IRON AND STEEL
ABARE forecasts strong rise in iron ore, 10% copper increase
As many commodity producers are cutting back production quickly to keep pace with tumbling demand, ABARE suggesst that some new projects are too advanced to stop, further pressuring metal and ore prices.
Posted: Tuesday , 03 Mar 2009
CANBERRA (Reuters) -
Australia forecast a strong rise in iron ore production and a 10 percent jump in copper mine output in the year to June 2010, even after factoring in a more prolonged economic slump that has already triggered supply curbs.
In its first forecasts for the coming financial year, the Australian Bureau of Agricultural & Resource Economics also said on Tuesday that a slight rise in the wheat crop would yield sharply higher exports, while production of coking coal was expected to remain largely unchanged after a downward revision.
At a time when many commodity producers are cutting back production quickly to keep pace with tumbling demand as the world falls into a deep recession, the ABARE forecasts suggest that some new projects are too advanced to stop, adding pressure to metal and ore prices that have already halved or more.
This might be especially true of iron ore, said DJ Carmichael & Co mining analyst James Wilson, citing recent expansions by Australia's top three producers, BHP Billiton, Rio Tinto and Fortescue Metals, as well as small upstarts Atlas Mining and BC Iron.
"These would have been put in the works before the market tanked," Wilson said. "I suspect we'll see lower numbers coming out in the next forecast for these commodities."
ABARE itself pointed to the risk of downward revisions.
"We're in uncharted waters and still don't know how far it (the economy) is going to unravel so we've pushed back when we think the recovery is going to come," said ABARE Executive Director Phillip Glyde in an interview ahead of the release.
"The risks to these forecasts coming about is if we continue to see further failures in the financial sector and we lose further confidence in the capacity of that sector to underwrite normal sensible investments," Glyde told Reuters.
ABARE is forecasting global economic growth of 0.6 percent in 2009, rising to 3.0 percent in 2010 as big spending by governments around the world revives economies. But some traders said that seemed a distant prospect at present.
"There is some hope that all the pump-priming going will stimulate demand, but there are no signs of that just yet," a Sydney-based commodity trader said.
Total earnings from Australia's commodity exports -- a major engine of the economy -- are forecast to fall 17 percent to A$162 billion ($103 billion) in 2009/10, following an estimated 33 percent surge to A$196 billion in 2008/09 after big leaps in the prices of iron ore and coal as well as oil and gas.
IRON ORE OUTPUT REVISED UP; METALLURGICAL COAL DOWN
Of the major commodities, metallurgical coal looks the worst affected by the economic downturn that has forced miners, such as Rio, Xstrata Plc and Anglo American Plc, to shut down mines in Australia, throwing hundreds of miners out of work.
ABARE cut its forecast of metallurgical coal output in the year to June to 135.4 million tonnes from a December forecast of 146.6 million tonnes as the global downturn hit steelmakers, but sees output stabilising at 136.3 million tonnes next year.
Iron ore output for 2008/09 was revised up to 340 million tonnes from a December forecast of 327 million tonnes, and is forecast to climb to 367.7 million tonnes in 2009/10 as new miners continue to crank up production, hoping to win sales in China, one of the few major economies still managing to grow.
While the country's miners are struggling with the abrupt turn from boom to bust, farmers are facing brighter prospects as they recover from the worst drought in more than 100 years, even though the southeast of the continent remains parched.
WHEAT EXPORTS MAY SURGE
ABARE is predicting wheat production by Australia, the world's fourth-largest exporter, will rise to 22.13 million tonnes in 2009/10 from 21.40 million tonnes in 2008/09, which was well up on the 13.0 million tonnes harvested in 2007/08.
But it sees exports jumping to 14.7 million tonnes, from an estimated 10.2 million tonnes this year, a surge possibly caused by destocking inventories that rose swiftly this year.
The crop forecast yet may prove to be conservative as conditions in some key areas improved, said National Australia Bank strategist Frank Drum. He did not give his own forecast.
The value of farm exports are forecast to grow by 12 percent to A$30.8 billion in 2008/09 and rise a further 4 percent to A$32.1 billion the following year. ($1=A$1.58) (Additional reporting by Jim Regan and James Grubel; Editing by Jonathan Leff and Mark Bender.)