The year 2020 has been one of fluctuating fortunes for Australia’s biggest exports amid the coronavirus-fuelled recession and trade row with China.
- Iron Ore trades nears $US170 a tonne
- Gold tipped to reach new record of $US2100 an ounce
- Oil price recovery dependent on successful COVID-19 vaccine
- Petrol prices fluctuate around $1 a litre in some capital cities
Gold hit a record high above $US2,000 an ounce and iron ore prices jumped by more than two-thirds in 2020 as China’s economy recovered from the COVID-19 shutdown and a coronavirus outbreak in Brazil closed iron ore mines.
But the coronavirus recession sent oil prices below zero for the first time as economies came to a standstill, crushing demand for fuel.
The diplomatic row with China saw multiple Australian exports caught in the crossfire including coal, beef, barley, lobsters and wine.
So where to from here for Australia’s resources exports?
There is a lot riding on luck: effective coronavirus vaccines and détente in tensions with China.
However, some analysts are predicting a new mining boom as the global economy improves and demand for electric vehicles and renewable energy surges.
Oil prices hammered by global economic shutdown
The price of fuel plummeted as government lockdowns and business shutdowns brought the global economy and international travel to a standstill.
At its low point in April last year, West Texas Crude oil fell below zero to negative $US40 a barrel as the US ran out of storage space.
Fuel prices recovered some lost ground as Joe Biden’s win in the US presidential election and progress in the development of coronavirus vaccines bolstered shaky investor confidence.
Overall, oil prices lost one-fifth of their value in 2020, ending the year at around $US50 a barrel.
Prices rose early this month after Saudi Arabia announced surprise production cuts for 2021 following a standoff with Russia over supply increases and after Iran seized a South Korean ship, heightening Middle East tensions.
ANZ commodity strategists Daniel Hynes and Soni Kumari said commodity prices in 2021 will be driven by the success or failure of coronavirus vaccines.
“COVID-19 vaccines are a major turning point for the world, which could put a floor under low demand for oil,” they said in a report last month.
“However, there are some major hurdles to overcome before they can have an impact on economies and the oil market.”
ANZ said those hurdles include a resurgence of coronavirus cases and new government restrictions, which could see black gold fall again in 2021.
West Texas Crude is tipped to trade between $US42.50 to $US52.50 a barrel this year and the international benchmark Brent Crude is forecast at $US45 to $US55 a barrel.
Cheap petrol is the coronavirus silver lining
Coronavirus has taken a big economic toll but the upside for Australian motorists has been lower petrol prices, a precious jewel in an economy where the pandemic saw Australia plunged into the first recession in nearly 30 years with 1 million people out of work for the first time.
Weak demand for fuel saw prices at the pump fall to $1 a litre in some capital cities late last year, including in Sydney, Melbourne, Brisbane and Adelaide, although prices have fluctuated wildly.
Peter Khoury from motoring group the NRMA said petrol prices were set to stay in the slow lane for a while in 2021 because of the coronavirus uncertainty and the higher Australian dollar, which makes oil imports cheaper.
He advised motorists to shop around, with the price differential as much as $0.50 a litre in Sydney and $0.30 in other cities.
The lower petrol prices have been welcomed by consumers.
New mother Lee Leo said cheaper petrol prices in Sydney have helped her family get out and about during difficult times.
China’s iron throne
The big winner from the coronavirus pandemic was the king of commodities: Australia’s biggest export, iron ore, which hit new record highs in China.
Benchmark prices of the steel-making material doubled to nearly $US160 a tonne in 2020, the highest level since 2011, as the Chinese economy rebounded from its coronavirus shutdown with Beijing ramping up construction and manufacturing.
The spread of the coronavirus in Brazil also shuttered mines there, leading to increased demand for Australian iron ore.
In fact, Australia exported a record $11 billion worth of iron ore in October last year, although metal and ore exports eased back in November.
UBS managing director and resources expert Glyn Lawcock expects iron ore prices to pull back and trade around $US110 a tonne in 2021.
However, he said the failure of another giant mining waste dam in Brazil could clamp supply and further push up prices.
Prices have already jumped to nearly $US170 a tonne, near record highs, in the first week of the new year.
But trade tensions with China could hurt prices as Chinese firms seek out new global suppliers of iron ore such as the giant Simandou project in Guinea in Africa.
Beijing is also looking to control more of the world’s iron ore to shore up its supplies and has indicated it will cut steel production in 2021.
Also on the downside, China has lifted restrictions on high-quality scrap metal imports, which will allow more recycling to ease a shortage in metals as the economy recovers.
ANZ predicts iron ore prices could trade in the range of $US85 to $US115 a tonne this year.
Rio Tinto destroys Indigenous sacred site for $135 million
The ghosts of Juukan Gorge will forever haunt Rio Tinto and the mining industry with more pressure on miners to gain the consent of traditional owners before destroying culturally important sites.
Rio Tinto boss Jean-Sebastien Jacques and two top executives were forced to resign after two 46,000-year-old caves at the Juukan Gorge in the Pilbara in north-west Western Australia were blown up to mine $135 million worth of iron ore, despite urgent attempts by the native title holders, the Puutu Kunti Kurrama and Pinikura (PKKP) Aboriginal Corporation, to stop the work.
Standard & Poor’s said the mining industry would continue to experience pressure to become more environmentally friendly.
“The accident emphasises the importance of ties between the company and local communities and ultimately its ability the run its operations smoothly,” S&P analysts said.
PWC Australia mining leader Debbie Smith said protecting cultural heritage needed to be a priority for all corporations, not just miners.
Jamie Lowe from the National Native Title Council has called on Rio Tinto to pay hundreds of millions of dollars in compensation to the PKKP for the destruction of the caves.
He said jail terms and “really significant fines” were needed to protect cultural heritage in Australia.
Rio Tinto ignored calls for an Australian chief executive to replace JS Jacques and instead appointed its chief financial officer Jakob Stausholm to the top job.
All that glitters is gold
Gold also shone in 2020, reaching a new record high of $US2,063.54 an ounce, according to Bloomberg data, as investors turned to their favourite safe haven and hedge against inflation.
With investment yields near zero or even negative, investors looked to gold as a store of value.
Massive government stimulus globally and the weak greenback bolstered the precious metal with the price of the commodity rising by one quarter over the year.
It ended 2020 at above $US1,920 an ounce.
UBS thinks gold prices could climb to a new record of $US2,100 an ounce in 2021 because of continuing government handouts and low interest rates, which have both weakened the US dollar.
Australian coal imports hit by China ban
It was a bumpy year for coal in 2020, amid the coronavirus recession and diplomatic tensions between Australia and China with the commodity caught in the crosshairs.
The price of thermal coal at the port of Newcastle slumped to a low of just over $US43 a tonne in 2020 because of the coronavirus recession and as China blocked Australian coal imports.
But it rebounded to a 19-month high by year’s end to nearly $US90 a tonne. Thermal coal is used to generate electricity.
Australian coking coal, used to make iron ore, lost ground and ended the year at just above $US100 a tonne,
UBS predicts it will pick up this year to $US135 a tonne.
The unofficial coal ban by China appeared to hit Australia’s coal exports in November, although they rose in October.
JP Morgan economist Tom Kennedy said the Bureau of Statistics data suggested “modest trade frictions”.
He said coal exports fell 4 per cent in in November and are 44 per cent below the 2019 average.
ANZ economists said despite China’s import restrictions, coal exports were down only slightly, “suggesting Australia has so far been able to find alternative buyers”.
Japan buys nearly half of Australia’s coal exports.
Unusually, there were no thermal coal shipments to China from the world’s biggest coal port, the Port of Newcastle, in December.
ANZ expects Chinese import curbs on coal to ease after the first few months of this year.
And UBS sees coal prices continuing to rebound into 2021 with high-cost producers losing money and going out of business or reducing supply.
It thinks coal will be underpinned by strong global growth and continued government focus on the environment.
However, demand for coal is set to fall over the next few years as more countries seek to limit their greenhouse gas pollution in line with the United Nations international treaty on climate change, the Paris Agreement.
In fact, the Federal Government’s commodities forecaster has predicted another fall in the value of our global coal exports in 2020-21.
Last month, the International Energy Agency said global coal demand probably peaked seven years ago in 2013 as countries turned to gas as a transition fuel to renewable energy.
It said despite a forecast pick-up in demand this year as economies rebound from the coronavirus lockdowns, global demand for coal is forecast to “flatten out” over the next five years, saying that “construction of new coal-fired power plants is in decline.”
BHP and Rio Tinto have committed to net zero emissions by 2050, pledged to help their customers cut carbon emissions and are investing in pollution reduction technology.
PWC’s head of mining Debbie Smith expects more divestment of fossil fuel businesses in 2021.
“I do think we might see more pure play companies rather than diversified companies into the future,” Ms Smith said.
A bull run for batteries
UBS thinks it will be another good year for electric battery raw materials in 2021: lithium, graphite and raw earths as global growth resurges and the world turns away from fossil fuels n the journey towards renewable energy.
Investment house Ausbil goes further and has predicted another mining boom, driven by demand for Australian resources, especially battery making materials.
“The interrelated themes of electric vehicles, battery storage and renewable energy, and a general trend towards electrification, is driving demand which previously has not existed.’
ANZ said China’s transition to a low-carbon economy “will start reshaping commodities in 2021” with the Communist Party’s upcoming economic blueprint, the 14th Five Year Plan, to focus on technological innovation and environmentally sustainability.
However, ANZ warned that rising geopolitical tensions could rock commodity prices, including how the incoming Biden administration in the United States handles Iran and the trade dispute with China.
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