Australia’s chief resources and energy economic advisors aren’t expecting boom time commodity prices in the next five years.
Releasing its March quarter report, The Bureau of Resources and Energy Economics said the global economic outlook is looking stronger compared to this time last year.
While last year the world economy recorded slightly slower growth at 2.9 per cent compared to 3.2 per cent in 2012, BREE said key OECD economies are showing signs of sustained recovery and emerging markets are displaying stronger overall growth.
It is expecting China to stabilise slightly, growing at 7 per cent until 2019.
The US is expected to rebound achieving 3 per cent growth until 2019 and BREE expects India to hit 5 per cent economic growth by 2019.
Over the next five years BREE is working on the assumption Australia’s GDP growth rate will decline over the next two years, before recovering to trend growth in 2018–19.
With that in mind, BREE is forecasting continued improvement over the next five years – but it isn’t expecting record commodity prices experienced during the mining boom in the next five years.
BREE is predicting thermal coal prices to continue on a downward trajectory until 2015 before recovering incrementally over the following four years. There’s more on the margin squeeze going on in Australia’s thermal coal sector here.
The average uranium spot price was around $US38 a pound in 2013, declining 21 per cent compared to 2012.
Over the next five years China’s growing nuclear power sector will have an upward impact on the price of uranium, BREE said.
Over the next five years BREE is projecting the uranium spot price to increase at an average annualised rate of around 11 per cent to $US63 a pound (in 2014 dollars) in 2019.
BREE said the risk of new uranium mines being delayed could result in a supply shortfall which would support higher prices.
The iron ore spot price has been declining through the first quarter of 2014 as a result of high Chinese stockpiles, declining construction and manufacturing activity in China and the flow on effects of Chinese New Year.
Increased seasonal demand, in line with the northern hemisphere’s summer should see the iron ore price recover later this year, BREE said.
But the resources bureau isn’t expecting iron ore prices to recover to the high levels seen in 2013 as a result of increased supplies from new Australian mines, forecasting an average FOB spot price of $110 a tonne.
As new mines continue to ramp up BREE is expecting continued downward pressure on the iron ore price over the next few years, estimating the average spot price in 2015 will be around $US103 a tonne.
Looking ahead to 2019 BREE said new capacity from both Brazil and Australia could see the iron ore price drop to $US87 a tonne.
Gold’s post GFC bull run came to an abrupt halt last year, forcing a number of gold miners to increase cut off grades, cut costs and sell underperforming assets.
This chart shows BREE is expecting the gold price to remain below its record high levels.
“The gold market will start to be influenced more by demand and supply for real consumption (such as jewellery) instead of investment speculation,” BREE wrote.
BREE is predicting the aluminium spot price to decline a further 2.9 per cent to an average of $US1794 a tonne this year.
Beyond 2014, BREE forecasts the aluminium spot price will increase at an average annual rate of 2.9 per cent to hit $US2071 a tonne in 2019.
“Consumption growth is projected to remain robust, driven by growing demand for automobiles and aluminium-intensive consumer products in response to rising incomes associated with the growing middle classes of key Asia-Pacific economies,” BREE said.
In 2013 surplus copper supplies and bearish Chinese economic outlooks saw the copper price drop about 8 per cent year on year.
BREE expects persistent copper supply surpluses will keep the price down until 2015 after that it is projecting an increase at an annualised rate of 1.5 per cent to about $US6906 a tonne in 2019.
BREE is expecting nickel production to decrease 7 per cent this year to 1.81 million tonnes. At the same time consumption is forecast to increase 2.3 per cent to the same level as consumption and nickel prices are predicted to drop a further 2 per cent before the year is out.
Between 2016 and 2019 BREE is projecting consumption to grow at average annualised rate of 1 per cent, reaching 1.92 million tonnes in 2019.
According to the BREE data annual average prices will be stable at around US$17 000 a tonne (in 2014 US dollars) over the period 2016–2019.
In 2013 China accounted for around 45 per cent of global zinc consumption.
BREE is estimating world zinc prices will rise by 9 per cent to average US$2089 a tonne this year.
“In the absence of any major new capacity, which is typically uneconomic at prices below US$2200, mine production growth is expected to be limited to efficiency improvements,” BREE said.
Growing demand for galvanised steel will see consumption levels increase and over BREE’s five year outlook period zinc prices are projected to increase at an average annual rate of around 3.2 per cent to $US2343 a tonne (in 2014 dollars) in 2019.