Resources
and Energy
Quarterly
September quarter 2012
Acknowledgements
The macroeconomic outlook, the individual commodity outlooks and the reviews have identified BREE authors. The statistical tables were compiled and generated by the Data & Statistics Program at BREE that includes Geoff Armitage (Program Leader), Alex Feng, YY Liu and Kate Martin. Design and production was undertaken by the Media and Parliamentary team at the Department of Resources, Energy and Tourism, Typeyard Design & Advertising, Tom Shael and the BREE Data & Statistics Program.
BREE 2012, Resources and Energy Quarterly, September Quarter 2012, BREE, Canberra, September 2012.
© Commonwealth of Australia 2012
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ISSN 1839-499X (Print)
ISSN 1839-5007 (Online)
Vol. 2, no. 1
Postal address:
Bureau of Resources and Energy Economics
GPO Box 1564
Canberra ACT 2601 Australia
Phone: +61 2 6276 1000
Email:
Web: www.bree.gov.au
Foreword
This issue of Resources and Energy Quarterly is released at an important time for Australia. It is about a year since resource commodities prices peaked in the second half of 2011, around a decade since the resource boom began and it is published on the first day of the inaugural Australian National Conference on Resources and Energy (ANCRE).
In this issue, a detailed overview of the global macroeconomic conditions is provided that highlights the risks to the world economy. In particular, the macroeconomic outlook summarises the fiscal consolidation underway in most of the world’s advanced economies and briefly describes the cause and on-going concerns in terms of the euro zone debt crisis.
The review section of this Resources and Energy Quarterly includes: The importance, drivers and phases of the Millennium Mining Boom; Residential electricity demand in the National Electricity Market: Preliminary findings; and Australian bulk commodity exports and infrastructure outlook: 2012–2025. The Millennium Boom article provides a useful ‘stock take’ of what has happened over the past decade of the resources boom and its impact on the Australian economy.
The latest forecasts of volumes and prices show two distinct trends. First, the prices of many resources have moderated from historic highs in 2011 and further declines are expected over the medium term in US$ terms. Second, Australian export volumes, especially in terms of bulk commodities, are growing rapidly and are expected to do so for several years to come. The net result is that the value of resource and energy exports in 2011–12 are expected to be 8 per cent higher than in 2010–11 and to total $193 billion.
The projection for the value of resources and energy exports in 2012–13 is for a year-on-year decrease of about 2 per cent, with the total value of resources and energy exports expected to total $189 billion. This forecast, as emphasised in the macroeconomic outlook, is based on the IMF assumption of a ‘pick up’ in the world, OECD and Chinese economic growth in 2013 and the assumption that the Australian dollar will be very close to parity with the US dollar in 2013.
Quentin Grafton
Executive Director/Chief Economist
Bureau of Resources and Energy Economics
Contents
Foreword 3
Contents 4
Acronyms and abbreviations 5
Macroeconomic outlook update and energy and minerals overview 6
Energy outlook 18
Oil 18
Gas 21
Thermal coal 24
Uranium 27
Resources outlook 30
Steel and steel-making raw materials 30
Gold 37
Metals overview 40
Copper 42
Aluminium 45
Nickel 49
Zinc 52
Reviews 55
The importance, drivers and phases of the Millennium Mining Boom 56
Residential electricity demand in the National Electricity Market: Preliminary findings 65
Australian bulk commodity exports and infrastructure outlook 2012–2025 72
Statistical tables 81
Acronyms and abbreviations
ABS Australian Bureau of Statistics
BREE Bureau of Resources and Energy Economics
BRIC Brazil, the Russian Federation, India and China
ESAA Energy Supply Association of Australia
ESCOSA Essential Services Commission of South Australia
FOB free on board
GDP gross domestic product
IEA International Energy Agency
IMF International Monetary Fund
LME London Metal Exchange
LNG liquefied natural gas
mb/d millions of barrels per day
MBtu million British thermal units
Mt million tonnes
OECD Organisation for Economic Co-operation and Development
OPEC Organisation of the Petroleum Exporting Countries
OTTER Office of the Tasmanian Economic Regulator
PIIGS Portugal, Ireland, Italy, Greece and Spain
PPP purchasing-power parity
QCA Queensland Competition Authority
RBA Reserve Bank of Australia
TWI trade-weighted index
EU European Union
UNCTAD United Nations Conference on Trade and Development
WTI West Texas Intermediate
5
Macroeconomic outlook update and energy and minerals overview
Nhu Che, Quentin Grafton, Pam Pham and Tom Willcock
Global economy at risk
The world economy is in a challenging period. Increased downside risks over the past quarter include heightened concerns over the euro zone debt crisis; a moderation in Chinese economic growth and a sharp fall in its export growth; weakness in investment, jobs and manufacturing in Europe; and reduced growth in India. In part reflecting recent data and concerns, the International Monetary Fund (IMF) revised its global growth projection downwards since it updated its World Economic Outlook in April 2012.
Overall, weak economic growth is assumed in large advanced economies over the next 15 months. Annual growth in 2012 is expected to be about two-thirds of what it was in 2010. Economic activity is also slowing in large emerging economies including Brazil, India and China. The ongoing debt crisis in the EU and its spill-over to the real economy and large exporting countries, such as China, along with concerns over the strength of the US recovery in 2013 remain key concerns for the short-term economic outlook.
Global economic growth in 2012 is assumed to be 3.5 per cent (see Table 1) which is sharply down on the 5 per cent growth in 2010. Within most of Western Europe short- to medium-term economic growth prospects have diminished over the past two quarters. The US recovery remains modest and faces increased risks over the coming months in terms of planned fiscal consolidation (see Box 1). While there are positive long-term indicators in terms of declining household debts, rising home prices and increasing exports values, the US current rate of economic growth of about 2 per cent is unlikely to be sufficient to reduce the unemployment rate below 8 per cent.
The euro zone continues to be affected by the debt crisis in the so-called ‘Club Med’ countries while some northern European countries both inside and outside of the euro, such as the UK, are currently experiencing negative growth. In the coming months, Greece is likely to require further debt relief and a delay in the implementation of some aspects of its austerity program as its economy is contracting at a much faster rate than expected. To what extent further debt relief for Greece is possible depends on the willingness of the German government to provide further financial assistance. To date, Germany has already lent about €130 billion as part of Greece’s previous bailouts.
Concerns over debts in the euro zone are not just ‘Made in Greece,’ but include an unfolding banking crisis in Spain (see Box 2). Despite support from other euro zone countries, including €100 billion to assist its banks and also large announced cuts in spending and tax increases, the yield on Spanish long-term sovereign debt remains much higher than the yield on German debt. As in the case of Greece, further fiscal consolidation by Spain during a recession will make it difficult for it to meet its deficit reduction targets. As a direct result of the debt difficulties, and the uncertainties it engenders, the euro zone is projected to be in a mild recession in 2012 with contractions in GDP recorded for Italy, Belgium and Spain and in the euro zone as a whole in the second quarter 2012. While the German economy at present still continues to grow, its annualised rate fell in the second quarter 2012 and the French economy has experienced no growth in the past three quarters.
Most advanced economies are expected to grow, albeit weakly, with growth assumed to be 1.4 per cent in 2012 and 1.8 per cent in 2013. Over the near term the prospects for emerging economies are much better than those for advanced economies. Nevertheless, growth in these countries is expected to be weaker than forecast earlier in the year by the IMF. As of the end of August 2012, projected growth in China and India has been reduced by 0.2 and 0.7 percentage points, respectively, relative to the projections in the IMF updated World Economic Outlook in April 2012. Real GDP growth in emerging and developing economies is assumed to slow from 6.6 per cent in 2011 to 6 per cent in 2012, but to increase to 6.2 per cent in 2013.
The IMF expects growth in most Latin America economies will moderate in 2012, but to regain strength in 2013 and beyond. Real GDP growth in Latin American economies is assumed to be 3.2 per cent in 2012 and 4 per cent in 2013.
Table 1: Key macroeconomic assumptions for resources and energy
/ 2010 / 2011 / 2012 a / 2013 a /Economic growth b c
OECD / % / 3.0 / 1.4 / 1.4 / 1.8
United States / % / 3.0 / 1.7 / 2.0 / 2.3
Japan / % / 4.0 / –0.7 / 2.4 / 1.5
Western Europe / % / 1.8 / 1.4 / 0.1 / 0.9
Germany / % / 3.7 / 3.1 / 1.0 / 1.4
France / % / 1.5 / 1.7 / 0.3 / 0.8
United Kingdom / % / 1.4 / 0.7 / 0.2 / 1.4
Italy / % / 1.3 / 0.4 / –1.9 / –0.3
Republic of Korea / % / 6.2 / 3.6 / 3.3 / 3.6
New Zealand / % / 1.7 / 1.4 / 2.3 / 3.2
Emerging countries / % / 7.8 / 6.6 / 6.0 / 6.2
Non-OECD Asia / % / 9.6 / 8.0 / 7.1 / 7.5
South East Asia d / % / 6.9 / 4.5 / 5.4 / 6.2
China e / % / 10.3 / 9.2 / 8.0 / 8.5
Chinese Taipei / % / 10.9 / 4.0 / 3.6 / 4.7
Singapore / % / 14.5 / 4.9 / 2.7 / 3.9
India / % / 9.0 / 7.2 / 6.1 / 5.8
Latin America / % / 6.1 / 4.5 / 3.2 / 4.0
Middle East / % / 3.8 / 3.5 / 5.5 / 3.7
Russian Federation / % / 4.0 / 4.3 / 4.0 / 3.9
Ukraine / % / 4.2 / 5.2 / 3.0 / 3.5
Eastern Europe / % / 4.2 / 5.3 / 1.9 / 2.8
World c / % / 5.0 / 3.8 / 3.5 / 3.8
Industrial production b
OECD / % / 7.9 / –0.4 / 1.0 / 0.7
Japan / % / 16.0 / –0.9 / 7.1 / 3.6
China / % / 15.7 / 9.9 / 9.6 / 10.2
Inflation rate b
United States / % / 1.6 / 4.3 / 2.3 / 2.3
Interest rates
US prime rate g / % pa / 3.3 / 3.3 / 3.3 / 3.3
a BREE assumption. b Change from previous period. c Weighted using 2012 purchasing power parity (PPP) valuation of country gross domestic product by the IMF. d Indonesia, Malaysia, the Philippines, Thailand and Vietnam. e Excludes Hong Kong. g Commercial bank lending rates to prime borrowers in the US.
Sources: BREE; ABS; IMF; OECD; RBA.
Box 1: Fiscal consolidation in the world’s major economies
Fiscal consolidation is underway in most advanced economies. Fiscal consolidation in the EU was equivalent to about 2 per cent of GDP in 2011, and projected to be between 3 to 4 per cent of GDP over the next two years. In 2012, the most rapid fiscal consolidation, as measured by change in fiscal stance and cyclically adjusted and as a percentage of GDP, is occurring in Portugal which is close to 9 per cent of its GDP, in Greece at close to 6 per cent of GDP and in Ireland, Spain and Italy the change in fiscal stance exceeds 3 per cent of their GDP.
Figure 1: General government debt (gross) in selected countries, per cent of GDP
Please refer to page 3 of the Resources and Energy Quarterly – September quarter 2012 PDF version.
In advanced economies, fiscal adjustment in 2012–13 is on track to meet medium-term targets. Projected fiscal withdrawal in Germany remains at relatively modest levels of 0.7 and 0.4 percent of GDP for 2012 and 2013, respectively. In France, the new Presidential administration of François Hollande has committed to reducing its deficit by about 1 per cent of GDP this year and 1.3 percent of GDP next year.