1

Further information

Creative Commons licence
Attribution 4.0 International Licence

For more information on data or government initiatives please access the reportfrom the Department’s website at: www.industry.gov.au/oce

EditorDavid Thurtell

Chapter Authors
Resource and energy overview: David Thurtell
Macroeconomic overview, nickel: Matt Boyce
Steel, iron ore, metallurgical coal, thermal coal and uranium: Mark Gibbons
Gas and oil: Nathan Pitts
Gold, aluminium, alumina and bauxite: Thuong Nguyen
Copper: Kate Martin
Zinc and lithium: Caroline Lewis

Acknowledgements
The authors would like to acknowledge the contributions of:Andrew Nash, Jeewantha Karunarathna, Lou Brooks, Kelly O’Brien, Sean Lawson
and Russell Campbell
Cover image source: Shutterstock
ISSN 1839-5007
Vol. 11, no.1
© Commonwealth of Australia 2021

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Attribution
Content contained herein should be attributed as follows:
Department of Industry, Science, Energy and Resources, Commonwealth ofAustralia Resources and Energy Quarterly March 2021. The Commonwealth ofAustralia does not necessarily endorse the content of this publication.
Requests and inquiries concerning reproduction and rights should be addressed to
req@industry.gov.au

Disclaimer
The views expressed in this report are those of the author(s) and do not necessarilyreflect those of the Australian Government or the Department of Industry, Science,
Energy and Resources.
This publication is not legal or professional advice. The Commonwealth of Australia
does not guarantee the accuracy or reliability of the information and data in the
publication. Third parties rely upon this publication entirely at their own risk.

2

Contents
Foreword4

Trade summary charts and tables

156

About the edition

5

Appendix A: Definitions and classifications

164

Overview

6

Appendix B: Glossary

166

Macroeconomic Outlook

15

Steel25
Iron Ore

32

Metallurgical Coal

41

Thermal Coal

52

Gas

66

Oil

78

Uranium

89

Gold

95

Aluminium

107

Copper

119

Nickel

128

Zinc

138

Lithium

147

3

Foreword
Australia’s resource and energy exports are forecast to hit a record$296 billion in 2020–21, a strong result, in the context of the COVID-19
pandemic. A modest decline to $288 billion (in real terms) is likely in
2021–22, at which point earnings stabilise over the remainder of theoutlook period.
Every March edition of the Resources and Energy Quarterly provides anextended five-year outlook, rather than the usual two-year horizon. This
allows us to consider additional structural factors beyond near-term
cyclical and one-off issues. One-off issues have been quite prominent inrecent years: the COVID-19 pandemic and China trade issues being themost significant. Both may also present structural implications. Anotherstructural issue expected to gain momentum over the five-year outlook
period is the global energy transition, particularly regarding batteries forelectric vehicles.
Australia’s exports of the commodities that are central to new and low
emission technologies are set to surge over the next five years. From anestimated $1 billion in 2020–21, lithium exports are set to rise more than
five-fold in real terms. Nickel exports are expected almost double, while
copper exports are set to increase by a third over the same period.
Revenue from these three commodities combined are now set to exceed
current thermal coal revenue (in real terms) by 2025–26, as Australia’s
resources sector captures growth opportunities presented by newtechnologies and energy systems that are evolving.
The rollout of an effective COVID-19 vaccine presents the opportunity tobring the pandemic under greater control in major economies in the firsthalf of the outlook period. This will boost economic activity and thus
resource and energy commodity demand, but also reduce disruptions toresource and energy commodity supply. After a fall of 3.5% in 2020, theIMF forecasts world GDP growth of 5.5% in 2021 and 4.2% in 2022.
Higher commodity prices, Australia’s relative success at containing
COVID-19, and signs that China’s informal import restrictions have not
Resources and Energy Quarterly March 2021

been as significant as initially expected by markets, have seen theAustralian dollar strengthen further in recent months. The stronger
Australian dollar has partly diminished the impact of higher US dollar
commodity prices on export earnings, but will also act to contain any
inflationary pressures.
Coal markets have quickly adjusted to the Chinese trade disruptions on
Australian coal. As China switched to buying cargoes (from Indonesia,
Russia, Colombia, South Africa, Canada and the United States) normally
destined for other consuming nations in the region (such as India, Japanand South Korea), Australian exporters have filled the void. However, theexercise has had an impact on prices, with the bottom line for Australiancoal exporters being that they are receiving lower premiums for their coal.
If this is sustained, it could raise broader questions around productionlevels at some of higher-cost mines.
Unlike much of the rest of the world, China’s economy managed to grow in2020 — albeit at a slower pace than the decade average. The IMF
forecasts Chinese GDP growth of 8.1% in 2021 and 5.6% in 2022. Thisoutlook has been helped by stimulatory policy actions and high foreign
demand for goods — both for the problems created by, and to cope with,
the COVID-19 pandemic. Chinese exporters have pivoted from the US to
Europe. If US-China trade relations improve earlier than expected, it
presents upside risks to the IMF’s growth outlook.
Australian iron ore earnings appear set to record an all-time high in
2020–21: after topping the $100 billion mark (for the first time ever for any
commodity) in 2019–20, iron ore export earnings are forecast to rise by
one third to $136 billion in 2020–21. Gold has surrendered some of the
sharp gains of 2020, but is still high in historical terms. Base metals haverecovered to pre-COVID-19 levels, as markets look to successful vaccine
rollouts and surging demand for new and low emission technologies.
One downside risk to the forecasts is for substantial delays in the
successful rollout of effective COVID-19 vaccines to a large number of theworld’s working population. Another downside risk is the extent of further
disruption to Australian resource and energy commodity trade with China.
4About this edition
The Resources and Energy Quarterly (REQ) contains the Office of the
Chief Economist’s forecasts for the value, volume and price of Australia’s
major resources and energy commodity exports.
A ‘medium term’ (five year) outlook is published in the March quarter
edition of the Resources and Energy Quarterly. Each June, September
and December edition of the Resources and Energy Quarterly features a‘short term’ (two year) outlook for Australia’s major resource and energy
commodity exports.
Underpinning the forecasts/projections contained in the Resources andEnergy Quarterly is the Office of the Chief Economist’s outlook for global
resource and energy commodity prices, demand and supply. The
forecasts/projections for Australia’s resource and energy commodity
exporters are reconciled with this global context.

The global environment in which Australia’s producers compete canchange rapidly. Each edition of the Resources and Energy Quarterly
attempts to factor in these changes, and makes appropriate alterations to
the forecasts/projections by estimating the impact on Australian producers
and the value of their exports.
In this report, commodities are grouped into two broad categories,
referred to as ‘resources’ and ‘energy’. ‘Energy’ commodities comprise
metallurgical and thermal coal, oil, gas and uranium. ‘Resource’commodities in this report are all other mineral commodities.
Unless otherwise stated, all Australian and US dollar figures in this report
are in real (2020–21) terms. Inflation and exchange rate assumptions areprovided in tables 2.1 and 2.2 in the macroeconomic outlook chapter.
Data in this edition of the Resources and Energy Quarterly is current as of
18 March 2021.

Resources and Energy Quarterly publication schedule
Publication

Expected release date

Outlook period final year

28 June 2021

Australian data: 2022–23
World data: 2023

September 2021

30 September 2021

Australian data: 2022–23
World data: 2023

December 2021

20 December 2021

Australian data: 2022–23
World data: 2023

4 April 2022

Australian data: 2026–27
World data: 2027

June 2021

March 2022

Source: Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 2021

5 The outlook for Australia’s mineral exports continues to improve, as theworld economy rebounds from the impact of the COVID-19 pandemic.
Australian miners have found their product in high demand, helped by
the impact of government and central bank measures abroad.
 In 2020–21, export earnings are forecast to be a record $296 billion,
slightly higher in real terms than the record set in 2019–20. Earnings
will fall modestly (down 3% to $288 billion) in 2021–22, and then steadyat about that level over the rest of the outlook period (to 2025–26).
 Australia’s resource sector is set to capture the growth in demand forresources from new and low emission technologies.

1.2

Figure 1.1: Australia’s resource and energy export values/volumes
125

300

100

240

75

180

50

120

25

60

0
2005–06

Export values

Australia’s export values are estimated at about $296 billion in 2020–21

In the outlook period, exports are forecast at a record $296 billion in 2020–
21 (up slightly in real terms from 2019–20) and $288 billion in 2021–22,
where they will broadly stay over the rest of the outlook period (Figure1.1). With volumes growing modestly, price swings will determine much of
the change in earnings (Figure 1.2). These price swings seem likely to bemuch less sharp than in the past seven years.
Rising Australian dollar constrained some of the surge in earnings
In Australian dollar terms, the OCE’s Resources and Energy Commodity
Price Index rose by 18.5% (preliminary estimate) in the March quarter
2021 to be up 3.0% on a year ago. In US dollar terms, the index rose by
23.1% in the quarter, and was 18.9% higher than a year ago. The index ofprices for resource commodity exports (Australian dollar terms) rose by an
estimated 24.8% in the year to the March quarter 2021, while energy
commodity prices fell by 28.4% (Figure 1.3). The surge in iron ore prices tonine-year highs drove the surge in the resource commodity price index.

Resources and Energy Quarterly March 2021

2013–14
Volumes

2017–18
2021–22
Values (rhs)02025–26

Source: ABS (2021) International Trade in Goods and Services, 5368.0; Department ofIndustry, Science, Energy and Resources (2021)

Figure 1.2: Annual growth in Australia’s resources and energy export
values, contributions from prices and volumes
30
25
20
15
Per cent

In the March quarter 2021, the Office of the Chief Economist’s (OCE)
Resources and Energy Export Values Index rose 11.8% cent from March
quarter 2020; a 1.8% rise in prices added to a 10% cent gain in volumes.

2009–102020–21 A$ billion

Summary

Index, 2020–21 = 100

1.1

10
5
0
-5
-10
-15
-20

2013–14 2015–16 2017–18 2019–20 2021–22 2023–24 2025–26
PricesVolumesValues

Source: ABS (2021) International Trade in Goods and Services, 5368.0; Department ofIndustry, Science, Energy and Resources (2021)

7

Figure 1.3: Resource and energy export prices, AUD terms

With air and land-based travel still impacted by border restrictions and
COVID-19 containment measures, oil demand is weak but recovering.
Vaccine ‘passports’ could help drive a recovery in international air travel,
and hence jet fuel demand. Until air travel recovers, land based travel
should provide a partial offset to oil demand.

200
180
160

Index

140
120

The Chinese economy continues to expand at a relatively good pace.
Travel restrictions imposed over the Chinese New Year period meant that
production was stronger than normal, adding to input consumption.
Appreciation pressures on the RMB have helped contain inflation andhelped lift import demand. China’s property sector has cooled, in response
to modest government measures.

100
80
60
40
20
0
1995–96

2001–02

Resources

2007–08
Energy2013–142019–202025–26

Total resources and energy

Notes: The export price index is based on Australian dollar export unit values (EUVs, export
values divided by volumes); the export price index is a Fisher price Index, which weights
each commodity’s EUV by its share of total export values.
Source: ABS (2021) International Trade in Goods and Services, 5368.0; Department ofIndustry, Science, Energy and Resources (2021)

1.3

Macroeconomic, policy, trade and other factors

With fresh waves of COVID-19 infections in some nations, world economic
activity has recovered less rapidly than expected in recent months, but isstill expected to rise strongly in 2021. Renewed containment measures ina number of major economies have hurt economic activity and (particularly
energy) commodity demand. A colder than normal Northern Hemisphere
winter raised energy demand. The outlook is for a strong economic
recovery in the first half of the outlook period, once vaccines are rolled out
more broadly across the world’s major economies. The rebound will be
partly fuelled by government stimulus measures and reducing supply chain
vulnerabilities in their nations.
COVID-19 infections are falling sharply in many nations, as vaccines arerolled out and containment measures impact. A concern is the risk of
COVID-19 mutations and how these might play out in years to come.

Resources and Energy Quarterly March 2021

The US Government has passed a significant US$1.9 trillion fiscal
stimulus package to boost the US economy. President Biden has signed
an Executive Order re-joining the Paris Climate Accord, with potential
implications for future global resources and energy trade.
The most recent IMF forecasts put world GDP growth at 5.5% in 2021,
after a contraction of 3.5% in 2020. The IMF forecasts world GDP growth
to then moderate towards more typical levels in 2022. Over the rest of theoutlook period, growth is assumed at 3-3.5%. Commodity demand should
thus be healthy over the outlook period.
The extent of further official and unofficial Chinese government restrictions
on imports of some Australian resource and energy commodities poses adownside risk to the forecasts. Australian exporters of coal and copper
concentrates and ores have been able to pivot to other markets; a colderthan-normal Northern Hemisphere assisted thermal coal exporters in thispivot. At present, a high degree of uncertainty exists around the extent towhich China’s informal import restrictions will persist through the outlook
period.
Our projections suggest that by the end of the outlook period (2025–26), a
surge in exports earnings of metals used in technologies central to theworld energy transition — copper, lithium and nickel — will replace the fallin thermal coal earnings arising from that transition.

8

The iron ore price has remained strong since the December 2020
Resources and Energy Quarterly, currently at a 9-year high. A recovery indemand in some of the advanced industrialised nations has added tostrong Chinese demand, to keep prices high in a market still heavily
constrained by low Brazilian supply (Figure 1.4). Prices are expected toease by 2022, as Brazilian supply recovers and world demand moderates.
Australian metallurgical coal prices have regained some of the losses
incurred as a result of China’s informal import restrictions. Australia’s
dominant position in the seaborne market has meant that our exporters
have sold coal to replace the (mainly North American and Russian)cargoes bought by China typically sold elsewhere. A price lift is likely in theforecast period, as ex-Chinese usage recovers further. Winter demand
from Asian coal-fired power utilities combined with output cuts to help lift
thermal coal prices to pre-COVID-19 levels. Prices are likely to be flat in
the outlook period, as supply matches demand (Figure 1.4).
Oil prices have regained all of the sharp declines of the first four months of2020. Production cuts have combined with a recovery in demand to
remove some inventory from the market. In the March quarter 2021,
demand is likely to be impacted by renewed COVID-19 containment
measures introduced in some nations. The price seems likely to becapped at US$60-70 a barrel over the outlook period, as re-opened
production matches higher demand. Spot LNG prices are forecast to beflat as new supply enters the market.
The gold price has declined, as US real bond yields rise and news ofseveral effective COVID-19 vaccines pushes investment flows away fromprecious metals. A recovery in scrap supply will offset improved jewellery
demand over the outlook period. Further out, the price is likely to fall, as
equity markets rise further and real bond yields rise. Base metal prices
have more than recovered their COVID-19 losses, largely on the back of
the Chinese economic rebound (Figure 1.5). Base metal demand shouldrise, as world industrial activity recovers further from COVID-19 restrictions
and the world energy transition continues.
Resources and Energy Quarterly March 2021

Figure 1.4: Bulk commodity prices
140
120
Index, June 2012 = 100

Prices

100
80
60

40
20
0
Jun–12

Jun–14 Jun–16 Jun–18 Jun–20
Iron ore
Metallurgical coalJun–22 Jun–24
Thermal coalJun–26

Notes: Prices are in US dollars, and are the international benchmark prices
Source: Bloomberg (2021); Department of Industry, Science, Energy and Resources (2021)

Figure 1.5: Base metal prices
180
150
Index, June 2012 = 100

1.4

120
90
60
30
0
Jun–12

Jun–14

Jun–16

Aluminium

Jun–18

Jun–20

CopperJun–22
NickelJun–24

Jun–26

Zinc

Notes: Prices are in US dollars, and are the international benchmark prices
Source: Bloomberg (2021); Department of Industry, Science, Energy and Resources (2021)

9

1.5

Export volumes

1.6

Mining industry contracted, but by much less than the rest of the economy

Weaker Australian export volumes, driven by resource exports
The OCE’s Resources and Energy Export Volumes Index (preliminary
estimate) rose by 2.8% in the March quarter 2021 from the December
quarter, and was 8.9% higher than a year before (Figure 1.6). Within thistotal, resource commodity volumes rose by 15.9% in the year to the March
quarter 2021, while energy commodity volumes fell by 0.4%. The volume
of energy exports was affected by the slowdown in Asian economic activity(due to COVID-19) and China’s informal import restrictions on our coal.

Australia’s real Gross Domestic Product (GDP) rose by 3.1% in the
December quarter 2020, but was down 1.1% through the year since theDecember quarter 2019.
Mining value-added fell by 1.0% in the December quarter, to be down
3.6% over the previous twelve months.
In the coming year, it is likely that the iron ore sector will make a significant
contribution to GDP growth, as high prices and margins drive growing
volumes. The coal sector is likely to make only a modest contribution to
growth in the first half of the outlook period. Gas production is likely tomake a positive contribution to growth, on the back of stronger LNG
demand and a recovery in prices.
Figure 1.7: Contribution to quarterly growth, by sector
65Percentage points

In volume terms, resources exports are likely to show further significant
growth over the outlook period. Economic growth and industrial production
is rebounding amongst our main trading partners, increasing their demandfor our ferrous and non-ferrous metals. The global energy transition will
also see strong demand for new technology commodities such as copper,
lithium and nickel. Energy export volumes are forecast to recover
pandemic losses during 2021, and then tend to level out. However, thisvolume recovery will likely not be sufficiently strong to offset lower energy
prices and thus see export earnings surpass pre-COVID-19 levels.
Figure 1.6: Resource and energy export volumes
140
Index, December 2020 = 100

Contribution to growth and investment

120
100

4
3
2
1
0
-1

80

-2

60

-3
Dec–1240

Dec–16

Coal mining
Iron ore mining

20

0
Jun–11

Dec–14

Dec–18

Dec–20Oil and gas extraction
Mining total

Source: ABS (2021) Australian National Accounts, 5206.0

Jun–14

Jun–17
Resources

Jun–20
Jun–23
EnergyJun–26

Source: Department of Industry, Science, Energy and Resources (2021)
Resources and Energy Quarterly March 2021

10Figure 1.8: Mining industry capital expenditure by commodity
18

25

5

20

4

15

3

10

2

5

1

0
2002

15

2008

2011

Buildings and structures

9

2014

2017

2020

Notes: Chart data is in nominal terms

6
3

Figure 1.10: Mining industry capital expenditure, fiscal year

0
2010
2012
2014
Oil and gas extraction
Coal mining

2016

100

2018
2020
Metal ore mining
Other mining

Notes: Other mining includes non-metallic mineral mining and quarrying and exploration andother mining support services; chart data is in nominal terms
Source: ABS (2021) Private New Capital Expenditure and Expected Expenditure, 5625.0

Expenditure on buildings and structures rose in the December quarter
2020, however spending on machinery and equipment fell (Figure 1.9).
However, the latter remains well above its average level of recent years.
Mining companies invested $35 billion in 2019–20, with forward
expectations suggesting that investment in 2020–21 will be slightly higher(Figure 1.10). Strong prices for gold, iron ore and other minerals areleading to new investment plans, including the re-opening of mines.
However, investment in new greenfield projects remains well below thelevels of the previous decade.
Resources and Energy Quarterly March 2021

0

Equipment, plant and machinery (rhs)

Source: ABS (2021) Private New Capital Expenditure and Expected Expenditure, 5625.0

80$ billion

A$ billion

12

2005

A$ billion

The ABS Private New Capital Expenditure and Expected Expenditure
survey for the December quarter 2020 shows that Australia’s mining
industry invested $9.3 billion in the quarter. This is up by 7.7% in thequarter, but down 0.8% from the December quarter 2019. In recent
quarters, growth in investment by the metal ore mining sector has beenstrong, with strong growth in the December quarter (Figure 1.8). This likely
reflects the surge in iron ore prices.

A$ billion

Figure 1.9: Mining industry capital expenditure by type, quarterly

Mining investment is picking up

60
40
20
0

2010–11

2012–132014–15

2016–17

ActualExpected

2018–192020–21

Notes: Chart data is in nominal terms
Source: ABS (2021) Private New Capital Expenditure and Expected Expenditure, 5625.0

11

325
300
275
250
225

30

2.5

24

2.0

175

18

1.5

125

12

1.0

100
2009–10

6

0.5

0
2002

2006

2010

2014

Mining capex, chain volume measures

2018

200
150

A$ billion

A$ bilion

Figure 1.11: Mining capital expenditure vs exploration (real), quarterly

Figure 1.12: Resource and energy exports, by forecast release

A$ billion

Data on exploration spending (adjusted for inflation) suggests that mining
capital expenditure is recovering at a marginal pace following falls in early2020 (Figure 1.11). Exploration spending edged up in the December
quarter, with spending for all commodities rising to $947 million.

2013–14
Mar–19 forecast
Mar–21 forecast

2017–18

2021–222025–26

Mar–20 forecast
ActualSource: Department of Industry, Science, Energy and Resources (2021)

0.0

Exploration (rhs)

Source: ABS (2021) Private Capital Expenditure Survey, Chain Volume measure, 5625.0

1.7

Revisions to the outlook

At $296 billion in 2020–21 and $292 billion in 2021–22, Australia’s
resources and energy exports in nominal terms are up $17 billion and$28 billion, respectively, from those contained in the December quarter2020 Resources and Energy Quarterly. Compared to March 2020,
earnings are now forecast to hold up much better in the out years (Figure1.12).
Stronger metal (mainly iron ore) exports have driven the upward revisions.
The stronger rise in the Australian dollar now forecast has offset a small
amount of the gains from higher export volumes.

Resources and Energy Quarterly March 2021

12

Notes:f forecast. EUV is export unit value. Per cent change is from 2019–20.

Source: ABS (2021) International Trade in Goods and Services, 5368.0; Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 2021

13

Table 1.1: Outlook for Australia’s resources and energy exports in nominal and real terms
Exports (A$m)

2019–20

2020–21f

2021–22f

2022–23z

2023–24z

2024–25z

2025–26z

CAGRr

Resources and energy

290,778295,981292,457

294,324

306,618

315,705

321,118

1.7– realb

293,855

295,981

287,665

283,545

288,167

289,346

287,006-0.4

Energy115,532

81,816

99,844

107,666

118,631

119,826

116,773

0.2– realb

116,755

81,816

98,208103,723

111,492

109,822

104,368-1.9

Resources

175,245

214,165

192,613

186,658

187,987

195,879

204,345

2.6– realb

177,100

214,165

189,457

179,822

176,675

179,525

182,638

0.5

Notes: b In 2020–21 Australian dollars; f forecast; r Compound annual growth rate; z projection.
Source: ABS (2021) International Trade in Goods and Services, 5368.0; Department of Industry, Science, Energy and Resources (2021)

Table 1.2: Australia's resource and energy exports, selected commodities
PricesExport volumes

Export values (real 2020–21 terms), A$b

Unit

2019–20

2020–21f

Iron ore

US$/t

91

128

77

Mt

858

893

1,097

104

136

104

LNG

A$/GJ

11

8

12

Mt

79

78

81

48

33

45

Metallurgical coal

2025–26z

Unit

2019–20

2020–21f

2025–26z

2019–20

2020–21f

2025–26z

US$/t

145

119

166

Mt

177

173

191

35

23

31

US$/oz

1,562

1,841

1,364

t

350

344

418

25

29

22

Thermal coal

US$/t

63

60

61

Mt

213

206

231

21

15

15

Copper

US$/t

5,666

7,649

8,837

Kt

924

919

992

10

12

16

Crude oil

US$/bbl

52

53

66

Kb/d

291

299

327

9.1

7.7

10.2

Alumina

US$/t

282

275

338

Mt

17,876

18,254

18,438

7.5

7.0

6.6

NickelUS$/t

13,982

16,66322,566

Kt

231

201

246

3.8

3.8

6.5

Zinc

US$/t

2,206

2,677

2,469

Kt

1,530

1,419

1,747

3.6

3.4

3.5

Aluminium

US$/t

1,675

1,883

2,227

Kt

1,430

1,372

1,387

3.7

3.5

3.7

Lithium

US$/t

561

440

712

Kt

1,503

1,647

3,855

1.1

1.0

5.4

Uranium

US$/lb

27

30

50

t

7,195

6,486

5,800

0.7

0.5

0.7

Gold

Notes: a Export data covers both crude oil and condensate; f forecast. Price information: Iron ore fob (free-on-board) at 62 per cent iron content estimated netback from Western Australia to
Qingdao China; Metallurgical coal premium hard coking coal fob East Coast Australia; Thermal coal fob Newcastle 6000 kc (calorific content); LNG fob Australia's export unit values; Gold LBMA PM;
Alumina fob Australia; Copper LME cash; Crude oil Brent; Aluminum LME cash; Zinc LME cash; Nickel LME cash; Lithium spodumene ore.
Source: ABS (2021) International Trade in Goods and Services, Australia, Cat. No. 5368.0; LME; London Bullion Market Association; The Ux Consulting Company; US Department of Energy; Metal
Bulletin; Japan Ministry of Economy, Trade and Industry; Department of Industry, Science, Energy and Resources (2021)
Resources and Energy Quarterly March 2021

14

Summary World economic growth forecasts continue to be revised up after the
COVID-19 pandemic. After an estimated 3.5% contraction in 2020, theglobal economy is forecast to grow by 5.5% in 2021 and 4.2% in 2022.

 International trade recovered to pre-COVID-19 levels in November 2020.

World trade rose 4% on a quarterly basis in the December quarter 2020,
taking calendar year growth to 1.3%. Previous annual average growth
for the 2010-2019 decade was around 3.6%.

 Elevated infrastructure spending should see China’s construction andmanufacturing activity remain in expansionary territory throughout 2021,
generating strong demand for base metals and iron ore. Strong
commodity demand is likely to ease in subsequent years however, as
infrastructure led stimulus slows.

Global economic outlook
IMF upgrades economic outlook for 2021
The International Monetary Fund (IMF) raised its economic growthforecasts in January 2021, based on the assumption that a successful
rollout of COVID-19 vaccines and more fiscal stimulus will offset theimmediate challenge posed by the recent resurgence of the pandemic(particularly in Europe and the US) at the start of 2021. After an estimated
3.5% contraction in 2020, the IMF forecasts the global economy to growby 5.5% in 2021.
Despite the expected slight dampening of current output in early 2021,
economic activity is anticipated to rise throughout the second half of theyear, as vaccines mitigate the need for lockdowns, allowing further
contact-intensive activity to return, and as further extensive fiscal stimulus
is rolled out across many advanced economies.
The IMF’s growth estimate for 2020 has also been substantially upgraded— by almost a full percentage point — due to a stronger than expected
recovery in the second half of last year in many nations, including
Australia. Several countries experienced a surge in consumption throughResources and Energy Quarterly March 2021

the September and December quarters, as COVID-19 containment
measures continued to ease.
This has resulted in a stronger 2021 forecast and a more optimistic outlook
for consumption, investment and employment. However, uncertainty still
remains, and lingering concerns regarding the impact of the pandemic
have persisted, as surging infections resulting from new variants of virus
have spread in the United Kingdom and Europe. Further uncertainty about
the efficacy rates and distribution challenges of the vaccines could skew
economic growth weaker than the latest January 2021 IMF forecast.
Exploring the medium-term outlook scenario, the IMF forecasts world GDP
growth will increase by 4.2% in 2022 before steadily easing back to its
average of just over 3% by 2026. The recovery is expected to be uneven,as advanced economies have been able to provide expansive fiscal andmonetary support to protect their economies and will likely benefit fromfaster distribution of the vaccine rollouts. Emerging and developing
economies, some of which were unable to provide similar levels of fiscal
support and are likely to experience slower vaccine distribution, may face
more divergent recovery paths. Oil exporters and tourism-based
economies will face challenges, owing to the relatively subdued outlook foroil prices and the slower normalisation of cross-border travel.
Outlook for advanced economies supported by fiscal policies
The 2021 forecast has improved for the advanced economy group, where
growth is forecast to average 4.3% in 2021. Additional fiscal support —mostly in the United States and Japan — together with expectations ofearlier widespread vaccine availability, have improved growth prospects
for the coming year, though strong risks remain.
The US saw one of the biggest upgrades to its outlook following theapproval of a $900 billion relief plan. The IMF forecasts the US economy
will grow 5.1% this year, compared with a 3.1% forecast in October. The
forecast does not incorporate $1.9 trillion stimulus package passed in
March 2021, which the IMF preliminarily estimates would add another
1.25% to output this year and 5% over the next three years.

16

Japan, which has announced its own stimulus of more than $700 billion,
also saw a significant upward revision. The IMF now projects 2021
economic growth at 3.1%, compared with 2.3% previously.
Uncertainty surrounds these baseline projections, as the positive outlook
contrasts with the United Kingdom (UK) and Europe, where a new wave of
COVID-19 cases has spurred new restrictions. The Euro-area growthforecast was cut by a full percentage point to 4.2%, on the expectation thatthe December quarter decline at the end of 2020 will continue. The UK
was cut by almost a point and a half to 4.5%. The resurgence of infections
and the tightening of containment measures, is likely to dampen economic
recovery across Western Europe, although future lockdowns are expected
to have a smaller impact than in 2020.
The US and Japan are expected to regain their end-2019 activity levels inthe second half of 2020, while the Euro area and UK will remain below
those levels into 2022. More than 150 economies are expected to have
output levels by the end of 2021 that are below end 2019 (Figure 2.1).

GDP change (per cent)Figure 2.1: Forecast pandemic recovery by end 2021
10

5

0

-5

Notes: Forecast comparative size of economies by December quarter 2021 compared to
December quarter 2019
Source: IMF

Resources and Energy Quarterly March 2021

World trade recovers to pre-COVID levels
World trade rose by 4% on a quarterly basis in the December quarter
2020, taking growth for the whole of 2020 to 1.3%. This meant that world
trade had recovered to pre-COVID-19 levels by the end of 2020.
In January 2021, trade levels were 0.6% higher than December, mainly
helped by exports from advanced economies such as the US and imports
from emerging economies. Global industrial production also grew by 1.3%
in December 2020, consistent with early 2020.
Recovery in industrial demand and manufacturing leading indicators
World industrial output is forecast to rise by about 6% through 2021, after
falling 4.4% through 2020 (resulting from stymied demand and global trade
resulting from the pandemic’s restrictions worldwide).
China’s industrial output (a good proxy for commodity demand) fell during
the nation’s initial lockdown period in February 2020, but has recovered
strongly, reaching pre-COVID-19 levels by September 2020. The recent
rise in China’s industrial output can be primarily explained by policy
support (for building new infrastructure) and strong foreign demand forgoods to use in/cope with the pandemic. China produced more than 1billion tonnes of crude steel in 2020, an annual record. India’s industrial
output has recovered (after falling over 10% through 2020) to above preCOVID-19 levels of output, with the electricity sector and manufacturing
registering growing at 5.1% and 1.6% respectively (Figures 2.2 and 2.3).
The end of 2020 also saw rates of growth in global manufacturing
production and new orders reach historical highs, as the sector continued
to recover from the COVID-19 related downturn earlier in the year. The
J.P. Morgan Global Manufacturing PMI was unchanged from November's
33-month high of 53.8. This is despite a shortage of semiconductor chips,
which is affecting global automotive production.
Germany, Brazil and India saw the strongest output growth. While
expansions were also seen in the large industrial regions including China,
the US and the Eurozone (Japan being a notable exception), output
volumes have now stabilised following 23 months of decline.
17

8

10

4

5

0

0

-4

-5

Source: IMF; Wood Mackenzie

Figure 2.2: Industrial output above pre-COVID-19 levels in
China, South Korea, the EU and India

Major trading partner economic outlook

Index points (Base = Dec 2019)

The rapid economic development of China — starting at the beginning of
the century, and helped significantly by that nation’s admission to theWorld Trade Organisation — brought about the last commodity supercycle. With a similar sized (but younger) population, India could eventually
replicate China’s extraordinary demand for resource and energy
commodities.

110

-8

1996

2002

2008

GDP Growth (lhs)

2014

2020

2026

per cent

The recovery in global industrial production is supporting commodity
prices, including for some of Australia’s key exports. Iron ore, coal and oil
prices all increased sharply over the end of 2020 and start of 2021. Thisrising optimism has led to predictions of a new commodities ‘super-cycle’
across 2021, as economies are fuelled by large government and central
bank support. Commodity-intensive infrastructure spending is likely to risein many nations, including plans for the infrastructure linked to economies’
plans for lower carbon emissions.

per cent

Figure 2.3: Forecast world output and industrial production

Rising commodity prices, but ‘super-cycle’ unlikely-10

Industrial production (rhs)

Australia's major trading partners' GDP is expected to grow by 7% in 2021
and by 4.5% in 2022 in year-average terms. Overall, global economic
activity is expected to recover faster than in a typical recession becausemuch of the weakness has been the result of mandated constraints rather
than weak underlying demand. Also, in many advanced economies thescarring effects on the labour market are likely to have been more limited
than usual because of proactive fiscal and monetary policy responses.

100
90
80
70
60

50
40
Dec-19Mar-20Jun-20

Sep-20Dec-20

United States

China

Euro-Zone

Japan

India

South Korea

Notes: India is not seasonally adjusted
Source: Bloomberg

Resources and Energy Quarterly March 2021

Consumers in the world’s largest economies are also believed to haveamassed US$2.9 trillion in extra savings, owing to the COVID lockdowns.
Half of that total, US$1.5 trillion is within the US, a spending splurge of this
proportion would push economic growth to almost 9% for 2021 (almost
double the forecast 4.6%). Such savings could provide incredible growth inconsumption — similar to what was witnessed in many nations during the
September quarter 2020 — as the rollout of vaccinations potentially brings
about control over the pandemic (Figure 2.4).

18

Figure 2.4: Excess savings as share of GDP

Figure 2.5: United States output boosted by potential stimulus
120
Index (Base = 2018)

US
Japan
UK

FranceGermany

115
110
105
100

95

China
0

2

4
Per cent

6

8

2018
2019
ActualJan 2021 Estimate

2020

2021

2022
2023
2024
Jan 2020 Estimate
Jan 2021 Estimate (inc. stimulus)

Notes: Based on IMF stimulus assumptions from a 2018 base of economic output

Source: Bloomberg Economics

Source: IMF

US expected to expand fiscal stimulus

Federal Reserve holds key interest rate on uneven US economic recovery

The IMF forecasts the world’s largest economy to increase by 5.1% thisyear, versus 3.1% in the previous October forecast. The projection does
not incorporate the US government’s further US$1.9 trillion stimulus
package, which was approved by the Biden administration in mid-March.
The IMF preliminary estimates conclude that additional stimulus spending,on top of the current US$2.9 trillion already committed in stimulus aid, andcould add another 1.25% to GDP output in 2021 and an additional 5%
over the next three years (Figure 2.5).
In addition, the Biden Administration and business groups largely agree on
the need for additional large-scale government funding to modernise US
infrastructure, finance research and development and promote lowemissions energy. A significant portion of this spending would beresource-commodity intensive. Some estimates put the US
Administration’s proposals at a cost of US$2-4 trillion, depending on thespecifics. The White House has not set out any detailed plans of its next
economic proposal centred on infrastructure, transport, and clean energy.

Resources and Energy Quarterly March 2021

The Federal Reserve left its key overnight interest rate near zero andmade no change to its monthly bond purchases at the commencement of2021, pledging again to keep those economic pillars in place until there isa full rebound from the pandemic-triggered recession. Fed chairman
Powell has suggested that the Fed sees no need to alter its ultra-low
interest rate policies in the near-term. However there is rising nervousness
in the bond market about a potential surge in inflation. The inflation
concerns derive from the latest fiscal package adding to the impact of the
Fed’s continued low rates, and progress in combating the COVID-19
pandemic now that nation-wide vaccinations programs are rolling out.
US-China trade relations remain complex
Over the past four years, the US took a series of trade measures,
including tariff raising, aimed at achieving lower US trade deficits with
China. Average US tariffs on Chinese imports are now at 19.3%, whilst the
average Chinese tariffs on U.S. imports are at 20.3%. So far, the new US
Administration has not indicated whether it will change US tariffs.

19

The IMF slightly scaled down its forecast for China’s output during 2021
and 2022, likely resulting from the stronger than expected performancethrough 2020, although GDP is still forecast to grow by 8.1% and 5.6%
respectively. Thus, leaving the world’s second-largest economy driving
global growth and potentially passing U.S. output by 2028 — two years
earlier than previously expected.
China's factory activity expands at a slower pace in February
China’s factory activity expanded in February, but at a slower pace than amonth earlier, missing market expectations after brief COVID-19-related
disruptions earlier in the year. The Caixin Manufacturing Purchasing
Managers’ Index (PMI) fell to 50.9 in February, its lowest level since May,
while the official PMI fell to 50.6 from 51.3 in January.
Weaker overseas demand appears to be taking a toll: new export orders
have eased relative to the rapid pace of expansion towards the end of
2020. The official PMI, which largely focuses on big and state-owned
firms, showed the sub-index for new export orders was 48.8 in Februarycompared with 50.2 in January, slipping back into contraction after months
boosted by overseas demand.

Figure 2.6: China’s annual trade balance and exports to the US
600

15

400

10

200

5

0

0

-200

-5

-400

-10

-600

2014

2015
2016
2017
Trade Balance

2018
2019
Exports to US

2020

Annual change (per cent)

China’s economy surpassed pre-pandemic growth rates in the December
quarter 2020, as its industrial production fired up to meet surging demandfor exports. Gross Domestic Product climbed 6.5% in the final quarter froma year earlier, pushing calendar year growth to 2.3%.

December 2020, exports grew by 18.1% and imports grew 6.5% (year-onyear). China’s exports to the US grew by 8% in 2020, after declining 12%
in 2019. For the whole year of 2021, China’s exports are expected to growby around 6%, after rising 4% in 2020 (Figure 2.6).

$US billions

China’s 2020 growth exceeded forecasts as COVID-19-15

Notes: Annual trade balance (billions) and annual percentage change of total Chinese
exports to the US
Source: Bloomberg

Tightening monetary policy conditions risk Chinese housing sector

Despite the expectation of de-globalisation occurring amidst the pandemic,
and tensions with the United States, surging global demand for everythingfrom hazmat suits to work-from-home technology has allowed China tocapture record market share of global exports.

Financial conditions are likely to support growth and employment in China;
however, Chinese policy makers are facing pressure to deleverage highlevels of government debt, via tightening monetary policy, whilst avoiding acredit crunch or housing market collapse. Local government debt rosethrough 2020 after Beijing raised its fiscal budget deficit level for
infrastructure investment funding to provide the economic stimulus
necessary to recover from the pandemic. However, while investment in
fixed assets such as real estate and infrastructure grew by 2.9%,
consumption spending per capita fell 4% in 2020 from a year earlier.

China was aided in this by the relatively brief shutdown of its factories
while the rest of the world grappled with COVID-19 containment. China
has ended 2020 with a record high trade surplus of US$78 billion. In

Although reliant on debt-fuelled infrastructure investment for growth, theproperty sector is a significant driver of the Chinese economy and a key
source of demand for Australian commodity exports. During 2010-11,

China bolsters its dominance of global trade

Resources and Energy Quarterly March 2021

20

80

3

60

4

40

5

20

6

0

7

-20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Property sales, Residential

Per cent

Per cent

Figure 2.7: Mortgage rates and property sales in China

8

Mortgage rate, rhs reversed

in India. The budget mentions adding 100 new districts to the gas networkin the next three years. It also proposes a gas pipeline to the union
territory of Jammu and Kashmir. The cold climate in this Himalayan region
makes Kashmir well suited for making use of gas for residential heating
and cooking purposes.
The latest PMI results for the Indian manufacturing sector continued topoint to an economy on the mend, as the IHS Markit India Manufacturing
PMI reached 57.5 in February 2021. This signals strong expansion in the
manufacturing sector, as both new orders and output continued to growstrongly. As the economy restarts, construction and infrastructure
spending has recovered driving up power and steel demand. This led to
Indian imports of raw materials recovering to pre-pandemic levels by
October last year. IMF forecasts GDP growth of 11.5% through 2021
(calendar year), matched by expectations of industrial production which is
forecast to recover by 11.5% also (Figure 2.8).

Figure 2.8: India GDP and IP growth forecast to 2026
12

12

8

8

4

4

0

0

-4

-4

-8

-8

India exits recession amid risks from resurgence in virus cases
India’s economy returned to growth in the December quarter, but a newsurge in coronavirus infections is complicating the short term outlook. GDP
grew by 0.4% in the December quarter 2020, after two consecutive
quarters of decline. Any further sharp improvement in the economy’s
performance is likely to be contingent on a drop in COVID-19 infections.
The government recently announced fiscal steps to support the economy,
including a near-record borrowing in its latest budget. The budget for next
financial year (April 2021 to March 2022), unveiled on 1 February, focuseson energy infrastructure spending to boost the economy.
This includes a new US$42 billion scheme to help power distribution
companies upgrade their infrastructure and expand the use of natural gas
Resources and Energy Quarterly March 2021

Per cent

Notes: Annual monthly property sales, year-on-year change with PBoC mortgage rate
Source: PboC; Bloomberg-12

Per cent

China’s central bank crashed the housing market through mortgage rate
hikes (Figure 2.7). Although authorities have confirmed that reducing
government debt and risk in the financial sector remains a key policy
objective, any tightening of monetary conditions is likely to occur gradually.

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
India GDP growth-12

India IP growth

Source: IMF and Wood Mackenzie

21

Japanese economy maintains strong economic fundamentals into 2021
Japan fell into a deep recession in the first half of 2020, but staged an
impressive recovery in the second half of the year. Despite the 2020second half of the year rally, Japan’s real Gross Domestic Product stillshrank 4.8% over the year (Figure 2.9), the first annual contraction sincethe 2009 global financial crisis. Government stimulus of about US$3 trillion
has provided crucial support, keeping unemployment at just 2.9%,
however, another decline in GDP appears unavoidable in the March
quarter 2021 due to the state of emergency called by Prime Minister
Yoshihide last month (which covers Tokyo and other areas accounting for
55% of the nation’s population).
The IMF still forecasts the Japanese economy to recover by 3.1% through2021 and 2.4% through 2022. Further on the downside for 2021, Japaneseobservers believe it is unlikely the postponed 2020 Olympic Games will goahead, unless the pandemic is completely under control. Visitors comingfrom overseas will likely not be admitted to the Games.

8

8

4

4

0

0

-4

-4

-8

-8

-12

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Japan GDP growthe figure here xx

Source: IMF and Wood Mackenzie

Resources and Energy Quarterly March 2021

Japan IP growth

Per cent

Per cent

Figure 2.9: Japanese GDP and IP growth forecast to 2026

-12

Japan’s factory PMI activity slid back into “contraction” territory in January(49.8). Japanese firms attributed the move to a renewed fall in output
volumes, as indicators showed suppliers’ delivery times and new export
orders had dropped at their fastest pace in several months. However,growth expectations for the year ahead remain positive, with industrial
output expected to recover strongly through 2021. The IMF expects GDP
growth to decline to about 0.6% by 2025 and 2026, as the effects of thestimulus implemented after the COVID-19 pandemic finally diminish.
Manufacturing and exports lift Korea out of economic recession
In 2020, the South Korean economy is estimated to have contracted by
1.1%, reflecting the impact of the COVID-19 pandemic on domestic activity
and trade. The fall in economic activity was moderated by a broader,global recovery in trade and production through the second half of theyear, bolstered by accommodative fiscal and monetary policies by theSouth Korean Government and Bank of Korea throughout 2020.
South Korean exports bounced back from the September quarter 2020, as
domestic and international restrictions on movement saw a considerable
shift in consumer preferences toward goods consumption. The reboundincluded a 16% quarter-on-quarter rise in exports to September, led bystrengthened demand for electronics and a recovery in auto demand.
Leading into 2021, manufacturing continues to show positive signs ofrecovery, with PMI reaching 55.3 in February – its highest level since April
2010. Business expectations for the coming twelve months also reachedtheir highest level since February 2013. This is helping to offset a moremodest recovery to date in household consumption and services demand,with both expected to pick up in pace through 2021.
The IMF expects the South Korean economy to recover to growth of 3.1%
in 2021 and 2.9% in 2022, sustained by the ongoing recovery of global
economic activity and trade. In spite of ongoing risks associated with therecovery due to COVID-19, over the medium term, growth is expected toincrease at a moderate but steady rate, as higher global demand supports
the export-oriented South Korean economy.

22

Table 2.1: Key IMF GDP assumptions

2019

2020a

2021a

2022a

2023a

2024a

2025a

2026a

Advanced economies

1.7

-4.9

4.3

3.1

2.2

1.9

1.7

1.7

– Australia

1.9

-2.9

3.5

2.9

2.6

2.6

2.5

2.5

– Eurozone

1.7

-7.2

4.2

3.6

2.5

2.0

1.6

1.6

– France

1.5

-9.0

5.5

4.1

2.3

1.9

1.7

1.7

– Germany

0.6

-5.4

3.5

3.1

1.8

1.3

1.2

1.2

– Japan

0.7

-5.1

3.1

2.4

1.2

1.0

0.6

0.6

– New Zealand

3.0

-6.1

4.4

2.6

2.6

2.5

2.5

2.5

– South Korea

2.0

-1.9

2.9

3.1

2.9

2.6

2.4

2.4

– United Kingdom

1.5

-10.0

4.5

5.0

1.9

1.7

1.6

1.6

– United States

2.3

-3.4

5.1

2.5

2.3

1.9

1.8

1.8

Emerging economies

3.7

-2.4

6.3

5.0

4.9

4.8

4.7

4.7

– ASEAN-5d

4.8

-3.7

5.2

6.0

5.6

5.4

5.3

5.3

– Chinae

6.1

2.3

8.2

5.6

5.6

5.6

5.5

5.5

– India

4.2

-8.0

11.5

6.8

2.6

2.6

2.5

2.5

– Latin America

0.1

-7.4

4.1

2.9

2.7

2.5

2.5

2.5

– Middle East

1.3

-3.2

3.0

4.2

2.8

2.9

2.7

2.7

Worldc

2.9

-3.5

5.5

4.2

3.8

3.6

3.5

3.5

Economic growthb

Notes: a Assumption; b Year-on-year change; c Calculated by the IMF using purchasing power parity (PPP) weights for nominal country gross domestic product; d Indonesia, Malaysia, thePhilippines, Thailand and Vietnam. e Excludes Hong Kong.
Sources: Bloomberg (2021); Department of Industry, Science, Energy and Resources (2021); IMF (2021)

Resources and Energy Quarterly March 2021

23

Table 2.2: Exchange rate and inflation assumptions

AUD/USD exchange rate
Inflation rate

2019

2020a

2021a

2022a

2023a

2024a

2025a

2026a

0.70

0.70

0.78

0.78

0.76

0.75

0.75

0.75

1.8

1.2

2.0

2.1

2.3

2.3

2.3

2.3

2018–192019–20

2020–21a

2021–22a

2022–23a

2023–24a

2024–25a

2025–26a

1.6

1.3

1.1

1.7

2.1

2.5

2.5

2.5

b

United States
Australiae

Notes: a Assumption; b Change from previous period; c Calculated by the IMF using purchasing power parity (PPP) weights for nominal country gross domestic product; e Average of daily rates.
Sources: ABS (2021) Consumer Price Index, 6401.0; Bloomberg (2021); Department of Industry, Science, Energy and Resources; RBA (2021) Reserve Bank of Australia Bulletin.

Resources and Energy Quarterly March 2021

24

Summary World steel consumption declined by 0.9% in 2020, as global industrial
activity was affected by the COVID-19 pandemic and resulting economic
downturn. Chinese steel consumption grew during the year, but
consumption in Europe, the US and Japan was down sharply.
 World steel consumption is forecast to rebound as the global economy
recovers, growing by 3.6% in 2021. Growth eases back slightly insubsequent years.
 Steel output is forecast to follow a similar trend, with a 0.8% fall in 2020
expected to be followed by 3.0% rise in 2021 and 2.8% in 2022. Growthis expected to ease off slightly in subsequent years.

3.2

World consumption and production

Figure 3.1: Steel production, monthly change
30
Year-on-year per cent change

3.1

10

-10
-30
-50
-70
Dec-2016

Steel production is likely to be robust in 2021

China is likely to retain its dominance over global steel markets
Steel production is expected to recover across much of the OECD, andexpand rapidly in line with demand growth across Southeast Asia
(Figures 3.3 and 3.4). However, the pace of the OECD recovery is rather
unclear, with some smelters in OECD countries now unlikely to re-open,
while the pace of steel smelter expansions in much of Asia remains slow.
Chinese steel production rose to over one billion tonnes in 2020, as steel
smelting across much of the rest of the world was closed or reduced. This
has led China to increase its imports of iron ore, notably from Australia.
Australia now accounts for more than half of all seaborne iron ore trade,and more than 60% of China’s iron ore imports.
Resources and Energy Quarterly March 2021

Dec-2018

US

India

Dec-2019

Dec-2020

Japan

China

Notes: Monthly average for integrated basic oxygen furnace (BOF) steel mills
Source: Bloomberg (2021) China BOF Steel Profit Index

Figure 3.2: Steel production by region
1,200
1,000
Tonnes (million)

Global steel production is now fully recovered, with global monthly
production 6% higher in December 2020 relative to the pre-COVID level ofDecember 2019 (Figure 3.1). However, this trend conceals a drastic shift
in market structure, with historically high output in China acting as anoffset for Europe, the United States, and Japan, where steel output
remains at recessionary levels (Figure 3.2). Many steel smelters aroundthe world remain closed or on standby.

Dec-2017
EU

800
600
400
200
0

2005

2008

2011

2014

2017

2020

2023

European Union

India

China

Japan

United States

ROW

2026

Source: World Steel Association (2021); Bloomberg (2021)

27

With iron ore prices set to remain relatively high, scrap imports are likely togrow at a rapid pace in 2021, albeit from a low base (China’s electric arc
furnace usage rate was less than 10 per cent in 2018, compared to the US
rate of 72 per cent). However, Chinese scrap steel imports remain subject
to significant short-term constraints, which will likely prevent large-scale
substitution for imported iron ore. These constraints include limited
availability, with the largest exporters (the EU, US and Japan) not
expected to ramp up scrap steel exports dramatically over the outlook
period. China will also face growing competition for scrap steel from othernations, including India. Rising competition for the material has alreadyseen scrap steel costs rise, with imports to China now costing upwards of$US50 a tonne more than the cost of domestically sourced material.
Market conditions provide some further upside to scrap steel use. Electric
Arc Furnaces — which are used to recycle scrap — saw significant growth
in profitability in 2020, as high iron ore prices placed pressure on otherforms of steelmaking.

Resources and Energy Quarterly March 2021

75
2021-2026 (total per cent growth overperiod)Use of scrap steel in China is expected to grow over the next five years.
The Chinese Government previously curbed its imports of scrap steel in2018 and 2019, in an attempt to prevent potential ‘dumping’ of low-quality
scrap waste into Chinese supply chains. However, carve-outs have now
been created to allow more scrap steel imports. Following the removal of
the import tariff at the start of 2020, scrap steel imports to China more thandoubled over the subsequent year. Imports of steel billets are estimated tohave grown by around 700% over the year, rising above 18 million tonnes.
However, thus far, this has not noticeably affected demand for imported
iron ore.

Figure 3.3: Steel consumption growth by region50

ROW(471 Mt)

India

25
Sth Korea
0

-25

EU

-25

USA

China
(929 Mt)

Japan

0
25
50
2015-2020 (total per cent growth over period)

75

Source: Department of Industry, Science, Energy and Resources (2021)

Figure 3.4: Steel production growth by region75
2021-2026 (total per cent growth overperiod)China is now seeking to reduce this dependency, with the Ministry ofIndustry and Information Technology recently releasing a draft policy
document which outlines an objective for China to supply at least 45% of
its iron ore needs from sources it controls. Currently, China only obtains
around one-third of inputs for steel production from such sources, thoughsome of these — such as domestic scrap steel recycling — have shownpromising growth in recent years.

India

50

ROW
(520 Mt)

25

EU)
Sth.
Korea

0
Japan
-25

-25

Other
EuropeChina(1,099 Mt)

025
50
2015-2020 (total per cent growth over period)

75

Source: Department of Industry, Science, Energy and Resources (2021)

28

Scrap steel recycling currently provides less than one-fifth of raw materials
used for steelmaking in China. With strong market conditions, improving
technology, and supportive policy, it is expected that this share will lift tomore than a quarter by 2026 — with increasingly rapid growth towards theend of the outlook period.

In Myanmar, Chinese steelmaker Kunming Steel is progressing with a
4 million tonne per year plant, while China’s Hibei Beishi company isprogressing with plans for a 3 million tonne per year plant in Indonesia.
China’s Baowu Group is also proposing a 3 million tonne per year plant in
Cambodia.

With Chinese iron ore mines depleting, efforts are underway to draw ironore from new sources, including the proposed Simandou mine in Guinea(see iron ore section). However, these efforts are not likely to produce
significant output within the outlook period. Scrap recycling is thus
expected to provide the primary source for increased Chinese domestic
supply over both the short- and long-term. With China’s steel demand
likely to stay strong, it is expected China’s imports of Australian iron ore
will remain steady over the outlook period.

It is expected that further plants will be proposed and developed acrossSoutheast Asian countries over the outlook period. Steel production
growth across the region is expected to be the largest driver of overall
global steel production growth over the coming years. The region remains
subject to strong steel demand through population growth, urbanisationand industrialisation, while steel supply is likely to be supported byinvestment and capital from large Chinese companies.

Growth outside China is expected to pick up
Substantial new steelmaking capacity is planned across Southeast Asia,with many nations announcing new or upgraded steel plans. Some ofthese growth plans have been disrupted by the COVID-19 pandemic.
However, China’s Belt and Road initiative is likely to provide expanded
funding sources for new steelmaking across Southeast Asia over the
coming years.
Substantial new steel proposals include 18 million tonnes of newsteelmaking capacity which is now planned for the Philippines. This
capacity comprises a 10 million tonne per year plant in the Misamis
Oriental province, to be developed by China’s Panhua Group. This plant is
expected to commence in late 2022 or early 2023. A second plant, withannual capacity of 8 million tonnes, is being progressed by a joint venture
between SteelAsia, a Pilipino company, and HBIS, a Chinese steelmaker.
In Malaysia, a 10 million tonne per year plant is proposed by Wen’an steel,a Chinese company. However, the plant’s construction timetable remains
uncertain due to opposition from other steelmakers in the nation, who haveraised concerns over potential domestic overcapacity and lower prices.

Resources and Energy Quarterly March 2021

In 2017, the Indian Government announced its National Steel Policy,
which contains detailed proposals for expansion and upgrade of its
domestic steel industry. India’s domestic steel needs are growing rapidly,with the India Brand Equity Foundation forecasting a lift in consumption
from 99 million tonnes in 2018–19 to 230 million tonnes by 2030–31. The
Indian steel industry is consolidating, and seeking to leverage the benefitsof relatively low labour costs and the presence of some significant
untapped iron ore reserves. Progress on steel polices have been delayedby the COVID-19 pandemic, but Indian steel production is nonethelessexpected to increase rapidly — by more than 40% over five years — froma low point in 2020. Much of this is expected to be met through higher
domestic iron ore output over that period.
After a sharp dip, South Korean steel production has recovered to be nearpre-COVID levels, with new facilities and upgrades expected to provide afurther modest lift by the end of the outlook period.
However, steel production in Europe is not expected to fully recover, withsome steel mills expected to close permanently. This will result in theacceleration of a long-running shift in steel production towards emerging
economies across southern and eastern Asia.

29

On balance, it is expected that steel production will follow the trajectory of
global industrial production, and grow more rapidly in the first two years of
the outlook period (Figure 3.5). Growth is expected to continue at a slower
pace in subsequent years, as Chinese steel output reaches its peak.

15

30

10

20

5

10

0

0

-5

-10

-10

-20

-15
2000

2004

2008
Global IP

2012

2016

2020

Per cent change (through the year)

Per cent change (through the year)

Figure 3.5: Global steel production and industrial production-30

Steel output (rhs)

Source: OECD (2021), CPB Netherlands Bureau for Economic Policy Analysis (2021);
Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 2021

30

Table 3.1: World steel consumption and production
Million tonnes
Crude steel consumption

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

China

900

933

953

961

967

974

978

1.4

European Union g

160

163

164

166

169

171

174

1.4

United States

112

116

119

121

123

126

128

2.3

India

102

106

112

123

134

145

156

7.5

Japan

65

67

68

70

72

73

75

2.4

Russia

43

44

44

45

46

46

47

1.7

South Korea

53

55

56

58

59

60

62

2.6

Brazil

23

24

27

30

32

35

36

7.4

World steel consumption

1,823

1,889

1,942

1,990

2,040

2,089

2,133

2.6

Crude steel production

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

China

1,054

1,071

1,080

1,086

1,089

1,087

1,086

0.5

European Union

130

134

134

134

133

132

131

0.1

India

99

102

113

124

135

146

157

8.0

Japan

83

92

94

97

99

101

104

3.7

United States

72

75

77

79

81

83

84

2.6

Brazil

31

32

36

40

44

48

52

8.9

Russia

71

73

76

78

82

86

90

3.9

South Korea

67

73

75

77

79

81

83

3.5

1,828

1,883

1,936

1,986

2,038

2,083

2,129

2.6

World steel production

Notes: e Estimate; f Forecast; g European Union 27 encompasses the aggregate output and demand for the 27 states which comprise the European Union; z Projection.
Source: World Steel Association (2021); Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 2021

31







4.2

Summary
The iron ore price surged in December and January, and is now at its
highest level since 2011. Prices have been driven by high demand in
China and (fears of) disrupted supply in Brazil and elsewhere. The ironore price is forecast to remain well above US$100 a tonne until late2021, before easing gradually over subsequent years, ultimately
reaching US$72 (in real terms) by the end of 2026.
Australia’s export volumes are expected to grow from around 900 million
tonnes in 2020–21 to 1.1 billion tonnes by 2025–26, as several mines
open or expand in Western Australia (see Australia section).
Stronger prices are expected to push Australia’s iron ore export values
up to a peak of $136 billion in 2020–21 (in real terms). Iron ore exports
are forecast to earn more than $700 billion over the outlook period,
remaining above $100 billion annually for each of the next five years.

World trade

Australia’s dominance of iron ore markets will face challenges
Global trade remains dominated by Australia, which exported more thanhalf of seaborne iron ore in 2020. However, iron ore output from SouthAmerica and Africa is expected to increase over the outlook period,(Figure 4.1).
China is investigating a number of possible iron ore mines in Africa,
including large deposits in Gabon and Madagascar. However, the mostnotable prospect in Africa is the proposed Simandou iron ore mine, locatedin the Nzérékoré region of Guinea. This region is relatively remote and far
from any port facilities, but the deposit is large and high-quality, and Rio
Tinto has announced that roadworks at the site are now underway. The
company is currently reviewing the cost and feasibility of investments
required for the mine. These investments are likely to include port
connections and more than 600 kilometres of railway to transport ore, andthe review is expected to conclude by the end of the 2020-21 financial
year.

Resources and Energy Quarterly March 2021

Figure 4.1: Outlook for global iron ore exports
2,000

1,500
Million tonnes

4.1

1,000

500

0

2016

2018

2020

Australia

Brazil

2022

2024

2026

ROW

Source: World Steel Association (2021); Department of Industry, Science, Energy andResources (2021)

While the project is expected to proceed, the infrastructure and capitalrequirements are significant. Full output is not expected before 2027 or
2028, though some initial output may occur towards the end of the outlook
period. The Simandou deposit is subject to complex ownershiparrangements, with the southern blocks controlled by a joint venture
between Rio Tinto, Chinalco and the Guinean Government, while much of
the northern area is controlled by a separate Chinese joint venture. The
northern area is currently closer to development, with a $14 billion
infrastructure contract now signed by the consortium. Should both areas
produce at full output, the mine could produce close to 200 million tonnesof iron ore per year, or around 15-20% of output currently produced in the
Pilbara region of Western Australia.
Brazilian iron ore output is expected to recover over the next 12-18
months. Prices for Brazilian ore have risen by more than 50% in
December 2020 relative to December 2019, creating favourable
investment conditions. Export volumes have recently shown signs of34

Global iron ore markets are expected to remain tight, with slow growth inboth supply and demand over the next five years. Market structure is notexpected to alter significantly, with Australia’s market share expected tohold up. A recovery in Brazilian supply is likely in the short-term, but anumber of high-cost mines in Brazil and China are also expected to faceclosure or depletion over the next 10 years.

4.3

PricesIron ore prices are holding at the highest level for almost a decade
Iron ore prices surged in December, lifting from around $US115 a tonne at
the start to the month to close out 2020 at over $US140 a tonne — thehighest level since 2011. Prices have subsequently lifted higher still,averaging over $US150 a tonne during January 2021 and reaching
US$170 a tonne during parts of February (Figure 4.2).

Resources and Energy Quarterly March 2021

120
80
40
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Iron ore quarterly price (fines)
Notes: China import Iron ore fines 62% Fe spot (CFR Tianjin port)
Source: Bloomberg (2021) Department of Industry, Science, Energy and Resources (2021)

Figure 4.3: China's iron ore port stocks and spot price
200

200

160

160

120

120

80

80

40

40

0
2016

2017

2018

Weekly port stocks

2019

2020

2021

US$ a tonne

Vale remains subject to a range of court actions, added regulations andother requirements, as well as disruptions to port and rail facilities in thesouth of Brazil. On balance, it is expected that Brazilian output will largely
recover pre-dam collapse levels by early 2022, with steady growth overthe following years, as new projects gradually commence production.

160

Million tonnes

Vale has released detailed plans to add over 100 million tonnes of newiron ore output to the market by end 2023. This includes its US$1.5 billion
Serra Sul 120 project, which progressed well in 2020 and is due to becommissioned as 2024 begins. This upgrade will open access to extra
mining areas, incorporate extra processing lines and provide a duplicate
long-distance conveyor. However, progress may be checked by thecomplexity of the projects and by a series of missed deadlines in thecompany’s recovery plans. Conditions in Brazil remain difficult, due to the
COVID-19 pandemic and after-effects from the Brumadinho dam collapse.

Figure 4.2: Iron ore price outlook, quarterly

2021 $US/tonne

significant recovery, following a series of difficulties and delays; exports
increased from 25 million tonnes in December 2019 to 33 million tonnes by
December 2020. In conjunction with higher prices, this led to a doubling ofexport revenue to Brazil over the year to December 2020.

0Iron ore price 62% CFR (rhs)

Notes: China import Iron ore fines 62% Fe spot (CFR Tianjin port)
Source: Bloomberg (2021) Antaike iron ore port stocks; Metal Bulletin

35

60

60

30

45

0

30

-30

15

-60
2016

2017

2018

2019

Discount 58% fine ores

2020

Prices (and premium prices in particular) have thus remained at near10 year highs for two months without significant retreat. Prices have been
pushed up by consistently high steel production in China, which has been
driven by COVID-19 related stimulus measures (Figures 4.3 and 4.4).
These strong demand influences have magnified the impact of lower
supply estimates from Vale, which has reduced its production guidance
significantly over the past 12 months.

Price spread

Per cent difference to benchmark*Figure 4.4: Iron ore price spread between grades

Iron ore production remains highly concentrated, with a small number offirms accounting for a high share of overall output. High entry costspresent a significant curb on new competition. The dominant firms havescaled down investment in recent years, in an attempt to reduce debt andadjust to (at the time) relatively low prices and strong supply conditions.
On the demand side, competition is far more intense despite the relative
domination of the market by China. Chinese steel mills compete with eachother, and are rivalrous in their efforts to secure available supply and gain
access to potential new supply sources.

0

2021

Premium 66% fine ores

Spread (rhs)
Notes: *Benchmark used is 62% iron fines CFR
Source: Bloomberg (2021) China import prices

Iron ore prices are expected to stay high into 2021

250

6,000

200

4,800

150

3,600

100

2,400

50

1,200

0
2015

0

2016

2017

2018

CFR 58%
CFR 66%China steel price index (rhs)

2019

2020

2021

Renminbi a tonne

US$ a tonne

Figure 4.5: Iron ore price by grade and China steel price index

CFR 62%
FOB 62%

Source: Bloomberg (2021); Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 2021

The primary drivers of high iron ore prices are expected to hold throughout
2021. Although Vale has announced plans to expand its capacity
significantly, much of the resulting output is not expected to reachseaborne markets for at least two to three years. BHP and Rio Tinto arebringing new mines to production in the Pilbara region of Western
Australia, but much of the resulting output will substitute for depleting
mines in the same area (see Australia section). Consequently, overall
output growth is not expected to occur at a pace which reduces prices
significantly.
A range of factors could put downward pressure on prices over the coming
months. Some price falls are expected, as Vale’s Brazilian operations
steadily return to output levels prior to the January 2019 Brumadinho dam
collapse. Overall, Brazilian output expected to recover to normal levels by
the end of 2021. More rapid progress on this front could lower prices more
swiftly. Chinese steel mills, which are facing severe pressure on margins,
may also seek to postpone some output in order to manage price36

pressures over the coming months (Figures 4.5 and 4.6). Chinese
Government stimulus measures could also be phased down in the second
half of 2021, reducing the imperative for rapid purchases of iron ore tomeet production schedules and allowing some build-up of iron ore at ports.
However, risks also exist in the other direction. The two largest supply
sources — Western Australia and Brazil — are both subject to regular
disruption to production and transport from extreme weather events.
These include heavy rains which sometimes disrupt operations in Brazil,
and cyclonic activity which periodically affects Australian shipments fromPort Hedland, Dampier and Cape Lambert. The likelihood of further events
presents a perpetual risk of price spikes over the coming years.

18

200

12

160

6

120

0

80

-6

40

-12
2016

2017

2018

China steel production

2019

2020

2021

Iron ore price (rhs)

Notes: China import Iron ore fines 62% Fe spot (CFR Tianjin port)
Source: Bloomberg (2021) China import prices; World Steel Association (2021)

0Australia

Iron ore export earnings are set to reach a new record in 2020–21
The recent price surge for iron ore has added markedly to the value ofAustralia’s iron ore exports. Export earnings hit new a record of$104 billion in 2019–20 (in real terms). However, Australia’s position as
the most reliable and dominant supplier has placed it in a position tocapture a huge share of the added gains from the latest surge in prices.
Export earnings are now forecast to reach above $136 billion in 2020–21(real terms).
A shift back towards more typical prices is expected to reduce earnings
somewhat over subsequent years, although iron ore is still expected toearn over $100 billion every year over the outlook period, with acumulative total of above $700 billion earned by 2025–26.
Australia’s iron ore export volumes are expected to grow

US$ a tonne

Year-on-year per cent change

Figure 4.6: Iron ore price vs China steel production growth

4.4

Export volumes are expected to rise over the outlook period, partly
offsetting the likely correction in prices. Mines expected to come online
include Mesa B, C & H at Rio Tinto’s Pannawonica site in mid-2021,
though the new output from this site will be offset by the closure of Mesas
J and A in the same area.
BHP is expected to bring its South Flank project to full production (ofaround 80 million tonnes per year) in 2021, though this will largely act as areplacement for the Yandi mine, which is closing.
The Roper Bar mine in the Northern Territory has recently restarted
production, in response to strong prices. Nathan River, which owns thesite, has announced that the project is expected to ramp up to 1.5-2 million
tonnes of production each year from 2021.
NT Bullion’s new Frances Creek mine is also producing on schedule,
following its opening in August 2020. Output is shortly expected to reach2 million tonnes per year, which will last beyond the outlook period.
Fortescue’s newly developed Eliwana project is successfully ramping up,
with output expected to reach almost 30 million tonnes per year from 2021.

Resources and Energy Quarterly March 2021

37

Export volumes are expected to increase from 893 million tonnes in
2020–21 to reach almost 1,100 million tonnes by 2025–26 (Figure 4.7).
However, exports will remain sensitive to conditions in China, which
remains Australia’s primary export market (Figure 4.8). The wave of new
openings and output replacements also presents a significant logisticalchallenge across multiple sites. Any disruptions due to weather or otherexternal factors could present a risk to export volumes (on the downside)or iron ore prices (on the upside).
A total of $111 million was spent on iron ore exploration in the December
quarter. This is virtually unchanged from exploration in the September
quarter, but 31% higher than in December 2019. Exploration has been
elevated in recent quarters as iron ore prices have continued to reachhistorical highs.
Revisions
Forecast export earnings for 2020–21 have risen from $123 billion in the
December Resources and Energy Quarterly (in nominal terms) to just over
$136 billion in this edition. This reflects stronger-than-expected Chinesedemand and persistently high prices, following repeated cuts in Vale’s
production guidance. Australian export earnings have been revised up bya similar amount for 2021–22.

160

900

120

600

80

300

40

0
2010–112013–142016–17

2019–20

Volume2022–230
2025–26

Value (rhs)

Source: ABS (2021) International Trade, Australia, 5368.0; Department of Industry, Science,
Energy and Resources (2021)

Figure 4.8: Australia’s iron ore export destinations, monthly
10000
8000
$m (monthly)

Iron ore exploration expenditure is growing as prices lift

1200

2020-21 A$ billion

Figure 4.7: Australia’s iron ore export volumes and values

Million tonnes

Rio Tinto’s new Koodaideri mine has an even larger potential, and is
ramping up towards an output of around 40 million tonnes per year from2022. Other sources of new output include Magnetite Mines’ Razorback
project in South Australia, Strike Resources’ Paulsens East project inWestern Australia, and Grange Resources’ proposed expansion to its
mine in Tasmania.

6000
4000

2000
0
Dec-96Japan

Dec-00

Dec-04Korea

Dec-08
TaiwanDec-12China

Dec-16

Dec-20

Others

Source: ABS (2021) Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 2021

38

Table 4.1: World trade in iron ore
Million tonnes
2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

1,552

1,686

1,716

1,739

1,763

1,799

1,844

2.9

1,175

1,268

1,292

1,295

1,295

1,296

1,309

1.8

European Union 28

97

112

112

112

112

112

112

2.4

Japan

99

113

116

119

122

125

128

4.3

South Korea

58

76

78

80

82

84

86

6.9

India

5

5

5

20

40

70

70

53.6

Australia

868

897

950

963

987

1,084

1,103

4.1

Brazil

341

396

428

446

461

459

455

4.9

Ukraine

30

22

26

25

24

20

26

-2.2

India

34

40

30

30

28

23

31

-14.3

Total world trade
Iron ore imports
China

Iron ore exports

Notes: e estimate; f forecast; r Average annual growth between 2020 and 2026 or 2019–20 and 2025–26; z projection.
Source: World Steel Association (2021); International Trade Centre (2021); Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 2021

39

Table 4.2: Iron ore outlook
World

Unit

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

– nominal

US$/t

116.7

110.4

88.1

81.9

78.9

77.5

77.1

-6.7

– real d

US$/t

119.0

110.4

86.3

78.4

73.9

70.9

69.0

-8.7

Australia

Unit

2019–20

2020–21f

2021–22f

2022–23z

2023–24z

2024–25z

2025–26z– Steel hs

Mt

5.53

5.55

5.59

5.59

5.59

5.59

5.59

0.2

– Iron ore

Mt

911.8

923.7

942.5

980.7

992.1

1 067.6

1 124.0

3.5

Steel

Mt

0.88

0.89

0.96

0.96

0.96

0.96

0.96

1.5

– nominal value

A$m

1 011

816

871

835

726

726

726

-5.4

– real value hi

A$m

1 022

816

857

804

682

665

648.9

-7.3

Iron ore

Mt

858.1

892.5

919.0

957.6

966.9

1 040.4

1 096.8

4.2– nominal value

A$m102,861

136,311

114,669

107,618

106,163

110,645

115,820

2.0– real value i

A$m

103,950

136,311

112,790103,676

99,775

101,407

103,517-0.1

Prices bc

Production

Exports

Notes: b fob Australian basis; c Spot price, 62% iron content basis; d In 2021 US dollars; e estimate; f forecast; h Crude steel equivalent; Crude steel is defined as the first solid state of production
after melting. In ABS Australian Harmonized Export Commodity Classification, crude steel equivalent includes most items from 7206 to 7307, excluding ferrous waste and scrap and ferroalloys; i In
2020–21 Australian dollars; r Average annual growth between 2020 and 2026 or 2019–20 and 2025–26; z projection.
Source: ABS (2021) International Trade in Goods and Services, Australia, 5368.0; Bloomberg (2021) Metal Bulletin; World Steel Association (2021); AME Group (2021); Company Reports;
Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 202140

5.1


Summary
Metallurgical coal prices have recovered in line with improving global
industrial production and economic activity. The Australian premium
hard coking coal (HCC) price is projected to increase from US$133 atonne in 2021 to US$166 by 2026 as steelmaking grows around theworld.



Australia’s exports are projected to rise from a 2020-21 low of
173 million tonnes to reach 191 million tonnes by 2025–26. Supply
chains disrupted by China’s informal import restrictions have alreadylargely reorganised, allowing Australia to successfully redirect to newmarkets (see Australia section).

Australia’s metallurgical coal export values are forecast to increase froma low of $23 billion in 2020–21, to above $30 billion by 2025–26.

5.2

World trade

World metallurgical coal trade fell by 40 million tonnes, or around 13% in
2020. This was in large part due to the effect of the COVID-19 pandemic
and associated containment measures, which severely affected industrial
production and steelmaking across most countries. Most steelmaking now
occurs in Asia, and while Chinese steelmaking remained strong, there
were sharp falls in metallurgical coal demand in India, Japan, South
Korea, and Russia.
A gradual easing in COVID-19 containment measures late in 2020 led tosome recovery in steel production outside China, which in turn led to abroadly based rise in metallurgical coal imports in late 2020 and early2021. However, steel output in China continues to lead the world, with
China’s steel industry recording strong growth in 2020 as a result of
stimulus measures. This has resulted in an atypically China-centeredmetallurgical coal market at the start of 2021.
World trade in metallurgical coal is expected to recover and rebalanceover the remainder of 2021 and 2022 as industrial production outside of
China returns to normal levels. Metallurgical coal markets are expected to

Resources and Energy Quarterly March 2021

grow most rapidly in India, and more slowly in Japan, South Korea andEurope.
China, where output grew in 2020, is expected to remain largely stable inits use of metallurgical coal as steel demand gradually peaks over the next
few years and alternative forms of steelmaking (notably through scrap
steel) increase in importance.
On balance, it is expected that metallurgical coal has a stronger recovery
prospect than thermal coal, which faces a range of technological andpolicy headwinds (see thermal coal chapter). The divergence in outlook is
particularly apparent in the US, where steelmaking remains a key priority
while power companies have continued to retire their aging thermal coalcapacity in the face of tighter air emissions standards and deterioratingcost-competitiveness.

5.3

World imports

China’s imports are levelling off in the early part of 2021
China is the world’s largest steel maker and largest metallurgical coalbuyer, importing around 73 million tonnes of metallurgical coal in 2020.
Imports to China remained strong through much of 2020, despite someeasing late in the year (Figure 5.1). Imports from Russia increased in late
2020 as China sought alternatives to Australian product.
Chinese metallurgical coal imports are forecast to ease over the outlook
period as the country builds its scrap steel industry and improves its
domestic output. Imports are expected to ease to 69 million tonnes in 2022
and to 64 million tonnes by 2026.
India’s metallurgical coal imports are recovering
India is the world’s second largest steel producer and second biggest
metallurgical coal buyer, and is estimated to have imported 54 million
tonnes in 2020. This is down from 58 million tonnes in 2019, reflecting theeffects of the COVID-19 pandemic on Indian steelmaking. However, as
Indian steelmaking gradually emerged from the worst effects of thepandemic, imports lifted in the second half of the year.

43Figure 5.1: China’s metallurgical coal imports, year-on-year change
3

Million tonnes

2

With steelmaking a key priority in India, it is projected that India’s
metallurgical coal imports will increase from 54 million tonnes in 2020, to
65 million tonnes by 2022 and 80 million tonnes by 2026. (Figure 5.2).
Australia is well placed to supply much of this extra requirement.

10-1Japan’s imports to fall, while South Korea’s to rise slightly after 2020

-2
-3

Australia Russia
Jul-20

Canada Mongolia UnitedStatesAug-20

Sep-20

Oct-20Rest ofworld

Nov-20World

Dec-20Notes: China customs released combined January/February data for 2020.
Source: Bloomberg (2021); China customs (2021)

100
90
80
70
60
50
40
30
20
10
0

2019

Japan is the world’s third largest metallurgical coal importer, importing
40 million tonnes in 2020. This was down from 43 million tonnes in 2019,
though the December quarter results show clear signs of strengthening.
With two major producers planning to retire some steelmaking capacity
over the outlook period, Japan’s metallurgical coal imports are notexpected to fully recover to their pre-COVID levels, remaining largely
steady at just over 40 million tonnes annually over the outlook period.
South Korea is the world’s fourth largest metallurgical coal importer,
buying 33 million tonnes in 2020. This is around 10% below the level of
2019, but some recovery is expected in 2021, with imports projected toreach 38 million tonnes by 2026.

Figure 5.2: Metallurgical coal imports

Million tonnes

India has released plans to increase its crude steel production capacityfrom 142 million tonnes to 300 million tonnes per year by 2030. This willplace pressure to increase imports given India’s limited domestic reservesof metallurgical coal.

5.4

World exports

US export volumes have plunged, and are likely to stay down

China

Japan

2020

2021f

South
Taiwan
India
Korea
2022f
2023z
2024z
2025z

EU27
2026z

Notes: f Forecast; z Projection
Source: IHS (2021); Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 2021

The US has long been the world’s second largest exporter of metallurgicalcoal after Australia. However, its exports plunged sharply (from 50 million
tonnes to 37 million tonnes) in 2020. Exports from the United States were
hit particularly hard as its largest buyers (especially Brazil and the EU) cut
their steel production.
Coal production in the US occurs largely inland, resulting in relatively hightransportation and production costs, which make it hard for the US toredirect to more distant markets (see Figures 5.1 and 5.3).

44

Exports from the US are expected to continue struggling over the outlook
period, as Brazil and Europe face a slow (and potentially incomplete)recovery in steelmaking. US metallurgical coal exports are expected tocontract over the longer term due to high costs and a long-term reduction
in steelmaking capacity across Europe. (Figure 5.4).

Mongolia’s exports remain subject to conditions in China

Russia’s exports fall for now
Russian exports are estimated to have fallen by 10% in 2020, to around23 million tonnes. However, exports strengthened in the second half of theyear, and are expected to recover to 24 million tonnes by 2021, growing
gradually over the rest of the outlook period to reach 32 million tonnes by2026. (Figure 5.6). Russian coal is extremely low in sulphur, making itsuited for emerging Asian markets where pollution laws are becoming
more stringent. Russia is also investing significantly in new mining
capacity, and rail/port expansions, which should improve costcompetitiveness (Figure 5.3) and increase access to buyers in the EU andSouth Asia.

Mongolian exports are estimated to have fallen by around 15% in 2020,
largely due to COVID-19 containment measures impacting exports to
China. Mongolian exports have subsequently recovered with theresumption of normal trade, and are expected to resume at pre-COVID-19
levels (around 30 million tonnes per year) from 2021. Exports are then
expected to increase over the outlook period, reaching 32 million tonnes
by 2026. Exports will be supported by recent tariff cuts in China under the
Asia-Pacific Trade Agreement and by the completion of a key railway
connecting mines in Mongolia with buyers in northern China.
Exports from Canada could partly fill China’s Australia gap
Canada exported 31 million tonnes of metallurgical coal in 2020, around
10% below its typical export levels (Figure 5.4). However, only around
10% of this was shipped to China, leaving Canada relatively exposed to
the weakness of non-Chinese markets. Exports to China are now
increasing as Canadian production is drawn to the fill the space created by
China’s informal import restrictions on Australian coal.

Figure 5.3: Metallurgical coal (including hard coking, PCI and semi-soft) global cost curve, FOB, 2020
160
140
US$ a tonne

120
100
80

60
40
20
0

0

50
Australia

100
Russia150
US200
Canada250
Mozambique

300
Mongolia

350
RoW

Million tonnes

Notes: FOB is Free on Board. RoW is rest of world.
Source: AME Group (2021); Department of Industry, Science, Energy and Resources (2021)
Resources and Energy Quarterly March 2021

45

Figure 5.4: Metallurgical coal exports

5.5

Metallurgical coal prices volatile on China uncertainty

200

Metallurgical coal prices lifted sharply in January, effectively reversing thefall which followed China’s informal restrictions on Australian metallurgicalcoal imports in October 2020. The price for Australian premium low-volatile
hard coking coal rose by around 60% in January as suppliers locked into
new demand sources and buyers and sellers reorganised supply chains.
Prices were also boosted by fears over weather disruptions at Queensland
ports, with cyclone season often peaking in the late summer.

120
80
40

2019

Australia

US

2020

2021f

Canada2022f

Mongolia

2023z

2024z

RussiaMozamb.

2025z

2026z

Notes: f Forecast. s Estimate; z Projection.
Source: IHS (2021); Department of Industry, Science, Energy and Resources (2021)

Canada’s metallurgical coal exports are expected to lift temporarily to
32 million tonnes in 2020, though in the longer term its relatively highproduction costs and long shipping routes are projected to see its exports
edge down to 29 million tonnes by 2026.
Mozambique’s exports will take time to recover
Mozambique currently has two exporting metallurgical coal mines: Vale’s
Moatize project and Jindal Steel’s Songa project. Mozambique’s exports
fell sharply in 2020, as low prices heavily affected the country’s relatively
high cost producers (Figure 5.3). A recovery is expected over the next few
years, with output forecast to reach 7 million tonnes in 2022 and 12 million
tonnes by 2026. The rise is expected to be driven in large part by the ramp
up of Vale’s Moatize mine, and facilitated by the 912 kilometre Nacalalogistics corridor rail line and Nacala port expansion.

Price rebounds for Australian coal have led to broader price pressure on
Asian seaborne metallurgical coal. Demand has risen in Japan, India andthe EU, where steel output is recovering from the effects of the COVID-19
pandemic. However, prices have shown signs of softening again in recent
weeks, adding to volatility in early 2021.
Figure 5.5: Metallurgical coal prices, monthly
350
300
Million tonnes

Million tonnes

160

0

Prices

250
200
150
100

50
0
2012

2013

2014

2015

Australian HCC

2016

2017

2018

Low Vol PCI

2019

2020

2021

Semi-soft

Notes: HCC stands for hard coking coal. PCI stands for pulverized coal for injection.
Source: Platts (2021)

Resources and Energy Quarterly March 2021

46

Figure 5.6: Metallurgical coal prices - Australian Prime Hard vs US
Low Vol, FOB
350
300

Figure 5.7: Australian premium HCC spot price, quarterly
300

250

US$ a tonne

Metallurgical coal prices have diverged significantly since China’s informal
restrictions on Australian coal. The move led to lower prices for Australiancoal relative to coal sourced elsewhere (Figures 5.5 and 5.6), thoughprices for Australian output have subsequently recovered as supply chainsadjusted and Australian coal found new markets.

US$ a tonne

250

200
150
100
50

200

0
2012

150

2014

2016

2018

2020

2022

2024

2026

100

Source: Platts (2021); Department of Industry, Science, Energy and Resources (2021)

50

5.6

0
2014

Australia

Metallurgical coal export earnings are set to fall in 2020–21
2015

2016

2017

2018

Australian prime hard coking

2019

2020

2021

US Low Vol

Source: IHS (2021). Low vol = low volatile coking coal. Red marker indicates approximate
timing of informal import restrictions from China.

The recovery in metallurgical coal prices is expected to resume during2021, as steelmaking continues to rebound. The premium Australian HCC
price is forecast to average US$136 a tonne in 2021 and US$145 a tonnein 2022, rising to US$166 by 2026. Despite this growth, prices are
expected to remain well below the 2019 average (Figure 5.7).
The most significant upside risk to prices is likely to be potential for
extreme weather events over autumn, which has potential to disrupt
shipping from Queensland. Any disruption to supply is likely to havestronger than usual effects given the strong growth currently occurring in
global steelmaking as the world economy recovers.
Resources and Energy Quarterly March 2021

Australia is the world’s largest exporter of metallurgical coal, accounting
for around half of global seaborne supply. Australian metallurgical coalexports are expected to fall to 173 million tonnes in 2020-21 (Figure 5.8),
largely due to China’s informal restrictions on imports of Australian coalpersisting into 2021. Some of this loss is likely to be offset by risingexports to India, Bangladesh, Pakistan and the Middle East, with newly
formed supply chains expected to persist through the outlook period.
The most significant shift in supply chains is likely to take place between
Australia and Mongolia. Australia was the largest exporter to China overthe first half of 2020 as China closed its border with Mongolia due to
COVID-19. This shift reversed late in the year as China imposed informal
import restrictions on Australian coal and resumed trade with Mongolia.
Metallurgical coal prices have become ‘two-tiered’, with Chinese import
restrictions reducing the price of Australian output relative to output

47

Australia’s exports are recovering overall following several mine closures
enacted after prices fell in the early part of 2020. These include Peabody’s
Wambo mine in NSW, which closed in July and August, and several
Glencore mines which halted output in September and October. The reopening of these mines (and solid production elsewhere) is expected tosee exports lift in 2021 relative to 2020. This lift in supply is likely to match
growing demand as steel production and industrial activity recover inEurope, the US and Asia.
Metallurgical coal export earnings are expected to fall to $23 billion in
2020–21, impacted by China’s informal import restrictions and by thesubsequent lowering in prices for Australian coal (Figures 5.7 and 5.9).
However, a recovery is expected through the outlook period, as mines
resume operations, newly formed supply chains strengthen and demand
grows in India, Europe and South Asia. This recovery is expected to lift
export volumes back to 191 million tonnes, and export earnings up to$31 billion (in real terms) by 2026.

Resources and Energy Quarterly March 2021

16
12
8

4
0

Jan Feb Mar Apr May Jun
2018

Jul

2019

Aug Sep Oct Nov Dec
2020

Source: ABS (2021)

Figure 5.9: Australia’s metallurgical coal exports
200

50

160

40

120

30

80

20

40

10

0
2010–112013–142016–17
Volumes

2019–202022–23

2020-21 A$ billion

Illawarra Metallurgical Coal lifted its output by 11% (to 3.3 million tonnes)
in the second half of 2020, relative to the same period in 2019. Output
appears to be benefiting from the company’s return to a three-longwall
configuration, which improves its capacity to mine two coal seams at once.

20

Million tonnes

Conditions are mixed among individual mines. BHP production edged
down from 20 million tonnes in the first half of 2020, to 19 million tonnes inthe second half. BHP has not revised its production guidance (of 40-44
million tonnes for 2020-21), but it is expected that output for the year will
fall into the lower half of the range. Whitehaven has lifted its production to
7.2 million tonnes in the second half of 2020, a slight rise from theequivalent part of 2019. Production was temporarily affected by smokeand dust at its Narrabri project, but has largely returned to normal.

Figure 5.8: Australia’s metallurgical coal exports, monthly

Million tonnes

sourced elsewhere. However, prices for Australian output showed signs ofrecovery in January-February, amidst concerns over potential summer
weather disruptions and market speculation around a potential easing in
Chinese import restrictions.

02025–26

Values (rhs)

Source: ABS (2021) International Trade, Australia 5454.0; Department of Industry, Science,
Energy and Resources (2021)

48

350

250

280

200

210

150

140

100

70

50

0
2010
2012
2014
2016
2018
2020
Exploration expenditure (rhs)
Newcastle 6,000 kcal

0Australia’s coal exploration expenditure decreased by 30% year-on-year to$54 million in the December quarter 2020, but remains higher than thelows recorded over 2016 and 2017. The growth from 2016 lows is likely inresponse to high coal prices, especially metallurgical coal, in theintervening years. High prices persisted for several years then started to
decline from mid–2019. Current low prices are expected to translate tolower coal exploration expenditure over the coming year or two (Figure5.10). Export margins vary widely across Australian deposits, adding to therisk for exploration when prices are volatile (Figure 5.11).

Source: ABS (2021); IHS (2021); Platts (2021)

Revisions to the outlook for Australian metallurgical coal exports

Figure 5.11: Export margins of Australian metallurgical coal mines

Australian Hard Coking Coal

50
40
30
US$ a tonne

Australia’s forecast metallurgical coal export earnings have been revised
up by $0.2 billion in 2020–21, but down by $1 billion in 2021–22 (innominal terms) since the December Resources and Energy Quarterly. The
result reflects the impact of China’s recent import policy and the resulting
shifts in prices for Australian exports.

A$ million

Coal exploration expenditure may have peaked

Figure 5.10: Australian coal exploration expenditure and prices

US$ a tonne

However, risks remain weighted to the downside. The most significant riskin the near-term is the potential for disruptive heavy rainfall in coalproducing regions of Queensland and NSW. The Australian Bureau of
Meteorology (BOM) advises that La Niña conditions are expected tocontinue through the March quarter 2021.

20
10
0

-10
-20
-30
-40

0

50
HCC

100
PCI
Semi soft

150 Million tonnes

Notes: ‘Semi soft’ is semi-soft coking coal; PCI is pulverized coal for injection; HCC is hard
coking coal. Price assumptions are HCC = US$120 a tonne; PCI = US$70 a tonne; semi soft
= US$65 a tonne. Mines are categorized into HCC, PCI and semi soft. If a mine produces amore than one type, they are categorised according to their dominant product for simplicity.
Source: AME (2021); Department of Industry, Science, Energy and Resources (2021).
Resources and Energy Quarterly March 2021

49

Table 5.1: World trade in metallurgical coal
Unit

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

Mt

293

304

313

331

331

330

330

2.0

China

Mt

76

70

69

69

69

67

64

-2.7

India

Mt

54

59

65

71

76

80

86

8.1

Japan

Mt

42

44

43

43

43

42

42

0.0

European Union

Mt

35

39

38

37

36

35

34

-0.6

South Korea

Mt

33

36

37

37

38

38

38

2.5

Australia

Mt

172

179

185

191

192

191

191

1.8

United States

Mt

37

30

25

25

25

25

25

-6.2

Canada

Mt

32

32

32

30

30

29

29

-1.7

Russia

Mt

22

24

24

32

32

32

32

6.3

Mongolia

Mt

24

26

32

32

32

32

32

5.0

Mozambique

Mt

3

5

7

12

12

12

12

26.5

World trade
Metallurgical coal imports

Metallurgical coal exports

Notes: f Forecast; s Estimate; z Projection.
Source: IEA (2021) Coal Information; IHS (2021); Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 2021

50

Table 5.2: Metallurgical coal outlook
World

Unit

2020f

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

Contract pricese– nominal

US$/t

127

130

145

154

164

166

166

4.6

– reald

US$/t

129

130

142

147

154

152

148

2.3

– nominal

US$/t

125

133

145

155

165

166

166

4.8

– reald

US$/t

128

133

142

148

154

152

148

2.5

Australia

Unit

2019–20

2020–21f

2021–22f

2022–23z

2023–24z

2024–25z

2025–26z

CAGRr

Productions

Mt

184

175

190

194

198

197

197

1.2

Export volume

Mt

177

173

185

188

192

192

191

1.3

– nominal value

A$m

34,24522,723

26,13028,93132,75734,21934,2220.0– real valuei

A$m34,60722,72325,702

27,87130,786

31,36230,587-2.0

Spot pricesg

Notes: d In 2020 US dollars. e Contract price assessment for high-quality hard coking coal. i In 2020–21 Australian dollars. f Forecast. g Hard coking coal fob Australia east coast ports. s Estimate.
z Projection.
Source: ABS (2021) International Trade in Goods and Services, Australia, 5368.0; Department of Industry, Innovation and Science (2021); Platts (2021)

Resources and Energy Quarterly March 2021

51

6.1

SummaryThermal coal spot prices have recovered following production cuts inmajor exporting countries and recent growth in demand as Asian
economies emerged from COVID-19 containment measures. The
Newcastle benchmark price is forecast to average US$64.50 a tonne in
2021, rising slowly to US$73 a tonne by 2023, before easing to around
US$60 a tonne by 2026.

Import restrictions imposed by China on Australian coal havecontributed to a decline in exports, from 213 million tonnes in 2019-20
to 206 million tonnes in 2020–21. However, exports are projected to riseto 231 million tonnes by 2025–26, as supply chains adjust and global
markets increasingly prioritise high-quality coal (see Australia section).



6.2

Australia’s thermal coal export values are forecast to fall from $21 billion
in 2019–20 to $15 billion in 2020–21. Earnings are expected to remain
largely steady at this level out to 2025–26.

World trade

Global thermal coal use fell sharply in 2020 as a result of the COVID-19
pandemic and subsequent global containment measures, which led tosignificant falls in electricity use around the world. World thermal coal tradefell in 2020 for only the second time this century (the first being in 2015).
Falls in thermal coal imports were particularly sharp in India and the EU,
though demand also fell significantly in South Korea and Japan.

well. While thermal coal demand is forecast to increase in Southeast Asia,
plans for coal plant construction have been revised down substantially in a
number of countries including Vietnam, Indonesia, Bangladesh and thePhilippines. Gas and renewables are also expected to play a greater rolein South Korea and Japan. Technology to convert hydrogen gas into
ammonia is also being adopted to resolve intermittency problems withrenewables.
In Africa, coal use is unlikely to rise on the scale of Asia, with the pacedropping considerably following Egypt’s cancellation of its coaldevelopment plans.
Policy measures are adding to structural pressures on coal power, withpotential impacts on coal demand beyond the outlook period. A range ofcountries have recently upgraded their commitments to reduce emissions.
Policy measures are building on recent announcements from the private
sector seeking to invest in the global energy transition. Access to capitalhas become more challenging for some investments, and some insurers
are also reducing their exposure to fossil fuels.

Coal trade has also been affected by significant competition from gas.
Price reductions have allowed gas to be more competitive in the meritorder and allowed it dispatch more often. The flexibility of gas generation
has also allowed it to be more competitive in providing back-up generation
for renewables, which enhances the ability of renewables to compete withcoal.

The coal plant construction pipeline, which previously spanned much of
Asia, has contracted in recent years. Most of the residual construction
proposals are now in China, though coal use is also expected to rise inSouthern Asia (though to a lower peak than previously expected). Coal
use is expected to be supported by increases in overall electricity use in
India, Bangladesh and a number of ASEAN nations as industries andcities expand and more people are connected to power grids for the firsttime. Short-term gains in thermal coal use are also expected to as theglobal economy continues to recover from the recession caused by
COVID-19. The recent rebound in gas prices is also likely to assist coaldemand and provide a short-term upside for coal usage in Southeast Asia,
India the EU and the US.

The substitution of coal power with gas and renewables has been evident
in the US and Europe, though the trend is now evident in other regions as

However consistent with IEA projections, we expect global coal imports to
decline in many regions over time (see Figure 6.1).The decline in global

Resources and Energy Quarterly March 2021

54

coal imports is expected to be most rapid in Europe and North America,
where use was falling prior to the COVID-19 pandemic. Among OECD
countries, coal demand is expected to decline at an accelerating rate after
2021. Costs for alternative energy sources including wind and solar are
also expected to keep falling, with improvements in supporting
technologies such as batteries accelerating.
In the US, use of shale oil is expected to continue rising after a brief
disruption caused by COVID-19. A range of large mining and powercompanies in the US remain committed to moves away from thermal coal
despite recent growth in gas prices.
Figure 6.1: Thermal coal imports
250

Million tonnes

200
150
100
50
0

2019

China Japan South Taiwan India
Korea
2020s

2021f

2022f

2023z

Other
Asia

2024z

EU27
2025z

RoW
2026z

Note: s Estimate; f Forecast; z Projection. ROW = Rest of World.
Source: IHS (2021); IEA (2021) Coal Market Report; Department of Industry, Science,
Energy and Resources (2021)

6.3

World imports

China’s import price premium remains high as import restrictions persist
Coal use in China remained relatively robust through 2020 and into theearly part of 2021. China’s thermal coal imports in the December quarter2020 were around 10% higher than the same period in 2019, reflecting
greater output from most of the country’s larger power generators. Coal
use is expected to flatten out in China over the outlook period. The
Chinese Government’s latest Five-Year plan reiterated commitments toreach peak emissions by 2030 and attain carbon neutrality before 2060.
However, imports will also be subject to other forces affecting domestic
coal use in China. China saw a wave of new coal plant constructions
following a policy change in 2014, which delegated coal plant approvals toregional governments. In 2016, the Chinese Government revised thepolicy again, curbing coal plant constructions to prevent overcapacity. In
early 2020 the policy was tweaked further, with the National Energy
Administration simplifying its process for coal plant approvals. This is likely
to see coal plant constructions progress more rapidly over the next few
years. However, many of these new plants are replacements for old
capacity, and the greater efficiency of the newer plants will likely curb any
growth in coal use. In 2020, China’s State Council released new guidelines
intended to more strictly control new plant approvals.
China’s reliance on coal power will thus persist for several decades, withthe majority of its coal plants still relatively new. However, it is expectedthat future plant approvals will remain largely confined to replacement for
older capacity. Domestic coal output in China is expected to remainstrong, curbing import growth over the outlook period (Figure 6.1). China’s
coal mining industry produces more than 3 billion tonnes of coal per year,
accounting for around half of global coal output. Despite the impacts of
COVID-19 containment measures in the early months of the year, China’s
domestic coal mining appears to have maintained its typical output over2020. This led to downward price pressure on the seaborne market.

Resources and Energy Quarterly March 2021

55

In January 2021, China’s National Development and Reform Commission(NDRC) released a regulatory plan which includes a target to stabilise
China’s domestic prices within a price band of 500 to 570 Renminbi(RMB), equivalent to US$76–87 a tonne at the current exchange rate.
Prices in this range are understood to be broadly acceptable to China’s
power generators and industrial consumers, and also ensure sufficientmargins for domestic coal miners. The NDRC typically eases import
restrictions when the domestic benchmark prices exceed RMB570 a
tonne, and tightens restrictions when the price goes below RMB500. The
price range is shown as a green zone in Figure 6.2.
As this chart shows, China’s informal import restriction on Australian coalhas resulted in significant price pressure for Chinese consumers, withcosts for China’s domestic product lifting to around double the price of theequivalent Australian coal (see comparison with QHD prices in Figure 6.2).
If there was a continuation of this policy, it is likely to see domestic coalprices remain elevated in China through 2021 and potentially beyond.
In the short-term, China’s thermal coal demand is expected to lift in 2021
and 2022 in line with economic growth. While significant new power
generation is expected to come from hydro, gas and renewable sources, anumber of coal-fired power plants are well progressed in their construction.
This may not flow through significantly to imports, partly due to the scale of
China’s domestic output and partly because the high-efficiency lowemissions technology used in newer coal plants is expected to improvetheir efficiency relative to the plants they are replacing.

Figure 6.2: China’s domestic vs Australian thermal coal export price
1000
900
800
RMB a tonne

Australia’s thermal coal exports to China declined in 2020, despite a rise in
the early part of the year. China has actively sought to manage coal importlevels over the past few years; in part to provide support for its domestic
coal industry and in part to pursue energy security goals. However, therestrictions on Australian exports have had effects on domestic coal prices
and availability in China.

700
600
500
400
300

200
100
0
Jan-19Jul-19Jan-20Qinhuangdao 5500 kcal

Jul-20Jan-21

Newcastle 5500 kcal

Notes: The ‘green zone’ is a price band from 500-570RMB. Qinhuangdao (QHD) prices are a
key benchmark for coal prices in northeastern China. The Newcastle benchmark series(traded in USD) is converted to RMB at 18 November 2020 exchange rate. Note that the
Newcastle series excludes freight costs which typically add around US$10/t or 66 RMB.
Source: Bloomberg (2021)

India’s power and industrial sectors are recovering
Indian thermal coal imports fell in 2020 (Figure 6.3), though with significant
divergence among import sources. Australian exports to India have
surged, reaching a monthly record in January, at almost 7 million tonnes –nearly double the level of a year ago. This growth has largely come at theexpense of Indonesia, where imports fell to just under 6 million tonnes inJanuary. Indonesian output is now being increasingly directed to China, as
a substitute for Australian coal. This effectively raises the quality of coal
imported to India while reducing the calorific quality of imports to China. It
expected that this supply chain shift will persist during the outlook period.
India has continued with its efforts to reduce its import reliance by
expanding its private sector domestic coal production. To this end, theResources and Energy Quarterly March 2021

56

Indian Government has announced a second round of commercial coal
block auctions following the first sale in November 2020. The new release
includes 75 blocks, of which 68 are thermal and two are metallurgical coal,with the remaining two blocks being mixed. Development time varies
widely, with some blocks potentially able to commence production within
one year, while others may take up to five. The two auctions combined willtechnically add around 200 million tonnes annually to Indian domestic
production capacity, though it is not clear how much of this production will
ultimately occur.
At the time of writing, Indian coal imports have largely recovered to theirpre-COVID-19 pandemic level, with containment measures easing andsteel demand rising as a result of construction and infrastructure activity.
On balance, it is expected that India’s thermal coal imports will lift
gradually over the next two years, reaching 190 million tonnes in 2022.
After 2022, imports will be constrained by government targets and policy.
Figure 6.3: India’s thermal coal imports, monthly
20
16
Million tonnes

Japan’s imports have partially recovered
Japan is the world’s third largest thermal coal importer. However, imports
to Japan have been relatively constrained in late 2020 despite a colderthan-usual winter. Coal faced competition from cheaper gas as electricity
use declined during the period of COVID-19 pandemic. Japan’s thermal
coal imports were 10% lower in the December quarter compared to thesame period in 2019 (Figure 6.4).
Beyond 2020, there are competing trends at work: Japan still has highefficiency coal-fired power plants under construction, but almost two-thirds
of proposed coal constructions have been cancelled since 2016. Coal
consumption will also be reduced by the retirement of up to 100 older
power plants by 2030. With population declining, Japan’s energy demandis expected to remain on a downward trend over time.
However, nuclear power generation is expected to have declined during
the 2020-21 winter period, creating more space for coal generation. At thetime of writing, only nine of Japan’s 42 nuclear reactors have gained
approval to restart following the Fukushima accident in 2011, and some ofthese remain idle due to new requirements for anti-terrorism upgrades.
Most of these upgrades are scheduled to complete by mid-2021, andanother four reactors are currently seeking approval and could be online
by 2023. However, the slow pace of overall approvals is likely to constrain
competition from nuclear power over the outlook period.

18
14
12
10
8
6
4
2
0
2017
Indonesia

In February 2020, India’s Minister for Coal and Mines reaffirmed plans for
India to rely fully on domestic coal production by 2023–24. While this has
been a long-term and difficult goal for India, the announcement signals arenewed policy drive for energy self-sufficiency.

2018
South Africa

2019
United States

Source: IHS (2021)

2020
Australia Russia

Other

In his first general policy address to the Diet on 26 October 2020, Prime
Minister Yoshihide Suga announced that Japan would pursue a nationaltarget of net-zero emissions by 2050. Depending on how policies are
implemented and the evolution of technologies, this could have a material
impact on Japan’s demand for thermal coal beyond the outlook period.

Resources and Energy Quarterly March 2021

57

In mid-2021, Japan’s 6th Basic Energy Plan is expected to be released,setting out a roadmap to the 2050 goal. Accelerating the pace of nuclear
reactor restarts may be a part of that plan, but nuclear energy continues toface public opposition in Japan.
South Korea is set to reduce coal imports slowly
South Korea is the world’s fourth largest thermal coal importer, but its
imports fell sharply in the December quarter 2020 (Figure 6.4), even as theSouth Korean economy continued to recover from the effects of the
COVID-19 pandemic. Nuclear generation increased over the winter,largely accommodating higher electricity demand for heating. The
government’s winter fine dust policy, which seeks to improve air quality, isalso now in effect, and has forced a temporary closure of around 16 coalfired power stations over the March quarter 2021.
South Korea’s import and consumption of thermal coal has been declining
since 2018, as government policies have been implemented to manage air
pollution problems. This have included new tax arrangements aimed at
encouraging the use of gas over coal. The country plans to convert aquarter of its coal–fired capacity to gas by 2031.
Figure 6.4: Japan, South Korea and Taiwan’s thermal coal imports
14
Million tonnes

12
10
8
6
4
2
0

2018

2019
Japan

2019
South Korea

Source: IHS (2021)

2020
Taiwan2020

In October 2020, South Korea’s president declared in a policy speech in
the national assembly that the country will be carbon neutral by 2050.
Seven coal power units currently under construction are likely to becompleted. However, thermal coal use will be subject to anti-pollution
measures including periodic planned shut-downs of coal plants (including
the closure of 9-16 plants over three months from December 2020). South
Korea’s thermal coal imports are forecast to fall steadily over the second
half of the outlook period assuming some of the measures under South
Korea’s draft 2020–2034 energy plan come into effect.
Taiwan’s imports resilient in 2020
Electricity demand held up relatively well in Taiwan during 2020, reaching
58 million tonnes. This reflects the country’s early success in containing
COVID-19. However, imports are edging down, and are expected to
decline further over the outlook period as a result of the government’s
energy transition policies. Taiwan is aiming to shift its power generation
mix towards gas and renewables and away from nuclear power and coal.
Under Taiwan’s current energy plan, coal’s share of power generation is
expected to fall from 46% at present to 27% by 2025.
Southeast and South Asia imports to grow, led by Vietnam
In 2020, nations in Southeast and South Asia (excluding India) collectively
imported around 150 million tonnes of thermal coal, and are expected toplay a substantial and growing role in thermal coal markets into the 2020s.
The largest importers of thermal coal in these regions are Malaysia,
Vietnam, and the Philippines, and growth in thermal coal use is expected
to continue in the latter two countries for the full outlook period. Vietnam is
expected to be a key driver of import demand growth, with around
5.5 Gigawatts of additional coal-fired power generation capacity likely tocome online in the outlook period in that country alone. An early 2020
resolution of Vietnam’s government sought to prioritise renewables andgas over thermal coal, but uncertainty over the level and duration of policy
support may undermine the required investment.

Resources and Energy Quarterly March 2021

58

Growth in coal use is nonetheless likely to cap out at a lower level thanpreviously expected. Vietnam’s National Steering Committee for Power
Development has revised its 2025 coal generation target from 50% to
37% of total generation, while the Philippines has placed a moratorium on
new coal constructions. Capital flight has also led to the cancellation ofnine proposed coal plants in Bangladesh. The COVID-19 pandemic has
also slowed momentum on a range of industrial and energy grid policies
underway, and progress in alternative methods for energy generation(including ammonia use) is likely to bring forward the peak in coal use
across South Asian nations.
Broad factors including economic and population growth continue to drive
demand for electricity, and additional coal-fired power is expected to play arole in meeting it. On balance, it is expected that thermal coal imports toSoutheast and South Asia will increase, reaching 189 million tonnes in
2022 and 228 million tonnes by 2026 (Figure 6.5).
Figure 6.5: South and South East Asia thermal coal imports
250

Million tonnes

World exports

World thermal coal exports fell by about 13% in 2020, with producers
cutting their aggregate output significantly. However, there were significant
divergences in individual coal markets over the year, with the biggest
impact being on high-cost suppliers (including the United States andColumbia) in the Atlantic Basin market, where demand and prices dropped
particularly sharply.
Coal exports are expected to partially recover in the Atlantic Basin andAsia Pacific markets in 2021 as the COVID-19 vaccines roll out, allowing
economies to gradually return to normal. Electricity use is expected to lift
over 2021, reaching normal levels by the second half of the year. The
impact of emissions reduction commitments, change in Chinese coal
import settings and the development of India coal reserves by privatecompanies all remain uncertain, creating complex scenarios for thermal
coal exporters.
Indonesia’s exports decline sharply
Indonesia is the world’s largest thermal coal exporter, exporting around
400 million tonnes in 2020. This represents a fall from the record level of
2019, reflecting difficult conditions since the outbreak of the COVID-19
pandemic. While Indonesia’s coal reserves are substantial, many are
subject to high costs, which left them uneconomic during the period of low
prices in the early and middle part of 2020. The calorific quality ofIndonesian coal is also relatively low, at a time when markets are placing apremium on higher quality coal.

200
150
100
50
0

6.4

2010 2012
Vietnam2014 2016 2018 2020 2022 2024 2026
Philippines
Malaysia
ThailandBangladesh

Pakistan

Other

Source: IEA (2021) Coal Information; Department of Industry, Science, Energy andResources (2021); IHS (2021)

The Chinese Government’s informal import restrictions on Australian coal
has led to a shift to buying Indonesian coal by Chinese importers. This
demand led to a brief shortage of thermal coal in the domestic Indonesianmarket, resulting in a deferral in deliveries to China and capped a volatile
year for Indonesian coal exporters.

Resources and Energy Quarterly March 2021

59

Million tonnes

Figure 6.6: Thermal coal exports
500
450
400
350
300
250
200
150
100
50
0

Indonesia Australia

2019

2020s

2021f

US exports face significant cost and infrastructure challenges

Russia2022f

Colombia

2023z

South
Africa2024z 2025z

US
2026z

Notes: s Estimate. f Forecast; z Projection.
Source: IHS (2021); IEA (2021) Coal Information; ABS (2021); Department of Industry,
Science, Energy and Resources (2021)

Indonesian coal production fell by around 17%, to 42 million tonnes over
the year to January 2021. This likely reflects the impacts of a strong
monsoon season, which affected loading activity at several key ports, aswell as weather impacts from La Niña, which have lasted into January.
Indonesian authorities have determined a production target of 550 million
tonnes for 2021. This is slightly below the 562 million tonnes produced in
2020, but still sufficient to maintain relatively healthy exports over the year.
On balance, Indonesia’s exports are expected to rise slightly in the firsthalf of the outlook period as prices recover (Figure 6.6). However, output
is not expected to return to 2019 levels. Coal prices remain low andvolatile despite their recent growth, and this is likely to act as a curb to coalinvestment in Indonesia. Coal exports will also be constrained by theIndonesian government’s recently announced plans to limit annual exports
in order to safeguard coal reserves for domestic use.

The US is estimated to have exported about 22 million tonnes of thermal
coal in 2020, a sharp fall from the 34 million tonnes in 2019 (Figure 6.6).
Most US producers are high-cost due to the inland position of many mines,
which adds to the length of freight required. As such, US exports remain
price sensitive, and are not expected to pick up significantly unless coalprices rise further. The US coal sector was already under pressure due tolow natural gas prices, falling demand domestically and in Europe, and alack of infrastructure on the US west coast (near Asian markets). There
are few prospects for a change in any of these factors over the outlook
period, and with demand in the Atlantic market now in structural decline, it
is not expected that US coal exports will lift noticeably.
Colombia’s exports fell sharply, but recovery is in prospect
Colombia remains a relatively important thermal coal supplier, but its
exports fell by around one-fifth (to 55 million tonnes) in 2020 amidst
difficult global conditions. Falling prices prompted Glencore to suspend its
output at multiple sites in late 2020 and to return its Prodeco mine
production licence. Columbian output was also disrupted by strikes at thelarge Cerrejón coal mine. Exports are expected to rise to 80 million tonnes
by 2023 and hold at around this level as disruptions pass.
South African exports have recovered
South Africa’s exports recorded a second consecutive quarter of growth in
the December quarter 2020, marking a strong recovery for the country’s
coal industry. By 2022, South Africa’s exports are expected to return to
79 million tonnes (Figure 6.6). South African exports to India are expected
to rise, with miners also seeking opportunities in other Asian markets —such as Pakistan — as European thermal coal use falls. A modest decline
in domestic use of thermal coal is also likely to push up export volumes.
Domestic use is being cut back in line with the South African government’s
October 2019 plan to reduce coal-fired power generation capacity from thecurrent 37 Gigawatts, to 33 Gigawatts by 2030.

Resources and Energy Quarterly March 2021

60

Russia’s production and exports lost ground in 2020, but should recover

6.6

After years of strong production growth, Russia’s coal industry faced achallenging year in 2020. Low prices weighed on production over the year,
despite falls in the value of the Russian Ruble. Exports are forecast to lift
in the early part of the outlook period before levelling off after 2024 (Figure6.6). Russia has invested significant sums in infrastructure to support
shipments to the Asian market, and the low sulphur content of Russiancoal gives it an edge in countries like South Korea where pollution laws
have tightened up in recent years.

Australian thermal coal exporters face volatile conditions in 2021

6.5

PricesInternational thermal coal prices recover as COVID-19 impacts recede
Thermal coal prices fell sharply in early 2020, but rebounded in November
and early December. In early 2021, prices are roughly on-par with theirpre-COVID-19 pandemic levels. Recent price growth has been driven inpart by cold weather in Northeast Asia, and in part by supply cuts among
the most price-sensitive producers. Australian exports from the Port ofNewcastle also faced disruption in early 2021 due to equipment problems(see Australia section). Although prices have mostly recovered inaggregate terms, differentials have shifted in favour of non-Australiansources due to import restrictions imposed by China.
The benchmark Australian thermal coal spot price — Newcastle 6,000
kcal/kg — rose strongly in December and January, reaching around
US$80 as Korean power companies increased their spot market bids (seeFigure 6.7). Prices subsequently stabilised and have eased slightly,
though they remain well above the 2020 average.
As weather conditions normalise, price pressure will likely ease. However,ongoing economic recovery through 2021 may result in more favourable
conditions for thermal coal prices over the rest of the year. Recent net zero
emissions commitments by large coal consumers are expected to place along-term constraint on potential growth in coal prices.

Australia

Australian thermal coal exports faced difficult conditions in 2020, affected
initially by a broad decline in global energy use, and subsequently by
China’s unofficial restriction on imports of Australian coal. Chinese import
restrictions resulted in the largest ever fall in exports (15% year on year) in
the September quarter 2020, and has subsequently affected prices forAustralian product (Figure 6.8). In the December quarter, exports
remained weak, but recovered by around 6% in quarterly terms.
Thermal coal exports have been supported by the relatively high quality ofAustralian product, which has facilitated its diversion to other markets.
Despite this, export revenue recorded its largest fall for more than 30
years in 2020. Signs are more positive in early 2021, with earnings
recovering and volumes picking up, as coal previously destined for China’s
ports was successfully diverted.
Australian coal exports also remained subject to long-term structural
factors, including increasing competition from gas. Low natural gas prices
have provided competition for Australian coal exports in recent quarters,
though this is likely to ease slightly as gas prices lift (see LNG chapter),and as the high quality of Australia’s coal gives a measure of protection.
Exports have also been disrupted on the supply side, with La Niña weather
damaging a coal loader at the Port of Newcastle. Shipments have also
been affected by output cuts from Glencore — Australia’s largest coalproducer — which were initiated in response to falling prices.
Conditions for Australian thermal coal producers remain difficult onbalance. In December 2020, Glencore announced plans to close four
Australian mines by 2023 as the mines’ currently-developed resource
becomes exhausted. In the Hunter Valley, Glencore may close Liddell,Integra and Glendell. In the Bowen Basin, the metallurgical and thermal
coal mine Newlands also faces potential closure. These mines represent

Resources and Energy Quarterly March 2021

61

11.5 million tonnes a year, or around 4% of Australia’s thermal coalproduction. The ramp up of Glencore’s million tonne a year United-Wambo
joint venture with Peabody will act as a partial offset, but write-downs haveaffected the value of the company’s thermal coal business.
Other recent announcements include Whitehaven’s announced losses of$94 million over the first half of the 2020–21 financial year, while BHP has
announced in an operational update that its New South Wales Energy
Coal assets will face a write-down of between $1.15 billion and $1.25
billion, cutting their value to $250-$350 million.
On balance, it is expected that Australian exports will grow slowly after abrief decline (Figures 6.9 and 6.10), though prices will remain constrained.
Australia’s thermal coal export volumes are forecast to edge down from
213 million tonnes in 2019–20 to 206 million tonnes in 2020–21, but tothen grow over time, reaching 231 million tonnes by 2025–26.

80
60
40
20
0
-20
-40
2014

2015

2016

2017

2018

2019

Indonesia 4,700kc* NAR

2020

2021

Differential

Source: IHS (2021). NAR = Net as received. Red marker indicates approximate timing ofChinese informal import restrictions.

140120
US$ a tonne

100

Newcastle 5,500kc NAR

Figure 6.7: Thermal coal price outlook

Thermal coal export earnings are forecast to decline by $6 billion to $15
billion in 2020–21, remaining largely steady over subsequent years as
growing volumes offset ongoing weakness in prices.

100
80

Revisions to the outlook for Australian thermal coal exports

60
40
20
0
2012

Figure 6.8: Thermal coal prices — Australian vs Indonesian

2014

2016

2018

2020

Newcastle 6,000 kcal

2022

2024

2026

Since the December release, the thermal coal export earnings forecast for
2020–21 has been revised up marginally in nominal terms (from$14.6 billion to $14.9 billion) reflecting a moderate lift in prices over recent
months. The forecast for 2021–22 is largely unchanged from theDecember Resources and Energy Quarterly.

JFY contract priceNote: JFY is Japanese Fiscal Year (April to March).
Source: IHS (2021); Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 2021

62Figure 6.10: Australia’s thermal coal exports, monthly
30

200

24

150

18

100

12

50

6

0
0
2013–14 2015–16 2017–18 2019–20 2021–22 2023–24 2025–26
Volumes25
20
Million tonnes

250

202-21 A$ billion

Million tonnes

Figure 6.9: Australia’s thermal coal exports

15
10
5
0

Jan Feb Mar Apr May Jun
2018

Values (rhs)

Source: ABS (2021); Department of Industry, Science, Energy and Resources (2021)

Jul

2019

Aug Sep Oct Nov Dec
2020

Source: ABS (2021)

Resources and Energy Quarterly March 2021

63

Table 6.1: World trade in thermal coal
Unit

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

Mt

1,036

1,077

1,098

1,101

1,088

1,071

1,071

0.6

Asia

Mt

811

856

878

885

876

864

833

0.4

China

Mt

210

216

212

198

189

180

146

-5.9

India

Mt

165

185

190

196

192

191

211

4.1

Japan

Mt

133

134

135

136

134

130

112

-2.8

South Korea

Mt

85

84

83

82

79

76

73

-2.5

Indonesia

Mt

390

422

423

418

407

394

388

-0.1

Australia

Mt

199

218

227

230

232

231

231

2.5

Russia

Mt

170

179

184

187

190

192

194

2.2

Colombia

Mt

55

68

75

80

80

80

80

6.4

South Africa

Mt

75

76

79

82

85

88

90

3.2

United States

Mt

20

22

24

24

20

20

20

-0.3

World trade
Thermal coal imports

Thermal coal exports

Notes: s Estimate f Forecast
Source: International Energy Agency (2021); IHS Markit (2021); Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 2021

64

Table 6.2: Thermal coal outlook
World

Unit

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

– nominal

US$/t

69

68

70

76

74

67

63

-1.5

– realc

US$/t

69

66

67

71

68

60

57

-3.1

– nominal

US$/t

58

65

67

73

71

64

60

0.6

– reale

US$/t

59

65

65

69

66

59

54

-1.6

Australia

Unit

2019–20

2020–21f

2021–22f

2022–23z

2023–24z

2024–25z

2025–26z

CAGRr

Production

Mt

268

250

276

281

282

282

281

0.8

Export volume

Mt

213

206

222

228

231

231

231

1.4

– nominal value

A$m

20,376

14,89816,364

18,177

19,94618,484

16,441-3.5– real valueh

A$m

20,591

14,89816,095

17,511

18,746

16,941

14,695-5.5

Contract pricesb

Spot pricesd

Notes: b Japanese Fiscal Year (JFY), starting April 1, fob Australia basis. Australia–Japan average contract price assessment for steaming coal with a calorific value of 6700 kcal/kg gross air dried;c In current JFY US dollars; d fob Newcastle 6000 kcal net as received; e In 2020 US dollars; f Forecast; h In 2020–21 Australian dollars; s estimate
Source: ABS (2021) International Trade in Goods and Services, Australia, Cat. No. 5368.0; IHS (2020); NSW Coal Services (2021); Queensland Department of Natural Resources and Mines(2021); Company Reports; Department of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 2021

65







7.2

Summary

Figure 7.1: LNG demand and world supply capacity

Asian LNG spot prices and oil-linked contract LNG prices are expected
to increase modestly over the projection period, as the global LNG
market remains well supplied and oil prices stabilise.

600

Australian export volumes are forecast to decline to 78 million tonnes in
2020–21, due to technical issues at the Prelude and Gorgon LNG plants.
Exports are then forecast to recover to 81 million tonnes in 2021–22,
and remain around these levels out to 2025–26 (see Australia section).

400

Australia’s LNG exports earnings (in real terms) are forecast to increase
from $33 billion in 2020–21 to $45 billion in 2025–26, as prices recover.

500
Million tonnes

7.1

02016 2017 2018

LNG trade to increase over the projection period

Global LNG trade is expected to increase in 2021 and 2022, growing by
about 6.0% a year. Between 2023 and 2026, trade is assumed to grow by
an average annual rate of 3.7%. Ongoing demand growth is expected toresult in a tightening of the global LNG market, as demand approaches
supply capacity.
Nonetheless, given the large scale expansion of global LNG capacity inrecent years, demand is expected to remain short of total supply
throughout the projection period.

200
100

World trade

In 2020, global LNG trade reached 349 million tonnes, a modest increaseof 1.0% (Figure 7.1). This improvement was in stark contrast to the strong
growth from previous years, reflecting the impacts of the COVID-19
pandemic on LNG demand. In recent months, global LNG trade has
picked up, driven by structural factors — such as the easing impacts of the
COVID-19 pandemic and returning demand growth in emerging Asia —and seasonal factors — such as a colder-than-normal Northern
Hemisphere winter.

300

Japan
Emerging Asia
Global supply capacity

2019 2020 2021 2022 2023 2024 2025 2026
South Korea
EuropeChina
Rest of world

Source: Nexant (2021) World Gas Model; Department of Industry, Science, Energy andResources (2021)

7.3World imports

Japanese LNG imports to fall as nuclear power returns
Japan imported 75 million tonnes of LNG in 2020, 4.7% lower than in 2019
(Figure 7.2). Import losses were related to the impact of the COVID-19
pandemic, though the impacts were moderated by coal-to-gas switching,
nuclear plant outages and strong heating demand in the lead up to an
exceptionally cold winter.
Nuclear generation is estimated to have hit a 3-year low during the
2020–21 winter period. At the time of writing, only nine of Japan’s 42
nuclear reactors have gained approval to restart since Fukushima in 2011.
Another 16 reactors are currently seeking approval for restart, and could
be online by 2022.
Higher nuclear generation is expected to cause Japan’s LNG imports tofall in 2021 and 2022, and will more than offset any increases to LNG
imports from the assumed economic recovery. However, the pace ofResources and Energy Quarterly March 2021

68

40

350

35

300

30

250

25

200

20

150

15

100

10

4

50

5

3

0

5

2

Billion cubic metres

400

Figure 7.2: Quarterly LNG imports, year-on-year change

Million tonnes

Figure 7.3: China’s gas supply by source

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Per cent

increase in nuclear generation remains uncertain, and subject to potential
delays and slippages. LNG imports are expected to continue declining
over the rest of the outlook period, due to energy efficiency improvements
and higher nuclear output. Imports late in the projection period are also
likely to be negatively affected by Japan’s pledge to achieve net-zeroemissions by 2050. In 2026, Japan’s LNG imports are projected to fall to
70 million tonnes, down 7.7% from 2020.

01

LNG imports

Pipeline imports

0

Domestic production

LNG's share of China's gas supply (rhs)-1

Source: Bloomberg (2021); National Bureau of Statistics of China (2021) General
Administration of Customs

-2
-3
-4

Japan

China

South
Korea

India

Mar 20Jun 20

Sep 20

TaiwanEuropeDec 20Source: Bloomberg (2021)

China to become the world’s largest LNG importer
China’s LNG imports increased by 15% in 2020, reaching 66 million
tonnes — making it the world’s second largest LNG importing country.
China’s gas consumption was resilient in 2020, driven by the industrial andresidential sectors, and ongoing coal-to-gas switching. The share of LNG
in Chinese gas demand remained historically high in 2020, reflecting low
LNG prices (Figure 7.3). Australia accounted for the largest share of
China’s LNG imports in 2020, at 43%. However, in 2020 imports from
Australia were 5.2% lower year-on-year.

Resources and Energy Quarterly March 2021

Chinese imports of US LNG resumed in April 2020, as a result of the
US-China Phase One trade deal, and reached 1.1 million tonnes in
December. This follows virtually no LNG imports from the US in 2019, due
to Chinese tariffs imposed amidst rising trade tensions. Chinese targets forpurchases of US energy products are expected to remain in place over the
projection period. As such, future US-China diplomatic relations presentrisks to Chinese LNG demand from other exporters, including Australia.
Chinese LNG imports are expected to remain a key driver of global LNG
demand growth, rising by an average 9.7% annually over the next two
years. China is then expected to become the world’s largest LNG importerin 2022, overtaking Japan. China’s 14th Five Year Plan indicates that gas
will play an important role in the country’s energy transition to meet its‘carbon-neutral by 2060’ pledge. Between 2023 and 2026, Chinese LNG
demand growth is projected to moderate, though it will likely still exceed
other major importers. Imports are projected to be 88 million tonnes in
2026, up from 66 million tonnes in 2020 (Figure 7.4).
69

Figure 7.4: World LNG import projections

nameplate capacity of 38 billion cubic metres of gas a year — equivalent
to around 28 million tonnes of LNG.

125

South Korea’s LNG demand to be supported by government policies

Million tonnes

100South Korea’s LNG imports increased strongly in the last few months of
2020, supported by temporary nuclear and coal power plant outages, andstrong buying ahead of winter. This follows relatively weak LNG imports
earlier in 2020, when imports were weighed down by both the impacts of
the COVID-19 pandemic on power demand, and by the restart of nuclear
power plants. Over the full year, South Korea’s LNG imports declined by
2.3% to 41 million tonnes.

75
50
25
0

Japan

South
Korea

China

Emerging
Asia (exChina)

2020

2026

EuropeRest ofworld

Notes: Emerging Asia includes India.
Source: Nexant (2021) World Gas Model; Department of Industry, Science, Energy andResources (2021)

Gas consumption is expected to be supported by ongoing gas market
reforms and by supportive policies designed to increase gas use in theindustrial and residential sectors. The recent creation of PipeChina — anational midstream company that operates pipelines, terminals andstorage facilities — is expected to support growth in LNG imports.
Over the projection period, China’s LNG import demand is expected to
face intensifying competition from domestic sources and pipeline imports.
Despite China facing geological challenges in tapping into its extensivegas reserves, domestic gas output is expected to increase due tosupportive government policies (the 14th Five Year Plan’s energy resource
security strategy includes increased domestic gas production). Pipeline
imports are also expected to grow, in large part due to the Power ofSiberia pipeline that opened in December 2019. The pipeline has

Resources and Energy Quarterly March 2021

South Korea’s LNG imports are forecast to stage a modest recovery in
2021 and 2022, rising by about 1.5% a year. Although gas demand is
expected to be negatively affected by growing nuclear capacity, it is also
expected to benefit from government policies that favour gas usage overcoal. The transition away from coal is expected to benefit LNG imports inthe medium term, as the government plans to convert a quarter of coalfired capacity to gas by 2031. Although the South Korean government’s
recent net-zero pledge is likely to affect gas consumption beyond the
projection period, gas is likely to play an important role in the energy
transition. South Korean LNG imports are projected to increase from 41
million tonnes in 2020 to 45 million tonnes in 2026.
Taiwan’s LNG demand has held steadyTaiwan’s LNG demand was relatively resilient in 2020 despite the impactsof COVID-19, supported by increases in gas-fired power generation. As
the impacts of COVID-19 ease, LNG import growth is expected to rise,
driven by supportive government policies. The Taiwanese government isaiming to increase the share of gas-fired power generation in its electricity
mix, from the current share of 35% to 50% by 2025. Taiwan’s LNG imports
are projected to grow by 7.0% a year to reach 24 million tonnes by 2026.
India is expected to be a major source of LNG demand growth
India’s LNG imports were volatile in 2020, negatively affected by the
lockdowns earlier in the year. In the second half of 2020, imports rose70markedly due to the opportunistic buying of cheap LNG on the spot
market, predominantly from Qatar. India’s LNG imports increased by 14%
to 35 million tonnes in 2020, and are forecast to increase further to
36 million tonnes in 2021. Growth in 2021 is likely to be moderated by the
recent rally in LNG spot prices, since India is an extremely price sensitive
buyer of LNG. Over the projection period, Indian imports are expected torise, increasing by an average 2.9% annually between 2022 and 2026.
However, the timing and pace of this growth is highly uncertain. The Indian
government has ambitions to lift the share of gas in its energy mix fromabout 6% now to 15% in 2030. Its success will depend on a range offactors, including gas market reforms, infrastructure development, andhigher domestic gas output. Gas import growth will also depend on therefining and fertiliser sectors, with both sectors having what somecommentators see as ambitious growth targets.

European imports are forecast to fall from 79 million tonnes in 2020 to 70
million tonnes in 2022, reflecting significantly higher pipeline gas imports.
Later in the outlook period, European imports are projected to increase to
84 million tonnes as pipeline gas imports fall slightly.

Other south and southeast Asian economies have been a major source ofdemand growth in the second half of 2020, despite the impacts of
COVID-19. Customs data shows Pakistan’s LNG imports in the second
half of 2020 rose by 11% year-on-year, Bangladesh’s by 5.5%, andThailand’s by 8.4%.

Figure 7.5: LNG imports from emerging Asian countries

Over the projection period, emerging Asian imports are expected toincrease due to declining domestic production, the expansion of gas-fired
power generation and new LNG infrastructure developments. Individuallly,
these countries are relatively small importers of LNG, although collectively
they are expected to account for a growing share of global LNG demand
going forward. The region (including India) is forecast to import 113 million
tonnes of LNG by 2026, 91% higher than 2020 volumes (Figure 7.5).

Million tonnes

Emerging Asia to become more influential in global LNG markets

Europe’s LNG imports are forecast to decline over the next two years, as
the global LNG market tightens. The ramp up of two new gas pipelines isalso expected to place downward pressure on LNG imports. The Trans
Adriatic Pipeline began commercial operations in November 2020, andhas an annual nameplate capacity of 10 billion cubic metres (about
7.4 million tonnes of LNG). The other European gas pipeline, Nord
Stream 2, was expected to begin production by 2021, but could now facedelays due to geopolitical tensions. Nord Stream 2 is a 55 billion cubic
metre pipeline (40 million tonnes) that will transport gas from Russia to
Germany. Any delays for Nordstream 2 are likely to put upward pressure
on European LNG imports.

Europe’s LNG imports have slowed
In recent years, Europe has played an important role in balancing the
global LNG market, by having extensive storage capacity and liquid gas
hubs to absorb large volumes of LNG. However, in recent months, theregion has absorbed fewer LNG cargoes, due to stronger Asian demandand lower US exports.
Resources and Energy Quarterly March 2021

140
120
100
80
60
40
20
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
India

Pakistan

Bangladesh

Thailand

Malaysia

Other emerging Asia

Source: Nexant (2021) World Gas Model; Department of Industry, Science, Energy andResources (2021)

71

World exports

Weak economic conditions have resulted in deferrals of project FIDs
At the end of 2020, global LNG capacity was estimated at around 400
million tonnes an annum (mtpa), with another 125 mtpa of capacity underconstruction or sanctioned for development. These new projects willcontribute to significant growth in global LNG capacity over the next few
years, albeit at a slower pace than in recent years.
There is over 900 mtpa of proposed LNG capacity in the pre-FID stage,
though much of this is not likely to proceed. There were pre-COVID-19
pandemic expectations that about 50 mtpa of new LNG capacity would beapproved in 2020. However, weak spot LNG and oil prices have since
resulted in the deferral of most of these FIDs. Only one liquefaction project
was approved in 2020 — Sempra Energy’s 2.5 mtpa Costa Azul project in
Mexico. FID deferrals could impact on the timing of the next wave of LNG
capacity additions, which could result in a tighter global LNG market
towards the end of this decade.
US to be a key driver of export growth
The recent recovery in global exports has been largely driven by the US.
After falling significantly between June and September 2020, US LNG
exports have rebounded. US exports were first constrained by weak global
gas prices relative to the Henry Hub price, which reduced thecompetitiveness of US LNG exports to Asia and Europe. Later in the year,
supply disruptions in other major exporters increased Asian and European
prices, and increased the competitiveness of US exports. As a result, US
exports increased dramatically, reaching a record high in December 2020.
For the full year, US LNG exports increased by 25% in 2020 to reach48 million tonnes.
In early 2021, US gas production has been affected by the Texas winterstorm, which caused a significant amount of production capacity to be
shut-in. These storms also affected gas-fired power plants.
US LNG exports are forecast to reach 58 million tonnes by 2022, as new
LNG projects continue to ramp up. Around 15 mtpa of US LNG capacity is
Resources and Energy Quarterly March 2021

expected to commence operations by the end of 2021, and another30 mtpa of LNG capacity is expected to commence operations between
2023 and 2025. US LNG exports are projected to reach 80 million tonnes
by 2026 (Figure 7.6).
Qatar’s exports have been resilient
Qatar’s LNG exports were largely resilient in 2020. Shipping data indicatesthat Qatar may have been the world’s largest LNG exporter in 2020,
reclaiming the title from Australia. However, given the marginal difference
between the two country’s exports and uncertainty surrounding the precise
level of Qatar’s LNG exports, an accurate assessment of totals is difficult.
Figure 7.6: World LNG export projections
125
100
Million tonnes

7.4

75
50
25
0

Australia

Qatar

UnitedStates2020

RussiaSouth
AfricaEast Asia

Rest of
world

2026

Source: Nexant (2021) World Gas Model; Department of Industry, Science, Energy andResources (2021)

Qatar’s LNG exports are forecast to be relatively steady in 2021, hovering
around 79 million tonnes. However, later in the projection period, Qatar’s
LNG exports are expected to increase significantly, as a result of the$US29 billion North Field East project, anticipated to be completed in late
2025. This project has a nameplate capacity of 33 million tonnes, lifting
Qatar’s export capacity to 110 million tonnes. Qatar has reaffirmed its
intention to increase LNG capacity beyond the 126 mtpa target by 2027.
72

7.5

Prices

LNG spot price volatility to ease
The Asian LNG spot price has swung dramatically in the past year, setting
both record highs and lows. Prices increased from a historically low
US$1.68 a mmBtu on 30 April 2020 to reach an all time high of
US$39.72 a mmBtu on 13 January 2021. This price growth was gradual atfirst, as the impacts of COVID-19 on gas consumption eased. However,prices shot up in December 2020 and early-January 2021, as an
exceptionally cold Asian winter coincided with supply disruptions affecting
several major exporters. Prices spiked as Asian buyers turned to the spot
market to source cargoes, although traded volumes remained relatively
low. The spot price averaged an estimated US$12.05 a mmBtu(A$15.85 a GJ) in the March quarter 2021, 48% higher than the December
quarter, and 225% higher year-on-year.

In early 2021, regional gas prices have diverged, driven by regional cold
snaps and logistical difficulties in diverting cargoes to higher price markets(Figure 7.7). The difference between Asian spot prices and Henry Hub
prices reached a record high in January 2021, as congestion in the
Panama Canal limited the opportunity for US exporters to meet demand
from Asian buyers. US and European prices have both risen sharply, as
cold weather lifted heating demand for gas. US prices have also risen as aresult of the Texas winter storm, which shut in large volumes of gas
production. There have also been a number of supply disruptions at major
exporters — including Australia, Qatar and the US — which havefacilitated strong price gains.
Figure 7.8: LNG spot and contract prices, quarterly

Figure 7.7: Global gas and LNG prices, monthly

15

78

12

65

9

52

6

39

3

26

0

13

US$ a mmBtu

20
15
10
5
0
Feb 18-3
Dec 16
Aug 18

Feb 19Aug 19Feb 20Aug 20Feb 21ANEA LNG spot price

Henry HubUK National Balancing Point

Japan average import priceNotes: ANEA is the Argus Northeast Asia spot price. LNG prices are DES (Delivered Ex
Ship), which include shipping and insurance.
Source: Argus (2021); Bloomberg (2021)
Resources and Energy Quarterly March 2021

Dec 18Dec 20Dec 22

Dec 24

US$ a barrel

US$ a mmBtu

250
Dec 26

Oil-linked premium to ANEAANEA LNG spot price

Indicative oil-linked contract price

Brent crude oil (rhs)

Notes: ANEA is the Argus Northeast Asia spot price. LNG prices are DES (Delivered Ex
Ship), which include shipping and insurance. The long-term oil-linked contract price isindicative, and is estimated at 14% of the 3-month lagged JCC oil price plus shipping. The oillinked premium to ANEA represents the differential between these two prices.
Source: Argus (2021); Bloomberg (2021); Department of Industry, Science, Energy andResources (2021)

73

The Asian LNG spot price is forecast to average US$6.90 a mmBtu in theJune quarter 2021, as heating demand eases. Over the rest of 2021,
prices are expected to stablise at relatively low levels, as supply
disruptions facing major exporters recede. Spot prices are expected toincrease gradually between 2022 and 2026, as global consumption growthresumes following the largest impacts of the COVID-19 pandemic (Figure7.8). Demand from China and emerging Asian economies is expected to
grow particularly fast. However, the global LNG market is also expected toremain well supplied — likely limiting the magnitude of any price rally — as
US LNG exports ramp up further over the next two years.
Figure 7.9: Oil-linked contract slopes by signing year
17

Almost 70% of the LNG traded in Asia is sold via long-term contracts
which link the price of LNG to the price of oil (commonly the Japanesecustoms-cleared crude price), typically lagged by around three to six
months (depending on contractual arrangements). In the March quarter
2021, oil prices recovered to above US$60 a barrel, as OPEC+ supply
cuts resulted in a draw down in oil stocks. This follows the multi-yearrecord low oil prices recorded in the first half of 2020. Due to the contract
lag of several months, the oil price recovery will be reflected in Junequarter 2021 LNG contract prices. Oil prices are expected to remain
relatively steady over the projection period, as higher production negatesrecovering consumption (see the oil chapter).
If current differentials between LNG spot and long-term contract prices
persist, contract prices are likely to come under downward pressure.
Contracts covering around 30% of global LNG demand are set to expire by2025. As these contracts expire, low spot prices relative to oil-linked
contract prices may encourage buyers to push for shorter, more flexible, ormore favourably-priced contracts. Buyers may also push for lower
oil-linked contract slopes, continuing the trend of recent years (Figure 7.9).

16
15
Slope (per cent)

Recent oil price recovery to drive LNG contract prices higher

14
13
12
11

7.6

10

Australia’s export volumes up, earnings down in the December quarter

9
8
2008

2010

2012
2014
2016
Contract signing year

Oil-linked contract slope

2018

2020

Linear trend

Notes: The oil-linked contract slope measures the extent to which the LNG contract pricechanges with respect to oil price changes. Only shows contracts where data is available.
Source: BloombergNEF (2021) Global LNG contracts database; Nexant (2021) World Gas
Model

Resources and Energy Quarterly March 2021

Australia

In the December quarter 2020, Australia’s LNG export earnings increased
to $7.3 billion, up by 21% quarter-on-quarter. Despite this, values were
40% lower year-on-year, as weak oil-linked contract prices affected export
earnings. Almost three-quarters of Australian LNG is sold via long-term
contracts that link the price of LNG to the price of oil with a lag of aroundthree to six months, depending on contractual arrangements. The lag
between oil price movements and its impact on LNG prices means that the
sharp decline in oil prices that occurred between March and May 2020,
was reflected in the export earnings from the September quarter 2020 and,to a lesser extent, the December quarter 2020.

74

LNG export volumes rose by 3.5% year-on-year and 12% quarter-onquarter in the December quarter 2020. Exports were driven up by strong
Asian demand ahead of the Northern Hemisphere winter. Exports are
expected to increase further in the March quarter 2021 as production
resumes at Prelude. The Prelude FLNG project was shut in February
2020, as a result of technical issues. Production resumed in January 2021,
and has been ramping up since. The Prelude FLNG project shipped its
first cargo in June 2019, however has not yet produced at its full annual
nameplate capacity of 3.6 million tonnes.
Gorgon’s output has also been disrupted, with the shutdown of Train 2
initially extended to October, and then to 23 November, after cracks werediscovered in its heat exchangers. After a period of uncertainty, ashutdown of the whole plant was avoided in favour of phased shutdowns.
Train 1 was taken offline for inspections in November 2020, and issues
similar to those affecting Train 2 were found in January 2021. Repairs toTrain 1 were completed late in the March quarter 2021, and Train 3 is
expected to be taken offline for inspections in the June quarter 2021.
LNG export volumes expected to return to above pre-COVID-19 levels
Australia’s LNG exports are expected to decline from 79 million tonnes in
2019–20 to 78 million tonnes in 2020–21, reflecting the impacts of the
COVID-19 pandemic on demand, as well as technical issues at the
Prelude and Gorgon LNG plants (Figure 7.10). A gas processing unit was
shut at Wheatstone in early December, after an anomaly was detectedduring routine inspections. These technical problems were resolved in the
March quarter 2021. LNG exports are forecast to rebound to around81 million tonnes in 2021–22. The rebound reflects a recovery in demand(as economies return to growth), an assumed resolution of technicalissues, and Prelude ramping up towards its nameplate capacity.
In January 2021, Santos announced an FID for an infill drilling program in
the Bayu-Undan field. This program will extend output at the Darwin LNG
facility, which was previously expected to halt production in 2022. This
investment decision is expected to narrow the time between its depletion
Resources and Energy Quarterly March 2021

and start-up of the Barossa backfill project. In early December 2020
Santos deferred the FID for the Barossa project for a second time, to2021, citing a preference to first finalise offtake agreements.
Figure 7.10: Australia’s monthly LNG shipments
8
7

6
5

Million tonnes

Australia’s LNG export volumes recovering

4
3
2
1
0

Jan

Feb

Mar

Apr

May

2018

Jun

Jul

2019

Aug

Sep

Oct

Nov

Dec

2020

Source: Bloomberg (2021)

Capacity utilisation at the North West Shelf (NWS) is expected to decline
in 2022, as gas from existing fields is depleted. NWS has secured shortterm infill from Pluto and Waitsia, two projects with shorter lead times.
However, large scale backfill projects are required for the longer term.
Given the complex commercial arrangements associated with the NWS
and high capital costs, there is potential for further backfill project delays.
Browse is earmarked as backfill to the NWS, however this project has
faced FID deferrals until at least 2023 due to weak market conditions.
Higher prices to lift Australia’s LNG export earnings
Australia’s LNG export earnings are forecast to fall sharply in 2020–21, to$33 billion, from $48 billion in 2019–20 (Figure 7.11). The decline in export
earnings is expected to be primarily driven by weak contract prices and, toa lesser extent, lower export volumes. Export earnings are forecast to75

projects required to support the ongoing operation of existing LNG
facilities. The proposed Scarborough to Pluto LNG expansion — where a
5 mtpa train would be added to Pluto — is the only substantial expansion
to Australia’s LNG capacity in the investment pipeline.

Figure 7.11: Australia’s LNG exports

Over the projection period, it is likely that at least one import terminal willreach a FID and commence importing LNG. The five potential projects areconcentrated in south eastern Australia, and are aiming to start
commercial operation by 2022 or 2023. Despite the possible shortage inthe east coast market over the short term, it is unlikely that all five projects
currently under consideration will proceed.

63

80

56

70

49

60

42

50

35

40

28

30

21

20

14

10

7

Million tonnes

900
2015–16

2017–18

2019–202021–22

Volume2023–242025-26

2020–21 A$ billion

increase to $43 billion in 2021–22 (in 2020–21 dollars), tracking an
expected rise in contract and spot prices, as well as a recovery in export
volumes. Over the rest of the projection period, LNG export earnings (in2020–21 dollars) are projected to vary between $44 and $47 billion.

0

Revisions to the outlook
Since the December 2020 Resources and Energy Quarterly, the forecast
for Australia’s LNG export earnings has been revised up by around $1.5
billion in 2020–21 and $6.2 billion in 2021–22 (nominal terms). These
increases are mostly due to significantly higher oil-linked contract and spot
prices. Export volumes in 2020–21 and 2021–22 have also been revised
up slightly.

Value (rhs)

Source: ABS (2021); Department of Industry, Science, Energy and Resources (2021)

Uncertainty surrounds the next wave of investment
The outlook for the next wave of investment in Australian LNG projects isshrouded by considerable uncertainty, with weak market conditions
resulting in FID deferrals (see the Resources and Energy Major Projects
2020 publication). Most LNG projects in the investment pipeline are backfill

Resources and Energy Quarterly March 2021

76

Table 7.1: Gas outlook
Unit

2020

2021f

2022f

2023f

2024z

2025z

2026z

CAGRr

– nominal

US$/bbl

45.4

61.0

60.9

65.6

69.1

67.9

64.8

6.1

– realh

US$/bbl

46.3

61.0

59.6

62.8

64.7

62.1

57.9

3.8

– nominal

US$/MMbtu

4.4

8.5

7.8

8.4

8.7

9.2

9.3

13.5

– realh

US$/MMbtu

4.5

8.5

7.7

8.0

8.2

8.4

8.3

11.0

Gas productions

Bcm

3,937

4,097

4,200

4,250

4,345

4,441

4,499

2.3

Gas consumptions

Bcm

3,945

4,116

4,189

4,258

4,344

4,443

4,511

2.3

Mt

349

369

392

397

410

431

453

4.4

2021–22f

2022–23f

2023–24z

2024–25z

2025–26z

CAGRr

World
JCC oil pricea

Asian LNG spot price g

LNG tradeds
Australia

Unit

2019–20

2020–21f

Productionb

Bcm

157.6

153.7

160.1

161.1

162.4

163.2

161.3

0.4

– Eastern market

Bcm

57.5

55.7

54.4

54.6

54.5

53.8

57.2

-0.1

– Western market

Bcm

85.7

82.5

90.7

91.4

90.4

89.4

84.2

-0.3

– Northern marketc

Bcm

14.4

15.5

15.0

15.0

17.5

20.0

20.0

5.6

LNG export volumed

Mt

79.2

78.0

81.4

82.7

81.8

81.0

81.0

0.4

– nominal value

A$m47,52532,52543,70245,96850,00351,00849,811

0.8– real valuee

A$m48,02832,52542,98644,285

46,994

46,74944,520-1.3– nominal value

A$/GJ

11.4

7.9

10.2

10.5

11.6

11.9

11.6

0.4

– real valuee

A$/GJ

11.5

7.9

10.0

10.1

10.9

10.9

10.4

-1.6

US$/MMBtu

8.1

6.2

8.4

8.6

9.2

9.4

9.2

2.3

US$/MMBtu

8.1

6.2

8.3

8.2

8.6

8.7

8.2

0.2

LNG export unit valueg– nominal value– real valueeNotes: a JCC stands for Japan Customs-cleared Crude; b Production includes both sales gas and gas used in the production process (i.e. plant use) and ethane. Historical gas production data wasrevised in the June quarter 2017 to align with Australian Petroleum Statistics; c Gas production from Bayu-Undan Joint Production Development Area is not included in Australian production.
Browse basin production associated with the Ichthys project is classified as Northern market; d 1 million tonnes of LNG is equivalent to approximately 1.36 billion cubic metres of gas; e In 2020–21
Australian dollars; f Forecast; g 1 MMBtu is equivalent to 1.055 GJ; h In 2021 US dollars; r Average annual growth between 2020 and 2026 or 2019–20 and 2025–26; z Projection.
Source: ABS (2021) International Trade in Goods and Services, 5368.0; Department of Industry, Science, Energy and Resources (2021); Company reports; Nexant (2021) World Gas Model

Resources and Energy Quarterly March 2021

778.1


Summary
Oil prices are forecast to average US$61 a barrel in 2021, significantly
higher than 2020, when prices were severely affected by COVID-19.
Over the medium term, prices are projected to remain around
US$60 a barrel in real terms, as higher production offsets consumption
growth.



Australian crude oil and condensate exports are projected to remain
relatively flat, as a result of the numerous FID deferrals during 2020 (seeAustralia section).

Australian export earnings (in real terms) are projected to increase from
$7.7 billion in 2020–21 to $10 billion in 2025–26, as prices recover.

8.2

World Consumption

Aviation travel expected to constrain oil consumption
Oil consumption in 2020 declined by 6.7% to 93 million barrels a day. This
was the largest historical decline in volume terms, and the first recorded
decline since 2009. Consumption fell in most countries, as COVID-19
containment measures impacted road and air travel and industrial
production. World oil consumption was lowest in the June quarter,
however the recovery has been unsteady and uneven across countries. In
some cases, containment measures have persisted as countries struggle
to bring the pandemic under control, or have been reintroduced to address
subsequent COVID-19 waves.
Oil consumption is forecast to increase by 1.8% in 2021, reaching
95 million barrels a day. A large proportion of this recovery is due to higher
transport demand. Road activity was affected for much of 2020, declining
by around 50% in some major cities in April. Since then, the recovery has
been moderated as COVID-19 spread and as containment measures have
lingered or been reintroduced. In recent months, Northern Hemisphereroad activity has been affected by persistently high COVID-19 cases in the
US and a resurgence in COVID-19 cases in the EU. In early 2021, theChinese government discouraged non-essential travel over the Lunar

Resources and Energy Quarterly March 2021

New Year. Travel over the Lunar New Year was higher than severely
affected 2020 levels, although it remained much lower than 2019 levels.
The recovery in aviation demand was much more muted than road travel
during 2020, and this sluggish growth is expected to persist over theoutlook period. International air travel fell by around three-quarters in
2020, much greater than domestic air travel, which declined by aroundhalf. The significant decline in international travel severely affected global
oil consumption in 2020, as around two-thirds of global passenger traffic isfrom international travel. Over the projection period, international air travelis expected to increase gradually. This growth is first expected through theestablishment, and widening, of travel bubbles. Later in the outlook period,
international air travel is expected to recover as vaccine doses areadministered around the world. However, there are likely to be somelingering impacts from the COVID-19 pandemic, as consumer confidence
remains somewhat affected. Domestic air travel is expected to rise
gradually over the projection period, as governments continue easing
restrictions on internal travel. The International Air Transport Association
expects that global passenger traffic will not return to 2019 levels until2024.
Oil consumption for the manufacturing of plastic and other petrochemicals
has recovered strongly from the COVID-19 induced decline in the first halfof 2020. This reflects the smaller consumption impacts compared to otherelements of oil consumption and the sharp recovery in global industrial
production. Growth over the outlook period is expected to be moderate,
and broadly in line with industrial production growth (see themacroeconomic outlook chapter).
Some countries have chosen to capitalise on low prices to fill up theirstrategic reserves. Stock accumulation appears to have ended in the Junequarter 2020, with OPEC+ supply restraint and constrained production inother producers leading to stocks being drawn down in the second half of2020 and the March quarter 2021.

80

There may be some behavioural shifts once the COVID-19 pandemic
recedes that will have material impacts on the oil market. This may occur
through a shift towards working from home, avoiding public transport, andlingering impacts on long haul air travel. This raises the level of uncertainty
for oil consumption late in the projection period. In 2022, consumption is
forecast to rise by 3.7% to 99 million barrels a day (Figure 8.1).
Consumption is projected to reach 102 million barrels a day in 2024,
before declining marginally to 101 million barrels in 2026.
Figure 8.1: OECD and non-OECD oil consumption
120

US consumption declined by 11% to 18 million barrels a day in 2020, as
persistently high COVID-19 cases impacted road activity and air travel
demand. Further growth in US oil consumption is likely to depend on
falling COVID-19 cases, complicated by variability across states. US
demand is forecast to increase to 20 million barrels a day in 2023.
Moderate declines in US oil consumption are expected later in the
projection period, falling to 19 million barrels a day in 2026. This decline is
expected to be driven by the assumed uptake in electric vehicles.

100
Million barrels a day

demand, particularly in the June quarter 2020. The subsequent recovery
has been constrained by a surging number of COVID-19 cases in the
Northern Hemisphere, which is primarily occurring in OECD economies.
As such, 2021 consumption growth is likely to depend on containment
measures easing in the EU and the US. OECD consumption is forecast to
recover to 45 million barrels a day in 2021. Consumption is forecast to
decline later in the projection period, reflecting energy efficiency measuresand the energy transition away from oil intensive consumption.
Consumption is projected to fall marginally to 44 million barrels a day in2026, as transport demand is affected by the transition to electric vehicles(see the lithium chapter).

80
60
40
20

OECD consumption to return to 2019 levels

EU consumption declined by 13% to 12 million barrels a day in 2020.
Consumption fell late in the year, as some EU member states introduced
containment measures to address rising COVID-19 cases. Going forward,
the recovery in EU consumption is expected to be uneven and unsteadyacross member states. Consumption is forecast to recover to 13 million
barrels a day in 2021, and remain around these levels in 2022. Beyond
2022, EU oil consumption is projected to fall to 12 million barrels a day in2026, reflecting increased electric vehicle uptake.

The COVID-19 pandemic and the associated containment measures havesignificantly disrupted OECD oil consumption. Between 2012 and 2019,
OECD oil consumption was steady at around 48 million barrels a day, as
ongoing energy efficiency improvements offset higher transport needs.
This period of stability ended in 2020, as consumption fell to 42 million
barrels a day. Containment measures impacted road travel and aviation

Consumption in other OECD countries is expected to recover out to 2022,
generally returning to around 2019 levels. Beyond 2022, consumption is
expected to marginally decrease. These declines vary across countries,
reflecting varying climate policies between countries. Notably, Japaneseand South Korean consumption between 2022 and 2026 is expected to fallby 12% and 14% respectively, reflecting net-zero emission pledges.

02008 2010 2012 2014 2016 2018 2020 2022 2024 2026
OECD

Non-OECD

Source: Department of Industry, Science, Energy and Resources (2021); International
Energy Agency (2021)

Resources and Energy Quarterly March 2021

81

Non-OECD consumption to grow, driven by China and India
Non-OECD consumption declined by 3.5 million barrels a day to 49 million
barrels a day in 2020, after increasing 1.1 million barrels a day in 2019.
However, the change in 2020 consumption varied across countries, with
Indian consumption declining considerably while Chinese consumption
increased moderately. Consumption is forecast to increase by 3.5 million
barrels a day in 2021, to reach 52 million barrels a day. However, similar
to 2020, growth is expected to vary considerably across countries.
Figure 8.2: Chinese crude oil imports

Million barrels a day

14
12

Indian consumption declined by 9.1% to 4.7 million barrels a day in 2020.
Indian consumption was deeply affected by the national lockdown formuch of the June quarter 2020, and the subsequent recovery has been
affected by varying containment measures across states. Indian
consumption is forecast to increase over the rest of the outlook period,
reaching 5.0 million barrels a day in 2021 and 5.4 million barrels a day in2022. Consumption is projected to reach 6.7 million barrels a day in 2026.
In 2026, non-OECD usage is projected to be 57 million barrels a day,
implying 2.7% annual growth, driven by higher demand in China and India.

10
8

8.3

6
4
2
0
Jun 18industrial production will weigh on future growth in Chinese oil usage, as
will the expected sharp uptick in electric vehicle sales. Chinese usage is
projected to increase by an average 2.8% an annum, reaching 17 million
barrels a day in 2026.

Dec 18Jun 19Dec 19Jun 20Dec 20Source: Bloomberg (2021)

Chinese consumption rose by 0.6% to 14 million barrels a day in 2020, in
stark contrast to most other nations. Containment measures severely
affected consumption in the March quarter 2020, but consumption
recovered rapidly later in 2020. In 2021, consumption is forecast to rise by
5.3%. The (temporary) impact that this growth has on global prices may betempered by the record Chinese imports made when prices reached multidecade lows during the June quarter 2020 (Figure 8.2).
Going forward, lower Chinese imports would negatively affect global oil
prices, since China accounted for over 80% of oil consumption growth in
2019. Chinese growth is expected to moderate over the medium term, but
to remain the key driver of growth in world oil usage. Slower growth in
Resources and Energy Quarterly March 2021

World Production

In 2020, global oil production declined by 6.7% to 93 million barrels a day,as OPEC+ cut production and output in other nations (such as the US)
declined in response to lower global prices (Figure 8.3). Output is forecast
to increase by 1.8% in 2021, as a recovery in non-OPEC+ producers morethan offsets the marginal decline in full-year average OPEC+ production.
Production is projected to increase gradually over the rest of the outlook
period, as OPEC+ output targets increase and production in non-OPEC+
members recovers. Production is projected to increase to 99 million
barrels a day in 2022, before reaching 102 million barrels a day in 2026.
The expected increase in oil production may be affected by lingering
impacts from 2020, when exploration expenditure and investment
decisions were both negatively affected by low prices. Although
investment decisions are most sensitive in higher-cost producer nations
such as Canada and the US, all producing nations have been somewhat
affected. These impacts, combined with the structural adjustment from thetransition away from fossil fuels, may weigh on world production later inthe projection period.

82

Annual change, million barrels a day

Figure 8.3: Change in oil production by major producers

However, the timing of these increases is uncertain. Our forecasts assume
that OPEC+ members fully comply with production targets. However,compliance with the OPEC+ agreement across member nations is a key
risk to excess global output, and may result in renewed OPEC+ tensions.

9
6
3
0
-3
-6
-9
-12

2020

2021

Other OPEC+

Russia2022
Saudi Arabia

2023
US

Notes: This assumes OPEC+ members fully comply with output targets.
Source: Department of Industry, Science, Energy and Resources (2021); International
Energy Agency (2021)

OPEC+ output targets have succeeded in lowering world production
OPEC+ production varied considerably during 2020. Production waselevated between January and April, as OPEC+ failed to agree to output
targets to address the impacts of COVID-19. In response to plummeting
prices, OPEC+ eventually reached an agreement to reduce production by
9.7 million barrels a day in May and June. Over 2020, OPEC+ output
targets were lowest between May and July, before output cuts werereduced from August 2020. Throughout 2020, OPEC+ compliance with
output cuts was high, with the countries that exceeded monthly quotas
compensating with lower production in later months.
OPEC+ output targets increased by 0.5 million barrels a day in January
2021, lower than previously scheduled. OPEC+ also announced theywould hold monthly meetings, where they could decide to adjust
production for the following month by up to 0.5 million barrels a day. Overthe rest of the outlook period, OPEC+ output is expected to rise steadily.

Resources and Energy Quarterly March 2021

Production could rise considerably for the nations exempt from the current
OPEC+ agreement, although the timing and rate of these gains is highly
uncertain. For much of 2020, Libyan output was affected by blockades on
oilfields and export facilities, initially imposed in January 2020 but
remaining in place until September 2020. After this blockade passed,
Libyan output rose noticeably, from 0.1 million barrels a day in September
2020 to 1.2 million barrels a day in February 2021. However, the outlook
for future Libyan production remains uncertain, and will depend on the UN
mediated truce remaining in effect. Libyan production is forecast to
average 1.3 million barrels a day in 2021 and 1.5 million barrels a day in2022. Production is projected to stabilise around these levels over the restof the outlook period.
Production in Iran and Venezuela could also increase significantly ifinternational sanctions ease. The potential for easing of these sanctions
partly depend on whether there would be any diplomatic shifts by the new
US administration. President Biden has indicated on numerous occasions
that the US will return to full compliance with the Joint Comprehensive
Agreement Plan of Action once Iran does. However, it is unclear whether
oil sanctions would ease before the deal is reinstated. It is also unclear
how flexible the US may be in enforcing these sanctions. The sanctions
facing Iran and Venezuela are assumed to remain in place over theoutlook period, and production over the projection period is forecast to
remain around 2020 levels.
OPEC+ production in 2020 averaged 46 million barrels a day, down 16%
from 2019. This year-on-year decline was limited by elevated production
between January and April 2020. Output is forecast to fall further to
45 million barrels a day in 2021, as current output targets are assumed tostay in place for the whole of 2021. In 2022, production is forecast to
recover to 51 million barrels a day, as output targets from the current

83

OPEC+ deal end in April 2022. OPEC+ production is expected to rise over
the rest of the outlook period, reaching 55 million barrels a day in 2026.

8.4

Non-OPEC+ output to increase, largely in the US and Canada

Oil prices have recovered to above US$60 a barrel in recent months,
reflecting some relenting in the consumption impacts of the COVID-19
pandemic. On 5 January 2021, Saudi Arabia announced that it would
reduce output by 1 million barrels a day in February and March 2021;
which helped drive up oil prices. High compliance in other OPEC+ member
countries, and a limited recovery in production throughout other major
producers has facilitated stock draw-downs, benefiting prices.

US production declined by 3.4% to 17 million barrels a day in 2020, withproduction being lowest in the June quarter. US capital expenditure and rig
count both declined significantly during 2020. In combination with declining
production from existing wells, this is expected to limit US production
growth in 2021. US oil production may also be affected by the ongoinglegal challenge on the Dakota Access Pipeline. Although the pipeline isallowed to continue operating while legal proceedings are ongoing, thispresents a downside risk to US supply, as some fields may become
unviable. US output is projected to reach 19 million barrels a day in 2026.
Canadian production is estimated to decline by 4.4% to 5.3 million barrels
a day in 2020, as relatively high production costs and dwindling storage
capacity influenced producer decisions. The new US Administration’s
decision to cancel permits for the Keystone XL pipeline is expected toaffect future Canadian production. This pipeline would have transported
Canadian oil sands to refineries on the US Gulf Coast. Canadianproduction is forecast to increase to 5.6 million barrels a day in 2021, andincrease moderately over the rest of the projection period, reaching 5.8
million barrels a day in 2026.

Resources and Energy Quarterly March 2021

Brent prices have returned to US$60 a barrel

Figure 8.4: Brent oil prices in 2020 and 2021
80

60
US$ a barrel

In 2020, production also declined significantly in non-OPEC+ nations, as
producers responded to low global prices. Non-OPEC+ output was lowest
in the June quarter, before rising marginally as some producers responded
to higher prices. Despite the recovery in production, investment decisions
and exploration expenditure were both severely affected throughout 2020.
This is expected to affect the ongoing recovery in oil production, especiallyin the US, as output from shale wells declines faster than conventional
wells.

Prices40

200
Jan 20 Mar 20 May 20

Jul 20

Sep 20 Nov 20

Jan 21 Mar 21

Source: Bloomberg (2021)

Brent prices averaged US$62 a barrel in February 2021, which was 46%
higher than the COVID-19 affected levels of 2020 (Figure 8.4). Despite therecent recovery, prices have remained somewhat affected by tightening
containment measures in response to renewed or persistent COVID-19
outbreaks in several major consumers. Fresh containment measures wereintroduced in the European Union, and in China over the Lunar New Year.

84

Oil prices throughout 2021 are forecast to remain around US$60 a barrel,
as production increases and containment measures are relaxed. Brent
prices are estimated to average US$58 a barrel in the March quarter 2021.
Prices are estimated to increase further to US$62 a barrel in the Junequarter 2021, reflecting lower stock levels and assumed supply restraint
from major producers. However, prices are forecast to decline marginallyover the rest of 2021, as production increases. Brent prices are expected
to average US$61 a barrel in the September quarter 2021 and US$60 abarrel in the December quarter 2021.
Despite these relatively flat (average) price forecasts for 2021, oil prices
are likely to remain volatile, and be noticeably affected by demand-side
uncertainty. Consumption may vary significantly, depending on unforeseenchanges in COVID-19 containment measures, as governments andhouseholds react to subsequent waves of the pandemic, and as businessand household confidence recovers as COVID-19 cases fall. The speed
and effectiveness of COVID-19 vaccine rollouts is also expected toinfluence global oil consumption and prices. Although there exists
significant uncertainty regarding the timing of the rollout of these vaccines,
it is unlikely that oil consumption will significantly benefit until at the second
half of 2021.
Substantial uncertainty also exists on the supply-side, primarily from
OPEC+ members. OPEC+ increased production by 0.5 million barrels a
day in January 2021. However, the rate of output increases beyond
January 2021 remains uncertain, as production targets can be adjusted inmonthly ministerial meetings. Output is also uncertain for the OPEC+
members currently exempt from production targets, including Libya, Iranand Venezuela. With production in these countries affected by either
blockades or international sanctions, geopolitical flare ups are likely toaffect global prices.

to production recovering in countries such as the US, and also to provide
incentives for OPEC+ to increase output targets. Production is expected toincrease broadly in line with consumption, preventing further significant
price gains.
Prices late in the projection period are expected to fall marginally, as
consumption growth in China moderates and consumption falls in othermajor countries — as electric vehicle adoption reduces oil-intensive
transportation.
Prices are projected to average US$65 a barrel in 2024, before falling to
US$62 a barrel in 2025 and US$58 a barrel in 2026 (in 2021 dollars)(Figure 8.5).
Figure 8.5: Projected oil prices
140
1202021 US$ a barrel

Prices to remain around US$60 a barrel over the projection period

100
80
60
40
20
0

2012

2014

2016

WTI crude oil price

2020

2022

2024

2026

Brent crude oil priceSource: Bloomberg (2021); Department of Industry, Science, Energy and Resources (2021)

Over the rest of the outlook period, prices are projected to remain around
US$60 a barrel (in 2021 dollars), as OPEC+ members and non-OPEC+
members strive to raise revenue. Current price levels are expected to lead
Resources and Energy Quarterly March 2021

85

8.5

Australia

Final investment decisions on gas projects to influence oil production
In 2020–21, Australian crude and condensate output is forecast to decline
marginally to 370,000 barrels a day, as condensate output was affected by
the temporary shutting of the Prelude FLNG project. Prelude was offline
between February 2020 and January 2021, affecting Australian crude andcondensate production for most of 2020–21. Gorgon is also experiencing
ongoing technical issues, affecting Australia’s condensate production.
Figure 8.6: Composition of Australian oil production

In 2021–22, Australian crude and condensate production is forecast to
increase by 7.1% to 396,000 barrels a day, as technical issues are
assumed to pass at Prelude and Gorgon. In 2024–25, production is
projected to fall to 365,000 barrels a day, due to lower output at existing
fields. Output is projected to increase to 389,000 barrels a day in 2025–26.
Australia’s exports to recover500

In 2020–21, export values are forecast to decline by 20% to $7.6 billion,
reflecting low oil prices. Exports are forecast to rise to $9.5 billion in
2021–22, driven by higher prices. Between 2022–23 and 2025–26, export
values are projected to remain around $10 billion (in 2020–21 dollars).

400

Australian refinery closures to reduce Australia’s throughput

600

Thousand barrels a day

to increase Australian crude and condensate production late in the
projection period.

300
200
100
0
2005–06

2010–11

2015–16

Crude oil

Condensate

2020–212025-26

LPG

Source: Department of Industry, Science, Energy and Resources (2021)

Later in the projection period, the deferral of final investment decisions(FID) for several gas projects may affect future condensate and LPG
production, with the production of both commodities typically associatedwith gas production (see the gas chapter). In 2019–20, condensate and
LPG accounted for 47% and 22% of total Australian oil output, respectively(Figure 8.6). Santos is expected to make a FID on the Dorado oil project in2022. This project has an estimated new capacity of 85,000 barrels a day— around a quarter of 2019–20 Australian crude oil and condensate
production. First production is expected in 2025, with this project expected
Resources and Energy Quarterly March 2021

Australian refinery throughput fell significantly in early 2020, as lowtransport demand reduced Australian refinery profitability (Figure 8.7). In
October 2020, BP announced plans to close their Kwinana refinery andconvert it to an import terminal. In February 2021, Exxon Mobil announced
they were shuttering their Altona refinery, and converting the plant to an
import and storage facility. Both companies attributed these decisions topersistent low refining margins and fierce competition with international
fuel refineries. These competitive pressures may also affect the future
operations of the remaining two Australian refineries, with Ampol andViva Energy recently announcing that they are assessing the long-term
viability of their Australian refineries.
Refinery production is forecast to decline out to 2022. The winding down ofproduction at BP’s Kwinana refinery and Exxon Mobil’s Altona refinery is
expected to more than offset a recovery in production at the remaining two
refineries as the impacts of COVID-19 ease. Over the rest of the projection
period, refinery throughput is forecast to remain around 2023 levels,
fluctuating in line with plant maintenance. The remaining Australian oil
refineries, Ampol’s Brisbane refinery and Viva Energy’s Geelong refinery,are expected to remain operational over the projection period.
86Australian refined product consumption fell in 2019–20, as COVID-19
containment measures weighed heavily on activity in the first half of 2020.
Consumption is forecast to recover in 2020–21, as containment measuresacross states ease. However, aviation demand is expected to remain low,
as air travel remains depressed. In Australia, aviation consumption
accounts for a relatively high share of product usage — around 15% of
total consumption in 2019.
Figure 8.7: Australia’s refinery output, 2019 and 2020

Exploration
In the December quarter 2020, Australian petroleum exploration
expenditure was a seasonally adjusted $229 million, a quarterly increaseof $6.9 million or 3.1% (Figure 8.8). However, this is 39% lower
year-on-year. A tighter domestic gas market could support ongoing growthin onshore petroleum exploration, with the Australian Energy Market
Operator forecasting a possible shortfall of natural gas in Australiansouthern states by 2024.
Figure 8.8: Australian petroleum exploration

12

1,200
1,000
A$ million

Billion litres

9

6

3

0

800
600
400
200

LPG

Automotive Aviation Diesel oil
gasoline turbine fuel2019

Fuel oilOther
products

2020

Source: Department of Industry, Sciences, Energy and Resources (2021)

Australian oil consumption is forecast to recover to 2018–19 levels in
2021–22. For the rest of the outlook period, Australian oil consumption is
projected to increase marginally, reaching 1.1 million barrels a day by2025–26. Australian imports of refined products are expected to increasesignificantly, as the Altona and Kwinana refineries wind down production.

Resources and Energy Quarterly March 20210
Dec 10Dec 12
Dec 14
Offshore expenditure

Dec 16
Dec 18
Onshore expenditureDec 20Source: ABS (2021) Mineral and Petroleum Exploration, Australia, 8412.0

Revisions to the outlook
Since the December 2020 Resources and Energy Quarterly, the forecast
for Australia’s crude and condensate export earnings has been revised up
by around $120 million in 2020–21 and $260 million in 2021–22 (nominal
terms), due to higher oil price forecasts.

87

Table 8.1: Oil outlook
World

Unit

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGR rProduction a

mb/d

93

95

99

100

101

101

102

1.5

Consumption a

mb/d

91

97

99

101

102

102

101

1.8

Nominal

US$/bbl

41

59

58

63

66

65

62

7.3

Real b

US$/bbl

41

59

57

60

62

59

55

4.9

Nominal

US$/bbl

42

61

61

66

69

68

65

7.3

Real b

US$/bbl

43

61

60

63

65

62

58

5.0

Unit

2019–20

2020–21f

2021–22f

2022–23z

2023–24z

2024–25z

2025–26z

CAGR rProduction a

kb/d

372

370

396

390

378

365

389

0.8

Export volume a

kb/d

291

299

317

316

310

303

327

1.9

Nominal value

A$m

9,009

7,678

9,575

10,213

11,081

11,111

11,425

4.0

Real value g

A$m

9,104

7,678

9,418

9,839

10,414

10,183

10,212

1.9

Imports a

kb/d

317

216

117

119

125

131

132

-13.6

LPG production ac

kb/d

104

115

121

120

118

117

116

1.8

Refinery production a

kb/d

447

342

238

235

235

234

235

-10.1

Export volume ad

kb/d

17

13

9

9

9

9

9

-9.2

Import volume a

kb/d

640

744

925

941

954

968

981

7.4

Consumption

kb/d

984

1,016

1,068

1,082

1,096

1,111

1,126

2.3

WTI crude oil price

Brent crude oil price

Australia
Crude and condensate

Refined products

Notes: a The number of days in a year is assumed to be 365, and a barrel of oil equals 158.987 litres; b In 2021 calendar year US dollars; c Historical production data was revised in the September
quarter 2020 to align with Australian Petroleum Statistics; d Primary products sold as LPG; e Excludes LPG; g Domestic sales of marketable products, including imports; f Forecast; h In 2020–21
financial year Australian dollars.
Source: ABS (2021) International Trade in Goods and Services, Australia, Cat. No. 5368.0; International Energy Agency (2021); EnergyQuest (2021); US Energy Information Administration (2021);
Department of Industry, Science, Energy and Resources (2021).
Resources and Energy Quarterly March 2021

88Uranium prices are expected to rise steadily over the outlook period.
Supply cuts at large mines in Canada and Kazakhstan, as well as theclosure of Australia’s Ranger mine in early 2021, will lead to some
supply pressures. However, large producers retain the capacity to ramp
up rapidly should prices grow significantly.

Australian production is forecast to decline from 2021, as the number ofactive uranium mines falls from three to two (see Australia section).



Export values are forecast to increase from $520 million in 2020–21 to$659 million by 2025–26 (in real terms), as prices pick up.

9.2

World consumption

Nuclear power faces mixed prospects over the next five years, despite anotable pick up in deployment rates over the last five (Figure 9.1).
Countries including Japan, China, South Korea and the EU all announced
significant upgrades to their climate change policies in 2020. Most climate
models suggest that significant amounts of nuclear power will be needed,alongside other clean energy sources, in order to meet the emissions
targets specified in the Paris Climate Accord. However, public debates andconcerns over radiation and slow deployment, have acted as a significant
constraint on deployment in OECD nations. This has exacerbated an
existing problem in which reactors across the OECD are typicallyconstructed in low numbers and with a multiplicity of designs, resulting inbudgetary and timetable blowouts.
In contrast, construction by Chinese, Russian and South Korea firms haveattained economies of scale using established designs, resulting in far
more successful reactor deployments. Over the outlook period, mostconstruction is expected to occur in Asian, African and Middle Easterncountries, with construction also expected to pick up in Eastern Europe.
However, construction across the OECD is likely to remain sporadic anduncertain. Global uranium consumption is expected to lift steadily over theoutlook period, rising from 84,700 tonnes in 2020 to a projected 85,500
tonnes in 2026 (see Figure 9.2).

Resources and Energy Quarterly March 2021

Figure 9.1: World nuclear power generation capacity
Electrical capacity (gigaawatts)



Summary
40
30
20
10
0

-10
-20
1960

1970

1980

1990

Nuclear generation added

2000

2010

2020

Nuclear generation removed

Source: International Energy Agency (2021); World Nuclear Association (2021); Department
of Industry, Science, Energy and Resources (2021)

Figure 9.2: World uranium consumption and inventory build (U3O8)
120
Thousand tonnes

9.1

100
80
60
40
20
0

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

China
United States

European Union
OthersJapan
Inventories

RussiaTotal production

Source: International Energy Agency (2021); World Nuclear Association (2021); Ux
Consulting (2021)

90China continued to lead the world in nuclear constructions over 2020, andsuccessfully launched a new reactor late in the year. The CAP-1400
model, an upgrade from the AP1000 build, is relatively modular, being
designed for rapid production and easy export. The development of thisand other similar technologies, is likely to provide an incentive to countries
considering rollouts of nuclear energy.
Unit 5 of China’s Fuqing nuclear plant entered commercial operation in
January. A second demonstration unit at the same site is expected tocommence operation in the December quarter 2021, with cold functional
testing concluding in January. Cold functional tests also concluded at the
China Nuclear Corporation’s newly developed gas-fired reactor in
Shandong. Concrete is also being poured at the San’ao nuclear power
plant in Zhejiang, with seven new reactors to be constructed at the site.
China’s draft of its latest five-year plan includes a target to increase
nuclear generation from 51GW at the end of 2020 to 70GW by 2025 and
180GW by 2035. This would amount to a significant expansion in global
nuclear energy over the next 15 years assuming targets are reached.
China’s previous target was 58GW by the end of 2020.
India’s Kakrapar nuclear plant connected its newly completed unit 3 to thegrid in January. The reactor is India’s first domestically-designed
pressurised heavy water reactor. Other reactors of the same design(including unit 4 at the same site) are also under construction.
In the UK, construction of the Hinkley Point C nuclear plant has been
delayed, with scheduled generation postponed by 6 months to June 2026.
The delay is largely a result of the COVID-19 pandemic, and is likely toincrease the cost of the project over its budget. Sizewell C — the likely
successor plant after Hinkley C — is expected to benefit from greater
economies of scale and experience. However, Hinkley C remains subject
to considerable public debate, with finance not yet secured and siteplanning not expected to conclude until 2022.

Resources and Energy Quarterly March 2021

In Belarus, Rosatom — a Russian firm — announced that unit 1 of its
Ostravets reactor reached 100% capacity in January. The reactor is thefirst in Belarus and the first AES-2006 design to be built outside Russia.
Armenia has announced that the operating life of its Metsamor nuclear
plant will be extended beyond its original closure date in 2026. A second
unit is planned for construction as part of the country’s energy strategy.
Ukraine has also announced plans to further expand its nuclear power
generation following the successful completion of units 3 and 4 at the
Khmelnitsky plant. This follows similar announcements from Poland,
Slovakia and Romania, and suggests that Eastern Europe could become asignificant source of new nuclear generation over the coming years.
In Sweden, the Ringhals 1 reactor closed in 2020 after 44 years ofoperation. This follows the 2019 closure of Ringhals 2, which occurred five
years ahead of schedule.
Figure 9.3: New nuclear capacity: medium-term expansion
60

Gigawatts electricMore countries are showing interest in nuclear reactors

40

20

0

China

Other
Asia

Eastern North Western Africa & South
Europe America Europe Middle America
East
Under construction
PlannedSource: International Energy Agency (2021); World Nuclear Association (2021); Department
of Industry, Science, Energy and Resources (2021)

91

9.3

World production

Figure 9.4: World uranium production and secondary supply (U3O8)
120

In December 2020, the OECD Nuclear Energy Agency and International
Atomic Energy Agency released a joint report on uranium resources anddemand. The report notes that there are sufficient uranium reserves to fuellong-term nuclear power output. However, short-term supply issues may
arise over coming years, due to underinvestment over the last decade.

100

Uranium supply is expected to grow slowly from 2021, following the postCOVID-19 recovery (Figures 9.3 and 9.4). Uranium supply is also likely todepend more on primary production as mine output in Canada andKazakhstan returns to more typical levels. This will substitute for a
reduction in secondary supply brought about by steady reduction ininventory draw-down from utilities. Uranium inventories remain significant,but have shrunk over the last two years.
A gradual emergence of supply shortages may become apparent from2023, with the market deficit growing over time. This shortfall will likely be
met in the short-term through expanded mine output and utilisation of
spare capacity among producing nations. However, more primary
production is likely to be needed by the late 2020s.

Uranium spot prices rose significantly in early 2020, and held up above
US$30 a pound for five successive months in mid-2020. However, slower
purchasing activity (linked to the COVID-19 pandemic) led to a fall in
prices late in 2020, with an easing to US$28 a pound by February 2021.
Global uranium supply has declined noticeably in recent years. Largeminers in Canada and Kazakhstan paused or shut production as prices
reached the lowest level in decades. The closure of Australia’s Ranger
mine is likely to act as a further constraint over the outlook period. The
postponement/cancellation of mine projects during the long period of low
prices after 2011 is likely to exacerbate medium term supply problems.

Resources and Energy Quarterly March 2021

60
40

0

2008

2010

2012

Kazakhstan
AfricaSecondary supply

2014

2016

2018

2020

CanadaRussiaTotal consumption

2022

2024

2026

Australia
Others

Source: International Energy Agency (2021); World Nuclear Association (2021); Ux
Consulting (2021)

Figure 9.5: Uranium price outlook
80

PricesPrices are expected to rise slowly over the outlook period

80

20

70
2021 US$ a pound

9.4

Thousand tonnes

Large suppliers have reduced output in the wake of COVID-19

60

50
40
30
20
10
0
2008

2010

2012

2014

2016 2018
Spot price

2020

2022

2024

2026

Source: Cameco Corporation (2021) Uranium Spot Price; Ux Consulting (2021) Uranium
Market Outlook+92Australia

Production and exports are set to decline from 2021
Processing at ERA’s Ranger mine concluded on 8 January 2021, bringing
operations at Australia’s second largest uranium mine to a permanent
close. The mine, which commenced operation in 1980, was bound bylegislation requiring its closure by 2021. Most mining operations at the site
had been halted since 2012, with recent output being drawn fromstockpiled ore. Work is now underway on rehabilitation at the site, with thiswork due to conclude by 2026. The closure of this mine leaves Australia
with two operating uranium mines — Olympic Dam and Four Mile, both inSouth Australia.
Production at Olympic Dam is expected to edge up slightly over theoutlook period, though any significant changes to output at the site arelikely to be contingent on conditions in the copper market (see copper
chapter), since copper is the primary output from the mine. BHP has
announced plans to push up output at the site incrementally, bymodernizing facilities, with $500 million allocated for smelter maintenancein 2021. However, at this stage, investments remain limited to maintaining
existing production rather than increasing capacity. BHP’s previously
proposed $3.5 billion brownfield expansion at the site has been indefinitely
postponed, with the company noting that ‘copper resources in the southernmine area are more structurally complex, and the higher grade zones lesscontiguous, than previously thought’.

Resources and Energy Quarterly March 2021

Australia also has significant uranium resources available at other sites.
These deposits include Honeymoon in South Australia, as well as Wiluna,
Yeelirrie, Mulga Rock and Kintyre in Western Australia. Progress indeveloping these sites is likely to be contingent on improvements in theuranium price, with potential for development at one or two sites towards
the end of the outlook period.
Export volumes are expected to be largely steady, at 5,800 tonnes
annually across the outlook period (Figure 9.6). However, price growth isexpected to see export values increase from $520 million in 2020–21 to$659 million in 2025–26 (real terms).
Figure 9.6: Australia's uranium exports
12

1200

9

900

6

600

3

300

2020-21 A$ million

9.5

Production at South Australia’s Four Mile mine is expected to be steadyover the outlook period, with the site still holding significant untapped ore
deposits.

Thousand tonnes

Prices are expected to lift slowly over the outlook period (Figure 9.5) aslarge inventory stocks decline and potential shortfalls in enrichment
capacity begin to affect processing times. Some of this price pressure canbe offset in the short-term as producers gradually dial up output, though
this is likely to lead to capacity limits being hit in the second half of theoutlook period. Prices are forecast to increase from US$29.96 in 2020 toaround US$33.50 by 2022 and US$52 by 2026 (real terms). This pricegrowth will be essential to ensure that investment in new mines occurs by
the late 2020s, when supply shortfalls are likely to become significant.

00
2010–11 2013–14 2016–17 2019–20 2022–23 2025–26
VolumeValue (rhs)

Source: Department of Industry, Science, Energy and Resources (2021)

Exploration remains low, due to ongoing relatively weak prices
Uranium exploration lifted marginally in the December quarter, rising from
$1.8 million in the September quarter to $2.2 million. Exploration was$2.3 million in December 2019. This is relatively low compared to averagespending over the past 10 years, and reflects ongoing weak prices.
93

Table 9.1 Uranium outlook

World

Unit

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

Production

kt

54.7

60.1

60.1

63.5

64.2

65.8

65.8

3.1

Africab

kt

9.6

8.8

8.8

9.9

10.1

9.9

8.5

-1.9

Canada

kt

4.8

8.2

8.2

8.6

8.6

8.6

10.5

14.0

Kazakhstan

kt

22.7

26.2

26.4

28.1

28.5

30.0

29.4

4.4

Russia

kt

3.4

3.6

3.6

3.7

3.9

4.1

4.2

3.5

Consumption

kt

84.1

85.5

84.8

85.7

87.6

85.5

84.6

0.1

China

kt

13.5

14.7

15.1

15.2

15.2

15.6

15.2

2.0

European Union 28

kt

22.4

23.1

20.3

20.3

20.9

18.2

18.4

-3.2

Japan

kt

1.9

2.4

2.4

2.4

2.4

2.4

2.4

3.9

Russia

kt

7.4

7.6

7.6

6.8

8.3

8.1

8.0

1.2

United States

kt

21.7

19.8

22.0

22.2

22.2

22.3

22.5

0.6

Spot price

US$/lb

30.0

30.8

33.5

37.2

42.5

47.7

52.4

9.8

realc

US$/lb

30.6

30.8

32.9

35.7

39.8

43.6

46.9

7.4

Australia

Unit

2019–20

2020–21f

2021–22f

2022–23z

2023–24z

2024–25z

2025–26z

Mine production

t

7,349

6,486

5,800

5,800

5,800

5,800

5,800

-3.9

Export volume

t

7,195

6,486

5,800

5,800

5,800

5,800

5,800

-3.5

– nominal value

A$m

688

520

453

506

584

667

737

1.2

– real valued

A$m

695

520

445

488

549

612

659

-0.9

Average price

A$/kg

95.6

80.2

78.0

87.3

100.7

115.1

127.2

4.9

– reald

A$/kg

96.7

80.2

76.8

84.1

94.6

105.5

113.6

2.7

Notes: b Includes Niger, Namibia, South Africa, Malawi and Zambia; c In 2020 US dollars; d in 2020–21 Australian dollars; e estimate; f forecast; r Average annual growth between 2020 and 2026
or 2019–20 and 2025–26; z projection.
Source: Department of Industry, Science, Energy and Resources (2021); Cameco Corporation (2020); Ux Consulting (2021) Uranium Market Outlook

Resources and Energy Quarterly March 2021

9410.1

Figure 10.1: World gold consumption by sector

Higher prices are expected to push the value of Australia’s gold exports
up to a record of $29 billion in 2020–21. Earnings (in real terms) are thenprojected to decline to $22 billion in 2025–26, as gold prices ease back.



Export volumes are forecast to fall by 1.8% to 344 tonnes in 2020–21,
as high gold prices reduce gold demand. Volumes are projected to reach
418 tonnes by 2025–26, as demand recovers (see Australia section).



An effective COVID-19 vaccine rollout and consequent global economic
rebound is projected to see the gold price slide from US$1,700 in 2021
to US$1,210 an ounce in 2026 in real terms.

10.2

Consumption

World gold consumption fell in 2020
World gold consumption declined by 14% to 3,760 tonnes in 2020 (Figure10.1). COVID-19 containment measures and higher gold prices reduced
gold jewellery consumption (which accounts for 38% of global gold
demand). Jewellery consumption in China and India — the world’s twolargest jewellery consuming nations — declined by 35% and 42% in 2020,
to 416 and 316 tonnes, respectively. In the US and Europe, jewellery
demand fell by 10% and 21% in 2020, to 118 and 57 tonnes, respectively.
Net official sector (central banks and other government institutions)purchases fell by 59% to 273 tonnes in 2020. The need for more liquid
assets during the COVID-19 pandemic appears to have been the main
catalyst for some central banks’ diminished appetite for gold. Mongolia, Sri
Lanka and Tajikistan were the largest sellers of gold, while Turkey, India
and the United Arab Emirates bought the most gold in 2020 (Figure 10.2).
Gold used in industrial fabrication fell by 7.4% to 302 tonnes in 2020, as
COVID-19 containment measures impacted on the sale of consumer
electronics. Over this period, gold used in electronics declined by 5.3% to
248 tonnes. Higher gold prices also affected demand for gold in the dental
sector; usage was down 14% in 2020, as consumers substituted ceramics
for gold.

Resources and Energy Quarterly March 2021

5,400
4,500
Tonnes

Summary

3,600
2,700
1,800
900
0

2016

2018

2020

Total Fabricated2022

Investment

2024

2026

Official sector

Source: World Gold Council (2021) Gold Demand Trends; Department of Industry, Science,
Energy and Resources (2021)

Figure 10.2: Official sector’s gold selling and buying*, selected
countries, 2020
TurkeyIndia
UAE
RussiaQatar
Cambodia
Kyrgyz Republic
Uzbekistan
Germany
Colombia
Philippines
Tajikistan
Sri Lanka
Mongolia
-20

30

80

130

180

TonnesNote: *Gold bullions. Minus quantity indicates selling. Positive quantity indicates buying.
Source: World Gold Council (2021)

97Offsetting falling gold consumption in the jewellery, official and industrial
sectors, gold-backed exchange traded funds (ETF) holdings rose by 120%in 2020 to 877 tonnes (equivalent to US$48 billion) — the largest inflows
ever. The COVID-19 pandemic, low interest rate environment, and weaker
equity markets in the first half of 2020 drove the flows into the ETFs.
Global gold imports rose in 2020
Global gold imports (including jewellery, gold bars and coins and ETFs)
rose by 8.3% in 2020, to nearly US$298 billion, driven by the ETFs basedin the UK, Switzerland and the US. The UK was the largest gold importerin 2020, importing US$90 billion of gold and accounting for over 30% of
total global gold imports, followed by Switzerland (which imported US$88
billion in 2020 and accounted for nearly 30% of total global gold imports)
and the US (which imported US$35 billion in 2020 and accounted for 12%
of total global gold imports) (Figure 10.3).
Figure 10.3: Top 5 global gold imports* by country120

US$ billion

Global gold consumption is forecast to increase by 8.5% to 4,080 tonnes
in 2021, as lower gold prices and the roll-out of COVID–19 vaccines help
to support the sale of gold jewellery (Figure 10.1). On 1 February 2021,
the Indian government announced a cut in the total import duty from
12.5% to 10%. There are already signs of a turnaround in jewellery
demand from China and India. China and India’ December 2020 quarter
jewellery demand was 145 and 137 tonnes, respectively. This is thehighest level since the December 2019 quarter, up by 22% and 126% fromthe September 2020 quarter, respectively.
Global jewellery demand is expected to rise by 25% in 2021, to
1,764 tonnes. Central banks’ gold buying is forecast to increase by 26% in
2021 to 344 tonnes, as some central banks increase gold reserves in
2021. After 2021, world gold consumption is projected to rise at an annual
average rate of 4.8%, reaching 5,162 tonnes by 2026, as lower gold prices
boost jewellery demand and retail investment (Figure 10.1).
Global jewellery consumption is projected to rise at an annual rate of 8.0%
over the 5-year outlook. Consumption is projected to reach 2,589 tonnes
by 2026, driven by an improvement in consumer sentiment, rising income
and lower gold prices.

100
80

Demand from China is expected to pick up, as price-sensitive Chinese
consumers react to price falls. Economic growth, ongoing urbanisation,and rising incomes are all expected to contribute to higher jewellery
demand in India. In the US and Europe, an improvement in consumer
confidence is also likely to support the demand for gold jewellery in thosemarkets (Figure 10.4).

60
40
20
0

Gold consumption expected to rise over the outlook period

2010

2012

United Kingdom

2014

2016

2018

Switzerland

US

Turkey2020
Italy

Notes: *Gold imports include jewellery, gold bars and coins, and ETFs. Quarter 4 2020 trade
data is provisional.
Source: International Trade Centre (2021)

Resources and Energy Quarterly March 2021

Gold retail investment is projected to grow at an annual rate of 1.8% over
the outlook period, to reach 1,176 tonnes by 2026. The forecast decline ingold prices will likely attract retail and institutional investors back to thegold bar and coin markets.

98Figure 10.5: Top 5 physical gold investing countries

800

400

600

300
TonnesTonnesFigure 10.4: Top 5 jewellery consuming countries

400
200
0

200

100

2017
China

2020
India

2023
USA

Russia2026
Indonesia

0

2017
China

India

2020
Germany

2023
South Africa

2026
TurkeySource: Metals Focus (2021); Department of Industry, Science, Energy and Resources(2021)

Source: Metals Focus (2021); Department of Industry, Science, Energy and Resources(2021)

Physical gold investment in China and India is expected to grow over theoutlook period, driven by bargain hunting (Figure 10.5). In the US andEurope, despite a forecast improvement in economic growth, inflationary
expectations are likely to encourage investment in physical gold, with asurge in investment volumes expected from 2024 and onwards.

10.3 Production

After reaching a ten-year low of 273 tonnes in 2020, the pace of central
bank gold buying is projected to increase by an average 9.7% a year over
the outlook period, reaching 540 tonnes in 2026. Many central banks are
expected to shift their focus from accommodative liquidity requirements —to support economic growth during the COVID-19 pandemic — to reserves
diversification — to protect their future wealth.
Risks to jewellery consumption remain in the short term
Despite growing online jewellery trading platforms, consumers still prefer a
traditional face-to-face method of buying and selling jewellery. The threatof COVID-19 virus variants, partial or full COVID-19 containment
measures and uncertainty around vaccine roll outs are all risks to theglobal economic recovery, which pose a risk to jewellery demand.
Resources and Energy Quarterly March 2021

COVID-19 containment measures reduced world gold supply in 2020
World gold supply decreased by 3.9% in 2020 to 4,633 tonnes, as
COVID-19 containment measures reduced gold mine output (which
accounts for 73% of global gold supply) by 3.7% in 2020, to 3,401 tonnes(Figure 10.6).
Gold mine production in China — the world’s largest gold producer —declined by 4.7% in 2020, to 365 tonnes, with COVID-19 containment
measures and stricter environmental regulation leading to some modest
production cuts (Figure 10.7). Over this period, Russia’s gold mine
production fell by 10%, to 295 tonnes, due to lower ore grades (Figure10.7).
Outside of China, Papua New Guinea’s gold mine production fell byaround 28% in 2020, to 53 tonnes, as the country’s largest gold mine
(Porgera) was placed into care and maintenance from April 2020 following
a dispute with the PNG government over the renewal of the mining lease.

99

Figure 10.7: Top 10 global gold producing countries

5,400

500

4,500

400

3,600

300

2,700

200

TonnesTonnesFigure 10.6: World gold supply

1,800

0

900
0

100

2016

2018

2020

Mine production

2022

2024

2026

Scrap

2010

2012

China
CanadaSouth Africa

2014

2016

Australia
Ghana
Brazil2018

2020
Russia
Peru

2022

2024

2026

US
MexicoSource: World Gold Council (2021) Gold Demand Trends; Department of Industry, Science,
Energy and Resources (2021)

Source: Metals Focus (2021); S&P Market Intelligence (2021); Department of Industry,
Science, Energy and Resources (2021)

Gold mine production in Australia — the world’s second largest gold
producer — was largely unaffected by COVID-19 containment measures,rising by 0.6% to 328 tonnes in 2020 (Figure 10.7).

In 2021, gold mine production in Central and South America and Africa is
expected to recover, following heavy losses in 2020. Production in Mexico
is forecast to increase by 24% in 2021 to 128 tonnes, Peru (up 35% to 136
tonnes) and South Africa (up 24% to 124 tonnes).

Movement restrictions during the COVID-19 pandemic discouraged gold
recycling activities. Jewellery store closures reduced the physicalexchange of gold for cash. In 2020, gold scrap supply grew at a slower
pace (up 1.2% to 1,297 tonnes) than in 2019 (up 12%) (Figure 10.6).
World gold supply expected to peak in 2023
World gold supply is forecast to reach a peak of 5,051 tonnes in 2023, andthen decline moderately to 4,893 tonnes in 2026. In the short term,increasing total gold supply will be propelled by higher mine production.
Global mine production is forecast to increase by 5.5% (to 3,588 tonnes) in
2021, by 3.0% (to 3,696 tonnes) in 2022, and by 2.0% (to 3,769 tonnes) in
2023 (Figure 10.6). The global rollout of COVID-19 vaccines is expected tominimise disruption to gold mine production after 2022.

Resources and Energy Quarterly March 2021

A solid pipeline of projects in Australia and Canada are all likely to drive
higher global gold mine output in the short term, with miners focusing on
expansions and extending the life of existing mines.
Australia is expected to overtake China as the world’s largest gold
producer in 2021, producing 384 tonnes (Figure 10.7), as miners respondto high gold prices (see Section 10.5 Australia’s exports and production).
In China, stricter environmental regulations are likely to keep Chinese gold
mine output at about 370 tonnes a year over the outlook period.
World gold mine production is projected to decline at an annual rate of
0.8% in 2025 and 2026, to 3,746 tonnes in 2026 (Figure 10.6), as ore
grades decline and operational costs increase.

100Figure 10.9: Profitable and unprofitable global gold mines

Figure 10.8: Gold exports, selected top 5 producing countries
35

100
80

25
Per cent

US$ billion

30

20
15

60
40

10
20

5
0

2010
China

2012

2014

Australia

2016
Russia

2018
US

2020
CanadaNotes: Quarter 4 2020 trade data is provisional.
Source: International Trade Centre (2021)

Figure 10.9 shows the share of profitable and unprofitable gold mines in
the world. A mine is considered as profitable or unprofitable if its all-in
sustaining costs — a measure of all direct and recurring costs required tomine a unit of ore — are below or above the average gold prices. The
number of unprofitable gold mines is expected to rise from 5% in 2021 to
10% in 2026. Reflecting this rise, more mine closures and reduced gold
mine production are expected.
The medium to long term future and sustainability of the Australian gold
industry is reflected by its gold economic resources. Figure 10.10 shows
the largest gold economic resources, of which Australia has the largest:
10,795 tonnes, accounting for 21% of global gold reserves, ahead of
Russia (5,300 tonnes, 10%), South Africa (3,200 tonnes, 6.3%) and US(3,000 tonnes, 5.9%).
Gold scrap supply is projected to decline at an average annual rate of
3.2% over the outlook period, to 1,135 tonnes in 2026, as lower gold
prices discourage gold selling in major jewellery consuming markets suchas China and India.
Resources and Energy Quarterly March 2021

0

2021

2022

2023

Profitable

2024

2025

2026

Unprofitable

Source: AME (2021); Department of Industry, Science, Energy and Resources (2021)

Figure 10.10: World gold economic resources, December 2019
Australia
RussiaSouth Africa
US
Indonesia
BrazilPeru
China
CanadaUzbekistan
Argentina
MexicoGhana
Kazakhstan
Papua New Guinea
0

5,000

10,00015,000Tonnes
Source: Geoscience Australia (2021)

101

Gold has benefited from its status as a safe haven asset during the
COVID-19 pandemic. The close correlation between lower real bond yields
and the US dollar gold price has persisted; low (and negative) real yields
caused a rush of investor money into gold in 2020, more than offsetting
the impact of weaker demand from jewellery consumers and central banks(Figure 10.12).
Gold prices to fall in the short to medium term
In 2021, the rollout of COVID-19 vaccines and the global economic
recovery has lifted real bond yields, and is expected to undermine some ofgold’s appeal to institutional and retail investors. Funds are expected tomove out of safe haven assets like gold and into riskier assets such as
equities and real estate. Reflecting this, the US gold price is forecast to
decrease by 5.7% (in real terms) in 2021, averaging US$1,700 an ounce,with the Australian gold price forecast to fall by 16% (in real terms) in
2021, averaging A$2,200 an ounce (Figure 10.11).
After 2021, gold prices are projected to fall by an average 6.6% a year, toUS$1,208 an ounce in 2026 in real terms, due to the recovery of the global
economy and a higher interest rate environment (Figure 10.11). The highinterest rate environment is likely to be a major factor in curbing
institutional investment demand for gold. With (real) interest rates
increasing, the opportunity cost of holding gold is high, lowering its
attractiveness as an investment asset. The lower US dollar gold price, in
combination with a higher Australian dollar, is expected to push theAustralian dollar gold price lower over the outlook period, to an average of
A$1,610 an ounce (real terms) in 2026.

Resources and Energy Quarterly March 2021

3,000

1,600

2,400

1,200

1,800

800

1,200

400

600

0

2016

2018

2020

Real US dollar gold price

2022

2024

2026

2021 prices A$ an ounce

The London Bullion Market Association (LBMA) gold price averaged
US$1,805 an ounce in 2020, a rise of 26% from 2019 (Figure 10.11). An
US dollar record of US$2,064 an ounce was reached on 6 August 2020 —and the Australian dollar gold price — reached A$2,861 an ounce on 7
August 2020.

2,000

0

Real Australian dollar gold price (rhs)

Source: LBMA (2021) Gold price PM; Department of Industry, Science, Energy andResources (2021)

Figure 10.12: US dollar gold price and real US 10-Year Treasury yield
2,200

-1.2

2,000

-0.7

1,800

-0.2

1,600

0.3

1,400

0.8

1,200

1.3

1,000

1.8

800

2.3

600

2.8

400

3.3

200
Mar–05
US$ gold price

Mar–09

Mar–13

Mar–17

Per cent

Gold prices rose strongly in 2020

Figure 10.11: US and Australian dollar real gold prices
2021 prices US$ an ounce

Prices

US$ a troy ounce

10.4

3.8
Mar–21

Real US 10 Year Treasury bond yield (inverted, rhs)

Source: Bloomberg (2021)

102

Geopolitical issues are expected to remain over the outlook period.
Tensions in the Middle East and parts of the Indo-Pacific are not expected
to be resolved within a short timeframe. There is uncertainty around thelevels of world trade protection, as countries may look to support domestic
manufacturing industries to aid economic recovery from the COVID-19
pandemic.

10.5

Australia’s exports and production

Australia’s gold exports increased in 2020
Australia’s gold exports increased by 9.1% to over $25 billion in 2020,
propelled by a 26% rise in gold prices.
The value of Australia’s gold exports is forecast to peak at a record $29
billion (in real terms) in 2020–21, driven by higher gold prices (Figure
10.13). Gold prices rose by 26% in 2020 to US$1,805 an ounce, and are
expected to average US$1,700 an ounce in 2021 (in real terms).
Export values are projected to decline after 2020–21, from $29 billion in
2020–21 to $22 billion in 2025–26 (2020–21 dollars) (Figure 10.13). The
decline is expected to be driven by lower US and Australian dollar gold
prices (see Section 10.4 prices).
Australia’s gold mine production rose in 2020
Australia’s gold mine production was largely unaffected by COVID-19
containment measures, and rose by 0.6% to 328 tonnes in 2020.

Resources and Energy Quarterly March 2021

450

30

360

24

270

18

180

12

90

6

0

2015–16 2017–18 2019–20 2021–22 2023–24 2025–26
Export volume

2020-21 A$ billion

Another risk to the price assessment includes a possible correction in the
global equity markets — which are at record levels and vulnerable to a risein bond yields. A correction in equity markets may drive institutional
investors back towards gold. A rise in the US dollar would put downward
pressure on the US gold price. The US dollar may rally if growth in the US
economy outpaces other major nations.

Figure 10.13: Australia’s gold exports

TonnesThere are several risks to the gold price assessment, including theeffectiveness of COVID-19 vaccines now being rolled out across the world.
Some new strains of the virus are much more infectious than others.

0Real value (rhs)

Source: ABS (2021) International Trade, 5464.0; Department of Industry, Science, Energy
and Resources (2021)

Production at Kirkland Lake Gold’s Fosterville mine in Victoria increasedby 3.4% in 2020 to nearly 20 tonnes, driven by increased mill throughput.
Over the same period, production at Ramelius Resources’ Mt Magnet andVivien gold mine rose by 47% to 5.7 tonnes, propelled by higher grades.
Production at Evolution Mining’s Cowal gold mine in NSW fell by nearly
17% in 2020, to 7.1 tonnes, due to planned maintenance in August 2020.
Northern Star’s Kalgoorlie Operations output declined by 17% to 9.2
tonnes in 2020, due to planned maintenance and lower grades.
Higher gold mine production until 2023–24
Australian gold mine production is forecast to grow at an average annual
rate of 5.7% between 2020–21 and 2023–24, reaching a peak of 410
tonnes in 2023–24 (Figure 10.14). Growth is expected to be driven bymine reactivation and expansions, as well as production from new mines.
Red River Resources’ 1.6 tonnes per year Hillgrove gold mine in NSW
commenced production in March 2021. Red 5’s 6.2 tonnes a year King of
the Hills gold project is expected to start production in mid-2022.

103Several gold projects are expected to ramp up production in the coming
years. These include St Barbara’s 7.9 tonnes a year Gwalia Expansion in
WA and the 15 tonnes a year Tropicana Expansion project — a jointventure between AngloGold Ashanti and Independence Group.
Production at Newmont’s Boddington gold mine in Western Australia andTanami gold operation in the Northern Territory is expected to reach nearly
26 and 16 tonnes of gold in 2021.
Several gold expansion projects are expected to be completed in 2022
and 2023. These include Newcrest’s $685 million and $175 million Cadia
Stage 1 and Stage 2 Expansion projects in NSW, and Newmont Mining’s$750 million Tanami Expansion 2 project in WA. Newmont’s Tanami
Expansion 2 project is expected to be commissioned in the first half of2024, lifting the mine’s average annual gold output from 15 tonnes a year
in 2020 to 18 tonnes a year in 2025.

Figure 10.14: Australia’s gold production
420
350
280
TonnesNQ Minerals’ 1.4 tonnes per year Beaconsfield gold mine in Tasmania is
expected to start production in 2021, after production ceased in 2012.

140
70
0

Western Australia is the centre of Australian gold production
Western Australia is expected to be the largest gold mine producing statein Australia in 2020–21, accounting for 68% of Australian total gold mine
output, followed by New South Wales (10%), Victoria (7.2%), Queensland(5.2%), the Northern Territory (4.3%), and the rest of Australia (4.9%). At
the end of the outlook period (2025–26), Western Australia is expected toremain Australia’s largest gold mine producing state. Production in New
South Wales and Victoria is expected to fall, whereas production in
Queensland and the Northern Territory is expected to rise (Figure 10.15).
Resources and Energy Quarterly March 2021

2015–16

2017–18

2019–202021–222023–242025–26

Source: Department of Industry, Science, Energy and Resources (2021)

Figure 10.15: Production by State/Territory
420

Lower production in the medium term

350

280
TonnesAfter reaching a peak in 2023–24, Australian mine output is projected to
decline by 2.1% annually to 392 tonnes in 2025–26 (Figure 10.14). Output
will be weighed down by lower grade ores, reserve exhaustion andclosures, with prices also falling back. Production at Gold Fields’ St Ives
gold operation in WA is expected to decline from 11 tonnes in 2020 to 3.6
tonnes in 2026.

210

210
140
70
0

2015–16

2017–18

2019–202021–222023–242025–26

Western Australia

New South Wales

Victoria

Queensland

Northern Territory

Rest of Australia

Source: Department of Industry, Science, Energy and Resources (2021)

104

Australia’s gold mine production costs expected to rise in the medium term

Exploration expenditure continued to rise in 2020

Figure 10.16 shows gold production all-in sustaining costs (AISC) — ameasure of all direct and recurring costs required to mine a unit of ore —of selected major gold producing nations between 2021 and 2026.

Australia’s gold exploration expenditure increased by nearly 16% in 2020
to nearly $1.3 billion — accounting for 47% of Australia’s total minerals
exploration expenditure during the year — driven by high US dollar andAustralian dollar gold prices. Western Australia remained the centre ofgold exploration activity in Australia, accounting for nearly 70% (or $908
million) of total gold exploration expenditure (Figure 10.17).

Australia’s gold mine production costs are forecast to be lower than theworld average costs in the short term, but are expected to be above theworld average in the medium term. Australian gold miners are lesscompetitive (have a higher AISC) than Chinese, Russian, and North
American producers.

Figure 10.17: Australian gold exploration expenditure
1,000

Figure 10.16: Gold mine AISC costs, by country
800
A$ milion

US$ an ounce

1,000

900

800

400
200
0

700

2010

2012
WA

600

500

600

2014

2016

2018

2020

Rest of Australia

Source: ABS (2021) Mineral and Petroleum Exploration, Australia, 8412.0

Revisions to the outlook
2021

2022

2023

2024

2025

2026

China

Australia

RussiaUS

CanadaWorld

Source: AME (2021)

Resources and Energy Quarterly March 2021

The forecast for Australian gold export volumes in 2020–21 has beenrevised down by 5.5%, to 344 tonnes, from the forecast in the December
2020 Resources and Energy Quarterly. The downward revision reflects thelower than expected export volumes to the United States in the December
quarter 2020, down 32% quarter-on-quarter. As a result of the export
volume revision, the forecast for Australian gold export values in 2020–21
has been revised down to $29 billion, down around $1.0 billion from theforecast in the December 2020 Resources and Energy Quarterly.

105

Table 10.1: Gold outlook
World

Unit

2020

2021f

2022f

2023f

2024z

2025z

2026z

CAGRr

Total demand

t

3,760

4,080

4,259

4,566

4,784

4,991

5,162

5.4

Fabrication consumptionb

t

1,714

2,090

2,308

2,515

2,681

2,835

2,973

9.6

Mine production

t

3,401

3,588

3,696

3,769

3,807

3,777

3,746

1.6

Nominal

US$/oz

1,770

1,703

1,554

1,467

1,405

1,377

1,350

-4.4

Reald

US$/oz

1,805

1,703

1,522

1,405

1,315

1,260

1,208

-6.5

Unit

2019–20

2020–21f

2021–22f

2022–23f

2023–24z

2024–25z

2025–26z

CAGRr

Mine production

t

329

357

388

393

410

404

392

3.0

Export volume

t

350

344

416

420

435

429

418

3.0

– nominal value

A$m

24,39429,05627,086

26,682

26,461

25,59924,4180.0– real valuee

A$m

24,652

29,056

26,64225,70524,86923,462

21,824-2.0– nominal

A$/oz

2,338

2,480

2,024

1,976

1,893

1,855

1,818

-4.1

– reale

A$/oz

2,363

2,480

1,991

1,904

1,780

1,700

1,625

-6.0

PricecAustralia

Price

Notes: b includes jewellery consumption and industrial applications; c London Bullion Market Association PM price; d In 2021 calendar year US dollars; e In 2020–21 financial year Australian
dollars; f Forecast; z Projection; r Compound annual growth rate for the period from 2020 to 2026, or from 2019–20 to 2025–26.
Source: ABS (2021) International Trade, 5465.0; London Bullion Market Association (2021) Gold Price PM; World Gold Council (2021); Department of Industry, Science, Energy and Resources(2021)

Resources and Energy Quarterly March 2021

106





A global economic recovery and the roll out of COVID-19 vaccines are
expected to see support primary aluminium and alumina prices over
the outlook period. Prices are projected to rise (in real terms) toUS$2,043 a tonne for aluminium and US$310 a tonne for alumina by
2026.
Australia’s primary aluminium and alumina export volumes areprojected to remain steady over the outlook period — at 1.4 million
tonnes of aluminium and 18 million tonnes of alumina a year (seeAustralia section). However, bauxite export volumes are expected tofall in the short term due to strong competition from Guinea andIndonesia.
Australia’s aluminium, alumina and bauxite export earnings areprojected to remain steady at $12 billion a year (in real terms) until
2025–26, as lower alumina and bauxite exports are offset by increased
aluminium export values (due to higher aluminium prices).

11.2

World consumption

China led higher aluminium, alumina and bauxite consumption in 2020
Global aluminium consumption increased by 1.4% to 64 million tonnes in2020 (Figure 11.1). This gain was driven by an 11% rise in consumption in
China — the world’s largest primary aluminium consuming country.
COVID-19 containment measures in the first quarter of 2020 reduced
aluminium recycling activity, and the fall in aluminium collection activity led
to a spike in the use of primary aluminium as a substitute for scrap
aluminium. A rise in the use of aluminium in infrastructure and construction
projects initiated with the Chinese government’s stimulus package also
contributed to a large jump in Chinese aluminium consumption in 2020.
Vietnam’s primary aluminium consumption grew by 15% in 2020, to
1.6 million tonnes. This makes Vietnam the world’s fourth largest primaryaluminium consumer after China, the US and India. Growth was driven by
successful containment of the COVID-19 pandemic and the Vietnamese
Government’s stimulus policy, which targeted manufacturing andconstruction sectors.

Resources and Energy Quarterly March 2021

Offsetting the rise of primary aluminium consumption in China andVietnam, was the fall in aluminium use in the automotive and aviationindustries. At the peak of COVID-19 containment measures in April andMay 2020, global automotive makers cut production at plants acrossEurope, North America and Asia. Car sales fell sharply across the world,
as the loss of jobs and income reduced consumer spending on
discretionary items. Despite some improvement in global economic activity
in the second half of 2020, car sales in China fell by 1.9% to just over 25
million units in 2020, and in Europe, they fell by 21% to 14 million units.
Figure 11.1: World aluminium production, consumption and prices
81

2,700

72

2,400

63

2,100

54

1,800

45

1,500

36

1,200

27

900

18

600

9

300

0

2016

Production

2018

2020

Consumption

2022

2024

2026

2021 prices US$ a tonneSummary

Million tonnes

11.1

0

Average LME aluminium real price (rhs)

Source: International Aluminium Institute (2021); AME (2021); World Bureau of Metal
Statistics (2021); Department of Industry, Science, Energy and Resources (2021)

World alumina usage increased by 2.5% in 2020 to 129 million tonnes,
driven by higher global aluminium production, which was up by 2.7% in2020 (Figure 11.2).
World bauxite usage rose by 3.0% in 2020 to 309 million tonnes, propelled
by increased global alumina production (up 2.8% in 2020). The growth inalumina production was driven by the production ramp-up in China and theresumption of full production at Brazil’s 6.4 million tonnes per year
Alunorte alumina refinery.
109

150

500

120

400

90

300

60

200

30

100

0

2016

Production

2018

2020

Consumption

A significant driver of aluminium demand is expected to come from cars,
particularly energy-efficient vehicles and electric vehicles (EV), whichcontain a higher proportion of aluminium components. Automakers acrossthe world are working to replace internal combustion engines with electric
battery engines, and are seeking to reduce vehicles’ weight by increasing
the use of aluminium, which is 10 to 40 % lighter than steel. Bloomberg
New Energy Finance (BNEF) estimates that passenger EV sales will risefrom 1.7 million units in 2020 to 11 million units in 2026. With an estimatedaverage aluminium content of 250 kilograms per electric vehicle,
aluminium usage in EVs is projected to increase from 484,000 tonnes in2020 to about 3.1 million tonnes in 2026 (Figure 11.3).

FOB Australia alumina real prices (rhs)World alumina usage is projected to rise at an average annual rate of
2.1% over the outlook period, reaching 145 million tonnes by 2026 (Figure11.2). Alumina demand is driven by primary aluminium production, which
is projected to lift by an average 1.8% a year between 2022 and 2026.

2022

2024

2026

0

Source: International Aluminium Institute (2021); AME (2021); World Bureau of Metal
Statistics (2021); Department of Industry, Science, Energy and Resources (2021)

Aluminium, alumina and bauxite consumption to rise over medium term
Demand for primary aluminium in 2021 is expected to be mainly driven by
China, as the Chinese government continues to inject stimulus into theeconomy through the first half of 2021. An economic recovery in the US,
United Kingdom, Eurozone, India, South Korea and Japan in the second
half of 2021 is likely to add more demand for primary aluminium. As aresult, global primary aluminium consumption is forecast to increase by
6.4% in 2021, to 68 million tonnes.
After 2021, world primary aluminium consumption is projected to grow at
an annual average rate of 3.3%, to 80 million tonnes by 2026. The global
economic recovery is expected to support demand for cars, houses andelectrical equipment, and thus aluminium consumption. Car sales are
expected to recover as a result of the COVID-19 pandemic, which seems
likely to shift consumer preferences in favour of car travel at the expenseof some forms of public transport. Partly offsetting this, an increase inremote working is likely to reduce car usage in urban areas. On the

Resources and Energy Quarterly March 2021

production side, global automotive makers are expected to ramp up
production to accommodate higher car demand.

2021 prices US$ a tonne(FOB Australia)

Million tonnes

Figure 11.2: World alumina production, consumption and prices

World bauxite usage is forecast to grow by 3.3% in 2021 and by 5.2% to336 million tonnes in 2022. The gains are expected to be driven by higher
alumina output from existing refinery capacities in China and Brazil. After
2022, world bauxite consumption is projected to grow at a slower (averageannual growth rate of 0.2%) pace, reaching 339 million tonnes by 2026.

11.3 World Production

Aluminium, alumina and bauxite output grew in 2020
In 2020, world primary aluminium output was 65 million tonnes, a 2.7%
rise from 2019, propelled by higher Chinese output (Figure 11.4). Output in
China — the world’s largest primary aluminium producer — rose by 5.8%
to 37 million tonnes in 2020. China’s primary aluminium producers raised
output in response to government stimulus measures on infrastructure andconstruction.

110

12

3.6

10

3.0

8

2.4

6

1.8

4

1.2

2

0.6
2020

2021

2022

2023

2024

2025

2026

Figure 11.4: World’s top five primary aluminium producing countries
40

0.0

Global passenger electric vehicle sales
Aluminium demand for electric vehicles (rhs)
Source: Bloomberg New Energy Finance (2021); EY (2019) How advancing mobility will
disrupt the mining and metals sector; Department of Industry, Science, Energy andResources (2021)

Primary aluminium output in Canada rose by 9.1% to 3.1 million tonnes in
2020, driven by the ramp up of production at the Alouette aluminium
smelter (600,000 tonnes per year). Over the same period, output in the
Middle East rose by 3.8%, to 5.8 million tonnes, propelled by the ramp up
of production at the Aluminium Bahrain smelter (annual capacity of 1.6
million tonnes) — the world’s largest aluminium smelter outside China.
World alumina supply rose by 2.8% to nearly 134 million tonnes in 2020,
driven by higher output in China and Australia (Figure 11.2). Production in
China — the world’s largest alumina producer — rose by 0.9% in 2020 to
73 million tonnes, as Chinese refiners raised output to accommodate
higher aluminium production. Alumina production in Australia — theworld’s second largest alumina producer — rose by 2.7% in 2020, tonearly 21 million tonnes, propelled by strong production at Rio Tinto’s
refineries. Production in Brazil rose by 12% to over 10 million tonnes, asNorsk Hydro’s Alunorte refinery (annual capacity of 6.4 million tonnes)
ramped up production from October 2020, following the completion ofmaintenance work at its Paragominas bauxite mine earlier in the month.

Resources and Energy Quarterly March 2021

World bauxite production increased by 1.2% in 2020 to 359 million tonnes,
driven by higher output in Guinea and Indonesia (Figure 11.5). Productionin Guinea — the world’s second largest bauxite producer — increased by
9.1% in 2020, to 77 million tonnes. Production in Indonesia rose by 42% in
2020, to 21 million tonnes, as Indonesian bauxite producers ramped up
production ahead of a new bauxite mining ban that is expected to be
implemented in early 2022.

30
Million tonnes

0Million tonnes

Million units

Figure 11.3: Global electric vehicle sales and aluminium demand

20
10
0

2010

2012

China

Russia

2014
India

2016
Canada20182020

United Arab Emirates

Source: International Aluminium Institute (2021); AME (2021); World Bureau of Metal
Statistics (2021); Department of Industry, Science, Energy and Resources (2021)

Production in Brazil increased by 12%, to over 10 million tonnes, as Norsk
Hydro’s Alunorte refinery (annual capacity of 6.4 million tonnes) ramped
up production from October 2020, following the completion of maintenancework at its Paragominas bauxite mine earlier in the month.
Aluminium, alumina and bauxite output set to rise over the outlook period
World primary aluminium output is forecast to grow by 2.5% in 2021 andby 1.8% to 68 million tonnes in 2022 (Figure 11.4). The gain is expected tobe driven by additional capacity in China and Iran. An estimated 2.9 million
tonnes of new primary aluminium capacity to be added in 2021 is likely tobring China’s total primary aluminium production in 2021 to 39 million

111tonnes (up 6.3% from 2020). More greenfield aluminium smelters are
anticipated, located in regions where power is cheap and abundant (suchas Yunnan province). Shenhuo’s 450,000 tonnes per year Shenhuo
Wenshan aluminium smelter — a greenfield aluminium project — isexpected to start commercial production in the second half of 2021. East
Hope’ 330,000 tonnes a year East Hope Jinzhong aluminium expansion
project is expected to be commissioned in 2022.
Outside of China, Iran is implementing a plan to raise its annual aluminium
output to 1.5 million tonnes by 2025, with the first phase (300,000 tonnes)of the 1.0 million tonne per year SALCO aluminium smelter ramping up
production over the outlook period. In Norway, production at Hydro’s
Husnes aluminium smelter is forecast to increase by 105% in 2021, to
195,000 tonnes, driven by the restart of its B line in November 2020.
World aluminium production is projected to rise by 1.8 per cent a year over
the outlook period, reaching 74 million tonnes by 2026 (Figure 11.1). The
gains will be driven by China, as more output is produced from greenfieldaluminium smelters. China’s primary aluminium production is projected toreach 43 million tonnes by 2026, edging closer to the capacity cap of 45
million tonnes of primary aluminium per year — a policy that was
introduced by the Chinese government in 2017 in response toenvironmental and oversupply concerns. The Chinese government’s Five
Year Plan (2021–25), set in October 2020, calls for the China’s production
and capacity of both primary aluminium and alumina to peak by 2025.
The closer China edges to its primary aluminium capacity cap, the greater
the opportunity for other primary aluminium producing countries — Russia,
India, Canada and the United Arab Emirates — to fill the production gap.
The operation of Rio Tinto’s 333,000 tonnes a year Tiwai Point aluminium
smelter in New Zealand is expected to continue until 2024, following thecompany’s successful negotiation on a power deal with an energy
supplier, Meridian Energy, in February 2021. In July 2020, Rio Tinto
announced the Tiwai Point aluminium smelter would cease its operation in
August 2021, due to high energy costs and a challenging industry outlook.

Resources and Energy Quarterly March 2021

A risk to primary aluminium production assessment is the lawsuit that was
lodged in February 2021 by a group of communities in the lower Amazon
region in the state of Para in Brazil. The outcome of the lawsuit is likely toimpact the production of Norsk Hydro’s 471,000 tonnes a year Albras
aluminium smelter.
Green aluminium expected to be a new manufacturing standard
Low carbon aluminium production is expected to become a new
manufacturing standard going forward. China’s two largest aluminium
producers (Chinalco and China Hongqiao) issued a joint-statement on 24
January 2021 calling for the Chinese aluminium and alumina industry to
reduce carbon emissions, conserve energy and produce low carbon
aluminium as part of China’s plan to achieve carbon neutrality by 2060.
Outside of China, Rusal from Russia has partnered with Henan Mingtai
from China to produce low carbon aluminium products at their Gwangyang
plant in South Korea, expected in the second half of 2021. Emirates Global
Aluminium and Dubai Electricity and Water Authority signed a partnershipagreement in January 2021 to construct the world first solar poweredprimary aluminium production facility.
World alumina output is forecast to grow by 0.9% to 135 million tonnes in
2021, driven by rising output from existing refineries in China and Brazil(Figure 11.2). In China, Aluminium Corporation of China’s 2.0 million
tonnes per year Huasheng Alumina Refinery started producing in
September 2020 and is expected to ramp up production in 2021. In Brazil,
production at Norsk Hydro’s 6.4 million tonnes per year Alunorte refinery is
expected to continue to ramp up to full capacity. World alumina output isprojected to hit almost 140 million tonnes by 2026 (Figure 11.2). The gains
are forecast to be driven by India and other small alumina refining nations.
In India, bauxite sourcing has improved, with Vedanta planning to increase
production capacity at its Lanjigarh refinery to 2.7 million tonnes in the
short term, and to 6.0 million tonnes in the medium term. Hindalco’s 1.5
million tonnes per year Utkal Alumina Refinery is expected to come online
in 2022.

112

In Vietnam, Vietnam Coal and Minerals Industries Group’s 650,000 tonnes
a year Tan Rai Alumina Refinery is expected to commence commercial
production in 2023. In Indonesia, China Hongqiao and joint-venture
partners’ 2.0 million tonnes per year Well Harvest alumina refinery
expansion project is expected to come online in 2022.
World bauxite output is forecast to grow by 6.4% in 2021 and by 2.8% to393 million tonnes in 2022 (Figure 11.5). The gains are expected to be
driven by newly added capacity in Guinea, where output is rising rapidly.
Guinea’s bauxite output is forecast to grow at an average rate of 7.0% a
year in 2021 and 2022. The Compagnie des Bauxites de Guinée mine in
Guinea, which expanded annual capacity from 13 to 18 million tonnes in
2019, is due to expand to 28 million tonnes by 2022. Emirates Global
Aluminium is planning to ramp up output at its bauxite mine in Guinea,
targeting 12 million tonnes per year towards the end of 2022. After 2022,
world bauxite production is projected to grow at a slower pace, with anaverage annual growth rate of 0.6%, to 403 million tonnes in 2026.
Figure 11.5: World bauxite production

Figure 11.6: Shares of world bauxite reserves
GuineaOther
Australia
VietnamBrazilJamaicaIndonesia
China
India
RussiaSaudi Arabia
Malaysia
Kazakhstan
US
0

5

10
15
20
Share of total world reserves (%)

25

11.4 Prices

350
Million tonnes

According to the US Geological Survey, global bauxite reserves are
estimated around 30 billion tonnes, of which Guinea accounts for aquarter, followed by Australia (17%), Vietnam (12%), Brazil (9.0%) andJamaica (6.7%) (Figure 11.6).

Source: US Geological Survey (2021) Mineral Commodity Summaries

420

Aluminium and alumina prices fell in 2020

280
210
140
70

0

Guinea leads in world bauxite resources

2016

2018

2020

2022

2024

Source: Department of Industry, Science, Energy and Resources (2020)

Resources and Energy Quarterly March 2021

2026

The London Metal Exchange (LME) spot price for aluminium fell by 6.2%
in 2020, averaging US$1,736 a tonne (Figure 11.8). Prices were affectedby the COVID-19 containment measures that rippled through global
manufacturing activity in the first half of 2020. COVID-19 containment
measures affecting the global automotive industry had an adverse impact
on aluminium usage. Car sales fell sharply across the world, as the loss ofjobs and income reduced consumer spending on discretionary items.
Global car sales decreased by 27 per cent year-on-year in the first half of2020, to nearly 29 million units. Adding further pressure on primaryaluminium prices was production growth production in China — Chinese
primary aluminium producers took advantage of lower input costs (lower
alumina and fuel prices) to ramp up production.

113

The free on board (FOB) Australian alumina price dropped by 21% in
2020, to an average US$273 a tonne (Figure 11.8). The price fall was
driven by rising production — a surplus of alumina output from 2019(about 870,000 tonnes) and refineries returning to full production following
the easing of COVID-19 related restrictions in the second half of 2020.

Aluminium and alumina prices to rise over the outlook period

The speedy recovery of China’s economy from the COVID-19 pandemic
drove up primary aluminium demand and prices in the second half of2020, with both recovering to pre-COVID-19 levels. This increased usage
contributed to a fall in LME aluminium inventories (Figure 11.7). Shanghai
stocks have fallen since April 2020, as China’s consumption recovered.
Other factor contributing to higher prices includes large scale strategic
aluminium stockpiling by China’s aluminium producers/traders. LME offwarrant stocks have risen since data was first released in early 2020
(Figure 11.7).

The LME aluminium spot price is forecast to increase by 11% to average
US$1,930 a tonne in 2021 (in real terms) (Figure 11.8). The rise reflects
China’s robust industrial recovery, which is expected to lead to healthier
global demand conditions going forward.

Million tonnes

4

2,400

540

2,000

450

1,600

360

1,200

270

800

180

400

90

0
3

2016

2018

2020

2022

2024

2026

0

2021 prices US$ a tonne (FOB
Australia)

5

Figure 11.8: World aluminium and alumina prices
2021 prices US$ a tonne

Figure 11.7: Exchange aluminium stocks

In February 2021, China’s industrial production growth was at a 21-monthhigh, indicating strong short term demand conditions from the world’s
largest base metals consumer. The global roll out of the COVID-19
vaccines is also expected to provide support for primary aluminium prices.

Average LME aluminium real price
Average FOB Australia alumina real price (rhs)2

Source: LME (2021) spot prices; Bloomberg (2021); Department of Industry, Science, Energy
and Resources (2021)

1

0
Feb-15

Feb-16

Feb-17

Feb-18

LME aluminium stocks

Feb-19Feb-20Feb-21

Shanghai aluminium stocks

Off-Warrant stocks
Source: London Metal Exchange (2021); World Bureau of Metals Statistics (2021)

Resources and Energy Quarterly March 2021

The risks to the price assessment are the new strains of COVID-19 andglobal oversupply of primary aluminium. Highly contagious COVID-19
cases detected in the United Kingdom, South Africa and some countries inAfrica and Asia have the potential to drag the COVID-19 pandemic longer
and derail the global economic recovery. Primary aluminium production in
China — the world’s largest primary aluminium producer, accounting fornearly 60% of global production — is in full swing, and is expected to lift
output by 6.3% in 2021.

114

11.5

Australia’s production and exports

2.0

4

1.5

3

1.0

2

0.5

1

2020-21 A$ billion

After 2021, the LME aluminium price is projected to rise at an annual rateof 1.2% to average US$2,043 a tonne in 2026 (in real terms). World
alumina output is projected to grow at an annual rate of 0.7% after 2021.
As a result, the FOB Australian alumina price (real terms) is projected torise at 1.7% a year to US$310 a tonne in 2026 (Figure 11.8).

Figure 11.9: Australia’s aluminium exports and production

Million tonnes

The FOB Australian alumina price is forecast to increase by 4.5% in 2021,
to average US$285 a tonne (in real terms), driven by increased primaryaluminium production in China (Figure 11.8).

Steady aluminium, alumina and bauxite production over the outlook

In December 2020, the Australian Government announced it will
underwrite power system security revenue earnt by Victoria’s Portland
Aluminium smelter, guaranteeing up to A$76.8 million for services
provided over four years to 2024-25, subject to negotiation.
Australia’s bauxite production is forecast to fall by 2.8% to 104 million
tonnes in 2020–21, (Figure 11.12). This fall is related to the suspension ofoperations at Metro Mining’s 6 million tonnes a year Bauxite Hills mine in
Queensland from September 2020 to April 2021, due to the wet season
shutdown and planned maintenance. After 2020–21, output is projected to
be steady out to 2025–26, with no expansions or disruptions expected.

Resources and Energy Quarterly March 2021

2015–16

2017–18

Aluminium production

2019–202021–22

Export volumes

2023–242025–26

0Export real values (rhs)

Source: ABS (2021) International Trade in Goods and Services, 5368.0; Department ofIndustry, Science, Energy and Resources (2021)

Figure 11.10: Australia’s alumina exports and production
24

12

20

10

16

8

12

6

8

4

4

2

0

2015–16

2017–18

Alumina production

2019–202021–22

Export volumes

2023–242025–26

2020-21 A$ billion

Risks to the aluminium outlook include the operating costs of aluminium
smelters. Figure 11.11 shows the operating costs of aluminium smelters inselected major primary aluminium producing nations, including the UnitedStates, Australia, China, India and Russia. Australian smelters’ operating
costs are above the world average of US$1,905 a tonne in 2021.

0.0

Million tonnes

No expansions or major disruptions are expected at existing aluminium
and alumina operations in Australia over the outlook period. This implies
little change in production over the short to medium term. Australia’s
aluminium output is projected to remain at about 1.6 million tonnes a year
out to 2025–26 (Figure 11.9). Alumina output is expected to remain at
about 20 million tonnes per annum over the outlook period (Figure 11.10).

0Export real value (rhs)

Source: ABS (2021) International Trade in Goods and Services, 5368.0; Department ofIndustry, Science, Energy and Resources (2021)

115

120

1,800

2,700

100

1,500

80

1,200

60

900

40

600

20

300

Million tonnes

US$ a tonne

3,000

2,400
2,100
1,800
1,500

2021

2022
2023
2024
United States
Australia
Russia
China

2025

2026
India
World

Source: AME (2021)

Steady aluminium, alumina and bauxite export earnings after 2020–21
Despite an expected improvement in aluminium and alumina prices in
2021, Australia’s aluminium, alumina and bauxite export earnings are
forecast to fall by 7.3% to nearly $12 billion (in real terms) in 2020–21. The
fall in export earnings is expected to be driven by a drop in bauxite export
volumes, which are forecast to fall by 11% to 37 million tonnes.
Over the last few years, companies from China and Europe have invested
heavily in Guinea to build up the country’s bauxite production capacity.
Guinea overtook Australia as China’s largest supplier of bauxite in 2017,and accounted for 47 per cent of China’s total bauxite imports by 2020
(Figure 11.13).

0

2015–16 2017–18 2019–20 2021–22 2023–24 2025–26
Bauxite production

Export volumes

2020-21 A$ million

Figure 11.12: Australia’s bauxite exports and production

Figure 11.11: Aluminium smelter total operating costs

0

Export real value (rhs)

Source: ABS (2021) International Trade in Goods and Services, 5368.0; Department ofIndustry, Science, Energy and Resources (2021)

The Indonesian government’s decision to delay the reintroduction ofbauxite export bans (from 2022 to June 2023) is expected to increase
global bauxite supply, and hence the level of competition for Australianbauxite exporters for the Chinese market.
However, the rise in Vietnam’s primary aluminium consumption is
expected to provide export opportunities for Australian exporters. Primaryaluminium consumption in Vietnam has accelerated since 2017, with
consumption growing at 527% in 2018, 14% in 2019 and 15% in 2020
(Figure 11.14). By the end of 2021, Vietnam is expected to be a major
aluminium consuming country, with usage driven by strong economic
growth, ongoing urbanisation and industrialisation.

After 2020–21, Australia’s aluminium, alumina and bauxite exports areprojected to be steady, at around $12 billion a year in real terms until
2025–26. Lower alumina and bauxite export values are expected to beoffset by increased export values of aluminium, as prices of primaryaluminium are projected to rise over the outlook period.

Resources and Energy Quarterly March 2021

116Figure 11.13: China’s bauxite imports by partner country

Revisions to the outlook

100

The forecast for Australia’s aluminium, alumina and bauxite exports
earnings has been revised up from the December 2020 Resources andEnergy Quarterly — by $95 million in 2020–21, and by $80 million tonearly $12 billion in 2021–22. The revision reflects larger than expected
rise in aluminium and alumina prices in the December quarter 2020.

Per cent

80
60
40
20
0

2010

2012

Australia

2014
Guinea2016
Indonesia

2018

2020

Malaysia

Source: Bloomberg (2021)

Figure 11.14: Vietnam’s primary aluminium consumption
2.0

Million tonnes

1.6
1.2
0.8
0.4
0.0

1995

2000

2005

2010

2015

2020

Source: World Bureau of Metals Statistics (2021)

Resources and Energy Quarterly March 2021

117

Table 11.1: Aluminium, alumina and bauxite outlook
World

Unit

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGR rkt
kt

65,384
64,12767,044
68,22968,26670,89369,51673,43370,79876,092

72,10078,85273,43480,4292.0
3.8

Primary aluminium
Production
Consumption
Prices aluminiumc- nominal

US$/t

1,702

1,930

1,973

2,029

2,097

2,179

2,284

5.0

- reald
Prices alumina spot
- nominal- reald

US$/t

1,736

1,930

1,932

1,942

1,962

1,994

2,043

2.8

US$/t
US$/t

267
273

285
285

299
292

307
294

317
297

330
302

346
310

4.4
2.2

Australia

Unit

2019–20

2020–21f

2021–22f

2022–23z

2023–24z

2024–25z

2025–26z

CAGR rProduction
Primary aluminium

kt

1,572

1,581

1,575

1,576

1,577

1,576

1,577

0.0

Alumina
BauxiteConsumption

kt
Mt

20,451
107.2

20,635104.3

20,396108.6

20,494109.4

20,508108.8

20,466108.9

20,489
109.0

0.0
0.3

Primary aluminium
Exports

kt

188

203

189

189

189

189

189

0.1

Primary aluminium

kt

1,430

1,372

1,386

1,387

1,388

1,387

1,387

-0.5

- nominal value- real valuee

A$m
A$m

3,692
3,731

3,466
3,466

3,439
3,383

3,605
3,473

3,801
3,572

3,950
3,621

4,120
3,682

1.8
-0.2

Alumina- nominal valuekt
A$m

17,876
7,431

18,254
7,007

18,291
7,077

18,328
7,148

18,364
7,219

18,401
7,292

18,438
7,364

0.5
-0.2

- real valuee
Bauxite

A$m
kt

7,510
41,026

7,007
36,6306,961
34,627

6,886
32,805

6,785
32,638

6,683
32,672

6,582
32,705-2.2-3.7- nominal value- real valuee

A$m
A$m

1,648
1,666

1,487
1,487

1,457
1,433

1,417
1,365

1,438
1,351

1,468
1,345

1,499
1,340

-1.6
-3.6

Total value- nominal value

A$m

12,771

11,96011,973

12,16912,45812,71012,9830.3- real valuee

A$m

12,907

11,96011,777

11,724

11,708

11,64911,604-1.8

Notes: c LME cash prices for primary aluminium; d In 2021 calendar year US dollars; e In 2020–21 financial year Australian dollars; f Forecast; r Average annual growth between 2020 and 2026 or
2019–20 and 2025–26; z Projection. Source: ABS (2021) International Trade in Goods and Services, 5368.0; AME Group (2021); LME (2021); Department of Industry, Science, Energy andResources (2021); International Aluminium Institute (2021); World Bureau of Metal Statistics (2021)

118 Australia’s copper exports are projected to rise from 924,000 tonnes in
2019–20 to around 992,000 tonnes (in metal content terms) in
2025–26, driven by growing production from new and existing mines(see Australia section).
 As prices and output grow, Australia’s copper export earnings areprojected to lift from $10 billion in 2019–20 to $16 billion (in real terms)
in 2025–26, up an average 7% a year.

12.1

30

10

20

5

10

0

Per cent The copper price is expected to be buoyed by the global economic
recovery and rising investment in low-emissions technologies. Prices are
forecast to increase to an average US$8,260 a tonne in 2021, before
stabilising around a projected US$7,940 a tonne (in real terms) in 2026.

Figure 12.1: Outlook for refined copper consumption

Thousand tonnes

Summary0World consumption

Returning appetite for copper
Copper consumption is expected to continue recovering in 2021, driven by
improving economic growth and copper’s essential role in electrification.
After increasing by an estimated 2% in 2020, refined copper consumption
is forecast to increase by 5% in 2021, to reach 25 million tonnes (Figure12.1). This consumption growth is expected to come from strong industrial
and construction activity in China, as well as increased economic activity
in India, the US and Italy. Manufacturing indexes for these countries
showed expansion over January and February, and this is expected tocontinue over the year.
China consumes half of the world’s copper, and was the dominant driver ofcopper market tightness towards the end of 2020 (Figure 12.2). China’s
Purchasing Managers Index (PMI) lowered in January and February
although it remains in expansionary territory. Overall, March quarter
consumption is expected to be healthy, as industrial, construction andmanufacturing activity remain unseasonably strong amid reduced Lunar
New Year shutdowns. Localised COVID-19 shutdowns seem to havebroadly managed. China’s copper consumption is forecast to grow anaverage 3% a year to reach 15 million tonnes in 2022.

Resources and Energy Quarterly March 2021

2016

2019

2022

2025

Refined copper consumption-5

Annual change (rhs)

Source: World Bureau of Metal Statistics (2021); Department of Industry, Science, Energy
and Resources (2021)

Figure 12.2: Refined copper consumption by major market
30

25
Million tonnes

12.1

20

15
10

5
0
2012

2013

2014
China

2015

2016

2017

2018

ROW

Europe

US

Japan

2019

2020

Source: World Bureau of Metal Statistics (2021)

121Growth in world consumption is expected to be concentrated in the firsthalf of the outlook period, before moderating with in line with expected
trends in world industrial production (Figure 12.3). World copper
consumption is projected to grow at an average 2.5% a year over theoutlook period, to reach 28 million tonnes in 2026.
Industrial and manufacturing use is expected to continue around current
levels in major consuming countries such as China, Japan and Germany.
Economic growth and expanding industrial sectors in India, Africa andBrazil could see copper usage increase over the medium term.
Copper’s antibacterial properties have also facilitated an interesting trend
in the COVID-19 world — copper is having a revival as material of choicefor door handles and rails, although thus far this still accounts for a small
share of total consumption.
Government policies are expected to provide some direct support tocopper consumption. Although specific policy details are still be toannounced, China’s 14th Five Year Plan includes increased investment inhigh speed rail, telecommunications, electrification of transport andrenewable energy, all of which would result in greater copper use. These
investment trends may be echoed outside of China, in line with net-zerocarbon emission commitments and the increasing uptake of renewableenergy.
In the US, policies targeting increased electric vehicle usage, wind
generation capacity and investment in charging infrastructure will all
support copper consumption, though some of these policies may requirelegislative backing.
Energy transition and growing applications to support consumption
The worldwide energy transition towards low emissions technologies is
expected to positively impact copper consumption over the outlook period,
though this growth will be more prominent over a long-term horizon (Figure12.3). Copper’s conductivity, malleability and durability make it vital toelectric vehicles (EVs), batteries and renewable energy generation.
Resources and Energy Quarterly March 2021

Copper use will also be supported by expanding EV charging andelectricity grid infrastructure. With EV sales projections at 26 million units
by 2026 (see lithium chapter), copper has significant growth prospects invehicles as well as public and private charging infrastructure.
BloombergNEF forecast copper used in EV vehicles, batteries andchargers could account for as much as 10% of world refined production by
2030.
While this growth is significant, trends in traditional uses of copper will be
the strongest driver of consumption activity going forward. As such, a moresubdued economic recovery, particularly in major consuming countries like
China, pose a risk to this outlook.
Figure 12.3: Industrial production and copper consumption
15
Year-on-year per cent change

Growth to moderate over medium term

10
5

0
-5

-10
-15
2006

2010

2014

World consumption

2018

2022

2026

Industrial Production

Source: World Bureau Metal Statistics (2021); Bloomberg (2021); Department of Industry,
Science, Energy and Resources (2021)

122World production

Positive momentum for copper mine production
World copper mine production was stable year-on-year in 2020, as mine
expansions in Indonesia and resilient production in Chile balanced
shutdowns in Peru and the Democratic Republic of the Congo (DRC)(Figure 12.4).
World mine production is projected to grow at an average 3% a year over
the outlook period, to reach 25 million tonnes in 2026. Most of the growthis weighted towards the start of the outlook period, however, a fall inmarket conditions or stagnant prices could see investment delayed.
COVID-19 operational impacts continue in Chile and Peru
Copper mines in Chile, Peru and Panama all experienced shutdowns or
reduced operations in 2020, owing to the COVID-19 pandemic. Although
Chile’s production expanded in 2020, operating restrictions continue andresulted in lower January 2021 production. At BHP’s Chile facilities,
COVID-19 management plans have meant workforces are 30% of normal
levels. In Peru, 2020 output fell 12% year-on-year, but is expected torecover in 2021 as restrictions and community dispute issues are resolved.
Indonesia drives strong growth potential in copper production

look to offset these losses with increasing processing rates andproductivity improvements. Environmental and social responsibility issues
are other factors likely to impact on copper production, as has been seenin the delay in Southern Copper's Tia Maria project to Peru. In addition,
most new projects in the development pipeline lack the scale of existingmega projects, like BHP’s Escondida mine in Chile, which produced 1.2
million tonnes in 2020.
Copper prices and the prices of co-products — such as cobalt — will also
be an important determinant of the pace of mine expansions and restarts
over the outlook period. Delayed projects and temporary shutdowns, likethe two year closure of Glencore’s Mutanda cobalt-copper mine in the
DRC, could worsen the current imbalance between supply and demand.
Figure 12.4: Mined copper production by major producer
25
20
Million tonnes

12.2

15
10

Chile and Peru are expected to remain the largest copper producers over
the outlook period, respectively accounting for around 25% and 12% ofworld production in 2026. However, significant investment in capacity inIndonesia is expected to be the biggest driver of world production growthover the outlook period. Elsewhere Anglo American’s Quellaveco mine in
Peru (estimated capacity of 300,000 tonnes per year), is expected to comeonline in 2022.

Source: World Bureau of Metal Statistics (2021)

Structural issues impacting over medium-term

Refined production growth dependent on China’s capacity

A number of structural issues weigh against significant increases in copper
production over the medium-term and beyond. These pose a risk ofdeeper market deficits. Challenges facing mine operators include declining
ore grades, aging facilities and increased production costs (particularly in ahigh price environment where input costs may increase). Producers will

World output of refined copper picked up by 4% to reach 26 million tonnes
in 2020. Refining output in China, which accounts for about 40% of worldrefined production, recovered quickly from the COVID-19 related
shutdowns in early 2020. Constraints on refinery inputs are expected to be
overcome in the first half of 2021.

Resources and Energy Quarterly March 2021

5
0
2012

2013

2014

ROW

2015

Chile

2016

Peru

DRC

2017

2018

China

2019

2020

US

123

20

4

10

0

0

2016

2018
2020
Refined copper production

2022

2024
2026
Annual change (rhs)-4

Source: World Bureau of Metal Statistics (2021); Department of Industry, Science, Energy
and Resources (2021)

Refinery production is projected to increase at an average 2.5% over theoutlook period, to reach 28 million tonnes in 2026 (Figure 12.5). Over theoutlook period, new refinery capacity is expected to come online in China,
Peru, Russia and Indonesia. Refined copper production faces expansion
challenges, concentrate and electricity cost pressures, increasingly tightemission and sulphur capture limits, as well as generally tighter approval
processes.

12.3

Prices

Copper prices strengthen and stocks dwindle with recovering consumption
After recovering from sharp COVID-19 related price fall in March 2020,
copper prices were strong towards the end of 2020 and early 2021. The
London Metal Exchange (LME) copper spot price averaged US$6,200 atonne in 2020, 3% higher year-on-year (Figure 12.6). In the March quarter
2021, copper prices rose powerfully, driven by positive sentiment around
vaccine rollouts and the world economic recovery. In February, the LME
copper spot reached its highest point in over a decade, exceeding
US$9,000 a tonne, amid a weaker US dollar and strong consumption
Resources and Energy Quarterly March 2021

Over 2021, copper prices are expected to retreat from current elevatedlevels, but remain relatively high in historical terms. The copper spot priceis forecast to average US$8,260 a tonne in 2021 (up 31% year-on-year),maintained by an expected ongoing market deficit, and balanced by fallingstocks. With expanding copper consumption expected to outstrip
production growth over the rest of the outlook period, copper stocks (toconsumption) are expected to fall, supporting prices. The spot price is
projected to reach US$7,940 a tonne (in real terms) by 2026, up an
average 5% a year on the 2020 price (Figure 12.7).
These price projections are sensitive to the balance in world copper
markets, which will be affected by the pace of world economic growth, andthe pace of low-emissions technology uptake.
Figure 12.6: Recent copper prices and stock movements
800

10,000

600

7,500

400

5,000

200

2,500

0
Mar-19Sep-19Mar-20Stocks at major exchanges

Sep-20

US$ a tonne

8

Thousand tonnes

30

expectations. These price increases have been accompanied bydrawdowns in exchange stocks. In January, LME and Shanghai Futures
Exchange stocks fell 28% and 31% respectively, following on from low
levels at the end of December. Stock levels were somewhat restored in
February, in line with seasonal patterns.
Per cent

Thousand tonnes

Figure 12.5: Outlook for refined copper production0Mar-21

Spot price (rhs)

Source:LMEfigure(2021)here
official
Xx Pastexx cash price; Bloomberg (2021)

124

Copper production down before new capacity comes online

6

7,500

4

5,000

2

0

2,500

2000

2005

2010
Stock levels

2015
2020
2025
LME spot price (rhs)0Source: LME (2020) official cash price; Bloomberg (2020) Department of Industry, Science,
Energy and Resources (2020)

12.4

Australia

Price and volumes growth boost copper export earnings
After little growth in 2019–20, copper export earnings are forecast to reach$12 billion in 2020–21, 18% higher year-on-year. This growth is attributed
to the recovery in the copper price over this period.
Further out over the outlook period, both price and volume increases are
expected to support earnings growth. Copper exports are projected toreach $16 billion in 2025–26 (real terms), increasing at an average rate of
7% a year (Figure 12.8).
Copper export volumes to grow, supported by higher production
After significant growth in 2018–19, Australia’s export volumes are
expected to remain around current levels before increasing towards theend of the outlook period. In 2020–21, export volumes are forecast to fallslightly to 913,000 tonnes, before increasing an average 1.2% a year to992,000 tonnes in 2025–26.

Resources and Energy Quarterly March 2021

Mine production is expected to fall in 2020–21, as Hillgrove Resources’
Kanmantoo mine (South Australia) and Panoramic Resources’ Savannahmine (Western Australia) ceased operations in early 2020. From 2020–21,
mine production is expected to increase gradually over the outlook period,
reaching a projected 969,000 tonnes in 2025–26, up an average 1.2% a
year on 903,000 tonnes in 2019–20.
This growth in production is expected to come from a number ofdevelopment projects, including new projects and expansions. The paceand extent of project development will depend on the improving strength ofworld prices.
New projects expected to come online over the outlook period include Rex
Minerals’ Hillside project (South Australia), KGL Resources’ Jervois mine
(Northern Territory), and Copper Mountain Mining’s Eva project(Queensland).
Figure 12.8: Australia’s copper export volumes and values
1,200

20

900

15

600

10

300

5

0

2015–16 2017–18 2019–20 2021–22 2023–24 2025–26
Volumes

2020-21 A$ billions

10,000

Metal content, thousand tonnes

8

US$ a tonne

Weeks of consumption

Figure 12.7: Outlook for copper stocks and prices0

Values (rhs)

Source: ABS (2021) International Trade in Goods and Services, 5368.0; Department ofIndustry, Science, Energy and Resources (2021)

125

There are also a number of confirmed and potential mine life extension
projects underway. Newcrest’s expansion at Cadia is expected to beonline in 2020–21, as will the expansion at Oz Mineral’s Prominent Hill
mine. A number of recent purchases of exploration projects alongside
operating mines indicate potential for further mine life extensions.
Refined copper production to stabilise over the short-term
After recording 420,000 tonnes of refined copper production in 2019–20,
refinery production is expected to stabilise over the short-term. Reduced
operating levels at BHP’s Olympic Dam refinery in 2020 will be balanced
by lower production at Glencore’s Townsville Refinery. Re-bricking is
expected to take place at Glencore’s Mt Isa smelter in 2021, and a recent
grant will continue its operations until 2025. However, beyond that point,
its continued operations, and production at Leichardt refinery, is uncertain.
Refined production is projected to be 298,000 tonnes in 2025–26.

Figure 12.9: Australia’s copper exploration expenditure
150
120
A$ million

Havilah Resources have two projects at early stages of development,
including the Kalkaroo copper-gold-cobalt project (South Australia), which
also has the potential for rare earth element by-products. Other sizeable
projects will continue drilling programs over the short-term, including
BHP’s Oak Dam (South Australia) and Rio Tinto’s Winu project (Western
Australia).

90
60
30
0
2015

2016

2017

2018

2019

2020

Source: ABS (2021)

Copper exploration stable in December quarter 2020
Copper exploration was $78 million in the December 2020 quarter, stable
on September quarter levels but 37% lower year-on-year (Figure 12.9).
This decline was largely driven by lower expenditure in Western Australia,
which accounted for over 40% of total exploration expenditure in 2020.
Australia accounts for about 10% of world copper exploration expenditure.
Revisions to the outlook
Since the December 2020 Resources and Energy Quarterly, the forecast
for Australia’s copper export earnings has been revised up by $2 billion
and $1.7 billion in 2020–21 and 2021–22 respectively (nominal terms), as
recent record-high prices have improved the outlook.

Resources and Energy Quarterly March 2021

126

Table 12.1: Copper outlook
World

Unit

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

–mine

kt

20,761

22,131

23,23824,307

24,52524,64824,771

3.0–refinedkt

24,13425,292

26,026

26,572

27,13027,537

27,9782.5

Consumption

kt

24,21325,45926,11026,662

27,04427,60828,031

2.5

Closing stocks

kt

1 315

1 148

1 064

975

1 060

989

936

-5.5

2.8

2.3

2.1

1.9

2.0

1.9

1.7

-7.8

US$/t

6,169

8,258

8,056

7,724

8,093

8,672

8,877

7.6

USc/lb

280

375

365

350

367

393

403

7.6

US$/t

6,292

8,258

7,891

7,395

7,575

7,936

7,942

4.8

USc/lb

285

375

358

335

344

360

360

4.8

2021–22f

2022–23z

2023–24z

2024–25z

2025–26z

CAGRr

Production–weeks of consumption
Prices LME–nominal–realbAustralia

Unit

2019–20

2020–21f

Mine output

kt

905

888

897

915

973

973

969

1.1

Refined output

kt

420

446

451

451

452

412

298

-5.6

–ores and consc

kt

1,899

1,796

1,759

1,828

2,054

2,211

2,645

5.7

–refined

kt

392

412

416

416

417

380

275

-5.8

–total metallic content

kt

924

919

909

926

984

987

992

1.2

–nominal

A$m

10,208

12,207

12,52012,844

13,956

15,364

17,367

9.3–realdA$m

10,316

12,207

12,315

12,374

13,117

14,081

15,522

7.0

Exports

Export value

Notes: b In 2021 calendar year US dollars; c Quantities refer to gross weight of all ores and concentrates; d In 2020–21 financial year Australian dollars; f Forecast; r Average annual growth
between 2020 and 2026 or 2019–20 and 2025–26; z Projection.
Source: ABS (2021) International Trade, 5465.0; LME (2021) spot price; World Bureau of Metal Statistics (2021) World Metal Statistics; Department of Industry, Science, Energy and Resources(2021)

Resources and Energy Quarterly March 2021

127Summary
 Prices are forecast to rise from an average of US$19,000 a tonne in 2021
to US$21,000 a tonne in 2026, fuelled by returning levels of activity andconsumption in stainless steel production. These factors, as well as
increased nickel used in EV batteries, is expected to push the market
into deficit by 2023.
 Australia’s export volumes are forecast to rise from 201,000 tonnes in
2020–21 to 246,000 tonnes in 2025–26. Export volumes are forecast to
peak during 2021–22 at 259,000 tonnes; however, further expansion innickel production will be required for Australia to capitalise on theprobable consumption expansion of commodities fuelling low-emission
technology production (see Australia section).

 Australia’s export earnings are forecast to increase from $3.8 billion in

2019–20 to $6.5 billion in 2025–26, driven by increased demand forAustralia’s higher quality nickel.

13.1

World consumption

Disruptions weighed on nickel usage in the first half of 2020
The nickel market in 2020 was heavily impacted by the global slowdown
caused by the COVID-19 pandemic. Lockdown measures were
implemented across the globe to slow the spread of the virus, which
resulted in a reduction of end-use demand for nickel products.
Nickel consumption finished at almost 2.4 million tonnes in 2020 (down
1.3% on 2019), after significant COVID-19 related consumption losses in
the first half of 2020. Consumption of primary nickel has risen strongly
over the past decade, and the decline in 2020 was the first decline since
the global financial crisis. Stainless steel demand was initially impacted by
the repeated lockdowns; however, performed better than expected driven
by strong consumption in China.
Going forward, growth is expected to be driven by returning economic
activity and growing markets for nickel used in batteries. The surplus ofnickel is expected to narrow in 2021, with the market likely reaching a

Resources and Energy Quarterly March 2021

deficit by 2023, and by 2026 world consumption is forecast to be 3.2
million tonnes, increasing by an average 6% a year. (Figure 13.1)
China's 2020 refined nickel imports slump to 6-year low
China is the world’s largest nickel consumer, accounting for over half ofworld primary nickel use and it is the largest producer of electric vehicle
batteries.
In 2020, China’s nickel consumption was 733,000 tonnes, down from
806,000 in 2019. However, despite China importing a record of surplus
metal in 2020, Chinese imports of refined nickel fell by 32% year-on-year
to 130,700 tonnes in 2020, the lowest level since 2014 (Figure 13.2).
China raw material imports remain strong, balancing the market
Despite total refined nickel consumption falling, China’s stainless steel
sector has remained strong. The country’s stainless production rose by 4%
in the September quarter 2020 (quarter-on-quarter), while production in
the rest of the world fell by 9%. Due to this Chinese demand, and import
restrictions on Indonesia’s concentrates, China’s imports of Indonesia’s
nickel pig iron (NPI) increased sharply in 2020. While China’s refined
metal imports declined further last year, those of ferronickel and NPI
increased up to 80% from 2019, to 3.4 million tonnes (Figure 13.3).
It is the sharp recovery across the country’s ferrous sector that has beenlifting demand for nickel raw materials. China’s stainless mills haveenjoyed their share of the demand boom created by rapid COVID-19
recovery and government stimulus.
Nickel market likely driven by EV battery consumption through 2020s
Currently around 60% to 70% of nickel consumption is used for stainlesssteel, with the emerging demand from the lithium-ion battery a slight
addition of what the stainless steel market presently requires. Currently
only about 5% of nickel is utilised in battery production.
Limiting stainless steel’s share of the nickel market over the 2020s period,
will be lithium-ion batteries used in electric vehicles that will see rapid
uptake over the next decade. Owing to the rising demand for nickel

130

The composition of battery chemistry is likely to evolve over the next
decade. With current forms of nickel content per battery cathode at about
33%, newer versions could see nickel content in EV batteries rise to over
90%. Despite the nickel market being in surplus, the type of nickel thelithium-ion battery industry requires, (higher quality, class-1 compositionsof nickel sulphides to produce nickel sulphates), are in relative short
supply. Producers currently rely on sulphide mines or high pressure acidleach (HPAL) refining operations to obtain class-1 nickel sulphate stocks.
Past 2020, it is unclear how many new nickel projects will be able tosupply the required class-1 and intermediate nickel products — currently,
class-1 nickel, which must have a minimum purity of 99.8%, only accounts
for less than 25% of the total finished nickel supply.
Figure 13.1: Nickel consumption to overtake production by 2023
3,500

Figure 13.2: Composition of world nickel consumption
250

Thousand tonnes

products suitable for processing to nickel sulphates (mostly Class I nickel),this is likely to impact stainless steel mills as they increasingly substitutehigher purity nickel for Class II nickel and scrap.

10050

Jul–18

China
Japan

Jan–19

Jul–19Jan–20Rest of world
Indonesia

Jul–20European Union
United States

Source: International Nickel Study Group; Department of Industry, Science, Energy andResources (2021)

Figure 13.3: Change in China’s nickel imports, 2019 to 2020
80
Annual change (per cent)Thousand tonnes

150

0
Jan–18

3,000
2,500
2,000
1,500

1,000
500
0

200

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
World refined production

World consumption

Source: International Nickel Study Group (INSG); Department of Industry, Science, Energy
and Resources (2021)

Resources and Energy Quarterly March 2021

60
40
20
0
-20
-40

Matte

RefinedOres andCon.

Int.
Products

Sulphate

FeNi and
NPI

here xx
Source:Refinitiv (2021)

131

13.2

World production

Nickel production returns as consumption makes strong recovery
Total mined nickel production for 2020 suffered due to multiple mineclosures and disrupted production due to the pandemic’s lockdown effect.
Total mined nickel production was down from 2019, falling 12% to
2.4 million tonnes in 2020.
Through 2021, nickel production is expected to recover to 2019 levels ofaround 2.6 million tonnes. Indonesia’s ore export ban and potential halts to
New Caledonia’s production present downside risk for the year. The
Philippines has been filling some of the gap and the rising price recovery
in the first few months of 2021 has indicated an increased consumption
activity.
Going forward, mine production is expected to grow as new refinery
capacity in Indonesia creates a market for domestic mined output. Mine
production is projected to grow an average 5% a year over the outlook
period, to reach 3.2 million tonnes in 2026 (Figure 13.3).
New Caledonia’s Vale mine collapses — halts refinery production
The coalition government in New Caledonia collapsed in December 2020,
after pro-independence politicians resigned. This led to riots and protests
related to the sale of Vale SA’s nickel operation, which is opposed by proindependence political parties.
The 35,000 tonne per year plant was forced to close resulting from theDecember riots, which did substantial damage to equipment, and isreported as unlikely to reopen until mid-2021. While other countries may
ramp-up shipments to fill any supply gap from New Caledonia, a new deal
with the New Caledonian government over Vale’s exit from the nickel
operation appears to have been achieved — avoiding the possibility offurther protracted disruptions to operations. A key element of the new dealis that Tesla has agreed to be a technical and industrial advisor, using theoperation to source raw materials for its EV batteries.

Resources and Energy Quarterly March 2021

New Caledonia is the world’s fourth-biggest producer of mined nickel,
behind Indonesia, the Philippines and Russia. It exports ore mainly toSouth Korea, Japan and China, and accounts for roughly 9% of global
mined nickel output, producing roughly 200,000 tonnes per year. The
French territory is also the third-biggest nickel ore and concentrate
supplier to top metals consumer, China.
Indonesian coal decline being replaced by value-add nickel exports
2020 saw remarkable progress in the Indonesian government’s plans toincrease domestic nickel processing. Government policy for over a decade
has been to reduce the dependence on raw material exports and increase
exports of value-add mineral products. Indonesian nickel is achieving thisgoal, with large Chinese investment starting after the first nickel ore ban in
2014. Investment continued during the partial ore export relaxation over
2017-2019 and has accelerated massively in the past 12 months.
Indonesia’s refined nickel exports, including stainless steel rose 49% yearon-year in 2020 to 667,000 tonnes (Figure 13.4).
Chinese investment has not stopped at processed nickel (ferronickel,
nickel pig iron and matte) but has continued into stainless steel with twolarge producers now operating. From 2021, value-add will be expanded
into nickel sulphates, the raw material for batteries used in electricvehicles. The value-add could continue into battery cells and electricvehicles with Tesla and several Korean and Chinese battery andautomakers currently negotiating with the Indonesian government.
Responsible refining of nickel still remains a challenge for Indonesia
The Indonesian government is reportedly not willing to issue permits fordeep-sea tailings placement (DSTP), a type of waste management systemthat disposes of mining waste in the ocean. Extracting nickel fromIndonesian laterites requires high-pressure acid leaching (HPAL) that
produces high volumes of waste tailings, about twice as much ascomparable sulphide nickel mines in Australia. At least two Indonesian
HPAL nickel projects with total capacity of 87,000 metric tons planned touse DSTP, representing 47% of planned Class 1 nickel production in the132

Figure 13.4: Indonesia’s growing production of refined nickel

The Philippines has become the biggest supplier of nickel ores to top
metals consumer, China, since Indonesia banned the export ofunprocessed minerals in January 2020. Indonesia’s mostly low-grade
material is used in producing nickel pig iron, the main commodity used instainless steel.
Philippine President Rodrigo Duterte has ordered a halt to all mining on an
island in the southern province of Tumbagan Island in Languyan.
However, the country’s main ore production centres are unaffected.
China to expand investment in Indonesian nickel refining
As China powers on with its major infrastructure-focused stimulus recovery
from the Covid-19 induced recession, Indonesia expects to see investment
in nickel processing double to US$35 billion by 2033. This is expected to
be primarily led by Chinese companies, countering Indonesia’s ban on
unprocessed ore exports. Among the projects under development is a planby China’s Contemporary Amperex Technology Co Ltd and Ningbo
Lygend Mining to create an integrated lithium battery production facility,
which would be the largest such facility in the world.
Norilsk Nickel partially suspends production at two large mines

Thousand tonnes

Philippines' becomes largest supplier of NPI for stainless steel production

150

20,000120

16,00090

12,000

60

8,000

30

4,000

0
2014

2015

2016

Mine production

2017

2018

2019

Refined production

2020

2021

US$ a tonne

country. Of these, QMB New Energy Materials withdrew its applicationback in October 2020.

0

Nickel price (rhs)

Source: Bloomberg; International Nickel Study Group (INSG)

13.3 Prices
Nickel price surges early 2021 — potential to rise to US$21,000 by 2026
Since suffering a Covid-19 related collapse in March 2020 — when the
LME nickel spot price fell to US$10,800 a tonne — nickel use in China’s
stainless steel mills has surged, triggering a price recovery. Combined with
supply concerns around production (from New Caledonia and thePhilippines), the nickel price rose in January 2021, from US$16,800 toover US$17,800 a tonne. In February 2021, the nickel price surged to
US$20,110 a tonne, the highest price since May 2014.

Norilsk Nickel, the world’s biggest producer of palladium and refined
nickel, has partially suspended two of its main Arctic mines, due to water
inflows at one of the interconnected operations. It is unclear how long
operations will be affected while measures are taken to stop the inflow. To
date, guidance from Norlisk has indicated a 35,000 tonne cut toproduction. Groundwater is a common challenge at deep mines, although
it’s less usual for producers to report any inflows.

The major rise in nickel prices does slightly reflect speculative buying on
EV demand expectations, but is predominantly driven by the current
synchronised demand recovery in stainless steel production. Global
stainless steel production is now significantly above pre-COVID-19 levels.
However, this recent surge in stainless steel production appears
unsustainable, and is expected to come to an end by mid-2021.

Due to the current rally in nickel prices, any supply disruption will quickly
add strongly to price increases. Russia accounted for around 11% of total
nickel production during 2020.

Expected increases to Chinese nickel consumption has driven
expectations of a tightening in the nickel market, from a 100,000 tonne
surplus in 2020, to around a 36,000 tonnes deficit in 2023. Forecast

Resources and Energy Quarterly March 2021

133

Price impacts of the EV market as nickel supply adapts to demand

24,000100

22,00050

20,0000

18,000-50

16,000-100

14,000-150

The excess of NPI currently within the market means the possibility ofarbitrage between these forms of nickel grades has the potential to lower
the premium to higher quality nickel prices. Tsingshan, the world’s largest
nickel and stainless steel producer, signed contracts to sell 75kt of nickel
to Chinese battery interests derived from nickel NPI, a product previously
only sold to the stainless steel industry.

Resources and Energy Quarterly March 2021

2020

2022

World balance

2024

2026

12,000

LME nickel price (rhs)

Source: Bloomberg (2021); Department of Industry, Science, Energy and Resources (2021)

Figure 13.6: Declining stocks pushing up prices

US$ a tonne

A downside to nickel prices over the period could be the possible oversupply in nickel pig iron that has driven growing price discounts to LME
nickel and nickel sulphate since November 2020.
The shortage of available class 1 nickel sulphites means that growth inbattery demand over the decade may need to be met by growth in theprocessing of NPI or laterite ore supplies. The forecast battery demand
growth from 2020-30 is equivalent to five new Nornickels — unlikely tohappen under any nickel price scenario. However, there is debate over theactual conversation costs for NPI and laterite nickel to sulphates, with therefining process being highly energy-intensive and polluting.

2018

US$ a tonne

150

24,00018

20,00015

16,00012

12,000

9

8,000

6

4,000

3

0

2018

2020

2022

Weeks of consumption (rhs)

2024

2026

Week's consumption

While nickel prices are currently limited by the current level of inventories
surplus, expectations of future market growth and resulting market
tightness are likely to push prices significantly higher over the outlook
period. This consumption growth is expected to facilitate prices reaching a
projected US$20,500 tonne by 2026 (in real terms), up an average almost
7% a year from 2021 (Figure 13.6). Speculative sentiment concerning thequantity and availability of nickel required for EV battery production is also
perpetuating fears of a supply shortage in the nickel market. World EV
sales increased by over 46% year-on-year in 2020, to 3.1 million units, andare expected to rise a further 15% to 3.6 million units for 2021. With EV
sales expected to increase from 3.1 million in 2020 to 11 million in 2026,
nickel consumption is expected to outpace production increases, resulting
in a market deficit by 2023.

Figure 13.5: Market deficit exerting upward pressure on prices

Thousands

average nickel prices for 2021 are around US$19,000 tonne, up nearly
38% from the previous year (Figure 13.5).

0

Price

Source: Source: ABS (2021) International Trade in Goods and Services, 5368.0; Department
of Industry, Science, Energy and Resources (2021)

134

Exports declined through 2020, but are expected to rise over outlook
After reaching $3.8 billion in 2019–20, nickel export earnings are forecast
to remain steady in 2020–21, at $3.8 billion (Figure 13.8). Volumes are
expected to reduce slightly, balanced by a price surge close to US$19,000
a tonne for 2021. Continued growth in export volumes will likely depend
upon price increases driven by the eventuating demand for higher quality,class 1 nickel products used in batteries. Total nickel exports are projected
to rise to over $6.5 billion in 2025–26 (in real terms), up an average 9% a
year (Figure 13.7).
Australia’s production volumes set to expand over 2021 and beyond
Australia’s nickel production is expected to increase over 2020–21, driven
by strong prospects for mid-term consumption growth in EV battery
manufacturing and the expected tightening of the nickel market to deficit
by 2023. Mine production is forecast to lift from 180,000 tonnes in
2020–21 to 210,000 tonnes in 2021–22, up by 17%.
A number of firms have upgraded outlooks for their mines underconsideration. In early December 2020, the Golden Swan Drill Drive
construction project commenced at Black Swan. The Company plans tohave a maiden resource reported for Golden Swan during Q3 2021, andhave feasibility and processing options studies completed by the end of
December 2021.
Mincor Resources has completed the first blasts at the Cassini nickel
project and Northern Operations in Western Australia. Mincor guidancesuggests full-scale construction and development activities should finalisethrough 2021, allowing first production by December quarter 2021. The
mine is forecast to produce 71,000 tonnes of nickel with a peak productionof 16,000 tonnes a year.
These projects and other development projects stand to capture the valueof a surging nickel market through 2020 as rising nickel prices make morenickel development opportunities feasible. Australia stands to capitalise as
the world shifts to low-emissions production with its abundant reserves ofResources and Energy Quarterly March 2021

responsibly sourced and high quality nickel for processing as battery
inputs.
Forrestania revises down production guidance
Operational challenges at Western Areas’ Forrestania operations
continued to impact results during the December 2020 quarter. The
company reported a 6% decrease in its nickel production target of
16,000-17,000 tonnes, as lower grade mining outpaced an increase in ore
volumes.
Mined nickel production at the Forrestania operations therefore fell fromthe 4,147 tonnes reported in the September quarter to 3,518 tonnes in thethree months to December, while nickel-in-concentrate production over thesame period fell from 3,756 tonnes to 3,535 tonnes.
However, Western Areas noted that significant progress is being madewith the Odysseus underground development. The mine is likely to be
operational by September quarter 2022 for nickel concentrate — with an
anticipated annual average production of 18,000 tonnes.
Figure 13.7: Australia’s exports to approach $6.5 billion by 2026
400

8

300

6

200

4

100

2

0

2016–17

2019–202022–23

2025–26

2020-21 A$ billion

Australia

Thousand tonnes

13.4

0

Export volumes
Export value (rhs)
X
Source:Source:te figurehere ABSxx (2021) International Trade in Goods and Services, 5368.0; Department
of Industry, Science, Energy and Resources (2021)

135

BHP’s Nickel West unit has agreed to buy up to 50% of its Kwinana
refinery (Western Australia) electricity needs from the Merredin Solar
Farm. The agreement with China-based solar developer Risen Energy is
expected to displace 364,000 tonnes of CO2 equivalent over the life of thecontract and will contribute to achieving BHP's medium-term target to
reduce scope one and two emissions by 30% by 2030.
Outlook for Australia’s refined nickel production
In 2019–20, production at Nickel West decreased by 8% to 80,000 tonnes,
due to the major quadrennial maintenance shutdowns at the Kwinana
refinery. However, BHP are expected to complete construction of thenickel sulphate expansion project located at the Kwinana nickel refinery inthe second half of 2021. The expansion will add 100,000 tonnes of nickel
sulphate annual capacity to the Kwinana refinery.

Figure 13.8: Nickel and cobalt exploration continues to expand
90
75

A$ million

Nickel West has signed a renewable power purchasing agreement

60
45
30
15
0
2010

2012
2014
2016
2018
Xx
Source: Source: ABS International Trade in Goods and Services, 5368.0
te figure here xx

2020

Australia’s refinery production is projected to rise from 108,000 tonnes in
2019–20 to 139,000 tonnes in 2025–26, growing at an average 4.4% ayear. However, stronger increases in refined nickel production are likely,
should nickel prices remain strong through the mid-2020s.
Exploration expenditure
In the December quarter 2020, nickel and cobalt exploration increased to$54 million, however it was 10% lower than the same period in 2019. The
increase is likely due to increased speculation of a sharp increase indemand for nickel used in batteries for electric vehicles, with miners
seeking new deposits of minerals that will drive the world’s low emissions
transition (Figure 13.8).
Revisions to the outlook
The forecast for Australia’s nickel export earnings have been revisedslightly higher since the December 2020 Resources and Energy Quarterly,
up, in nominal prices, $0.1 billion to a forecast $3.8 billion in 2020-21. This
follows recent upward trends to the global nickel price as concerns aroundsupply shortages remain in the short-term.

Resources and Energy Quarterly March 2021

136

Table 13.1: Nickel outlook
World

Unit

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

–mine

kt

2,450

2,604

2,730

2,830

2,910

2,980

3,200

4.6

–refined

kt

2,472

2,620

2,730

2,812

2,930

3,053

3,182

4.3

Consumption

kt

2,374

2,547

2,705

2,849

3,000

3,159

3,326

5.8

Closing stocks

kt

758

831

856

819

750

645

501

-6.7

16.6

17.0

16.5

15.0

13.0

10.6

7.8

-11.8

US$/t

13,76918,715

19,941

21,272

21,591

22,23922,906

8.9

USc/lb

625

849

905

965

979

1 009

1 039

8.9

US$/t

14,044

18,715

19,532

20,366

20,21020,351

20,494

6.5

USc/lb

637

849

886

924

917

923

930

6.5

Unit

2019–20

2020–21f

2021–22f

2022–23z

2023–24z

2024–25z

2025–26z

CAGRr– minec

kt

161

180

235

237

236

235

220

5.4

– refined

kt

108

130

139

140

139

139

139

4.4

– intermediate

kt

15

27

33

32

30

30

33

13.1

Export volume

kt

231

201

259

255

251

253

246

1.1

– nominal value

A$m

3,798

3,813

5,128

5,437

5,727

6,633

7,238

11.3

– real valued

A$m

3,839

3,813

5,044

5,237

5,382

6,079

6,469

9.1

Production–weeks of consumption
Prices LME–nominal–realbAustralia
Production

Notes: b In 2021 calendar year US dollars; c Quantities refer to gross weight of all ores and concentrates; d In 2020–21 financial year Australian dollars; f Forecast; r Average annual growth
between 2020 and 2026 or 2019–20 and 2025–26; z Projection.
Source: ABS (2021) International Trade, 5465.0; LME (2021) spot price; World Bureau of Metal Statistics (2021) World Metal Statistics; Department of Industry, Science, Energy and Resources(2021)

Resources and Energy Quarterly March 2021

137



Prices (in real terms) are projected to fall from an average of US$2,310
a tonne in 2020 to US$2,220 a tonne in 2026, driven by increasing
production, after a high of US$2,690 a tonne in 2021.

Australian exports of zinc are projected to rise from 1.5 million tonnes in
2019–20 to 1.7 million tonnes in 2025–26, driven by rising production(see Australia section).

 Australia’s zinc export earnings (in real terms) are projected to decline
from $3.6 billion in 2019–20 to $3.5 billion in 2025–26, as the impact ofprice declines outweighs production increases.

14.2

World consumption

Figure 14.1: World zinc consumption vs industrial production
15

After zinc consumption fell in 2020, modest increases expected

Forecasts of strong GDP and IP growth in 2021 and 2022 are positive forzinc. Part of this growth will derive from infrastructure spending, which will
be steel-intensive (see macroeconomic outlook chapter). ‘Green’ stimulus
packages in various nations buoyed recent electric vehicle (EV) sales, withpurchases rising by 46% (year-on-year) over the 2020. However, theChinese government’s attempts to cap domestic steel production may
mute the outlook for zinc (see steel and iron ore chapter). World zincconsumption is expected to rise modestly over the outlook period, risingfrom 13 million tonnes in 2021 to 14 million tonnes in 2026, up an average
1.1% a year (Table 14.1). Beyond galvanising, zinc consumption inbatteries for renewable energy is also advancing with ASX listed, Redflow
securing US contracts to supply Anaergia in California.

Resources and Energy Quarterly March 2021

5
0
-5
-10

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
World zinc consumption

World industrial production

Source: International lron and Steel Institute (2021); CPB Netherlands Bureau for Economic
Policy Analysis (2021); Department of Industry, Science, Energy and Resources (2021)

Figure 14.2: Steel production vs world zinc consumption

Zinc annual change (%)

Zinc consumption has been reasonably well correlated with the world IP
cycle – and, in turn, the steel production cycle – over the past decade(Figure 14.1). Zinc’s primary role is in galvanising steel. Consumption isthus expected to continue to move with steel production (Figure 14.2).
World refined consumption fell by 4.4% in 2020 compared to 2019,
although over this period China’s refined consumption increased by 1.3%,
meaning world consumption excluding China decreased by 9.7%.

10

10

10

5

5

0

0

-5

-5

-10

2016

2018
2020
2022
World zinc consumption

2024
2026
Steel production

Steel - annual change (%)

Summary

Annual percentage change

14.1

-10

Source: International lron and Steel Institute (2021); Department of Industry, Science, Energy
and Resources (2021)

140

14.3

World production

Mine production fell in 2020, leading to tight concentrate markets
Over 2020, world zinc mine production declined by 5.9% from 2019.
Production fell by 3.7% in China compared with a 6.9% decline elsewherein the world, highlighting China’s strong role in zinc mine production.
China’s mine production decreased by 2.1% in the December quarter2020 compared to the same period in 2019. Production from Bolivia
decreased by 3.0% but Peru increased by 15%, and Australia increasedby 1.1%.
In 2020, Australia’s production decreased by 1.8% from 2019. The decline
in Australia’s production was the result of a number of smaller deposits
being put on ‘care and maintenance’, and other aging deposits producing
less. The decline came despite output gains at the major zinc mines, suchas Mt Isa and McArthur River. Production levels in China and SouthAmerica, including Peru and Bolivia, have normalised to pre-COVID-19
levels.
The decrease in world mine production contrasted noticeably with metal
production, which rose 1.2% in 2020 compared with 2019. The rise wasdominated by China, which increased by 2.9%, compared with a 0.3%
decline in the rest of the world. The increased metal production resulted intightness in the concentrate markets and a decline in smelters treatment
and refining charges, as refiners competed for concentrate. The shortageof zinc concentrate also caused an appreciation in the zinc price.
Mine production is expected to rise over the outlook period
World mine output was estimated at 12 million tonnes in 2020, and is
projected to rise by 4% per year to 15 million tonnes in 2026 (Figure 14.3).
The rise over the outlook period is the result of the expected continuationof investments in mine commissioning and expansions, encouraged by thestrong prices of recent years. Overall Africa, Asia, Australia, and Canada
are projected to increase their share of world zinc production over theoutlook period with relative declines in China and elsewhere in theAmericas.
Resources and Energy Quarterly March 2021

High grade production is scheduled to come online from the Dairi project inIndonesia in 2021–22, with 51% of the project purchased by China
Nonferrous Metal Industry’s Foreign Engineering and Construction
Company. The resource grade of 11.5% zinc makes this project one of thehigher grade undeveloped resources in the world. High grade production
on a similar timeframe is also due from the refurbishment of the Kipushi
project in the Democratic Republic of Congo. Resource grades averagejust below 11%, but higher grade sections average over 35% zinc. The
mine is being developed by Ivanhoe Mines Limited.
Imports normalised towards the end of 2020
Zinc trade continues to pivot on the activity in China, with China’s domestic
production currently supplying the majority of its needs. This supply issupplemented by concentrates from Australia and South America. Chinese
global zinc concentrate imports for 2020 were 1.8 million tonnes, up by
21% on 2019. In the December quarter 2020, Australia’s zinc concentrateexports to China increased by 56% from the September quarter, reversing
the decrease of 45% for the September 2020 quarter. Trade in Australianzinc changed as Peruvian and US operations increased exports in the
September quarter. Peruvian exports remained high in the December
quarter, whilst US operations exported less. There has been reporting that
Glencore are selling down some of their South American zinc interests,
although maintaining their Australian interests.
World refinery production normalised
At 13 million tonnes in 2020, refined production (including recycling) was
1.2% above 2019, suggesting largely normal operations during the
COVID-19 pandemic. A tighter market for concentrate has meant thatsmelters have maintained low treatment charges to attract concentrate.
Primary and secondary zinc production rose by 1.0% and 1.1%
respectively in 2020, with China’s primary production output rising by
2.4%, and ‘rest of world’ production virtually flat compared to 2019.

141

20

15

16

10

12

5

8

0

4

-5

0

2016

2018
2020
Mine production

2022
2024
2026
Mine production change (rhs)Annual change (%)

Million tonnes

Figure 14.3: World zinc mine production, metallic content

14.4

Zinc prices averaged US$2,725 a tonne during the first two months of2021, up from US$1,928 a tonne in April/May 2020 at the peak of thepandemic sell off. Concentrate imports to China for the 12 months to
December 2020 were up 21% compared with the prior period in 2019,placing upward pressure on prices. This pressure may ease as thegovernment has called for a cap on steel production (see iron and steel
chapter). However, China’s zinc smelters have called for a coordinatedapproach, similar to the copper smelters, requiring some stockpile
rebuilding. Treatment and refining charges are at historical lows; close to$US80 a tonne, compared with US$240 a tonne a year ago. London
Metals Exchange and Shanghai Futures Exchange zinc stocks are around
385,000 tonnes, higher than the previous quarter of 280,000 tonnes, butwith markets currently more sentiment-driven than stocks-driven.

12

2

8

0

4

-2

0

2016

2018

Refinery production

2020

2022

2024

2026

Annual change (%)

Million tonnes

Figure 14.4: World zinc refinery production, metallic content
4-4

Refinery production change (rhs)xxSource: International Lead Zinc Study Group (2021); Department of Industry, Science,
Energy and Resources (2021)

Resources and Energy Quarterly March 2021

PricesPrice increases reflect tightness in concentrate supply-10

Source:Internationale figure
here xx Lead Zinc Study Group (2021); AME Mineral Economics (2021);
Department of Industry, Science, Energy and Resources (2021)

16

In 2021–22, rising zinc concentrate supply may result in higher treatment
and refining charges, as smelters approach capacity. However, refiners
will need to consider the risk of further disruptions to mine supply, and may
seek to rebuild strategic stockpiles of concentrates. Changes to refinery
production are less responsive to price changes than mining production,
due to the higher costs of restarting smelters. Refinery production is
expected to follow mine production closely over the outlook period.
Refined production is expected to increase by an average 1.1% a year
over the outlook period, to 14 million tonnes in 2026 (Figure 14.4).

here

The LME zinc spot price is forecast to average US$2,690 a tonne in 2021,
decreasing to US$2,220 a tonne in real terms in 2026, as world production
increases (Figure 14.5). The strength of China’s recovery from the COVID19 pandemic, as well as the impact of stimulus packages in othercountries, is underpinning the outlook for zinc in the first couple of years of
the outlook period (see macroeconomic outlook chapter). Short termtightness in the concentrate market is also expected to support prices in
the near term.

142

8

4,000

6

3,000

4

2,000

2

1,000

0

0

2016

2018

2020
Stocks2022
2024
Price (rhs)2026

the two years since late 2018 – when the company stated its aim toincrease global zinc production – zinc production at Mt Isa and McArthur
River has increased by 27% and 9.9% respectively.
2021 prices US$ a tonne

Weeks of consumption

Figure 14.5: Zinc prices and stocks

Source:re xx London Metal Exchange (2021); Department of Industry, Science, Energy andResources (2021)

14.5

Australia

Export earnings expected to decline modestly
Australia’s zinc export earnings are projected to decline from $3.6 billion in
2019–20 to $3.5 billion in 2025–26 in real terms, as price declines
outweigh the impact of production gains. Concentrate accounts for around
60% of total exports, and refined metal accounts for 40%.
Australia’s production decreased slightly in 2020
In the December 2020 quarter, Australia’s mined zinc production
increased by 5.4% from the September 2020 quarter. However, output in2020 was down by 1.8% from 2019. While the major mines increased
production, output from smaller mines and ageing operations declined.
The Broken Hill mine in NSW experienced a 4.1% decline in production in2020 and Rosebery in Tasmania decreased by 20%, both year-on-year.
Glencore’s Australia production increased by 6% in 2020; output camefrom the Mt Isa and McArthur River operations in Queensland and theNorthern Territory, increasing 8.4% and 3.0% respectively in 2020. Over
Resources and Energy Quarterly March 2021

Major operations in Queensland also increased production over 2020. At
New Century Resources, with the ramp up of their Century tailings
reprocessing operation, production increased by 38% on 2019. At
South32’s Cannington operation, production increased by 12% on 2019,
having increased by 36% over the two years since December 2018.
Dugald River increased by 4.5% in 2020 and by 14% over the two years to
December 2020.
Refinery exports increased as concentrate was diverted
Australia’s exports of zinc concentrate increased by 34% over the
December 2020 quarter (quarter-on-quarter), after a similar sized decline
in the September quarter. Total concentrate exports declined by 2.6% in
2020, relatively higher than production: concentrates appear to have been
re-directed to be processed domestically, as 2020 refined zinc exports
were up 16% year-on-year. Price surges and smelter capacity may haveaided this trend.
Australia’s mine production is expected to increase and then stabilise
Australian production is expected to continuing growing until the end of
2021–22, after which production is expected to remain steady for theduration of the outlook period (Figure 14.6). Australia’s zinc mine output is
expected to increase from 1.3 million tonnes in 2019–20 to a projected
1.6 million tonnes in 2025–26 (in metallic content), driven by further
expansions at major operations in Queensland and the Northern Territory.
Refined production
In 2020, refined zinc exports increased by 16% to 441,000 tonnes.
Increasing refined zinc production from the expansion of Korean-owned
Sun Metals is due in 2021, adding 50,000 tonnes per annum once fully
ramped up. Sun Metals zinc smelter is located near Townsville. Refined
production is forecast to be steady after 2022.

143

Figure 14.6: Australia’s zinc mine output by state, metallic content

Australian zinc revenue

Thousand tonnes

1,600

The rising Australian dollar may reduce revenue slightly, with export
earnings in 2020–21 and 2024–25 projected to decline relative to2019–20, despite increasing production. However, in 2025–26 productionand exchange rate effects see revenue return close to 2019–20 levels inreal 2020–21 dollar terms (Figure 14.7).

1,200

800

Exploration expenditure increased in the December quarter 2020

400

0

2015–16
QLD

2017–18NT

2019–20NSW

WA

2021–22TAS

2023–24SA

2025-26

Exploration expenditure for silver, lead and zinc has increased
76% quarter-on-quarter for the December quarter, as the zinc priceappreciated by a further 13% over the same period (Figure 14.8). The
increase in exploration follows continued increased prices as a result of
stimulus measures in response to due to the COVID-19 pandemic.
Figure 14.8: Exploration expenditure on silver, lead and zinc versus
zinc prices

VIC

re xx

Source: Company reports; Department of Industry, Science, Energy and Resources (2021)

4,000

40

3,000

30

2,000

20

1,000

10

1,500

3

1,000

2

500

0

1

2015–16

2017–18

2019–20
Volume2021–222023–242025-26

0

Value (rhs)re xx Source: ABS (2021) International Trade in Goods and Services, 5368.0; Department
Source:of Industry, Science, Energy and Resources (2021)

Resources and Energy Quarterly March 20210
Dec-10Dec-12

Dec-14

Dec-16

Dec-18

Silver, lead, and zinc exploration expenditure (rhs)Dec-20

A$ million

4
US$ a tonne

2,000

2020–21 A$ billion

Thousand tonnes

Figure 14.7: Australia’s zinc exports, metallic content

0

LME zinc pricere xx ABS (2021) Mineral and Petroleum Exploration, Australia, 8412.0; Company reports;
Source:Department of Industry, Science, Energy and Resources (2021)

144

14.6

Revisions to the outlook

The revenue from zinc in Australia is forecast at $3.4 billion for 2020–21
and 2021–22 in nominal terms, both up $0.2 billion from those contained in
the December quarter 2020 Resources and Energy Quarterly. The
increase in revenue is based on appreciating zinc prices as well as slightly
increased refined output.
Compared to the March 2020 forecast of $3.1 billion (in real terms),
earning are now more robust in 2020–21 due to higher than anticipatedzinc prices as a result of supply disruption resulting from the COVID-19
pandemic along with stimulus packages resulting to counter the effects ofthe pandemic. The forecast for 2021–22 is $0.2 billion higher (in realterms) based largely on appreciating zinc prices.

Resources and Energy Quarterly March 2021

145

Table 14.1: Zinc outlook
World

Unit

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

– minekt

12,12013,47814,301

14,65914,955

15,19715,3094.0– refinedkt

13,10013,39013,54813,705

13,856

14,00314,003

1.1

Consumption

kt

13,003

13,293

13,452

13,60813,75913,906

13,906

1.1

Closing stocks

kt

939

1,035

1,132

1,229

1,326

1,422

1,519

8.4

3.8

4.1

4.4

4.7

5.0

5.3

5.7

7.1

US$/t

2,263

2,687

2,363

2,377

2,384

2,461

2,477

1.5

USc/lb

103

122

107

108

108

112

112

1.5

US$/t

2,308

2,687

2,314

2,275

2,232

2,252

2,216

-0.7

USc/lb

105

122

105

103

101

102

101

-0.7

Australia

Unit

2019–20

2020–21 f

2021–22f

2022–23z

2023–24z

2024–25z

2025–26f

CAGRr

Mine output

kt

1,340

1,354

1,481

1,530

1,571

1,598

1,649

3.5

Refined output

kt

418

450

480

492

492

492

492

2.8

– ore and concentrate b

kt

2,556

2,201

2,574

2,680

2,766

2,825

2,936

2.3

– refined

kt

390

406

380

392

391

391

391

0.1

– total metallic content

kt

1,530

1,419

1,569

1,629

1,669

1,696

1,747

2.2

– nominal

A$m

3,592

3,444

3,389

3,492

3,667

3,795

3,969

1.7

– real c

A$m

3,630

3,444

3,334

3,364

3,446

3,478

3,548

-0.4

Production– weeks of consumptionPrice– nominal– real a

Export volume

Export value

Notes: a In 2021 US dollars; b Quantities refer to gross weight of all ores and concentrates; c In 2020–21 Australian dollars; f Forecasts; r Compound annual growth rate; z Projection.
Source: ABS (2021) International Trade in Goods and Services, Australia, Cat. No. 5368.0; Company reports; Department of Industry, Science, Energy and Resources (2021); International Lead
Zinc Study Group (2021); LME (2021); World Bureau of Metal Statistics (2021)

Resources and Energy Quarterly March 2021

146Summary Spodumene prices (in real terms) are projected to rise from an averageof US$445 a tonne in 2020 to US$710 a tonne in 2026, driven by higher
demand for batteries used in electric vehicles. Lithium hydroxide prices
are projected to rise from US$7,790 a tonne in 2020 to US$11,800 a
tonne in 2026 (in real terms).
 Australia’s lithium production is projected to rise from 233,000 tonnes in
2019–20 to 571,000 tonnes in 2025–26 (see Australia section).
 Australia’s lithium export earnings (in real terms) are projected toincrease from $1.1 billion in 2019–20 to $5.4 billion in 2025–26.

15.2

World demand

Lithium demand increasing strongly
World demand for lithium is estimated to increase from 305,000 tonnes
lithium carbonate equivalent (LCE) in 2020 to 426,000 tonnes in 2021
(Table 15.1). Demand is then forecast to exceed half a million tonnes in
2022, and more than 1.0 million tonnes by 2026 as global electric vehicle(EV) uptake rises further (Figure 15.1). The strong demand increase in
2021 is based on increasing EV uptake, driven by lower vehicle prices,
government measures and increased model choice. There is considerable
diversity of opinion regarding demand out to 2026, and this projection has
upside risk. Lithium demand usually leads consumption by around one
year, due to the lead times required in battery manufacturing. This leadtime may get shorter in the future, as production is streamlined.
The annual growth for lithium demand over the outlook period is almost
23%, and recycling currently supplies around 1.7% of lithium per year.
However, recycling may need to increase towards 15% by the close of theoutlook period if demand is not to outstrip supply; moreover, recycling has
yet to be established on a large scale.
Lithium trade is growing rapidly in Asia
China’s lithium trade increased substantially over the December 2020
quarter with lithium hydroxide exports increasing 45% quarter-on-quarter.
Resources and Energy Quarterly March 2021

Lithium carbonate imports increased by 81% quarter-on-quarter.
South Korea’s lithium hydroxide imports increased by 64% quarter-onquarter, while lithium carbonate imports increased by 33%. In Japan,
lithium hydroxide imports increased by 23% quarter-on-quarter in
December, while lithium carbonate imports decreased by 9%.
Increasing trade in both lithium hydroxide and lithium carbonate suggest
firming market conditions. There has been some increase in lithium
carbonate trade, due to increased output of lithium iron phosphatebatteries (LFP). This potentially puts Australian producers, who produce
spodumene which is more easily converted into lithium hydroxide, at a
disadvantage. However, recent announcements by companies regarding
commitments to lithium hydroxide production, suggests that both refined
products have strong underlying demand over the outlook period.
Figure 15.1: World lithium production and demand
1,200
Thousand tonnes

15.1

900

600
300
0

2018 2019 2020 2021 2022 2023 2024 2025 2026
Production kt LCE

Demand kt LCE

Source: Roskill (2021); BloombergNEF (2021); Department of Industry, Science, Energy andResources (2021)

Lithium hydroxide is generally used in ‘ternary’ batteries. Ternary batteries
are composed of nickel plus two other metals; often cobalt plus
manganese or aluminium. On average, these batteries have a longer
driving range than LFP batteries.

148

Chinese EV makers’ adoption of LFP batteries was for the purpose of
short commutes. However, Chinese automaker BYD now claims a driving
range in excess of 600 kilometres for its Han vehicle. Improvements ofthese sorts in EV performance have driven strong demand forelectric vehicles in China. However, European production is geared
towards ternary batteries supporting lithium hydroxide demand.
European EV sales in 2020 were driven by emissions regulations alongwith the release of Volkswagen’s ID3. China’s sales were driven bysubsidies requiring minimum driving range, which precipitated a move to
LFP batteries with cell to pack technology. However, Mercedes have an
LFP option, as does Tesla.
Commitments by the Biden Administration to implement mass purchasingof electric vehicles by the US Government could add half a million toelectric car sales, though the timing remains unclear at the time of writing.
In Australia, the government of the state of South Australia has introduced
an ambitious target for all car sales to be electric by 2035, mirroring similarplans announced by the UK government.

Figure 15.2: Electric vehicle sales by country
4,000
3,000
Thousands

Electric vehicle trends

2,000
1,000
0

2010

2012

2014

China

Asia Pacific (ex China)

2016

2018

2020

EuropeAmericas

Other

Source: BloombergNEF (2021)

Figure 15.3: Long-term electric vehicle sales projection
30

30

20

20

10

10

Lithium iron phosphate batteries versus ternary batteries
Battery technology continues to evolve rapidly, with LFP batteries
potentially shifting towards increased use of nickel as a way to improvecharging times while avoiding risks of flammability. Nickel is used in a foilin the battery to transfer heat and thereby reducing charging times.

Resources and Energy Quarterly March 2021

0

2018

2020

2022

Electric vehicle sales

2024

2026

2028

2030

Per cent

EV sales increased 55% quarter-on-quarter in December, exceeding
expectations. Growth was particularly strong in China and Europe, which
together now comprise over 85% of the market. Sales exceeded
3 million units in 2020, and growth is unlikely to abate in 2021
(Figure 15.2). Longer term, demand is projected to rise strongly with about
26 million EVs projected to be sold annually by 2030 (Figure 15.3).

Millions

Electric vehicle sales for December quarter 2020 up strongly

0

Share of all vehicle sales (rhs)

Source: Department of Industry, Science, Energy and Resources (2021); International
Energy Agency (2021); BloombergNEF (2021)

149

LFP battery usage has risen dramatically in China, in response to
subsidies that require a minimum driving range and a maximum pricepoint. This led manufacturers to quickly adopt a cell to pack layout (CTP),
facilitating an increase in driving range that meets the necessary pricepoint. Tesla and CATL also plan further improvements in CTC (cell tochassis) technology — similar to those recently introduced for CTP
technology. However, Tesla’s version of CTC may use ternary batteries.

(supported by British Petroleum), with silicon anodes via nanotechnology.
Commercialisation is understood to be a few years away. Japanese
researchers are also pursuing nanotechnology with silicon anodes. An
advantage of silicon over graphite is its ability to store 50% morelithium ions in a single charge. However, silicon tends to expand and crackwith the increasing charge. Nanotechnology is being used to create
structures in the silicon anode that alleviate these issues.

Although manufacturing of LFP batteries (cobalt-free) has increased
dramatically over the past 12 months, the market dominance of LFP
batteries over ‘ternary batteries’ has yet to be established. In addition to
LFP, Tesla is also going into the continuous production of their tab-less4680 battery using nickel (a ternary battery), which is reliant on lithiumhydroxide as an input. Tesla’s production is being undertaken in
conjunction with its battery manufacturing partners in North America (seethe nickel chapter). The 4680 ternary battery potentially offers much higher
performance than LFP batteries (see December 2020 Resources andEnergy Quarterly, lithium chapter). Tesla has submitted an application toestablish a battery production facility in Indonesia that may potentiallyleverage local nickel supply and population size. This may present an
opportunity for Australian lithium producers.

Cobalt-free batteries

Solid state batteries are getting closer
Solid state batteries are likely to be the next frontier for battery technology.
Solid state technology has the potential to offer a driving range of about
1,000 kilometres. Feedstock for this type of battery can come from anumber of sources, including lithium brine and spodumene. Both
Contemporary Amperex Technology Limited (CATL) and Toyota are set tolaunch solid state batteries towards the end of the outlook period (2026).
However, US start-up, Quantum Scape, may also have a pilot plant
producing solid state batteries for Volkswagen and various others in 2024.
Fast charging technology is improving
Fast charging — another obstacle to large scale adoption of EVs — isbeing addressed by numerous companies. These include Israel’s StoreDot

Resources and Energy Quarterly March 2021

Finally, China-based SVOLT have produced some cobalt-free ternary
batteries, avoiding expensive inputs and environmental issues. SVOLT
supplies batteries to Great Wall Motors. These batteries use 75% nickeland 25% manganese to boost performance.
Recycling
Volkswagen has opened a plant for recycling lithium batteries in Salzgitter,
Germany. The plant is small scale but will be used to develop and scale up
technology in this area, as large lithium batteries become available for
end-of-life recycling towards the end of the outlook period.
Electric vehicles demand may accelerate
Volkswagen’s ‘Power Day’ on 15 March 2021 revealed that from 2022
their cars will provide bidirectional charging technology — allowing thecharge accumulated in the car to be used by the grid as well. Hyundai, Kia
and Nissan announced this feature for 2021. This is in contrast to Tesla,
who do not currently offer this feature.
The grid charging option has the potential to accelerate demand for EVs
and thus Australian produced lithium products. It is worth noting that
Volkswagen released some ID4 cars (electric version of the Tiguan) to the
US last year, which sold out within eight hours.
Additionally, earth moving equipment manufacturer, Komatsu, has recently
partnered with electric bus manufacturer Proterra to develop heavy duty
electric earth moving equipment, also potentially accelerating demand.

150

15.3

World production

Security of supply being sought, as world demand lifts
World lithium production was stronger than anticipated in 2020, driven in
response to increasing EV demand. Output in 2020 is estimated at
439,000 tonnes LCE. Production is forecast at 516,000 tonnes LCE in
2021, and projected to be 1,084,000 tonnes by 2026. At this stage, supply
may fall short of demand unless significant recycling is undertaken, ormine and brine operations are expanded beyond initial projections.
‘Green’ stimulus packages and tightening emissions standards in Europe,
are changing the nature of a previously oversupplied market. As a result,the gap between supply and demand is narrowing. Stockpiles still exist,
but their size is difficult to determine — with some suggestions of 4-8
weeks for spodumene. Additionally, offtake and equity investments
continue, suggesting security of supply may be an issue going forward.
Project development is accelerating
Chile’s Sociedad Quimica y Minera de Chile (SQM) is positioning itself tomore than double production over the next few years. It plans to raise
Chilean production from 70,000 tonnes per annum of lithium carbonate
equivalent to 180,000 tonnes per annum by 2023, with lithium hydroxide
increasing from 13,500 to 30,000 tonnes per annum over a similar
timeframe. Additionally, SQM and Wesfarmers have updated the feasibility
study on the Mt Holland Deposit and its associated Kwinana lithiumhydroxide refinery, both in Western Australia. This project is expected toreach a committed stage upon environmental approval. The plant could
come online in late 2024, with potential to value-add spodumene intolithium hydroxide, producing 45,000 tonnes per annum. These expansions
anchor both SQM and Wesfarmers firmly in lithium hydroxide production.
Albemarle are expanding with their La Negra III and IV projects in Chile,with an additional 40,000 tonnes per annum of lithium carbonate
equivalent of capacity due for completion in 2021–22. Mineral Resources’and Albemarle’s Kemerton lithium refinery in Western Australia is due tocome online in 2021–22, ramping up towards 50,000 tonnes per annum of
Resources and Energy Quarterly March 2021

lithium hydroxide. Albemarle restarted its US lithium hydroxide refinery inlate 2020, and the company plans to double the capacity of its Silver Peakmine in the US to produce 10,000 tonnes per annum LCE towards the endof the outlook period.
Lithium output currently comes from two sources: hard rock spodumene
such as is produced in Australia, or from brines typically produced in SouthAmerica. Standard Lithium are studying lithium extraction from brines in
Arkansas in the US. The brines are extracted from earlier drilled oil wells;
this could see development fast-tracked, with permitting already in placethat would simply require amendments. Production may be low cost, andprovide locally-sourced lithium for North American battery production. The
first phase of production is mooted to ramp up to 21,000 tonnes per yearof lithium carbonate equivalent over 2022 and 2023. The brine field isunderstood to extend into Texas. Previous examination of brine production
in other US states failed to demonstrate commercial viability. Rio Tinto is
examining lithium production from tailings water at their Boron mine in the
US. These expansions will be needed to meet a potential supply shortfall
towards the end of the outlook period.
Water-efficient direct lithium extraction (DLE) is being further trialled by
ASX listed Lake Resources in Argentina, in order to advance its
Kachi project. DLE lithium carbonate is being processed into battery test
cells by ASX listed Novonix for Lake Resources. Further development ofDLE, along with other water saving techniques, may need to be rolled out
to sustainably manage brine expansion. ASX listed Vulcan Energy
Resources has reached agreement with DuPont to test and scale up its
DLE, after a positive outcome from its pre-feasibility study and successful
capital raising for its German zero carbon lithium project.
ASX listed Piedmont Lithium commenced a definitive feasibility study in
the US on their North Carolina deposit after making a spodumene supply
agreement with Tesla. Permitting is underway for the Kings Mountainlithium hydroxide refinery, also in North Carolina. Piedmont is also
expanding its lithium footprint in Canada via Sayona Mining. In Africa, ASX
listed AVZ Minerals is undertaking offtake agreements with Gangfeng as

151

800

20

600

15

400

10

200

5

0

2020

2021

2022

2023

Global demand

2024

2025

2026

Percentage of world

Thousand tonnes

Figure 15.4: World demand and Australian lithium hydroxide output
as a percent of world

0

Australian production (rhs)

15.4 Prices
Lithium market evolves with lithium hydroxide LME debut in 2021
Spot lithium hydroxide prices (delivered to China) rose by 43% to
US$10,041 a tonne for the 3 months to end of February, to be 29% higher
year-on-year. This compared with a price rise of 15% into Europe (toUS$9,250 a tonne delivered) for the same period and an 8% decline yearon-year. Lithium hydroxide may commence trading on the London Metals
Exchange (LME) on 14 June 2021, subject to regulatory approvals. This
would be the first openly traded lithium commodity on an exchange.
However, market liquidity may take some time to become established.
Spot spodumene prices (delivered to China) rose by 13% to US$445 atonne over the three months to February, but declined 9.2% year-on-year.
Spodumene prices are expected to increase in 2021 and 2022, driven by‘green’ government stimulus packages and rising EV production(Figure 15.5).
Figure 15.5: Prices of spodumene concentrate and lithium hydroxide
20,0001000

Source: BloombergNEF (2021); Department of Industry, Science, Energy and Resources(2021)

16,000800

12,000

600

8,000

400

4,000

200

Outlook positive for battery grade lithium products
Battery-grade lithium hydroxide is in increasing demand. Production
expertise is focused in Albemarle and SQM, along with Chinese
producers. Albemarle has operations in China and Chile. Albemarle areconstructing the Kemerton lithium hydroxide refinery in Western Australia,
with first product due 2021–22. The recommissioning of Tianqi’s Kwinana
lithium refinery is due to commence in 2021. Ramp-up for these facilities
could take 12 months. If this occurs, then Australia may be ramping up
lithium hydroxide production sharply in 2023 (Figure 15.4). SQM’s existinglithium hydroxide production experience may be utilised in the upcoming
development of Mt Holland and its associated Kwinana refinery.

Resources and Energy Quarterly March 2021

2021 US$ a tonne

Notes: Lithium hydroxide projections are subject to uncertainty due to construction disruption
from the COVID-19 pandemic

0

2017

2020
Lithium Hydroxide

2023

2026

2021 US$ a tonne

well as financing discussions for the project, situated in the Democratic
Republic of Congo. Yibin Tianqi currently holds about 8% of thecompany’s stock. Production is initially projected at 700,000 tonnes per
year of spodumene concentrate followed by lithium sulphate production.

0

Spodumene (rhs)

Notes: Lithium hydroxide price is for lower priced technical grade
Source: Roskill (2021); Department of Industry, Science, Energy and Resources (2021)

152

In contrast to the more transparent spot market, movements on thecontract market are harder to determine. It is estimated that the contract
market is currently trading at a premium of around 11% to spot. However,contract pricing can operate at a discount or a premium to spot pricing,depending on market conditions. In order to qualify for contract pricing, an
extensive quality verification process — that can take 12 months — isrequired. The quality verification process is aimed at, among other things,
eliminating impurities that can contribute to fires. Product that has not yet
fully qualified for contract pricing can instead be sold on a spot basis. In
the current market conditions, Albemarle is considering more flexible
pricing for some of its contracts. It is unclear what mechanisms forflexibility maybe utilised as yet.

15.5

Australia

Exports forecast to recover
Exports of lithium were around $1.1 billion in 2019–20. Low spodumene
prices early in the financial year may see revenue fall to $1.0 billion in
2020–21. However, higher production and prices, and the start of local
spodumene refining into lithium hydroxide, is projected to raise lithium
export earnings to $5.4 billion by 2025–26. The projection assumes lessthan one third of spodumene will be value added to lithium hydroxide by
the end of the outlook period.
Production has stabilised
Australia’s spodumene production and shipping stabilised in the December
2020 quarter, with production equalling shipping. Pilbara Minerals’ output
rose by 2.1%, but sales rose by 62%, reducing stockpiles. The company
also took over the neighbouring operations of Altura Resources. The
Altura side of the consolidated operation is not currently producing lithium,
and is unlikely to return to production unless there is sufficient market
support. It may however, yield significant operational flexibility and synergy
for Pilbara Minerals; allowing expansion without the need for construction.
Pilbara’s production may increase by 10-15% over the next six months via
a series of process improvements.
Resources and Energy Quarterly March 2021

Meanwhile, production at Galaxy Resources’ Mt Cattlin operation inWestern Australia increased by 11%, while sales increased by 350%,
drawing down stockpiles noticeably. Strong contract pricing (US$480 per
tonne) is driving the company towards ramping up operations by 20-30%
over 2021.
Greenbushes, currently owned by Tianqi and Albemarle, had estimatedproduction of over 80,000 tonnes LCE of spodumene concentrate in 2020and may reach over 200,000 tonnes LCE by the end of the outlook period.
Project development is on the rise
Independence Group (ASX Listed) is in the process of acquiring a 25%
stake in Greenbushes and a 49% stake in its associated Kwinana lithiumrefinery. The transaction is due to crystallise in mid-2021, and will continue
IGO’s expansion in the battery minerals space.
Core Lithium, an Australian company, is in the process of completing
resource calculations and a definitive feasibility study for its Finniss
deposit, close to Darwin, with a view to rapid development. The company
currently has an offtake agreement with Sichuan Yahua International(Yahua) based in China. Yahua, in turn, has an offtake agreement with
Tesla for lithium hydroxide.
Capital raising is occurring for both Vulcan Energy and Core Lithium,
indicating a significant turn-around in market sentiment and therefore
potentially increasing supply of lithium just as the price begins to rise. ASX
listed, Argosy Minerals raised around $30m for its Argentina and USbased lithium brine development projects.
Elsewhere, ASX listed Orocobre is nearing completion of construction for
its Naraha lithium hydroxide facility in Argentina. ASX listed Piedmont
Lithium has started feasibility studies on spodumene development in North
Carolina, and is in the process of permitting for a lithium hydroxide refineryin the same area. Piedmont already has offtake arrangements with Tesla.
Wodgina remains on care and maintenance, but rising demand may see
its return during the outlook period.

153

Lithium export earnings (in real terms) are projected at $5.4 billion by2025–26, up from $1.1 billion in 2019–20 (Figure 15.7). The projection isbased on less than one third of spodumene being value added to lithiumhydroxide by the end of the outlook period.
Revisions to the outlook
Australia’s lithium export earnings are forecast at $1.0 billion for 2020–21
and $1.4 billion in 2021–22 (nominal terms), unchanged for 2020–21 andup $0.1 billion for 2021–22 from those contained in the December 2020
Resources and Energy Quarterly. The increase in earnings in 2021–22 isbased on appreciating spodumene prices.
Compared to the March 2020 forecast of $0.6 billion (in real terms),
earnings are now more robust in 2020–21, due to a faster than anticipated
recovery in volumes in the lithium market (due to surging electric vehicle
demand). The forecast for 2021–22 is $0.1 billion higher (in real terms)
based largely on appreciating spodumene prices.

400

200

0

2016

2018

2020

2022

2024

2026

Notes: Lithium hydroxide is not included.
Source: Company reports; Roskill (2021); Department of Industry, Science, Energy andResources (2021)

Figure 15.7: Australia’s lithium exports
600

6,000

400

4,000

200

2,000

0

2015–16 2017–18 2019–20 2021–22 2023–24 2025–26
Lithium volumes

2020-21 A$ million

Lithium hydroxide production is mooted for both Kwinana and Kemerton
refineries in 2021–22. A positive feasibility study for Mt Holland (owned by
SQM and Wesfarmers) with its associated lithium hydroxide plant is also apositive sign for Australia’s future lithium refinery capacity. The investment
decision is subject to completion of environmental approvals, withproduction potentially commencing in 2024.

600

Thousand tonnes LCE

Australian production is now expected to rise over the outlook period, from
244,000 tonnes LCE in 2020–21 to 571,000 tonnes LCE in 2025–26,
maintaining around 50% of world output. Spodumene exports areprojected to increase from 1.6 million tonnes in 2020–21 to 3.9 million
tonnes in 2025–26 (Figure 15.6).

Figure 15.6: Australia’s spodumene concentrate production

Thousand tonnes LCE

Australian production forecast to rise over the outlook period0

Lithium values (rhs)

Notes: Income figures include lithium hydroxide and spodumene volumes contain hydroxide.
Source: Company reports; Roskill (2021); Department of Industry, Science, Energy andResources (2021)
Resources and Energy Quarterly March 2021

154

Table 15.1: Lithium Outlook
World

Unit

2020

2021f

2022f

2023z

2024z

2025z

2026z

CAGRr

Lithium production a

kt

439

516

594

704

836

947

1,084

16.3

Demand b

kt

305

426

502

582

709

872

1,038

22.6

Stocks c

kt

120

144

171

204

242

285

335

18.6

–weeks of consumption

kt

20.5

17.6

17.7

18.2

17.8

17.0

16.8

-3.3

–nominal

US$/t

437

508

579

646

747

798

790

10.4

–real d

US$/t

446

508

567

619

700

730

707

8.0

–nominal

US$/t

7,637

8,838

10,053

10,866

12,884

13,571

13,193

9.5–real d

US$/t

7,790

8,838

9,847

10,403

12,06012,41911,804

7.2

Australia

Unit

2019–20

2020–21f

2021–22f

2022–23z

2023–24z

2024–25z

2025–26z

CAGRr

Mine production a

kt

233

244

280

315

373

445

571

16.1

Spodumene export
volume e

kt

1,503

1,647

1,886

2,126

2,515

3,003

3,855

17.0

–nominal g

A$m

1,091

977

1,368

1,932

3,061

4,520

5,996

32.9

–real h

A$m

1,102

977

1,345

1,861

2,877

4,143

5,359

30.2

Spodumene priceLithium hydroxide priceExport value

Notes: a Lithium Carbonate Equivalent: This is a measure of the quantity of refined product; b Demand is ahead of consumption by approximately 12 months due to the lead time required in battery
manufacturing; c Stockpile estimates possibly inaccurate due to increasing product purity specifications. Calculated from residual after losses from refining and allowing for lead time in battery
manufacturing; d In 2021 US dollars; e Spodumene concentrates: 2018–19 products include direct ship ore, 4 per cent Li2O concentrate and 6 per cent concentrate, thereafter mostly 6 per cent Li2O
concentrate, stockpiles run down in 2019–20; f Forecast; g revenue from spodumene concentrate as well as lithium hydroxide; h In 2020–21 Australian dollars; r Compound annual growth rate; sEstimate; z Projection.
Source: Company reports; Department of Industry, Science, Energy and Resources (2021); Roskill (2021); Government of Western Australia Department of Mines, Industry Regulation and Safety(2021)

Resources and Energy Quarterly March 2021

155

Trade summary charts and tables

156

Figure 16.3: Principal markets for Australia’s resources exports,
2020–21 dollars

Figure 16.1: Industry shares of GDP
80

60
GDP: $1543 b
GDP: $1948 b

Per cent

Per cent

60
40
20

2
0

7

2

Agriculture,
forestry andfishing

55

60 60

10

Mining

8

7

6

7

36

Exports: $177 b
17

20

14
7

Manufacturing Building andconstruction

2009–1040

Exports: $103 b0Services

China

Other

2019–20

9

Other
Asia

11

7

6

Japan

2009–10

6

South
Korea

8

9

11
1

EU

India

Source: ABS (2021) International Trade in Goods and Services, 5368.0

Figure 16.2: Principal markets for Australia’s resources and energy
exports, 2020–21 dollars

Figure 16.4: Principal markets for Australia’s energy exports,
2020–21 dollars

44

26

20

40
22
16

14 13

10
0

Exports: $71 b

Exports: $294 b

China

Japan

Other

9 10

Other
Asia

2009–10

9 7

South
Korea

7 6

EU

2019–20

Source: ABS (2021) International Trade in Goods and Services, 5368.0

Resources and Energy Quarterly March 2021

Per cent

Per cent

30

Thailand60

Exports: $174 b

40

1

2019–20

Source: ABS (2021) Australian National Accounts, National Income, Expenditure &Production, 5204.0

50

3

11
3

1 2

India

UnitedStates37

Exports: $117 b
30

20

0

27
12

Japan

China

10 12

Other
2009–10

13 11

Other
Asia

12 10

South
Korea

11

7

5

India

EU

3

2019–20

Source: ABS (2021) International Trade in Goods and Services, 5368.0

157

Figure 16.5: Principal markets for Australia's total exports,
2020–21 dollars

Figure 16.7: Proportion of goods and services exports by sector
80

60
39

40

Exports: $386 b
23

18

20

0

Exports: $247 b

China

14

Japan

30

8 7

8

5

5 4

4 3

4 3

South
Korea

India

UnitedStates

Hong
Kong

New
Zealand2009–1025

Per cent

Per cent

60

48

60

40
20
0

13 12 12

14 12 12

10

Rural

Other

2019–2053 55

2017–18

2018–19

20

11

Other
merchandise

Mineralresources

2016–1724 22 22

Services

2019–20

Source: ABS (2021) Balance of Payments and International Investment Position, 5302.0

Source: ABS (2021) International Trade in Goods and Services, 5368.0

Figure 16.8: Proportion of merchandise exports by sector

Figure 16.6: Australia's total imports by country of origin,
2020–21 dollars

80

60

63

Per cent

40

Imports: $302 b

27
20

0

18

China

41

11 12

UnitedStates

9 6
Japan
2009–10

South
Korea

5 5

5 4

Thailand Germany

2019–20

0
Other

74

40
20

6 5

70

60
Per cent

46

Imports: $251 b

68

18

16

15

Rural
2016–17

19

12

Mineral resources
2017–18

2018–19

16

15

14

Other merchandise
2019–20

Source: ABS (2021) Balance of Payments and International Investment Position, 5302.0

Source: ABS (2021) International Trade in Goods and Services, 5368.0

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Table 16.1: Principal markets for Australia’s thermal coal exports, 2020–21 dollars
Unit

2015–16

2016–172017–18

2018–192019–20

Japan

$m

7,383

8,737

10,24011,910

8,435

China

$m

1,870

3,721

4,932

4,332

3,971

South Korea

$m

2,722

2,720

3,093

3,904

2,873

Taiwan

$m

1,700

2,397

2,676

3,238

2,411

Vietnam

$m

107

155

133

680

1,052

Malaysia

$m

530

683

778

926

540

Total

$m

15,91920,05523,511

26,584

20,591

Source: ABS (2021) International Trade in Goods and Services, 5368.0

Table 16.2: Principal markets for Australia’s metallurgical coal exports, 2020–21 dollars
Unit

2015–16

2016–172017–18

2018–192019–20

China

$m

4,182

8,121

8,720

10,128

9,881

India

$m

4,977

8,880

9,871

11,513

7,569

Japan

$m

4,706

7,362

7,561

7,842

6,148

South Korea

$m

2,253

3,914

3,818

4,120

3,065

Taiwan

$m

1,049

1,933

2,012

2,660

2,014

Netherlands

$m

987

2,002

1,865

1,835

1,255

Total

$m

21,35737,492

39,341

44,68834,607

Source: ABS (2021) International Trade in Goods and Services, 5368.0

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Table 16.3: Principal markets for Australia’s crude oil and refinery feedstocks exports, 2020–21 dollars
Unit

2015–16

2016–172017–18

2018–192019–20

Singapore

$m

679

1,074

1,222

1,993

1,374

China

$m

761

750

656

1,032

1,044

Malaysia

$m

156

453

610

1,680

1,024

Indonesia

$m

382

974

1,362

664

769

Thailand

$m

749

598

1,200

1,147

625

South Korea

$m

485

477

720

711

341

Total

$m

5,875

5,810

7,243

9,290

9,104

Note: Some country details have been confidentialised by the Australian Bureau of Statistics.
Source: ABS (2021) International Trade in Goods and Services, 5368.0

Table 16.4: Principal markets for Australia’s LNG exports, 2020–21 dollars
Unit

2015–16

2016–172017–18

2018–192019–20Japan$m

11,366

12,002

15,106

21,721

20,144

China

$m

3,172

6,052

9,952

17,903

16,454South Korea

$m

1,811

2,711

3,838

5,435

5,218

Taiwan

$m

173

269

778

2,400

2,621

Malaysia

$m

203

222

378

893

1,472

Singapore

$m

429

1,518

1,182

1,266

1,050

Total

$m

17,88823,67032,17350,92548,028Notes: Department of Industry, Science, Energy and Resources estimates based on International Trade Centre data, except for 2016–17 where ABS trade data is available.
Source: ABS (2021) International Trade in Goods and Services, 5368.0; International Trade Centre (2021) International Trade Statistics

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Table 16.5: Principal markets for Australia’s iron ore exports, 2020–21 dollars
Unit

2015–16

2016–172017–18

2018–192019–20China$m41,846

54,68352,17164,996

85,684

Japan

$m

5,053

5,716

5,550

5,896

7,112

South Korea

$m

3,295

4,146

3,754

4,779

6,288

Taiwan

$m

1,102

1,519

1,285

1,810

1,896

Indonesia

$m

59

46

46

45

28

India

$m

7

6

312

243

21

Total

$m

51,58366,44063,90779,421103,950

Source: ABS (2021) International Trade in Goods and Services, 5368.0

Table 16.6: Principal markets for Australia’s aluminium exports, 2020–21 dollars
Unit

2015–16

2016–172017–18

2018–192019–20

South Korea

$m

1,204

786

878

786

1,150

Japan

$m

752

989

1,430

1,351

1,027

Taiwan

$m

322

219

340

300

364

Thailand

$m

290

326

389

401

293

United States

$m

20

135

193

861

249

Indonesia

$m

102

161

190

123

96

Total

$m

3,498

3,360

4,178

4,266

3,731

Source: ABS (2021) International Trade in Goods and Services, 5368.0

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Table 16.7: Principal markets for Australia’s copper exports, 2020–21 dollars
Unit

2015–16

2016–172017–18

2018–192019–20

China

$m

3,871

2,863

3,921

3,693

3,827

Japan

$m

1,541

1,439

1,588

1,877

2,149

Malaysia

$m

666

912

906

1,271

833

South Korea

$m

529

473

302

699

658

India

$m

554

725

872

455

468

Philippines

$m

237

421

174

626

364

Total

$m

8,752

8,031

8,797

10,005

10,316

Source: ABS (2021) International Trade in Goods and Services, 5368.0

Table 16.8: Principal markets for Australia’s gold exports, 2020–21 dollars
Unit

2015–16

2016–172017–18

2018–192019–20

United Kingdom

$m

4,250

4,152

3,403

4,421

12,841

Hong Kong

$m

2,787

10,202

8,374

4,476

3,376

United States

$m

159

156

77

130

3,112

Switzerland

$m

775

1,005

1,139

1,189

1,919

Singapore

$m

1,291

324

1,205

1,628

1,438

China

$m

7,065

2,461

3,059

5,194

832

Total

$m

17,89820,13720,083

19,321

24,652

Source: ABS (2021) International Trade in Goods and Services, 5368.0

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Appendices163

Appendix A
Definitions and classifications
A.1

Exchange rates

In this report, the AUD/USD exchange rate (Australian dollar relative to
the US dollars) is based on the median of economic forecasters at the timethat the report is prepared. The source is the Bloomberg survey of
economic forecasters.
World commodity prices are typically denominated in US dollars, andexchange rate movements can have a significant effect on the actual
outcomes of commodity prices and export earnings. A change in the valueof the US dollar against other floating international currencies caninfluence movements in world resources and energy prices. A change in
the Australian dollar against the US dollar will impact on export earnings
for domestic commodity exporters and producers. There is substantial
uncertainty surrounding any exchange rate forecast, with changes toexchange rates influenced by changes in financial market sentiment,
sometimes resulting in strong volatility.

A.2

Conversion to real dollars

Nominal values and prices are converted to real dollars using Australianand US consumer price indexes (CPI). The Australian and US CPI
forecasts are based on the median of economic forecasters at the timethat the report was prepared. The source is the Bloomberg survey of
economic forecasters.

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A.3

Time periods

The terms ‘estimate’, ‘forecast’ and ‘projection’ refer to different time
periods in this report. Estimate refers to a time period that has passed, but
for which full historical data is not yet available, while ‘forecast’ and‘projection’ refer to different periods in the future. It is important todistinguish between different future time horizons, as factors affecting
production, consumption and prices in the short-term differ from factors
affecting these components in the medium to long-term. Forecasts also
become increasingly imprecise over longer time horizons, due toincreased risk and uncertainty. For these reasons, the Department ofIndustry, Science, Energy and Resources’ Office of the Chief Economist(DISER OCE) uses different terminology to distinguish between short-term
forecasts and medium to long-term projections, as outlined in Table A2.
Table A1: OCE terminology for different time periods/horizons
PeriodYears

Terminology

Historical

Time period has passed but
complete for data for the period is
not yet available

Estimate

Short-term

1 to 2 years

Forecast

Medium-term

3 to 5 years

Projection

Long-term

Beyond 5 years

n/aSource: Department of Industry, Science, Energy and Resources (2020)

164

A.4

Commodity classifications

The DISER OCE defines exports for each commodity by a selected set of
8-digit Australian Harmonised Export Commodity Classification (AHECC)
codes. Where possible, the choice of AHECC codes is based on alignment
with international trade data, to ensure that direct comparisons can be
made. For example, groupings for various commodities are aligned withclassifications used by the International Energy Agency, World Steel
Association, International Nickel Study Group, International Lead and Zinc
Study Group, International Copper Study Group and World Bureau ofMetal Statistics.

In this report, benchmark prices and Australian production and exports are
forecast for 21 commodities, as shown in Table A2. In estimating a total forAustralia’s resources and energy exports, the remaining commodities,
defined as ‘other resources’ and ‘other energy’, are forecast as a group.

Table A2: Resources and energy commodities groupings and definitions
Resources (non-energy)

EnergyDefinition

Resource commodities are non-energy minerals andsemi-manufactured products produced from nonenergy minerals

Energy commodities are minerals and petroleum
products that are typically used for power generation

Australian Harmonised Export Commodity
Classification (AHECC) chapters

25 (part); 26 (part); 28 (part); 31 (part); 73 (part); 74;
75; 76; 78; 79; 80; 81

27 (part)

Commodities for which data is published, forecasts are
made and analysed in detail in this report

Aluminium; alumina; bauxite; copper; gold; iron ore;
crude steel; nickel; zinc, lithium

Crude oil and petroleum products; LNG; metallurgicalcoal; thermal coal; uranium

Notes: The AHECC chapter is the first two digits of the trade code. Groupings are made at the 8-digit level.
Source: Department of Industry, Science, Energy and Resources (2020)

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165

Appendix B

Glossary

Term

Description

A$

Australian dollar

ABS

Australian Bureau of Statistics

AHECC

Australian Harmonized Export Commodity Classification

AISC

All-In Sustaining Cost — an extension of existing cash cost metrics and incorporates costs related to sustaining production.

Base metals

A common metal that is not considered precious (includes aluminium, copper, lead, nickel, tin, zinc)

Bbl

BarrelBcm

Billion cubic metres

BenchmarkA standard specification used to price commodities.

BF and BOF

Blast furnace and basic oxygen furnace — used in an integrated steelmaking process that uses iron ore and coal.

Bulks

Non-liquid and non-gaseous commodities shipped in mass and loose (iron ore, coal, bauxite)

CAGR

Compound annual growth rate

Capex

Capital expenditure

CFR

Cost and freight — Seller clears exports, and pays freight.

CIF

Cost, Insurance, and Freight

Coal Seam Gas (CSG)

Natural gas found in coal seams. Also known as Coal Bed Methane (CBM)

Coke

Made by heating coal at high temperatures without oxygen, and used to reduce iron ore to molten iron saturated with carbon, called hot metal

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166

Conventional gas

Natural gas that can be produced from reservoirs using traditional techniques. Contrasts with unconventional gas.

COVID-192019 Novel Coronavirus

CPB

CPB Netherlands Bureau for Economic Policy Analysis

CPI

Consumer Price Index — measures quarterly changes in the price of a basket of goods and services which account for a high proportion of
expenditure by the CPI population group (i.e. metropolitan households).

Crude steel

Steel in the first solid state after melting, suitable for further processing or for sale.

DES

Delivered Ex Ship — price of LNG including shipping and insurance.

DISER

Department of Industry, Science, Energy and Resources

DMO

Domestic Market Obligation — a policy to reserve energy commodities for domestic usage

DRC

Democratic Republic of the Congo

ECB

European Central Bank

Economic growth

An increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It is measured in
nominal or real gross domestic product (GDP).

EIAThe United States Energy Information Administration

EAF

Electric arc furnace — a furnace that melts steel scrap using the heat generated by a high power electric arc.

ETF

Exchange Traded Fund — an exchange traded fund that allows investors to invest in gold on the exchange.

EUV

Export unit value — export value/volumes exported

EV

Electric vehiclef

Forecast — a two year outlook

FEED

Front end engineering design

FID

Final investment decision

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167

FOB

Free on board — seller clears export, buyer pays freight.

GAD

Gross air dried basis — For measuring coal quality.

GAR

Gross as received basis — For measuring coal quality.

GBP

Great Britain Pounds

GDP

Gross Domestic Product — measures the value of economic activity within a country/group.

GFC

Global Financial Crisis — the period of extreme stress in global financial markets and banking systems between mid-2007 and early 2009.

GJ

Gigajoule

GST

Goods and Services Tax — a value-added tax levied on most goods and services sold for domestic consumption.

HCC

Hard coking coal — The best grade of metallurgical coal used in the steel production process. Australian hard coking coal is regarded as theindustry benchmark.

IEA

International Energy Agency

IMF

International Monetary Fund — an international organisation that promotes international financial stability and monetary cooperation.

IMO

International Maritime Organisation

IP

Industrial Production — measures the output of the industrial sector that comprises mining, manufacturing, utilities and construction.

IPO

Initial public offering — a process of offering shares of a private corporation to the public in a new stock issuance.

ISM

US Institute for Supply Management

ISM

Institute of Supply Management

JCC

Japan Customs-cleared Crude (or Japan Crude Cocktail) — average price of crude oil imported by Japan and a common price index in long-term
LNG contracts.

JFY

Japanese fiscal year

kcal/kg

Kilocalories per kilogram

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168

kt

Thousand tonnes

ktpa

Kilotonnes per annum

LBMA

London Bullion Market Association

LCE

Lithium Content Equivalent

Li OH

Lithium Hydroxide

LME

London Metal Exchange

LNG

Liquefied natural gas

LNY

Lunar New Year

LPG

Liquefied petroleum gas

LVPCI

Low volatile pulverised coal injection — a type of low volatile coal used in the PCI processmMillionMMbtu

Million British thermal units

Mt

Million tonnes

mtpa

Million tonnes per annum

MW

Megawatts

Nameplate capacity

The theoretical maximum annual production capacity

NAR

Net as received basis — For measuring coal quality

NDRC

China’s National Development and Reform Commission

NEVNew energy vehicle — term used for plug-in electric vehicles eligible for public subsidies (battery electric vehicles and plug-in hybrid vehicles)

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169

OCE

Office of the Chief Economist

OECD

Organisation for Economic Co-operation and Development

OPEC

Organisation of Petroleum Exporting Countries, a formal alliance of 14 countries to collaborate to manage the world oil market

OPEC+

Informal term for agreements between OPEC and ten other oil-producing countries (which are not members of OPEC)

Oz

Ounce

PCE

Personal Consumption Expenditure — a measure of the changes in price of consumer services and goods.

PCI

Pulverised coal injection — PCI coal is used for its heat value and injected directly into blast furnaces as a supplementary fuel, which reduces theamount of coke required.

PCI

Pulverised coal injection — a process used in blast furnace operationsPM

The afternoon price of gold set at 3.00pm each business day at the London Bullion Market Association

PMI

Purchasing Managers Index — an indicator of economic health for manufacturing and service sectors.

PPP

Purchasing Power Parity — a way of measuring economic variables in different countries that equalise the purchasing power of different
currencies

RoW

Rest of worlds

Estimate — Incomplete data or subject to revision

Shale gas

Natural gas found in shales

SDR

Special drawing right

SHFE

Shanghai Futures Exchange

SSCC

Semi-soft coking coal — A type of metallurgical coal used in the steel production process alongside hard coking coal, but results in a lower coke
quality and more impurities.

TariffA tax on imports or exports that is used by governments to generate revenue or to protect domestic industries from competition.

Tight gas

Natural gas found in low quality reservoirs

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170

TWI

Trade Weighted Index — a measure of the foreign exchange value of the US dollar against a basket of major foreign currencies.

U3O8

Triuranium octoxide — a compound of uranium.

UAE

United Arab Emirates

UK

United Kingdom

Unconventional gas

Natural gas that is more difficult to extract, including coal seam gas, shale gas and tight gas. Contrasts with conventional gas.

US

United States

US$

United States dollar

WEO

The International Energy Agency’s World Energy Outlook

WTI

West Texas Intermediate crude oil pricez

Projection a five year outlook

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171