Iron ore future brighter, to tune of $2.7b
In a departure from its gloomy prediction in September that iron ore prices would average just $US101 a tonne in 2013, the Bureau of Resources and Energy Economics increased that prediction on Wednesday to an average of $US106 a tonne.
While still lower than most exporters would hope for, the revised prediction would represent an extra $US2.7 billion ($2.57 billion) worth of revenue should it prove correct.
The change to BREE's forecasts came on the same day the benchmark iron ore price hit its highest mark since July 20 when the commodity was beginning to lurch into a severe slump.
The benchmark price touched $US124.90 a tonne on Wednesday, and the price has been hovering around these levels - which are widely considered to be its "floor" - for more than seven weeks.
The share prices of major iron ore producers are enjoying the benefits, with BHP Billiton and Rio Tinto shares both testing their highest prices since May, while Fortescue Metals has recovered from its recent debt crisis to be fetching its best share price since mid-August.
However, all those stocks remain significantly lower than the prices they were fetching in early 2011.
Despite the investment boom having passed from bulk commodities to export gas projects in recent times, the BREE statistics suggest iron ore will continue to be Australia's most valuable export earner in the next couple of years at least.
BREE expects iron ore exports will be worth $54.6 billion to Australia in the year to June 30, 2013, with gas exports expected to yield $16.4 billion. But the gap between the two commodities is closing, with the value of gas exports predicted to rise by 37 per cent compared to the 13 per cent fall predicted for iron ore export values.
The statistics also reinforce the notion that Australia's resources industry will increasingly rely on higher volumes of exports rather than high prices to maintain revenues. Despite higher export volumes of gas, iron ore, coal, gold and indeed most commodities, BREE expects the value of Australia's resources and energy exports will fall 4 per cent - or about $9 billion - to $184 billion in the year to June 30, 2013.
Frequently Asked Questions about this Article…
BREE revised its 2013 iron ore price forecast up from US$101 a tonne (its September forecast) to an average of US$106 a tonne, reflecting a more optimistic outlook for the iron ore sector compared with three months earlier.
The revised forecast would represent about an extra US$2.7 billion in revenue for exporters (noted in the article as roughly A$2.57 billion) if the US$106-a-tonne average proves correct.
At the time of the article the benchmark iron ore price touched US$124.90 a tonne and had been hovering around that level — widely regarded as a near “floor” price — for more than seven weeks. That level matters because it helps support miners’ revenue and underpins recent increases in major miners’ share prices.
The share prices of major producers benefited from the firmer iron ore outlook: BHP Billiton and Rio Tinto were testing their highest prices since May, and Fortescue Metals had recovered from a recent debt crisis to reach its best share price since mid‑August. However, the article notes that all these stocks remain significantly below their early‑2011 levels.
Yes. BREE expected iron ore to remain Australia’s most valuable export earner for at least the next couple of years, forecasting iron ore exports worth A$54.6 billion in the year to June 30, 2013, compared with gas exports expected to yield A$16.4 billion. The article also notes the gap is closing because gas export values are forecast to rise strongly.
BREE’s statistics suggest Australia’s resources industry will increasingly rely on higher export volumes rather than high prices to maintain revenues. Despite higher export volumes across gas, iron ore, coal and gold, the overall value of exports is still expected to fall due to weaker prices.
BREE expected the total value of Australia’s resources and energy exports to fall by about 4 per cent — roughly A$9 billion — to A$184 billion in the year to June 30, 2013, despite higher export volumes in many commodities.
For everyday investors, the revised BREE outlook and firmer benchmark price suggest improved near‑term revenue prospects for iron ore producers, which has already supported higher share prices for major miners. At the same time, the article highlights that prices remain well below early‑2011 levels and that the resources sector is becoming more dependent on export volumes and growth in other commodities, like gas, so investors should view the improvement as cautious recovery rather than a full return to previous peaks.
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