The Australian economy is set to benefit from the recent surge in key commodity prices, with the value of resources and energy exports forecast to jump 30 per cent in the 2016/17 financial year.

The federal government’s Department of Industry, Innovation and Science expects Australia’s resources and energy exports to hit a record $204 billion and to remain steady at $202 billion in 2017/18.

The department has revised upwards the value of the current financial year’s exports by 16 per cent from its previous estimate in September, mainly because of increased metallurgical coal, iron ore and thermal coal earnings.

Prices for iron ore – Australia’s top export earner – last year hit a decade-low of $US38 a tonne. But following a surprise government economic stimulus in China last March, prices have more than doubled in the second half of the year.

The steelmaking commodity currently trades at about $US80 a tonne.

Similarly, coal producers were under pressure for most of last year, until mining cuts in China sparked a sharp run up in recent months. During the year, thermal coal prices more than doubled to above $US100 a tonne, while coking coal – also used in steel making – has tripled in price.

“While the surge in bulk commodity prices has lasted longer than initially expected, given the temporary nature of many of these factors, the prices of metallurgical and thermal coal and iron ore are expected to decline in early to mid-2017.,” the Department of Industry, Innovation and Science report said.

The department said iron ore prices are forecast to average $US58 a tonne in 2016/17, but will decline to an average $US49 a tonne in 2017/18, as demand cools and supply grows.

However, the decline in the price of steel-making materials is forecast to be offset by a more than 50 per cent increase in the value of LNG exports, as the large investment in Australia’s LNG production capacity over the past decade becomes operational.

Rising export volumes will also be supported by a recovery in LNG prices as contract prices are forecast to increase in line with oil prices, the report said.

The government body’s price forecasts are largely in line with the somewhat conservative view taken by the Treasury for Australia’s biggest export earner commodities in its mid year budget review last month.

Source: AAP