Bureau of Resources and Energy Economics nor the Department of Resources, Energy and Tourism.
103
of 85 per cent ethanol by volume in petrol), while biodiesel is sold as a maximum 5
per cent blend in diesel fuel (i.e. B5).
Overseas developments
Brazil
Brazil is a pioneer in the commercial production of biofuels. Fuel ethanol, for
example, has been mandated for inclusion in Brazilian motor gasoline at the rate of 5
per cent by volume as far back as 1931. After the oil price shocks of the 1970s, Brazil
launched its National Alcohol Program which focussed on increasing the production
of ethanol from sugar cane.
Fuel ethanol is now a major component of the Brazilian liquid fuel mix, with 440
ethanol production facilities in operation. All motor gasoline sold in the country since
1993 has been blended with 18–25 per cent ethanol. In 2011, Brazilian consumption
of fuel ethanol was over 19 billion litres which accounted for some 35 per cent of the
total national gasoline demand of 55 billion litres (Giles & Barros, 2012).
Car manufacturers in Brazil have developed flexible fuel (flex-fuel) capability for
vehicles to accept any blend of ethanol and gasoline up to 100 per cent ethanol,
which is sold as a fuel option in most retail petrol stations. In 2011, over half of the
Brazilian light vehicle fleet was flex-fuel capable and this is expected to grow to 80
per cent by 2019 (Giles & Barros, 2012), with 90 per cent of Brazil’s new passenger
vehicles sold having flex-fuel capability.
Brazil has also developed commercial production of biodiesel, over 80 per cent of
which is based on soybeans (Aziz Elbehri; Anna Segerstedt; Pascal Liu, 2013).
Brazilian biodiesel production in 2012 was 2.6 billion litres and accounted for about 5
per cent of the total national diesel fuel demand.
Figure 1:
Biofuels 2011 market shares in selected countries
Please refer to page 125 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Figure 1 shows that Brazil is the world leader in terms of the adoption of biofuels as
a substitute for conventional petroleum based fuels. By comparison to both Brazil
and the USA, Australia has an underdeveloped biofuels industry.
The US
The US Environmental Protection Agency (EPA) is responsible for developing and
implementing regulations to ensure that transportation fuels sold in the US contains
a minimum volume of renewable fuel. The Energy Policy Act (EPAct) of 2005
established the Renewable Fuel Standard (RFS) program and required that 7.5 billion
gallons (28 billion litres) of renewable fuel be blended into gasoline by 2012. In 2007
the Energy Independence and Security Act (EISA) further expanded the RFS program
to:
104

include diesel fuel, in addition to gasoline;

increase the volume of renewable fuel required to be blended into
transportation fuel from 9 billion gallons (34 billion litres) in 2008 to 36 billion
gallons (136 billion litres) by 2022;

establish new categories of renewable fuel, and set separate volume
requirements for each one;

require the EPA to apply lifecycle greenhouse gas performance threshold
standards to ensure that each category of renewable fuel emits fewer
greenhouse gases than the petroleum fuel it replaces.
In 2010, 98 per cent of the biofuel consumption of 48 billion litres in the USA was
bioethanol (EIA, 2013), with corn derived ethanol comprising the vast majority. This
will change over time, however, because the RFS requires that a growing proportion
of renewable fuels will need to be advanced biofuel feedstock and technologies
Most US cars are able to run on a 10 per cent ethanol blend in motor gasoline (E10)
and in 2011 there were up to 10 million flex-fuel vehicles in America (Motavalli,
2012) capable of running on much higher ethanol blended fuels such as E85.
The EU
Under Directive 2003/30/EC on the promotion of the use of biofuels or other
renewable fuels for transport, the EU established the goal of reaching a 5.75 per cent
share of renewable energy in the transport sector by 2010.
Under Directive 2009/28/EC on the promotion of the use of energy from renewable
sources this share rises to a minimum 10 per cent in every Member State in 2020.
This directive aims to ensure the use of sustainable biofuels only, which generates a
clear and net GHG saving without a negative impact on biodiversity and land use
(European Commission).
In its biofuels implementation strategy, the European Commission has a threefold
objective: (1) further promotion of biofuels in the EU and in developing countries; (2)
preparedness for large-scale use of biofuels, and (3) heightened cooperation with
developing countries in the sustainable production of biofuels. These three
objectives comprise seven policy areas, as follows:

to stimulate demand for biofuels, stressing the importance of national targets,
biofuel use obligations and ensuring sustainable production of biofuels. The
European Commission will also pay particular attention to the tax benefits and
the possible establishment of a regulatory framework for incentives linked to the
environmental performance of individual fuels, will encourage the use of biofuels
in public and private vehicle fleets and is proposing to formally promote the use
of clean vehicles for road transport.

ensuring environmental benefits in terms of reducing emissions of greenhouse
gases, guarantee that feedstock for biofuels is produced in a sustainable manner,
both in the EU and in third countries, particularly with regard to the protection of
105
biodiversity, water pollution, soil degradation and the protection of habitats and
species and ensure the compatibility of technical and environmental regulations.

developing the production and distribution of biofuels, considering the
opportunities offered by biofuels in terms of economic activity and job creation
within the context of the cohesion policy and rural development policy.
Industries are to justify their use of practices that act as barriers to the
introduction of biofuels to ensure that there is no discrimination against biofuels.

expand feedstock supplies to ensure sustainable production of biofuels, by
including sugar production for the manufacture of bioethanol aid schemes. In
addition, the European Commission will study the possibility of processing
cereals from existing stocks into biofuels, finance a campaign to inform farmers
and forest operators, bring forward a Forestry Action Plan and examine the
possibility of using animal by-products and waste as energy sources.

enhance the trade opportunities of biofuels, by establishing separate customs
codes for biofuels and pursuing a balanced approach to trade negotiations with
ethanol-producing countries in order to ensure sustainable development of
European production and imports of biofuels, and to amend the standard for
biodiesel as required.

support developing countries with potential in terms of biofuels, particularly by
means of accompanying measures for countries affected by EU sugar reform, a
specific aid program for biofuels, and a framework for effective cooperation that
would include, among other developments, the establishment of national biofuel
platforms and regional biofuel action plans.

support research and innovation, particularly in order to improve production
processes and to lower costs. The principal measures will focus on continuing
support for Research and Development, the full use of second generation
biomass and biofuels (i.e. originating from the processing of lignocellulosic
feedstock such as straw and forest residues).
Source: Europa.
Biofuels issues, technologies and feedstocks
The Food versus Fuel debate
The increased production of biofuels has been recognised as carrying some risk to
world food supply security if the feedstocks that are used to produce it are diverted
from food supplies or if they are grown on land, or utilise labour or water (Aziz
Elbehri; Anna Segerstedt; Pascal Liu, 2013) that could otherwise be used for food
production.
Traditional feedstock for fuel ethanol in Brazil, for example, is sugar. Producers are
able to readily switch between sugar production and ethanol, depending on market
economics. In the USA, however, a majority of fuel ethanol is produced from corn.
106
Increasingly, the focus is on developing second and next generation technologies to
produce advanced biofuels that do not rely on food related feedstock, and can be
grown on otherwise marginal land and not adversely impact the supply of potable
water where it is a scarce resource.
Biofuels feedstocks
Biofuels technologies that rely on food related biomass such as sugar, corn, wheat or
other edible crops have traditionally been referred to as first generation
technologies.
Traditional biodiesel feedstocks that include used cooking oil and animal derived
tallow are considered to be conventional feedstocks even though their use in
producing biofuels has minimal or no direct impact on food resources as they are
essentially industrial by-products.
Advanced biofuels are those that do not compete with food stocks for their
production and these include lignocellulosic short rotation crops, agricultural or
forestry residues, non-edible seed oils, purpose grown algae and municipal waste
materials.
Biofuel technologies do not always produce fuel-ready products, but often produce
an intermediate product that is best described as ‘biocrude oil’, which is analogous
to petroleum crude oil. In some cases, this biocrude can be a ‘drop-in’ replacement
for petroleum crude and, therefore, is suitable for direct injection into traditional
petroleum reefing processes. Some biocrudes, however, may need to be preprocessed to make them suitable as crude oil replacements, thus adding to their cost
of production.
A number of biocrude oils may actually be more valuable than their petroleum
counterparts in the sense that they could yield higher value products such as
valuable by-products or, depending on their physical composition, they could
potentially produce higher yields of valuable transport fuels than petroleum.
Some promising biofuel technologies that are especially relevant to Australian
conditions include:

Super critical catalysed water processing – for production of high energy drop-in
biocrude;

Pyrolysis—for processing of forestry and agriculture residues;

Efficient yeast based conversion of lignocellulosic materials to ethanol, with
animal and/or fish feed by-products;

Bio-fermentation for conversion of waste industrial gases; and

Biocrude conversion processes to fuels through purpose built bio-refineries
Australian second generation biofuels research and development
107
In 2009, the Australian Government announced the Second Generation Research
and Development (Gen 2) Program which provided financial support of $15 million
for seven individual projects ranging from $1.24 to $2.724 million each to develop a
number of potential second generation biofuel technologies.
The projects selected for Gen 2 program funding were:

Algal Fuels Consortium / South Australian Research and Development
Corporation
o

Bureau of Sugar Research Stations (BSES) Limited
o

Second Generation Biorefinery – Conversion of sugarcane into fuel and feed
project
Monash University / Renewable Oil Corporation
o

Commercial demonstration of lignocellulosics to (unique) stable biocrude oil
Microbiogen Pty Ltd
o

Sustainable production of high-quality second generation transport fuels
from mallee biomass by pyrolysis and biorefinery.
Licella Pty Ltd
o

Cane2Fuel: Developing an optimised and sustainable sugarcane biomass
input system for the production of second generation biofuels.
Curtin University of Technology
o

A pilot-scale second-generation biorefinery for sustainable microalgal
biofuels and value add products.
A second generation pyrolysis biorefinery
University of Melbourne
o
Biofuel from Microalgae: Efficient separation, processing and utilisation of
algal biomass.
Five of the seven Gen 2 projects proceeded to successful completion by mid-2012,
significantly increasing the Australian knowledge base in this industry and providing
important foundations for future work and in some cases, pre-commercial project
developments.
Australian advanced biofuels research projects
In the 2011–12 Budget, the Australian Government committed $20 million to
undertake research into advanced biofuels in Australia. The stated goal is to progress
the deployment of pre-commercial demonstration projects for the production of
high energy, ‘drop-in’ advanced biofuels in Australia. Three projects have been
funded to date, including:
James Cook University received a $5 million Foundation Grant for its $11 million High
Energy Algal Fuels project, which is being undertaken in partnership the Advanced
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Manufacturing CRC Ltd (AMCRC) and MBD Energy Ltd. The project is expected to
develop and demonstrate the innovative and effective use of macroalgal biomass for
the generation of high energy biocrude that can form a future base for the
production of fuels for use in the aviation, mining and marine industries.
Licella Pty Ltd, which opened its Australian Government supported Commercial
Demonstration Plant in 2011 under the Gen 2 Program, was granted $5.4 million in
funding to undertake a $8.2 million feasibility study into the construction of its first
pre-commercial biofuels plant. If constructed, it is estimated that the plant could
produce 125,000 barrels of bio-crude oil per annum, which could be used to produce
a drop in fuel for the aviation industry.
Muradel Pty Ltd plans to use $4.4 million of funding toward a $10.7 million project
up scaling its marine algal production and harvesting technology from pilot to
demonstration size near Whyalla, South Australia. The technology has the potential
to become sustainable green crude for the existing petroleum industry and to
provide fuel for aviation.
Conclusion
Biofuels production is growing worldwide as part of a global push towards
renewable forms of energy. Advanced biofuels technologies are being developed
both internationally and in Australia, which will likely increase the production of
biofuels. Countries such as Brazil and USA and also in Europe are already driving
their vehicles on locally produced biofuels while at the same time developing new,
more efficient and economically sustainable technologies.
Australia could grow an increasing portion of its own liquid transport fuel.
Fermentation of fuel ethanol from the sugarcane and starch yielding crops is a
proven and successful technology. Oil producing seed crops can easily be converted
into biofuel. A sophisticated Australian agricultural sector exists that has the
potential to grow new and innovative energy crops for fuel ethanol or ‘drop-in’ high
energy biofuels. Forestry residues and purpose grown vegetation such as salinity
controlling mallee trees in wheat fields, could also be harvested for biofuel
production. Finally, Algae has the technical potential to convert abundant Australian
sunshine, brackish water resources and carbon dioxide into a diesel or jet fuel
substitute, often yielding high value by-products in the process.
References
Aziz Elbehri; Anna Segerstedt; Pascal Liu. (2013). Biofuel and the Sustainability
Challenge. Food and Agriculture Orgainisation of the United Nations, Trade and
Markets Division. Rome: Food and Agriculture Orgainisation of the United Nations.
EIA, U. (2013). Alternative energy data . Retrieved March 7, 2013, from US Energy
Information Administration: http://www.eia.gov/renewable/data.cfm#alternative
109
Europa . (n.d.). Europa Legislation Summaries. Retrieved March 8, 2013, from
Europa:
http://europa.eu/legislation_summaries/energy/renewable_energy/l28175_en.htm
European Commission. (n.d.). European Commission Renewable Energy. Retrieved
March 8, 2013, from European Commission:
http://ec.europa.eu/energy/renewables/biofuels/biofuels_en.htm
Giles, F., & Barros, S. (2012). Global Agricultural Information Network Annual Report.
Sao Paulo: USDA Foreign Agricultural Service.
Kovarik, B. (n.d.).
http://www.environmentalhistory.org/brilliant/bioenergy/international/. Retrieved
March 4, 2013, from Brilliant - Exploring the history of sutainable energy.
LEK Consulting. (2011). Advanced Biofuels Study . Canberra :
Department of Resources, Energy and Tourism.
Motavalli, J. (2012, march 1). Flex-Fuel Amendment Makes for Strange Bedfellows.
The New York Times.
US-EPA. (n.d.). Renewable fuels. Retrieved March 7, 2013, from US Environmental
Protection Agency: http://www.epa.gov/otaq/fuels/renewablefuels/index.htm
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Resources
and Energy
Quarterly
Statistical tables
111
Contribution to GDP
Please refer to page 134 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Principal markets for Australian imports in 2011–12 dollars
Please refer to page 134 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Principal markets for Australian exports in 2011–12 dollars
Please refer to page 135 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Resources and energy sector indicators, Australia
Please refer to page 136 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Principal markets for Australian resources and energy exports
Please refer to page 137 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Resources and energy prices, ended March Quarter 2013
Please refer to pages 138–139 of the Resources and Energy Quarterly – March quarter 2013
PDF version.
Tables 1–3
Please refer to the corresponding Excel sheets of the Resources and Energy Quarterly –
March quarter 2013 Statistical data Excel workbook.
Table 3:
Contribution to exports by sector, balance of payments basis
Please refer to page 141 of the Resources and Energy Quarterly – March quarter 2013 PDF
version.
Tables 4–42:
Please refer to the corresponding Excel sheets of the Resources and Energy Quarterly –
March quarter 2013 Statistical data Excel workbook.
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BREE contacts
Executive Director/Chief
Quentin Grafton
Economist – BREE
Deputy Chief Economist/Research
(02) 6243 7483
Roger Rose
Director
Resources Program – Program
John Barber
Arif Syed
arif.syed@bree.gov.au
(02) 6243 7504
Nhu Che
Program Leader
Data & Statistics Program –
john.barber@bree.gov.au
(02) 6243 7988
Program Leader
Energy and Quantitative Analysis –
roger.rose@bree.gov.au
(02) 6243 7583
Leader
Modelling & Policy Integration –
quentin.grafton@bree.gov.au
nhu.che@bree.gov.au
(02) 6243 7539
Geoff Armitage
Program Leader
geoff.armitage@bree.gov.au
(02) 6243 7510
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