Resources and Energy Quarterly, Sep 2023

In the September 2023 edition of the Resources and Energy Quarterly (REQ), the authors provide an updated outlook for the Australian resource and energy commodity exports. They note that the outlook has improved slightly since the June 2023 REQ. Commodity prices in the September quarter held up better than expected in June, and the weaker AUD/USD exchange rate had a positive impact on export revenues. Despite the improvement, Australian exports are forecasted to decline to $400 billion in 2023-24, down from a record $467 billion in the previous year, and further decline to $352 billion in 2024-25. The authors highlight that economic growth in Western economies is performing better than previously expected, outweighing concerns about the Chinese economy, which is the largest consumer of resource and energy commodities and Australia's prime export destination. Slower growth in China can be attributed to cyclical factors such as the slowdown in Western economies and a downturn in the Chinese property sector, as well as structural factors like the growing share of consumption in GDP. While weaker economic growth in China affected iron ore and base metal prices, recent Chinese stimulus measures and low global inventories of most base metals limited price falls. Energy prices have normalized relative to 2022, but they remain above pre-Russian invasion levels due to Russian fossil fuel output remaining stranded. Europe is expected to drive global LNG demand as the region replaces Russian pipeline gas with LNG, primarily from the US. Low global oil stocks make oil prices susceptible to supply shocks. The authors note that the end of the La Niña weather pattern and major COVID-related workforce disruptions have improved global supply of most resource and energy commodities. The risk of floods in Australian mines and transport routes is significantly reduced, but an El Niño-driven drought in Indonesia could make thermal coal transportation challenging. The report mentions that Australian thermal coal exports to China have returned to previous levels following the end of Chinese restrictions on Australian coal imports. However, Australian metallurgical coal has struggled to regain market share in China due to increased exports from Mongolia and Russia to China and India. Regarding battery chemistry, there have been significant developments since the June REQ, with driving ranges increasing and "refueling" times approaching levels seen in internal combustion engines. The special topic chapter in this quarter's report focuses on the global battery value chain, with lithium remaining a central element. The demand outlook for lithium remains strong, although prices have fallen from their peak in late 2022. Australian lithium exports are expected to grow, with lithium hydroxide making up a larger share of exports. Lastly, the authors highlight the surge in global investment in low emission and critical technologies, driven by government assistance and concerns over supply chain security and carbon emissions. If interest rates start to fall, investment is likely to increase further.