Australia's resources and energy commodity export earnings are forecast to decline by 10 percent in the financial year 2014-15 to A$176 billion, according to a report by the Australian Bureau of Resources and Energy Economics (BREE). A forecast decline in iron ore export values, underpinned by lower iron ore prices, is the key driver in the decline in total earnings. "While export volumes are forecast to grow for most key commodity exports, weaker commodity prices will weigh on export earnings. The surge in iron ore supply has coincided with a cyclical downturn in the key Chinese housing market, contributing to a 50 percent drop in iron ore prices over the course of 2014," said chief economist, Mark Cully.
The BREE report stated that in 2014 Australia's exports of iron ore are estimated to have increased by 24 percent to 718 million mt. This growth was driven by an expansion in production and infrastructure capacity in the Pilbara region of Western Australia.
In 2015, Australia's iron ore exports are forecast to grow by a further 6.6 percent to 766 million mt, over 50 percent higher than in 2012. Further growth in production by the major Pilbara producers is forecast to support this forecast increase, as well as the start of shipments from Hancock Prospecting's Roy Hill mine, which at current capacity is expected to produce 55 million mt per year of high grade iron ore. Most producers in Australia are well positioned to withstand this period of lower prices and increased competition, according to BREE. However, lower cash margins for shipments will force many producers to implement further cost reductions and improve productivity.