Australia’s booming earnings from coal exports could be in jeopardy if China switches to more domestic supply and if port restrictions continue to favour competing exporters, a federal government report has warned.
The country’s energy and resources exports will rake in an extra $20bn this financial year, the report by the industry department said, creating a timely bonanza for the treasurer, Josh Frydenberg, to exploit in next week’s federal budget.
But the report, released on Friday, warned that Australia faced an imminent threat to the $5bn thermal coal trade with China.
Amid growing concern about delays imposed on Australian coal shipments at Chinese ports, it detailed how the government in Beijing had restructured its domestic coal sector in the past 10 years, with potentially serious implications for Canberra’s coffers.
China was poised to switch on 200m tonnes of thermal capacity, it said, after it built rail freight lines to hard-to-reach coalfields hundreds of kilometres inland. Another 400m tonnes of capacity was under construction.
Australia is the second largest exporter of thermal coal in the world, with 208m tonnes worth $26bn exported last year. About 20% of that went to China.
The report warned that although Australian producers could find other markets, such as India, the pressure on prices would be downwards.
“If there is a prolonged decline in Chinese imports of Australian coal, some of the impacts on Australian producers could be lessened by a redirection of trade flows, but prices for Australian coal could also come under pressure,” it said.
“The scale of China’s coal demand relative to the size of global coal markets, coupled with ongoing policy uncertainty, makes developments in China a key risk to the outlook for coal prices and Australian coal exports.”
Although the past few years have seen a huge boom in resource and energy export earnings, commodity prices are expected to decline in 2019-20 thanks to supply increases from competing countries, a weaker US dollar and a cyclical slowdown in world demand.
Export earnings would drop slightly to $272bn, the report said, and continue to fall for four years.
Australia’s biggest export earner remained iron ore and it is the largest exporter of of the steel-making commodity in the world with 836m tonnes sent offshore last year, enough to build 10,050 Sydney Harbour bridges.
Iron ore export earnings are expected to increase by 21% to $74bn in 2018-19, the second highest amount on record. They will drop to $60bn by 2023-24 as prices fall because of falling demand from China, which accounts for 68% of world imports.
A large part of the Treasury windfall came from Australia’s liquefied natural gas exports, which totalled 70m tonnes last year.
The value of LNG exports was forecast to reach a peak of $51bn in 2019-20 before easing to $41bn in 2023-24. On current predictions, Australia will surpass Qatar to become the world’s largest LNG exporter this year until 2024.
The minister for Resources and Northern Australia, Matt Canavan, said the report reinforced the importance of the country’s mineral and resource exports.
“The living standards of Australians rely in large part on maintaining a strong resources sector,” he said. “Even if you don’t work in resources, the revenue that the industry brings in helps pay for schools, hospitals and other services.”
Australian Associated Press contributed to this report.