forecasts and issues -...

forecasts and issuesvolume 11 • number 2 • june quarter 2004

GPO Box 1563 Canberra 2601 Telephone +61 2 6272 2000www.abareconomics.com

ABARE is a professionally independentgovernment economic research agency

editor Andrew Wright

ABARE project 1163© Commonwealth of Australia 2004Selected passages, tables and diagrams may be reproduced provided due acknowledgment is made

ISSN 1321-7844

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231australiancommodities • vol. 11 no. 2 • june quarter 2004

foreword f o c u s o n C h i n a

One of the greatest and perhaps most exciting challenges facing Australia over the next ten years will be developing trade relations with China. Since gaining access to the World Trade Organisation in December 2001, China has become Australia’s fourth largest market for exports, particularly for mining and agricultural commodities.

While we are all aware of China’s rapidly developing economy, what we are not so aware of are the implications of China’s economic growth for Australia. The sheer size of many of its markets means that China is a signifi cant player in world trade and in many world markets. In the key world markets for iron ore and coal, China has a critical infl uence on world price.

Competition to supply China’s markets in the future is likely to be strong and Australia will need to rely on its comparative advantage if it is to be a competitive trading partner with China. The attributes that contribute to Australia’s comparative advantage include our wealth of natural resources, including iron ore, natural gas and coal, and our highly effi cient agricultural commodities sector.

We are already seeing glimpses of what trade between Australia and China might look like in the future, with the contract with North West Shelf Australia LNG to supply liquefi ed natural gas to Guangdong province; and the partnerships between Australian companies, Rio Tinto Australia and BHP Billiton, with steel mills in China for the supply of iron ore.

The focus in this issue of Australian Commodities is Australia–China trade in minerals, energy and agricultural commodities. It provides insights into Australia’s trade with China, where we have come from and where we are going. Importantly, it also looks at where our comparative advantage may lie as a future trading partner with China.

BRIAN S. FISHER

Executive Director

June 2004

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contents f o c u s o n C h i n aeconomic overview 235

commodity outlook 246

agriculture 248

crops 251wheat 251coarse grains 253oilseeds 255cotton 257sugar 260

livestock 263wool 263dairy 265beef and veal 267sheep meat 269

minerals and energy 271

energy 275oil and gas 275coal 279

metals 284iron ore and steel 284nickel 286aluminium and alumina 289gold 292copper 294zinc 296

articles• China’s energy sector: recent developments and outlook

Karen Schneider 299

• China’s minerals sector: strong growth providing opportunities for AustraliaAndrew Maurer, Tristan Wells, Robert Curtotti, Trevor Johnston and Ian Haine 306

• Durum wheat: Australia’s role in world marketsPeter Connell, Leanne Lawrance and Rohan Nelson 319

• Minerals and energy: major development projectsIan Haine and commodity analysts 325

statistical tables 335

ABARE management 372

REGIONAL OUTLOOKCONFERENCES

2004 schedule

QLD Rockhampton 5 May

NSW Gunnedah 30 June

VIC Sale 28 July

WA Busselton/Esperance 3 September

SA Karoonda/Berri/Renmark 22 September

TAS Launceston 20 October

NT Alice Springs 18 November

ABARE is holding a number of one-day regional OUTLOOK conferences across Australia in 2004

The objective is to provide market assessments and information of direct interest and relevance to audiences in each region. ABARE works with locally based organisations to develop programs suitable to each particular region.

For information on our series of conferences visit our web site www.abareconomics.com

These conferences are a must for all farmers and service providers to farmers

australiancommodities • vol. 11 no. 2 • june quarter 2004 235

e conom i c o v e r v i ew

ECONOMIC OVERVIEWprospects for world economic growth – key roles of US and ChinaJammie Penm

• World economic growth is assumed to slow from 4.2 per cent in 2004 to 3.6 per cent in 2005, largely as a result of an expected mod-eration of strong economic performance in the United States and China

• If economic growth in China were to slow down substantially in the short term, the ad-verse effects on world economic growth, and hence world commodity demand and prices, could be more signifi cant than currently forecast.

World economic outlook

Strong world economic growth could moderateThe global economic recovery strengthened in early 2004. Economic growth in the United States was strong and activity in Japan’s econ-omy increased substantially. The economic upturn was most rapid in non-OECD Asia, with strong economic growth recorded in China, Chinese Taipei, Thailand and Malaysia in early 2004.

Despite the improved economic performance, there is an increasing risk that strong world eco-nomic growth will moderate over the second half of 2004 and 2005. In the United States (the world’s largest economy), signs are emerging that the job market is improving and infl ation is on the way up. As strong economic growth continues, there will be a need for the monetary authorities to increase interest rates in the latter

half of 2004 and early 2005 to prevent a resur-gence of infl ationary pressures. Higher interest rates are likely to lead to an easing of strong economic growth in the United States to a more sustainable pace in 2005.

Because the United States is the largest export destination for many countries in the rest of the world, an easing of strong economic growth, and hence import demand, in that country has the potential to infl uence economic performance in other parts of the world.

At ABARE’s OUTLOOK 2004 conference held earlier this year, a signifi cant easing of strong economic growth in China was cited as the major uncertainty to world economic performance. Over the past few months, the probability of such an economic easing in China has increased, as signs of capacity constraints, and hence infl a-tionary pressures, continue to emerge in that economy. In response, China’s government an-nounced, in late April 2004, its determination to implement policy measures to moderate eco-nomic growth to a more sustainable pace.

There have been considerable concerns in fi nancial markets about recent economic devel-opments in China. The concern is that, if the policy measures that are implemented to mod-erate economic growth are too blunt, economic performance in China could weaken signifi -cantly. If this occurred there would be adverse effects on world economic activity, especially in the Asian region. A sharp economic slowdown in China, together with slower economic growth

• Jammie Penm• +61 2 6272 2030 • [email protected]

236 australiancommodities • vol. 11 no. 2 • june quarter 2004


in Asia, could signifi cantly affect world com-modity markets, which have been underpinned by recent signifi cant increases in demand for resources from China.

World commodity prices weakened by uncertaintyPartly refl ecting the developments discussed above, prices of many commodities on world markets have weakened from their recent highs. Between March and May 2004, for example, spot prices (denominated in US dollars) on the London Metal Exchange (LME) declined by around 20 per cent for nickel and 10 per cent for copper, lead and zinc. Weaker prices have also been observed for some agricultural com-modities, with world indicator prices declining by close to 10 per cent for soybeans, wheat and cotton since early 2004.

Prospects for commodity prices are crucial to commodity producers and exporters. Currently, there are two important questions facing the commodity sector. The fi rst is whether US mon-etary policy will be tightened rapidly in the short term, leading to a signifi cant easing of strong growth in that economy. The second is whether economic growth in China will slow down sig-nifi cantly, resulting in a sharp decline in world commodity demand and prices.

Higher oil prices also a source of concernBesides uncertainty associated with US interest rate movements in the United States and eco-nomic performance in China, the recent volatil-ity in world oil prices has become another source of concern. World crude oil prices increased to over US$40 a barrel (West Texas Intermediate) in May 2004, compared with around US$29 a barrel in the same month a year earlier. If the recent signifi cant increase in oil prices is sus-tained, it could have an adverse impact on world economic activity.

There has been substantial research under-taken in recent years to quantify the impact of higher oil prices on world economic growth (for example, Penm and Fisher 2003; ABARE 2000; McKibbin and Stoeckel 2003; Interna-tional Energy Agency 2004). ABARE research

indicates that a sustained increase of around 40 per cent in world oil prices (say to US$35 a bar-rel) could lead to a reduction in world economic growth of around 0.3 percentage points in the fi rst year (other factors being unchanged). If the increase in world oil prices persists into the sec-ond year, world economic growth could decline by around 0.6 percentage points from what would have otherwise been the case.

In assessing the impact of higher oil prices in the current world economic outlook, recent movements in international exchange rates also need to be taken into account. This is because world oil prices are denominated in US dol-lars and the value of the US dollar has declined signifi cantly over the past two years, especially against other freely fl oating international cur-rencies, including the euro, the Japanese yen, the British pound, the Australian dollar and the Canadian dollar. On the other hand, the depre-ciation of the US dollar has been less substantial against managed international exchange rates, including many Asian currencies. China’s and Malaysia’s currencies are pegged to the US dollar.

While the recent increase in oil prices, if it persists, could have a relatively signifi cant economic impact on the United States and some

Depreciation of the US dollar against international currencies a

early early February 2002 June 2004 % change

OECDJapan 133 109 –18.0Euro area 1.16 0.82 –29.2Australia 1.82 1.40 –23.0

East AsiaChina 8.26 8.29 0.4Korea, Rep. Of 1 313 1 159 –11.7Chinese Taipei 35.04 33.45 –4.5

South east AsiaIndonesia 10 344 9 303 –10.1Malaysia 3.81 3.81 –0.1Philippines 51.39 56.17 9.3Singapore 1.83 1.64 –10.4Thailand 43.50 40.00 –8.0

a Units of currency per US dollar.



Asian countries (which have either pegged or managed their currencies relative to the US dollar), the adverse effects on economic per-formance in others, such as the euro area, the United Kingdom and Australia, could be less substantial. In euro terms, for example, oil prices over the fi rst fi ve months of 2004 were only 5 per cent higher than the average of 2003 and 2002. This compares with a rise of around 25 per cent in US dollar terms over the same period.

Taking the above factors into consideration, world economic growth is assumed to average around 4.2 per cent in 2004, before easing to 3.6 per cent in 2005.

Outlook for major world economies

Us interest rates to increase graduallyEconomic activity in the United States remains strong in the fi rst half of 2004, with annualised growth of 4.4 per cent recorded in the March quarter 2004. One factor contributing signifi -cantly to the growth in the March quarter was national defence spending, which increased by 13 per cent. Excluding defence spending, the rest of the economy grew by around 3.8 per cent in the March quarter.

Partial indicators released recently point to continued strong economic growth in the near future. The index of consumer confi dence, for example, rose in April and May 2004, sparked by renewed optimism on improvements in the job market. Consumer spending remains strong, with retail sales increasing by 2.0 per cent in March, before a small decline of 0.5 per cent in April.

Growth in manufacturing activity continues, with industrial production rising by 0.8 per cent in April, after a fall of 0.1 per cent in the previ-ous month. The index of leading indicators was slightly higher (0.1 per cent) in April, after rising by 0.8 per cent in March.

In response to strong economic growth, there have been indications that infl ationary pressures

Increase in crude oil prices in local currency terms a

Average of Jan–May Currency 2002, 2003 2004 % change 1 June 2004 % change

OECDUnited States US$ 29 35.9 25 42.3 48Japan yen 3 435 3 850 12 4 627 35Western Europe euro 28 29.2 5 34.8 25United Kingdom £ 18 19.7 8 23.0 26Korea, Rep. of won 34 966 42 193 21 49 073 40Canada C$ 43 47.6 12 57.8 36Australia A$ 48 47.4 –2 59.3 23

AsiaChina yuan 237 297 25 351 48Thailand baht 1 211 1 414 17 1 676 38Malaysia ringgit 109 136 25 161 48Chinese Taipei NT$ 988 1 198 21 1 416 43

a Approximated by the per barrel price of West Texas Intermediate crude oil.

World economic growth

%

1

2

3

4

1990 1993 1996 1999 2002 2005



are building. For example, the consumer price index, excluding the volatile food and energy components, posted signifi cant gains in the fi rst four months of 2004, with the increase in March being the largest since November 2001. Another broad measure of infl ation — the price index for consumer spending in gross domestic product — increased by an annualised 3.0 per cent in the March quarter 2004, the fastest since early 2001.

The jobs market is also improving, with pay-rolls outside the farm sector growing strongly in the fi rst four months of 2004 (with March growth the fastest in nearly four years). Simi-larly, the number of people seeking unemploy-

ment benefi ts declined markedly in late May, to the lowest since late 2000. The unemployment rate, however, remained at 5.6 per cent in April 2004.

Given the recent economic upturn, there is growing concern in fi nancial markets that US monetary policy could be tightened rapidly in the near term, leading to a signifi cant increase in domestic interest rates. The federal funds rate was at 1.0 per cent in early June 2004, compared with an average of around 5.0 per cent in the 1990s.

In preparing the current set of commodity forecasts, it is assumed that US monetary policy will be tightened gradually in the latter half of 2004 and during 2005. In its latest statement on monetary policy, the US Federal Reserve has reassured fi nancial markets that any increase in interest rates, if necessary, will be undertaken at a ‘measured’ pace. Given relatively high unem-ployment in the economy, a sharp increase in interest rates could pose a threat to economic growth.

Looking forward, economic growth in the United States is assumed to remain relatively strong in the latter half of 2004, before easing

US interest ratesMonthly, ended May 2004

20012000 2002Dec Dec DecDec

2003 2004

%

4

2

6

8

Federal funds rate

Prime lending rate

US leading indicators and consumer confidenceMonthly, ended April 2004

2003 20042001 2002JuneJune Dec Dec DecJune

Consumer confidenceleft axis

Leading indicatorsright axis

100

102

104

106

108

110

112

114

50

60

70

80

90

100

110

120

Exports to the United StatesShare of selected countries' total exports

% 20 40 60 80

ChinaChinese Taipei

IndiaKorea

ThailandMalaysia

SingaporeIndonesia

CanadaMexico

JapanUnited Kingdom

AustraliaGermany

ItalyFrance

��

��first half



gradually in 2005. On year average terms, eco-nomic growth is assumed to be 4.5 per cent in 2004, before easing to 3.3 per cent in 2005.

Strong economic growth could moderate in ChinaOver the past year, economic performance in China has strengthened signifi cantly. Gross domestic product, in real terms, increased year on year by 9.7 per cent in the March quarter 2004, compared with average growth of 9.1 per cent in 2003. In response to strong economic activity, consumer prices rose by 3.8 per cent in the twelve months to April 2004. This compares with an average rise of 1.2 per cent in 2003 and a fall of 0.8 per cent in 2002.

Since late 2003, China’s monetary authori-ties have implemented a number of measures (including issuing bonds and increasing the reserve requirement for commercial banks) in an attempt to reduce growth in money supply and hence moderate strong economic growth to a more sustainable pace. In mid-April 2004, China’s monetary authorities once again raised the reserve requirement from 7.0 per cent to 7.5 per cent (the third increase in eight months).

In addition to monetary measures, China’s government has also implemented policy re-strictions to slow new lending to sectors that offi cials believe are ‘overheating’, namely steel, car manufacturing, cement, aluminium and property. Steel producers are now required to

provide equity of 40 per cent to match any new fi xed asset borrowing, while aluminium, cement and property development companies must pro-vide equity of 25 per cent, up from 20 per cent.

Economic performance in China

%

5

10

15

Dec Dec Dec Dec200320022000 2001

Quarterly, ended March 2004

GDPIndustrial production

Key macroeconomic assumptions

World 2002 2003 2004 f 2005 f

Economic growthOECD % 1.6 2.0 3.2 2.5United States % 2.4 3.1 4.5 3.3Japan % – 0.3 2.5 3.2 1.8Western Europe % 0.8 0.6 1.7 1.7 Germany % 0.2 – 0.1 1.3 1.5 France % 1.2 0.2 1.5 1.8 United Kingdom % 1.6 2.3 3.0 2.5 Italy % 0.4 0.3 1.0 1.3Korea, Rep. of % 6.3 3.1 5.0 5.0New Zealand % 4.3 3.5 3.0 2.2

Developing countries % 4.3 5.6 5.5 5.1 Non-OECD Asia % 5.9 7.1 6.8 6.1 South East Asia a % 4.1 4.5 5.5 4.6 China b % 8.0 9.1 8.0 7.3 Chinese Taipei % 3.6 3.2 5.0 4.5 India % 4.6 8.0 6.5 6.0 Latin America % – 0.1 1.7 3.0 3.0Russian Federation % 4.7 7.3 7.0 5.3Ukraine % 5.2 9.3 5.5 4.0Eastern Europe % 4.4 4.5 4.5 4.5

World c % 2.8 3.7 4.2 3.6

Industrial productionOECD % – 0.4 0.7 3.3 2.5

Inflation United States % 1.6 2.3 2.1 2.1

Interest ratesUS prime rate d % 4.7 4.1 4.3 6.0

US exchange rates eYen/US$ 125 115 110 111Euro/US$ 1.06 0.88 0.85 0.88

2001 2002 2003 2004 Australia -02 -03 -04 s -05 f

Economic growth % 3.9 3.0 3.8 3.5Inflation % 2.9 3.1 2.3 2.0Interest rates g % 8.1 8.4 8.7 8.9

Australian exchange ratesUS$/A$ 0.52 0.58 0.71 0.68Yen/A$ 65.9 70.2 78.8 74.9TWI for A$ h 50.6 53.0 61.4 59.0a Indonesia, Malaysia, the Philippines, Singapore and Thailand. b Excludes Hong Kong. c Weighted using 2003 purchasing-power-parity (PPP) valuation of country GDPs by the IMF. d Commercial bank prime lending rates in the United States. e Average of daily rates. g Prime lending rates to large businesses. h Base: May 1970 =100. s ABARE estimate. f ABARE assumptions. Sources: ABARE; ABS; IMF; OECD; RBA.



Considerable uncertainty remains in the out-look for economic growth in China. The most worrying aspect of the current situation is that, if the recently implemented measures prove to be ineffective in slowing the economy, there is a probability that China’s government could introduce more stringent restrictions on invest-ment and bank lending. This, if it occurs, could lead to a signifi cant decline in economic growth. In late April 2004, China’s government halted construction of a 10.5 billion yuan (or around US$1.3 billion) steel project, which would have had a capacity of 8.4 million tonnes a year.

In preparing the current set of commodity forecasts, economic growth in China is assumed to ease gradually from the recent strong pace. Economic growth in China is assumed to aver-age 8.0 per cent in 2004, before easing further to 7.3 per cent in 2005.

If economic growth in China were to decline substantially more than currently assumed (a reduction of annual economic growth in China to 5–6 per cent would be consistent with a ‘hard landing’ scenario), the adverse effects on world economic growth, and hence world commodity demand and prices, could be more signifi cant than currently forecast.

The adverse effects of a hard landing in China, if it were to occur, would be severe on its Asian neighbors, especially Japan, the Republic of Korea and Chinese Taipei. Increased exports to China have been a major factor contributing to the recent economic upturn in the rest of Asia. China (including Hong Kong) is a destination for around 17 per cent of exports from Japan, 22 per cent from the Republic of Korea, 33 per cent from Chinese Taipei and 10 per cent from south east Asia as a whole.

Economic activity in Japan and the Republic of Korea

JapanAfter a decade of stagnation, Japan has achieved stronger economic growth in 2003 and early 2004, with gross domestic product (in real terms) rising by 1.5 per cent in the March quarter

2004, following growth of 2.5 per cent in 2003. The main contributors to the economic growth in the March quarter were higher consumer spend-ing, business investment and exports.

Partial indicators released recently have pro-vided further optimism about economic growth in the near term. Strength in the manufacturing sector has been maintained, with industrial pro-duction rising year on year by 7.7 per cent in March 2004. Consumer spending is gradually recovering, with retail sales (in volume terms) increasing year on year by 0.9 per cent in Febru-ary. There has been a signifi cant improvement in the job market. The unemployment rate declined to 4.7 per cent in March 2004 from 5.0 per cent in the previous month.

Given the recent stronger economic per-formance, a key question is whether Japan’s economic upturn will be sustained, leading to a broad based economic recovery over the short to medium term.

To achieve a sustained economic recovery, Japan needs to undertake signifi cant structural reform. Although attempts have been taken by Japan’s government to address some of the underlying problems, signifi cant efforts are still required in order to raise Japan’s long term potential annual growth from the current level of around 1 per cent. As evident in the current economic upturn, Japan’s economy remains dependent of the export sector, which means the economy is vulnerable to shocks from the world economy.

Specifi cally, the economic outlook for the United States and China will be an important determinant of Japan’s economic prospects in the short term. Together, the two countries are the destination for around 40 per cent of Japan’s exports.

Domestically, weakness in the banking sec-tor and continued defl ationary pressures remain two major downside factors. Although progress has been made to improve the balance sheets of major banks, nonperforming loans remain high in the banking sector. Despite recent stronger economic growth, defl ation continues with the price defl ator for gross domestic product falling year on year by 2.6 per cent in the March quarter 2004.



Taking the above factors into account, economic growth in Japan is assumed to be relatively strong in the latter half of 2004, before easing gradually during 2005. On average, eco-nomic growth in Japan is assumed to be 3.2 per cent in 2004, before easing to 1.8 per cent in 2005.

Republic of KoreaEconomic growth in Korea strengthened in early 2004, with gross domestic product (in real terms) rising year on year by around 5.3 per cent in the March quarter 2004. This compares with growth of 3.1 per cent in 2003.

Recent partial indicators suggest that the pace of economic recovery is likely to be modest. While industrial production increased year on year by 12 per cent in March 2004 (supported by strong export performance), consumer spending could decline, as sentiment has been adversely affected by ongoing political scandals and labor unrest. Household consumption spending declined by 1.4 per cent in 2003.

Looking forward, economic growth remains dependent on export performance. Although exports increased year on year by 39 per cent in the March quarter 2004, strong growth could moderate in the latter part of 2004 and 2005 as strong economic growth eases in the United States and China (the destinations for around 40 per cent of Korea’s exports). Economic growth in Korea is assumed to be around 5.0 per cent in both 2004 and 2005.

Outlook for western EuropeIn western Europe, economic performance has been weak. Economic activity increased year on year by 1.3 per cent in the Mach quarter 2004 in the euro area, following annual growth of 0.4 per cent in 2003.

Looking forward, economic growth in west-ern Europe is expected to strengthen, albeit at a slow pace. Partial indicators released recently support this assessment. In the euro area, indus-trial production increased year on year by 1.0 per cent in March 2004 and retail trade (in volume terms) rose year on year by 0.9 per cent in the same month. Despite subdued economic activity

and a signifi cant appreciation of the euro over the past two years, infl ation remains relatively high in the region. The index of consumer prices rose year on year by 2.0 per cent in April 2004.

The disappointing economic performance in the region refl ects sluggish growth in the major regional economies. In Germany, the largest economy in the region, economic activ-ity increased year on year by 1.5 per cent in the March quarter 2004, compared with a contrac-tion of 0.1 per cent in 2003. The main contribut-ing factor to the economic growth in the March quarter was stronger export performance, which more than offset weak domestic demand.

Partial indicators released recently suggest that economic activity could remain relatively weak in Germany. While industrial production increased year on year by 0.5 per cent in March 2004, retail sales, in volume terms, declined year on year by 0.7 per cent in the same month. Economic growth in Germany is assumed to be 1.3 per cent in 2004, before strengthening to 1.5 per cent in 2005.

In France, economic activity rose year on year by 1.7 per cent in the March quarter 2004, following weak growth of 0.2 per cent in 2003. Recent partial indicators suggest an improve-ment in consumer demand, with retail sales (in volume terms) increasing year on year by 2.9 per cent in March 2004. Construction activity, however, has weakened largely in response to a slowdown in housing starts in late 2003.

Movements in US dollar against yen and euro monthly ended May 2004

June2003

June2001

June1999

June1997

June1995

Euro/US$Yen/US$

0.8

0.9

1.0

1.1

50

75

100

125



Industrial production increased year on year by 1.5 per cent in March and the unemployment rate was at 9.8 per cent in March 2004, com-pared with 9.6 per cent in the same month a year earlier. Economic growth in France is assumed to be 1.5 per cent in 2004, before increasing to 1.8 per cent in 2005.

In the United Kingdom, economic activity has been stronger than other major regional econo-mies, with growth of 3.0 per cent in the March quarter 2004. Partial indicators released recently suggest that robust economic performance in the United Kingdom is likely to continue. Retail trade, in volume terms, increased year on year by 6.1 per cent in April 2004 and the unemploy-ment rate declined to 4.8 per cent in February 2004, compared with 5.1 per cent in the same month a year earlier. In response to strong eco-nomic growth, the Bank of England increased its base interest rate by 0.25 percentage points to 4.25 per cent in early May. Economic growth in the United Kingdom is assumed to increase to 3.0 per cent in 2004, before easing to 2.5 per cent in 2005.

For western Europe as a whole, economic growth is assumed to be 1.7 per cent in both 2004 and 2005. While economic growth is assumed to be stronger in the short term, sig-nifi cant downside risks cannot be ruled out. This would especially be the case if export demand were to weaken unexpectedly in the short term.

Economic growth in east and south east Asia

Economic growth in east and south east Asia strengthened in early 2004. In Singapore, for example, the economy expanded year on year by 7.3 per cent in the March quarter 2004, com-pared with growth of 1.1 per cent in 2003. In Chinese Taipei, Malaysia and Thailand, export performance increased markedly in response to stronger economic growth in the United States, Japan and China.

Despite the stronger economic activity in early 2004, there are several downside risks that could weaken economic performance in the region. In broad terms, if there were a signifi cant

easing of strong economic growth in the United States, Japan or China, there would be adverse fl ow on effects to the regional economies.

As discussed above, the recent increase in world oil prices, if it persists, also poses a downside risk to regional economic growth. In local currency terms, world oil prices over the fi rst fi ve months of 2004 were mostly around 20–25 per cent higher than the average of 2002 and 2003.

For non-OECD Asia, economic growth is assumed to be 6.8 per cent in 2004, before eas-ing to 6.1 per cent in 2005. This compares with 7.1 per cent in 2003.

In Chinese Taipei, the economy is estimated to have grown year on year by 6.3 per cent in the March quarter 2004, compared with growth of 3.2 per cent in 2003. Partial indicators released recently suggest that the economic recovery has gathered pace with industrial production, increasing year on year by around 16 per cent in March 2004. Despite stronger economic activ-ity, infl ationary pressures have been low, with consumer prices increasing year on year only by 0.9 per cent in April 2004.

Economic growth in Chinese Taipei is assumed to be 5.0 per cent in 2004, before easing to 4.5 per cent in 2005. While economic growth is assumed to strengthen in Chinese Taipei on year average terms, considerable uncertainty remains in this outlook. Given the close eco-nomic relationship between Chinese Taipei and

Economic growth in Asia

%

Chinese Taipei

KoreaChina

SingaporePhilippines

MalaysiaIndonesia

Thailand

2

4

6

8 2005

20032004



China, there would be signifi cant fl ow-on effects on Chinese Taipei’s economy if economic growth in China were to slow signifi cantly.

In Malaysia, export performance has strength-ened markedly, largely as a result of higher export demand and a competitive exchange rate (the value of Malaysia’s ringgit is pegged to the US dollar). The trade surplus rose to US$20.6 billion in March 2004 and industrial produc-tion increased year on year by around 11 per cent in February. Looking forward, relatively robust economic growth is expected to continue. Economic growth in Malaysia is assumed to be 5.5 per cent in 2004 and 5.0 per cent in 2005, compared with 5.2 per cent in 2003.

In Thailand, activity in the manufacturing sector remains robust mainly as a result of strong export demand from China and other south east Asian countries. Industrial production increased year on year by over 16 per cent in February 2004. In response to stronger economic activity, infl ationary pressures are gradually building, with consumer prices increasing year on year by 2.5 per cent in April, compared with an average rise of 1.8 per cent in 2003. Economic growth in Thailand is assumed to be around 6.8 per cent in 2004, before easing to 5.5 per cent in 2005.

For south east Asia as a whole, economic growth is assumed to be 5.5 per cent in 2004 and 4.6 per cent in 2005, compared with 4.5 per cent in 2003.

Economic prospects in AustraliaThe outlook for the Australian economy remains positive in 2004-05. Real gross domestic prod-uct increased year on year by 3.2 per cent in the March quarter 2004, compared with a rise of 3.9 per cent in the December quarter 2003. On an expenditure basis, the increase in the gross domestic product in the March quarter was driven by growth in household fi nal consumption spending and private nonfarm inventories. These were offset by negative contributions from net exports and gross fi xed capital formation.

Australia’s trade account, seasonally adjusted, recorded a defi cit of around $6.4 billion in the March quarter 2004, compared with a defi cit of $5.9 billion in the December quarter 2003. The

current account defi cit, seasonally adjusted, was around $12.0 billion, or equivalent to 5.9 per cent of gross domestic product, in the March quarter 2004. This compares with a defi cit of $10.4 billion, or 5.4 per cent of gross domestic product, in the same quarter a year earlier.

Economic growth in Australia is assumed to be 3.5 per cent in 2004-05, compared with an estimated 3.8 per cent in 2003-04. Despite an expected easing of housing activity, growth in consumer spending is likely to be maintained and business investment expenditure is expected to increase.

Assuming normal seasonal conditions will prevail in 2004-05, farm production, in volume terms, is forecast to increase by 1.1 per cent in 2004-05, following an estimated rise of 17 per cent in 2003-04. Crop production, in volume terms, is forecast to increase by 1.5 per cent in 2004-05, following a rise of 46 per cent in 2003-04. After a decline of 6.0 per cent in 2003-04, the volume of livestock production is forecast to increase slightly in 2004-05.

Infl ationAustralia’s infl ationary pressures have moder-ated with the consumer price index rising year on year by 2.0 per cent in the March quarter 2004, compared with an increase of 2.4 per cent in the December quarter 2003. Contributing most to the overall increase in the March quarter were rises in the cost of vegetables, automotive fuel and pharmaceuticals. Partially offsetting these

Australian economic indicators

%

Economic growth Inflation rate Prime lending rate

2

6

4

8

2002-03 2003-04 2004-05



increases were falls in the cost of overseas holi-day travel and accommodation, motor vehicles, and audio, visual and computing equipment.

Looking forward, other price indexes released recently suggest that infl ationary pressures are likely to remain relatively low in the near term. For example, the producer price index for fi nal commodities increased year on year only by 0.9 per cent in the March quarter 2003. While the domestic price component rose year on year by 4.1 per cent, this was largely offset by a decline of 13.6 per cent in the import component in the quarter.

Australia’s infl ation rate is assumed to be 2.0 per cent in 2004-05, compared with an estimated 2.3 per cent in 2003-04.

Australian exchange rateThe Australian dollar has exhibited consider-able volatility both on a trade weighted basis and against the US dollar during 2003-04. After appreciating signifi cantly during the fi rst eight months of 2003-04, the Australian dollar depreciated markedly between February and May 2004.

The Australian dollar was trading around US70c, ¥77 and 0.57 euro in early June 2004, compared with US80c, ¥84 and 0.62 euro in late February and US67c, ¥80 and 0.59 euro at the beginning of 2003-04. On a trade weighted basis, the Australian dollar was trading around TWI 61 in early June, compared with TWI 66 in late February and TWI 60 at the beginning of 2003-04.

The Australian dollar is estimated to average around TWI 61, US71c, ¥79 and 0.59 euro in 2003-04, compared with an average of TWI 53, US58c, ¥70 and 0.56 euro in 2002-03.

The signifi cant appreciation and then deprecia-tion of the Australian dollar refl ects, in large part, a number of signifi cant economic developments. There were three major factors that contributed markedly to the signifi cant appreciation of the Australian dollar in the fi rst half of 2003-04. One factor was a sharp weakening of the US dollar against freely fl oating international currencies, largely as a result of large increases in the current account and budget defi cits (as percentages of gross domestic product) in that economy.

The other factor that placed signifi cant up-ward pressure on the Australian dollar during that period was a widening in interest rate dif-ferentials between Australia and the major world economies, especially the United States. After remaining stable for most of 2003, Australia’s offi cial interest rate was raised by 0.25 percent-age points to 5.0 per cent in early November and again to 5.25 per cent in early December. Austra-lia’s prime lending rate was around 8.9 per cent in early 2004. This was markedly higher than commercial lending rates of around 4.0 per cent in the United States and 1.4 per cent in Japan.

Another factor that provided support for a higher value of the Australian dollar at that time was a signifi cant improvement in the outlook for world economic growth, and hence the prospects for a signifi cant increase in Australia’s terms of trade. In response to the improved world eco-nomic outlook, prices of many commodities on world markets rose sharply during late 2003 and early 2004.

Over the past few months, however, there has been a change in fi nancial market sentiment toward the outlook for world economic growth, and hence world commodity demand and prices. As discussed earlier, the world economic out-look has been adversely affected by the recent sharp increase in world oil prices and the pros-pect for an economic easing in China.

Expectations in fi nancial markets have also changed in relation to interest rate movements in Australia and the United States. Despite the increases in late 2003, interest rates in Australia are widely expected to remain relatively stable in the short term. In contrast, monetary policy in the United States is likely to be tightened ear-lier than previously expected, leading to higher interest rates in 2004-05.

Australia’s prime lending rates are assumed to average 8.9 per cent in 2004-05, marginally higher than an estimated 8.7 per cent in 2003-04. In the United States, the prime lending rates are assumed to average around 5.2 per cent in 2004-05, compared with an average of 4.0 per cent in 2003-04.

In preparing this set of commodity forecasts, the Australian dollar is assumed to remain rela-tively fi rm in the near term, but ease gradually



over the latter part of 2004 and early 2005, as US interest rates begin to increase and the strong pace of economic growth in China moderates. For 2004-05 as a whole, the Australian dollar is assumed to average around US68c and TWI 59.

While the Australian exchange rate is assumed to average lower in 2004-05, there is considerable uncertainty surrounding the out-look for the Australian dollar. This is especially so when account is taken of the fact that recent movements in international exchange rates have

been associated more with changes in fi nancial market sentiment than economic fundamentals.

At the moment, fi nancial markets seem to have placed signifi cant attention to possible interest rate increases in the United States. There remains a possibility that fi nancial market focus can, once again, shift back to the large budget and current account defi cits in the United States, leading to a signifi cant decline in the US dollar against freely fl oating international currencies, including the Australian dollar.

ReferencesABARE 2000, ‘Commodity overview: impact

of high oil prices’, Australian Commodities vol. 7, no. 4, December quarter, pp. 578–90.

Penm, J. and Fisher, B.S. 2003, ‘Economic over-view: prospects for world economic recovery in 2003’, Australian Commodities, vol. 10, no. 1, March quarter, pp 5–19.

International Energy Agency 2004, Analysis of the impact of high oil prices on the global economy, OECD, Paris, May.

McKibbin, W.J. and Stoeckel, A. 2003, The economic costs of a war in Iraq, Canberra, March (www.usembassy.at/en/download/pdf/econ_cost.pdf).

Australian exchange rate against US dollar

1984-85

1989-90

1994-95

2004-05

1999-2000

US$/A$

0.50

0.55

0.60

0.65

0.70

0.75

0.80

australiancommodities • vol. 11 no. 2 • june quarter 2004246

commod i t y o u t l o o k

COMMODITY OUTLOOKexport earnings to rise in 2004-05Richard Perry and commodity analysts

• Earnings from Australia’s commodity ex-ports are forecast to rise to around $93.4 bil-lion in 2004-05, compared with $82.1 billion on 2003-04.

• The value of farm exports is forecast to in-crease by 6 per cent to around $26.7 billion in 2004-05.

• Export earnings from mineral resources are forecast to increase by almost 19 per cent to $63.0 billion in 2004-05.

• The net value of farm production is forecast to decline by 16 per cent to $5.0 billion in 2004-05.

• The volume of Australian mine production is forecast to rise by 2.1 per cent in 2004-05.

Unit export returns to riseThe index of unit export returns for Australian commodities is forecast to increase by 9.1 per cent in 2004-05, following an estimated fall of 7.5 per cent in 2003-04. The forecast increase in 2004-05 mainly refl ects the effects of higher prices for minerals and energy commodities on world markets, and an assumed depreciation of the Australian dollar, especially against the US dollar.

For farm commodities, the index of unit export returns is forecast to decline by 1.6 per cent in 2004-05, following a fall of 9.1 per cent in the previous year. While world indicator

prices are forecast to average higher in 2004-05 for rice, sugar and dairy products, the effects are more than offset by forecast lower prices for wheat, oilseeds, cotton and wool.

For mineral resources, unit export returns are forecast to rise by 14 per cent in 2004-05, fol-lowing an estimated fall of 6.6 per cent in 2003-04. Unit returns for energy exports are forecast to rise by 17 per cent in 2004-05, after an esti-mated decline of 10 per cent in 2003-04. Unit

• Richard Perry • +61 2 6272 2093 • [email protected]

Major Australian commodity exports

Worldprice

Value Value Volume

Iron, steel

Copper

Wine

Nickel

LNG

Dairy

Wool

Beef, vealAluminium

Alumina

Wheat

Iron ore, pellets

Gold

Crude oil

Coal

$b 2 4 6 8 10 12 14 16

2004-05

2003-042004-05


commod i t y o u t l o o k

247

export returns for metallic minerals and metals are forecast to increase by 11 per cent in 2004-05, compared with a fall of 3.8 per cent in 2003-04. Higher prices on world markets are forecast for 2004-05 for most mineral resources.

Commodity export earnings to increaseEarnings from Australia’s commodity exports are forecast to be around $93.4 billion in 2004-05, compared with an estimated $82.1 billion in 2003-04. The forecast increase in commodity export earnings refl ects higher world minerals and energy prices, and the effects of an assumed lower Australian dollar on year average terms.

For farm commodities, export earnings are forecast to be $26.7 billion in 2004-05, increas-

ing from $25.2 billion in 2003-04. Agricultural commodities for which export earnings are forecast to increase in 2004-05 include wheat, canola, rice, sugar, wine and dairy products. For forest and fi sheries products, export earnings are forecast to be around $3.7 billion in 2004-05, largely unchanged from 2003-04.

The value of Australia’s minerals and energy exports is forecast to be $63.0 billion in 2004-05, compared with an estimated $53.1 billion in 2003-04. For energy commodities, export earnings are forecast to increase to $27.0 billion in 2004-05, from $21.4 billion in 2003-04. For metallic minerals and metals, export earnings are forecast to be $36.0 billion in 2004-05, a rise of 14 per cent from $31.7 billion in 2003-04.

Major indicators of Australia’s commodities sector

Change from 1999 2000 2001 2002 2003 2004 previous year

-2000 -01 -02 -03 -04 s -05 f 2003-04 2004-05% %

Exchange rates US$/A$ US$ 0.63 0.54 0.52 0.58 0.71 0.68 22.4 – 4.2Trade weighted index for A$ a index 55.2 50.1 50.6 53.0 61.4 59.0 15.1 – 3.3

Australian exports Unit returns b Farm index 100.0 120.0 131.0 126.9 115.3 113.4 – 9.1 – 1.6

Energy minerals index 100.0 127.6 127.5 122.4 109.7 128.4 – 10.4 17.0Metals and other minerals index 100.0 117.6 112.7 108.7 104.6 116.1 – 3.8 11.0

Total mineral resources index 100.0 121.9 119.0 114.6 107.0 121.5 – 6.6 13.6

Total commodities index 100.0 120.9 122.1 117.6 108.8 118.7 – 7.5 9.1

Value of exportsFarm A$m 24 122 29 469 31 136 26 796 25 204 26 699 – 5.9 5.9Forest and fisheries products A$m 3 564 3 981 4 104 3 961 3 737 3 723 – 5.7 – 0.4

Total rural A$m 27 686 33 449 35 239 30 758 28 941 30 422 – 5.9 5.1

Energy minerals A$m 18 422 25 678 25 411 24 161 21 430 26 969 – 11.3 25.8Metals and other minerals A$m 26 310 32 234 31 296 31 624 31 714 35 989 0.3 13.5

Total mineral resources A$m 44 732 57 912 56 707 55 784 53 144 62 958 – 4.7 18.5

Total commodities A$m 72 417 91 361 91 946 86 542 82 086 93 379 – 5.1 13.8

Australian productionVolume of farm production b index 110.5 110.8 114.7 90.8 105.8 107.0 16.5 1.1Net value of farm production A$m 4 997 7 711 10 922 2 721 5 990 5 033 120.2 – 16.0

Volume of mine production b index 106.5 113.2 113.7 114.7 113.4 115.8 – 1.1 2.1

a Base: May 1970 = 100. b Base: 1998-99 = 100. In this table the unit return indexes have been re-referenced from the base years used in the original data sources and in the statistics section of this publication. s ABARE estimate. f ABARE forecast.Note: ABARE revised the method for calculating production indexes in October 1999. The indexes for the different groups of commodities are calculated on a chained weight basis using Fishers' ideal index with a reference year of 1997-98 = 100. Sources: Australian Bureau of Statistics; ABARE.


ag r i c u l t u r e

AGRICULTUREimproved crop export performance forecast for 2004-05Peter Connell, Rohan Nelson and commodity analysts

• Assuming average seasonal conditions will prevail in 2004-05, farm production is forecast to increase by 1 per cent in 2004-05, following an estimated 17 per cent rise in 2003-04.

• While total crop production is forecast to in-crease by 2 per cent in 2004-05, the rebuilding of herd and fl ocks from the 2002-03 drought is expected to lead to a decline in the number of cattle and adult sheep slaughtered.

• Lower prices on international markets and continued herd and fl ock rebuilding are fore-cast to contribute to a fall of 16 per cent in the net value of farm production to $5.0 billion in 2004-05.

Seasonal outlookAggregate rainfall across most of Australia’s winter cropping regions during autumn was below average, except for northern New South Wales and southern Queensland, delaying the planting of winter crops. The seasonal outlook for June to August 2004 improved signifi cantly toward the end of May with the Southern Oscil-lation Index entering a rapidly rising phase. This means that there is a growing probability that average seasonal conditions will prevail across most of Australia’s cropping areas in 2004-05.

Improved seasonal conditions in 2004-05 will assist the ongoing process of herd and fl ock rebuilding following the drought of 2002-03. A dry autumn in many areas in the southern part of Australia has delayed herd rebuilding and

reduced the availability of pasture over winter. A growing likelihood of average seasonal con-ditions in 2004-05 improves the prospects for spring pasture growth, supporting forecasts of reduced turnoff.

Farm incomesLower prices on world markets and continued herd and fl ock rebuilding are forecast to con-tribute to a fall in both cropping and livestock incomes in 2004-05. In addition to weaker prices, production of grains and oilseeds is fore-cast to fall from the record harvest in 2003-04.

The net value of farm production in 2004-05 is forecast to be $5.0 billion, a decline of 16 per cent from an estimated $6.0 billion in 2003-04. Farm-er’s terms of trade (the ratio of prices received to prices paid) is forecast to fall by 3 per cent.

• Rohan Nelson • +61 2 6272 2017 • [email protected]

$b index

In 2003-04 dollars

Net value of farm production

1992-93

1995-96

1989-90

1998-99

2001-02

2004-05

2

4

6

8

10

Farmers’ terms of trade

Australian farm incomes

90

100

110

120

130



249

Farm production

Despite a forecast increase of 1 per cent in the volume of farm production, the gross value of farm production is forecast to fall by 1 per cent in 2004-05 to $35.7 billion.

Total crop production is forecast to increase by 1.5 per cent in 2004-05. Assuming average seasonal conditions prevail in 2004-05, grains and oilseeds production is forecast to be 40 mil-lion tonnes in 2004-05, a decline of 5 per cent from the record harvest in 2003-04. Production of other crops, including cotton, sugar cane and wine grapes, is forecast to increase in 2004-05.

The rebuilding of herds and fl ocks from the 2002-03 drought is expected to lead to a decline in the number of cattle and adult sheep slaugh-

tered in 2004-05. With sheep numbers increas-ing, wool production is forecast to increase by 3 per cent in 2004-05. However, given the strong export demand for lamb, production of lamb is forecast to rise by 7 per cent in 2004-05.

A gradual improvement in seasonal condi-tions in major dairying areas and a decline in domestic feed costs are expected to lead to a small increase in the dairy herd, with milk production forecast to increase by 2 per cent in 2004-05.

Farm pricesThe index of prices received by Australian farm-ers is forecast to fall by 2 per cent in 2004-05, following an estimated decline of 1.4 per cent

Major indicators of Australia’s farm sector


-2000 -01 -02 -03 -04 s -05 f 2003-04 2004-05% %

Gross value of farm production aCrops A$m 17 107 18 847 21 399 14 096 19 055 18 937 35.2 – 0.6Livestock A$m 13 310 15 771 18 334 17 404 16 934 16 750 – 2.7 – 1.1

Total A$m 30 418 34 618 39 733 31 499 35 989 35 686 14.3 – 0.8

Farm costs A$m 25 421 26 907 28 811 28 779 29 998 30 653 4.2 2.2Net cash income b A$m 8 168 10 131 15 229 7 493 9 551 8 829 27.5 – 7.6Net value of farm production c A$m 4 997 7 711 10 922 2 721 5 990 5 033 120.2 – 16.0

Value of farm exports (fob)Crops A$m 12 612 14 744 15 928 12 919 12 964 14 502 0.3 11.9Livestock A$m 11 510 14 725 15 207 13 877 12 240 12 197 – 11.8 – 0.4

Total A$m 24 122 29 469 31 136 26 796 25 204 26 699 – 5.9 5.9

Farm price indexes Prices received by farmers index 97.1 110.5 123.4 122.1 120.4 118.0 – 1.4 – 2.0Prices paid by farmers index 103.3 110.0 112.5 119.4 120.5 122.0 0.9 1.2Farmers’ terms of trade index 94.1 100.4 109.7 102.2 100.0 96.7 – 2.2 – 3.3

Volume of farm productionCrops index 114.6 113.0 121.1 77.6 113.1 114.8 45.7 1.5Livestock index 105.4 108.0 107.5 104.2 98.0 98.5 – 6.0 0.5Total farm index 110.5 110.8 114.7 90.8 105.8 107.0 16.5 1.1

Crop area and livestock numbersCrop area (grains and oilseeds) ’000 ha 20 634 21 098 20 630 19 621 20 452 20 622 4.2 0.8Sheep million 118.6 110.9 106.2 98.4 95.4 98.6 – 3.0 3.4Cattle million 27.6 27.7 27.9 26.5 26.3 26.9 – 0.8 2.3

a For a definition of the gross value of farm production see table 23. b Gross value of farm production less increase in assets held by marketing authorities and less total cash costs. c Gross value of farm production less total farm costs. s ABARE estimate. f ABARE forecast.Note: ABARE revised the method for calculating farm price indexes in October 1999. The indexes for the different groups of commodities are calculated on a chained weight basis using Fishers' ideal index with a reference year of 1997-98 = 100.Sources: Australian Bureau of Statistics; ABARE.



250

in 2003-04. An assumed depreciation of the Australian dollar (from an average of US71c in 2003-04 to US68c in 2004-05) is expected to partially offset the impact of forecast lower world prices for agricultural commodities.

With world grain production forecast to increase in 2004-05, world grain prices (de-nominated in US dollars) are forecast to ease in 2004-05. Despite an assumed decline in the value of the Australian dollar, the pool return for APW wheat is forecast to decline to $226 a tonne in 2004-05. Similarly, feed barley prices are forecast to fall by 3 per cent to $184 a tonne, while canola prices (delivered Melbourne) are expected to be 7 per cent lower at $380 a tonne.

World sugar prices are forecast to average higher in 2004-05, as a result of lower produc-tion in India and increased imports from the Russian Federation. Average export returns for Australian sugar are forecast to increase by 11 per cent in the year. In contrast, lower cotton prices on international markets are forecast to result in a decline of 12 per cent in average export returns.

Assuming a return to average seasonal condi-tions, increased wool production and continued weak international demand are expected to result in the Australian eastern market indica-tor price averaging around 780 cents a kilogram in 2004-05, down 5 per cent from 2003-04. A higher proportion of ewes, combined with bet-ter lambing rates, is expected to increase lamb

production and lower saleyard prices by 4 per cent to 360 cents a kilogram in 2004-05.

Beef prices are likely to be driven by devel-opments in the US and Pacifi c markets. Under the assumption that the bans on US beef imports (because of the discovery of bovine spongiform encephalopathy or ‘mad cow’ disease) by Japan and the Republic of Korea will be lifted by the end of October 2004, Australian saleyard cattle prices are forecast to fall by 2 per cent to 280 cents a kilogram in 2004-05.

Farm costsThe index of prices paid by farmers is forecast to rise by 1.2 per cent in the year. Prices of fuel and fertiliser and labor costs are forecast to increase, but there are expected to be declines in prices of fodder, feed, store and breeding stock.

Aggregate expenditure on farm inputs is fore-cast to increase by 2 per cent to $30.7 billion in 2004-05. Following a record grain harvest and improved pasture growth in 2003-04, the costs of fodder and feedstuffs are forecast to be lower in 2004-05.

Farm exportsThe value of Australian farm exports is forecast to increase by 6 per cent to $26.7 billion in 2004-05, largely owing to a 12 per cent rise in the value of crop exports. Given a satisfactory winter grains harvest, grain and oilseed shipments are forecast to increase by 18 per cent in 2004-05. Sugar export shipments are forecast to increase by 6 per cent. With world prices forecast to aver-age higher in 2004-05, the value of sugar exports is forecast to increase by 18 per cent. In contrast, export earnings from cotton lint are forecast to decline by 25 per cent in the coming year.

The value of livestock exports is forecast to fall slightly in 2004-05. Lower wool prices and export shipments are expected to lead to a decline in the value of greasy wool exports in 2004-05. Beef export earnings are forecast to fall, refl ect-ing lower export shipments and weaker export prices. Earnings from dairy exports are expected to rise in response to higher domestic milk pro-duction and stronger international prices.

index

1997-98 =100

1992-93

1995-96

1989-90

1998-99

2001-02

2004-05

20

40

60

80

100

120 Prices received

Australian farm sector

Production index


c r op s

CROPSrecord Australian grain export volumes likely in 2004-05David Barrett, Peter Berry, Leanne Lawrance, Simon Want, Richard Perry, Cameron Bosch and Peter Connell

The world wheat indicator price (US hard red winter wheat, fob Gulf ports) in 2004-05 is forecast to decline by US$8 a tonne to US$153 a tonne in response to a recovery in wheat pro-duction in key wheat producing and exporting countries of the European Union (25 members), India, the Russian Federation and the Ukraine.

However, there is still some uncertainty about the production potential of crops in the major exporting countries of Australia, Canada and the United States because of the current dry sea-sonal conditions in these countries.

World production increasing stronglyWorld wheat production is forecast to be the sec-ond highest wheat crop on record at 599 million

tonnes, 46 million tonnes higher than production in 2003-04.

Seasonal conditions in the European Union, the Russian Federation and the Ukraine have been favorable, with winter sown crops suffer-ing below average winterkill.

Less than ideal seasonal conditions have been experienced so far in the United States, Canada and Australia. The late arrival of rainfall in Canada and Australia has delayed the sowing of crops, while in the United States dry conditions prevail in much of the major hard red winter wheat growing areas. Forecasts of seasonal con-ditions in the United States is for dry conditions to remain across parts of the winter wheat grow-ing area, while for spring sown crops conditions

• Leanne Lawrance • +61 2 6272 2028 • [email protected]

World wheat prices

2003-04

2004-05

2002-03

2000-01

1998-99

1994-95

1996-97

US$/t

150

250

100

200

Wheat outlook

2002 2003 2004 %

-03 -04 s -05 f change

World Production Mt 567 553 599 8.3Consumption Mt 600 587 602 2.6Closing stocks Mt 164 128 125 – 2.3Trade Mt 104 101 99 – 2.0Price US$/t 160 161 153 – 5.0

AustraliaArea ’000 ha 11 045 12 401 12 509 0.9Production kt 10 058 24 920 23 246 – 6.7Exports kt 10 851 14 911 18 160 21.8– value A$m 3 109 3 423 4 249 24.1APW pool return A$/t 258 226 224 – 0.9

See back tables for details. s ABARE estimate. f ABARE forecast.

Wheat


c r op s

252

are forecast to improve across much of the growing area. In Canada the seasonal forecast for wheat growing regions is mixed, with below average rainfall forecast until August, and above average rainfall forecast for the three months to November.

Durum wheat production in 2004-05 is fore-cast to increase by nearly 1 million tonnes to 38 million tonnes as there have been good seasonal conditions so far in the major durum produc-ing countries of the European Union and north Africa.

Consumption driven by demand for feed wheatWorld wheat consumption is forecast to increase by 15 million tonnes to 602 million tonnes in 2004-05, largely because of an increase in the use of wheat for feed — which is forecast to increase by 10 per cent to 101 million tonnes. A poor harvest in the European Union in 2003-04 forced feed users to increase the use of coarse grains in feed last season. With increased wheat available in 2004-05, EU feed users are expected to revert to their previous usage patterns.

The use of wheat for food purposes is forecast to increase by less than 1 per cent in 2004-05. As a result, per person consumption of wheat for food in 2004-05 will again decline, continuing the downward trend that began in 1999-2000. Consumption per person has fallen from 70.6 kilograms in 1999-2000 to a forecast 63.6 kilo-grams in 2004-05. The decline in food wheat

consumption has been a result of changing dietary habits and an increase in the consump-tion of higher protein foods and meat.

Wheat trade continues to fallAlthough world wheat trade in 2004-05 is fore-cast to fall by 2 million tonnes to 99 million ton-nes, there is expected to be a sharp increase in wheat imports by China in that year.

China’s imports are forecast to increase in 2004-05 to 7 million tonnes, as production con-tinues to decline (as farmers move to producing oilseeds and cotton crops) and milling quality wheat supplies need to be maintained. However, wheat imports in the European Union, the Rus-

sian Federation and the Ukraine are set to decline in 2004-05 as increased domestic production reduces imports in 2004-05.

Trade in durum wheat is forecast to decline by 0.6 million tonnes to around 6 million tonnes in 2004-05, because of the expected increase in production in the world’s two largest durum importing regions, the European Union and north Africa. Declining trade in durum wheat in 2004-05 is likely to reduce the premiums received by Australian growers in 2004-05.

World wheat stocks fallingWorld wheat stocks in 2004-05 are forecast to fall by 2 per cent to 125 million tonnes, the

Wheat in China

Mt2000-01

2001-02

2002-03

2004-05

2003-04

20

40

60

80

100

Production

Mt

–2

2

4

6

8Stocks Net trade (imports – exports)

right axis

Wheat production

UkraineRussiaIndiaEU 25

Mt2004-05

2002-03

2000-01

1998-99

25

50

75

100

125


c r op s

253

lowest recorded since the 1981-82 season. The decrease in recent years largely refl ects an assumed rundown in stocks in China.

In response to falling grain production, low stocks and an expected increase in wheat imports, the Chinese Government in February 2004 an-nounced measures to promote grain production. Included in the changes were direct subsidies to grain farmers, lower agricultural taxes and fi nan-cial payments to farmers to purchase machinery or use high quality seed. These changes, however, are unlikely to signifi cantly affect China’s wheat production in 2004 as winter wheat was planted before the announcement

Balanced against the decline in stocks in China, stocks in the fi ve major exporters — Argentina, Australia, Canada, the European Union and the United States — are forecast to increase by 7 million tonnes in 2004-05, as production increases with an assumed return of more favorable seasonal conditions. An increase in wheat stocks held by the major exporters is indicative of the forecast improved supply con-ditions underpinning the forecast of lower world wheat prices in 2004-05.

Australia production still highA record area of 12.5 million hectares, up 1 per cent on 2003-04, is forecast to be sown to wheat in 2004-05. Early season rainfall in northern New South Wales and southern Queensland has been adequate and wheat plantings in these states are forecast to increase by 5 per cent and 18 per cent respectively from the area planted in 2003-04.

A forecast return to average seasonal condi-tions in 2004-05 is expected to reduce yields to around average levels after an exceptional sea-son in 2003-04. Forecast below average seasonal conditions and low soil moisture levels in South Australia and Victoria are likely to reduce yields in those states. Australian wheat production in 2004-05 is forecast to fall by 7 per cent from the record harvest in 2003-04 to around 23 million tonnes in 2004-05.

Australian exports continue to riseAustralian wheat exports are forecast to increase by 22 per cent to 18.2 million tonnes in 2004-

05 (July–June), the second highest volume of exports on record. The record harvest in 2003-04 and the forecast high production in 2004-05 will allow a continued recovery in export perfor-mance following the drought in 2002-03.

Increased production in the European Union and the Ukraine is likely to result in Australia facing increased competition in lower quality wheat export markets in 2004-05. The uncer-tainty over production in Canada and the United States could increase the opportunity for Austra-lian exports of higher quality milling wheat in 2004-05.

PriceThe pool price for APW (Australian premium white) wheat is forecast to average $224 a tonne in 2004-05, a 1 per cent reduction from the 2003-04 price.

The forecast increase in the volume of exports in 2004-05 will result in the value of wheat exports rising strongly — by 24 per cent to $4.2 billion. An assumed depreciation of the Aus-tralian dollar will also contribute to increased export earnings in the year.

Coarse grainsWhile world consumption of coarse grains is forecast to remain high in 2004-05, an expected increase in world production is likely to place downward pressure on world prices. The world indicator price for coarse grains, the US corn price (fob, Gulf), is forecast to decline by 2.5 per cent to average US$116 a tonne in 2004-05 (October–September) — still well above the average prices in 2001-02 and 2002-03.

Corn is the predominant world coarse grain produced and traded, and developments in the world corn market have a major infl uence on the market prospects for other coarse grains.

In 2003-04, Australia was the world’s biggest barley exporter, accounting for around a third of world barley trade. Australia’s main export markets for feed barley include the Middle East, Japan and Chinese Taipei, while China is the principal market for malting barley.

• Peter Connell • +61 2 6272 2042 • [email protected]


c r op s

254

World barley prices are forecast to decline by around 6 per cent in 2004-05 in response to higher production in the key producing and exporting countries, particularly the European Union and the Ukraine. Australian barley prices are forecast to fall by 2–3 per cent — to average $220 a tonne for malting barley, $184 a tonne for feed barley.

World production to increaseWorld coarse grains production is forecast to increase by nearly 4 per cent to a record 930 million tonnes in 2004-05. Favorable seasonal conditions, combined with relatively high grain prices, are expected to lead to increased produc-tion in the European Union, the United States, China and Argentina.

In the United States, the world’s largest corn producer and exporter, production in 2004-05 is forecast to exceed the record in 2003-04. The area planted to corn in 2004-05 is forecast to increase in response to higher prices and favor-able planting conditions. Rainfall and warm weather during April and May enabled the corn crop to be planted earlier than usual. This is expected to lead to well above average yields as the crop is likely to pollinate before the hottest weather and also allow the crop to be harvested before the onset of cooler autumn weather.

Coarse grains production in the European Union is forecast to rise sharply in 2004-05. This is expected to refl ect a return to average seasonal

conditions and an increase in the area planted in response to higher prices. EU corn production is forecast to rise by 30 per cent to 56.8 million tonnes.

In early 2004 the Chinese Government intro-duced subsidies to increase grain production — however, these are directed at increasing the area planted to wheat and rice rather than corn. Therefore, despite relatively high corn prices, the area planted to corn is forecast to increase only marginally in 2004-05. Refl ecting better yields, corn production in China is forecast to increase to 119 million tonnes in 2004-05 — still well below the record production of the late 1990s.

Assuming a return to average seasonal condi-tions in 2004-05, Argentina’s corn production is forecast to recover to a level of the past two to three years, at around 16 million tonnes.

EU barley production is forecast to increase by 5 per cent to 58 million tonnes in 2004-05, with winter barley production recovering in Ger-many, France and Poland. A milder winter and better soil moisture conditions in the Ukraine is expected to lift production by 25 per cent to 8.5 million tonnes. Canadian barley production is forecast to be 12.2 million tonnes in 2004-05, similar to that in 2003-04. Australian production is forecast to fall in 2004-05 to around 7.8 mil-lion tonnes, 9 per cent below the record produc-tion of the previous year.

World corn and barley prices

2003-04

2004-05

2001-02

1998-99

1992-93

1995-96

US$/t

150

175

75

125

100

200

Corn

Barley

Coarse grains outlook

2002 2003 2004 %

-03 -04 s -05 f change

WorldProduction Mt 871 897 930 3.7Consumption Mt 901 941 945 0.4Closing stocks Mt 165 122 107 – 12.3US corn price US$/t 106 119 116 – 2.5 (fob Gulf, Sept–Aug)

AustraliaArea ’000 ha 5 716 5 740 5 714 – 0.5Production Mt 6.8 13.0 12.1 – 6.9Exports Mt 3.7 5.5 5.5 0.0– value A$m 1 015 1 256 1 241 – 1.2Feed barley price A$/t 230 190 184 – 3.2Malting barley price A$/t 280 225 220 – 2.2



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Consumption and trade

World consumption of coarse grains is forecast to remain relatively unchanged at 945 million tonnes in 2004-05. The United States, the Euro-pean Union and China account for just over half of world coarse grains consumption.

Increased domestic and export demand for US corn led to a strengthening of US corn prices in the second half of 2003-04. Domestic consumption and exports are forecast to remain relatively high in 2004-05. This is expected to be supported by further strong growth in ethanol production, while feed use by the US livestock sector is forecast to be marginally lower in 2004-05. Despite an expected increase in poul-try production, lower numbers of cattle on feed in 2004-05 and a decline in pig meat production in 2005 is expected to reduce the consumption of corn used for feed in the United States.

In the European Union, forecast lower prices for feed wheat as a result of increased availabil-ity is expected to displace the use of some coarse grains in livestock rations in 2004-05. As a result the consumption of coarse grains in the Euro-pean Union is expected to fall in 2004-05. Simi-larly, in the Russian Federation there is expected to be greater use of feed wheat at the expense of coarse grains in livestock rations.

Assumed lower economic growth in China in 2004-05 is expected to slow the rate of increase in demand for livestock products. Although feed grain use is forecast to increase in 2004-05 it is expected to be at a slower rate than has occurred in recent years. Despite this, coarse grains con-sumption is expected to exceed production, resulting in a further fall in stocks. In view of these expected developments, China’s exports of corn are forecast to fall to around 4 million tonnes — well down on the 12 million tonnes of corn exported in 2002-03.

In the developing countries of Asia a further increase in livestock production is expected to boost feed grain demand in 2004-05. However, the relatively high price of imported corn will mean that end users are likely to seek alterna-tives such as feed wheat.

World barley consumption is forecast to decline in 2004-05 mainly as a result of reduced

feed use in the European Union. However, Saudi Arabia, the largest importer of feed barley, is expected to increase its imports by around 8 per cent to 6.5 million tonnes. This refl ects higher use in sheep rations, as imports of live sheep are forecast to increase in 2004-05.

Further growth in China’s beer market is expected to lead to increased demand for malt-ing barley imports. However, the expansion in malting barley use has slowed in recent years, refl ecting maturing markets in some urban cen-tres and the use of malt substitutes, such as corn and rice.

Australian production to fallThe area sown to winter coarse grains is forecast to fall marginally in 2004-05, refl ecting lower plantings in southern Australia. In general there has been a lack of good planting rains across south eastern Australia, with light falls in late May enabling some plantings to take place. The late break to the season means that some grow-ers are expected to have planted cereals at the expense of canola and some pulses.

The lack of subsoil moisture in southern and cental New South Wales, the Mallee in Victoria and the Eyre Peninsula in South Australia is likely to reduce the yield potential of the crops sown in these areas. In most areas of northern New South Wales and southern Queensland, favorable sea-sonal conditions have enabled timely planting of the barley crop, with the potential for above average yields in these areas.

Oilseeds

World supplies to growWorld production of oilseeds is forecast to rise by around 13 per cent to 378 million tonnes in 2004-05 as a result of an increase in area planted and an expected return to average yields in the major producing regions.

Prices are expected to decline in response to greater availability of oilseeds and oilseed products and weaker demand growth. The world soybean indicator price (cif Rotterdam ex US

• Peter Berry • +61 2 6272 2120 • [email protected]


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Gulf) is forecast to fall by 12 per cent to average US$290 a tonne in 2004-05. With world markets dominated by soybeans — and with Australian production largely exported — lower world soybean prices are expected to push Australian canola prices lower this year.

Expected strong growth in soybean produc-tion in the major producing countries is forecast to result in world production rising by 17 per cent to around 223 million tonnes in 2004-05. The world’s three largest exporters of soybeans — the United States, Brazil and Argentina — collectively account for around 93 per cent of world trade. In the United States, the world’s largest producer of soybeans, strong early plant-ings indicate that the area planted to soybeans will be near record levels in 2004-05. Together with an expected recovery in yields (after two years of dry conditions), this is expected to result in well above average soybean production in the United States this season.

In Brazil and Argentina the area planted to soybeans is expected to expand again in 2004-05 in response to high local prices and strong export demand. Soybean production is expected to increase this year with a return to average yields after dry conditions and fungal problems reduced yields last season.

Increased production of high oil crops such as sunfl ower and canola is also expected in 2004-05, with production expected to improve after the adverse weather conditions encountered by some major producing countries last season. Assuming

average growing conditions, increased produc-tion is expected in the major canola producing areas of Canada, China and Europe. A notable exception will be Australia, where dry conditions are expected to result in reduced canola produc-tion this year. As a result, world canola produc-tion is forecast to rise by around 8 per cent, to around 42 million tonnes in 2004-05.

Growth in vegetable oil use to slowOver the past decade, strong consumer and industrial demand for vegetable oils has resulted in world consumption of oilseeds growing by an average of around 4 per cent a year. In 2003-04, consumption grew by 6.5 per cent, largely owing to strong demand in some of the major develop-ing countries in Asia. However, with assumed slower economic growth in the United States, Japan, China and India (all major consumers of oilseed products), growth in world demand for oilseeds is forecast to weaken in 2004-05.

China, in particular, has been a major driver of increased world consumption of oilseeds in recent years, accounting for around a third of world soybean imports in 2003. With economic growth in China assumed to slow in 2004-05, the rate of growth in consumption (and hence imports) of oilseeds and oilseed products is also expected to slow. This is refl ected in recent reports of cancellations and postponements of

World soybean producersLargest three

2004200119981992 1995

Mt

40

60

20

United States

Brazil

Argentina

Oilseeds outlook

2002 2003 2004 %

-03 -04 s -05 f changeWorld Production Mt 330 336 378 12.5Consumption Mt 323 344 372 8.1Closing stocks Mt 29.6 21.9 27.9 27.4Soybeans indicator price US$/t 245 330 290 – 12.1

AustraliaTotal production kt 1 501 2 272 2 398 5.5– winter kt 876 1 659 1 522 – 8.3– summer kt 626 613 875 42.7CanolaProduction kt 841 1 622 1 484 – 8.5Exports (Nov–Oct) kt 517 1 241 1 090 – 12.2Price (Nov–Oct) A$/t 437 410 380 – 7.3 (delivered Melbourne)



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soybean shipments into China, indicating slower growth in imports this year.

Oilseed meal demand continues to growWorld growth in demand for oilseeds is also being driven by the increasing use of oilseed meals in animal feeds. This growth is strongly linked to income growth in the major developing countries of Asia, particularly China. Increas-ing incomes have resulted in dietary changes in these countries, with greater consumption of pig and poultry meats that use oilseed meals intensively in feeds. In addition, the production of pig and poultry meat is shifting from scattered backyard operations to large scale industrialised production. Typically, pig and poultry feeds have a higher oilmeal content than feeds used in the beef feedlot sector. Growth in meat con-sumption (and oilseed meals in animal feeds) will continue to increase as income levels rise in the major developing countries of Asia.

With growth in world production of oilseeds and vegetable oils expected to exceed growth in consumption, world stocks of oilseeds (cur-rently at low levels) are expected to increase in 2004-05.

Widespread dry conditions to reduce Australian productionDry conditions prevailed in April and May over most of the major winter oilseeds growing areas of Victoria, South Australia and southern New South Wales. Low soil moisture has limited planting opportunities for winter oilseeds in these growing regions. However, the reduced area sown to canola in these regions has been more than offset by increased plantings in north-ern New South Wales. As a result, the area sown to canola in Australia in 2004-05 is estimated to be up by 4 per cent from last year’s crop at around 1.05 million hectares. Assuming average sea-sonal conditions, yields in 2004-05 are expected to decline from the highs achieved last season. As a consequence, production in 2004-05 is fore-cast to be 1.5 million tonnes — down more than 8 per cent from last year’s record crop.

The average price received by Australian growers for the 2004-05 canola crop is forecast to fall by around 7 per cent to $380 a tonne. With

lower canola prices and a forecast fall in produc-tion, the gross value of the Australian canola crop is estimated to fall by 15 per cent to around $499 million in 2004-05.

CottonThe world raw cotton price (Cotlook ‘A’ index) is forecast to fall by 10 per cent to average US63c/lb in 2004-05. This forecast decline largely refl ects an expected increase in world supply that outweighs the forecast rise in world demand.

Production in China is of particular importanceIn China, the world’s largest importer of cotton, a substantial increase in production of cotton is forecast to lead to lower import demand in 2004-05. China accounted for around 25 per cent of world cotton trade in 2003-04. As a result of expected lower Chinese import demand, world trade is forecast to decline by 8 per cent in 2004-05, with world stocks increasing by 11 per cent to 7.9 million tonnes.

World raw cotton availability (both produc-tion and stocks) is forecast to increase by nearly 4 per cent to 29.4 million tonnes in 2004-05. Assuming a return to average seasonal condi-tions, increased plantings and yields in China are expected to be the main drivers of a signifi cant increase in global production in 2004-05 (up 9

• Simon Want • +61 2 6272 2090 • [email protected]

World cotton prices

2003-04USc/lb

40

60

80

100

2004-05

2001-02

1998-99

1992-93

1995-96

Cotlook 'A' index


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per cent to 22.3 million tonnes). In addition to higher production in China, plantings and yields are expected to increase in India and Pakistan.

China’s raw cotton production is forecast to increase by more than 20 per cent to a record high of around 6 million tonnes in 2004-05. Plantings of cotton in China is reported to have exceeded 5.8 million hectares, surpassing the previous record of 5.1 million hectares planted in 2003-04.

US production to fallRaw cotton production in the United States is forecast to fall by 4 per cent to 3.8 million tonnes in 2004-05. US production last fell in 2001-02. An increase in the relative price of substitute crops, such as soybeans and corn, has reduced the incentive for US farmers to plant cotton. Despite this forecast decline, the United States is expected to remain the world’s second largest producer of raw cotton, and the largest exporter,

accounting for around 40 per cent of world raw cotton trade.

World consumption driven by income growthWorld consumption of raw cotton is expected to increase by 1.4 per cent to 21.6 million tonnes in 2004-05. Stronger world income growth is expected to lead to increased demand for textiles and apparel, and hence higher derived demand for raw cotton. A recent signifi cant rise in world crude oil prices, if it persists, could also increase the prices of competing synthetic products, lead-ing to substitution toward cotton based textiles and apparel.

Chinese demand for raw cotton to growCotton consumption in China is forecast to be around 7.3 million tonnes in 2004-05, an increase of 4.3 per cent from the previous year. While there is uncertainty about the economic outlook for China, domestic demand for textiles and apparel (and hence demand for raw cotton) is expected to be reasonably fi rm in 2004-05. Export demand for Chinese textile products is also forecast to remain strong, especially from the United States and other developed coun-tries.

China is expected to remain the world largest importer of raw cotton in 2004-05, followed by Turkey, Indonesia, Pakistan and Thailand. These fi ve importing countries accounted for over 50

WTO ruling on US cotton subsidiesIn April 2004, the World Trade Organisation (WTO) ruled in favor of Brazil in its case against the United States on cotton subsidies. US cotton subsidies, which go to about 25 000 farmers mostly in the Mississippi Delta, Texas and California, have drawn signifi cant com-plaints from Brazil. The United States is the world’s largest cotton exporter, and according to Brazil, US cotton subsidies have contributed to a signifi cant increase in US exports, leading to markedly lower cotton prices on world markets. Cotton exports from the United States increased as a share of world raw cotton trade from 26 per cent in 1996 to 40 per cent in 2003.

Details of the WTO ruling on this case have not yet been made public. Without knowing exactly what the WTO panel concluded, it is diffi cult to analyse the implications for cotton production in the United States and the impact on world cotton prices. Much would also depend on the reaction of the United States and the success of a likely subsequent appeal to the WTO. In preparing this set of cotton forecasts, the recent WTO ruling is assumed not to signifi -cantly affect US cotton production in 2004-05.

Cotton outlook

2002 2003 2004 %

-03 -04 s -05 f change

World Production Mt 19.2 20.4 22.3 9.3Consumption Mt 21.5 21.3 21.6 1.4Closing stocks Mt 7.9 7.1 7.9 11.3Stocks to consumption ratio % 37.0 33.4 36.8 10.2Cotlook ’A’ index USc/lb 55.7 70.0 63.0 – 10.0

Australia Area harvested ’000 ha 224 194 303 56.2Lint production kt 386 313 498 59.1Exports kt 596 420 357 – 15.0– value A$m 1 152 855 641 – 25.0



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per cent of world raw cotton trade in 2003-04. Increasingly, textile production is being relo-cated from developed countries to China, India and Pakistan because of their relatively low labor costs. Consumption of raw cotton in India and Pakistan (the world’s second and third larg-est cotton consumers respectively) is forecast to increase by 2.6 per cent and 2.3 per cent respec-tively in 2004-05.

US demand for raw cotton continues to fallConsumption of raw cotton in the United States is forecast to fall by almost 8 per cent to 1.3 mil-lion tonnes in 2004-05. This forecast decline continues a fi ve year trend that has resulted in raw cotton consumption in that country falling by 40 per cent since 1998-99.

Consumption in the European Union is fore-cast to decline by over 9 per cent to 695 000 tonnes in 2004-05. As a result of the phasing out of the Multifi bre Agreement (MFA), increased imports of textiles and apparel are expected to place downward pressure on demand for raw cotton in many developed countries, including the United States and the European Union, as domestic support of textile industries is expected to be reduced and low cost textile producing nations, such as China, India and Pakistan, are

likely to benefi t from an expansion in market share in labor intensive textiles.

Australian production to riseGood rainfall in southern Queensland and parts of northern New South Wales during March 2004, combined with increased water levels in key storages, has led to an improvement in harvest expectations for 2003-04. Similarly for 2004-05, higher water storages and expected increased allocations have provided the basis for an improved outlook for cotton production.

Australian cotton lint production is estimated to be around 313 000 tonnes in 2003-04, higher than previously expected. The good rainfall dur-ing March boosted yields in areas of northern New South Wales and Queensland. Dryland crop yields in the Darling Downs, for example, were over six bales per hectare compared with average yields of two to three bales per hectare.

The area planted to cotton is forecast to increase by 56 per cent to 303 000 hectares in 2004-05. Despite this expected increase, the forecast area planted is still around 17 per cent below the average achieved in the fi ve years ended 2002-03. This highlights the importance of climatic conditions and reliable water avail-ability for cotton production.

Although some northern New South Wales and Queensland producers have full on-farm storages as a result of the rains earlier in the year, the major-ity of cotton regions have relatively low water storages in catchments for 2004-05. As shown in the graph, Australian cotton growers are, on aver-age, faced with water availability of only around 35 per cent of capacity, or 1.65 gigalitres, as of 11 June 2004.

Without signifi cant rainfall, expected water allocations based on current water storage will not be suffi cient for raw cotton production to exceed the average of 580 000 tonnes achieved in the fi ve years ended 2002-03. To achieve higher cot-ton production than currently forecast, producers require signifi cantly more water than is currently available for the 2004-05 season.

Water availability important for cotton production

Water storage levels in key cotton regions

GL

New South Wales(other cotton areas)

South Queensland and north New South Wales

1000

2000

3000 June 2004

July 2003

Full capacity

Source: SunWater, DLWC, 11 June 2004


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Lower production in 2003-04 is expected to reduce the volume of Australian exports by 15 per cent to 357 000 tonnes in 2004-05. Despite lower export volumes, the high fi bre quality of the 2003-04 crop is likely to ensure that Austra-lian raw cotton will continue to receive a price premium in 2004-05.

Sugar

Brazilian production tempered by lower Indian, Thai productionIn 2003-04, weather related production prob-lems in India and Thailand caused world sugar supply to fall. With production in India and Thailand forecast to remain low, average prices in 2004-05 are forecast to rise.

World production in 2004-05 is forecast to increase by around 2 per cent to 147.2 million tonnes (raw value), up 3.3 million tonnes from 2003-04, as weather conditions are assumed to return to average in key producing countries.

World sugar consumption is projected to rise by 1.5 per cent to 147.5 million tonnes.

The indicator world price for raw sugar (New York no. 11, spot, fob Caribbean) is forecast to rise by 5 per cent to average US8.0c/lb in 2004-05 — up from an average of US7.6c/lb in 2003-04.

Supply

The most signifi cant change infl uencing global supply–demand in 2003-04 has been a consid-erable downgrade in estimated production in India. Dry conditions, irrigation water shortages and insect pests in Gujurat, Maharashtra and Karnataka have been responsible for poorer cane growing conditions and lower production. Pro-duction in India in 2003-04 is estimated to have fallen by around 6 million tonnes from the pre-ceding year. In 2004-05, with a return to average climatic conditions, but with the impact of insect pests persisting and cane areas falling because of cane farmer payment problems, Indian produc-tion is forecast to rise only moderately.

Dry conditions in Thailand, particularly in the north eastern region of the country, have com-bined with recent policy changes on guaranteed cane price to result in lower cane production in 2003-04. In 2004-05 the cane pricing policy that limits payment of the guaranteed price to a capped volume of cane is likely to remain in place. Assuming average climatic conditions, production is expected to rise as cane farmers set production targets that assure them of fi lling established quotas. Consequently, cane produc-tion is likely to exceed the 65 million tonnes cap established by the Royal Thai Government, pos-sibly by several million tonnes.

Offsetting partially the lower production forecast for India are upward revisions to the

• Richard Perry • +61 2 6272 2093 • [email protected]

Sugar outlook

2002 2003 2004 %

-03 -04 s -05 f change

World Production Mt 148.1 143.9 147.2 2.3Consumption Mt 141.9 145.3 147.5 1.5Closing stocks Mt 66.2 64.8 64.5 – 0.5Change in stocks Mt 6.2 – 1.4 – 0.3Price USc/lb 8.0 7.6 8.0 5.3

Australia Area ’000 ha 423 415 420 1.2Production kt 5 461 5 022 5 249 4.5Ave pool return A$/t 277 228 255 11.8Exports kt 3 975 3 801 4 019 5.7– value A$m 1 179 962 1 131 17.6


Destination of Australian cotton exportsShare of export volume

%

5

10

15

20

25

302002-03

1995-96

ChinaOtherAsia

ThailandJapanKoreaIndonesia


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forecasts from the world’s dominant producer, Brazil. A forecast new record cane crop in 2004-05 — up by 7–10 per cent on 2003-04 — is expected to go a long way to offsetting produc-tion declines in other countries.

Ethanol production in Brazil in 2004-05 is expected to rise slowly relative to the rise in sugar production. Despite the recent spike in oil prices and devaluation of the Brazilian currency that has improved the competitiveness of Brazil-ian ethanol in key export markets like the United States and European Union, mills are expected to favor the production of sugar over ethanol in 2004-05. Export demand for ethanol is forecast to fl atten as oil prices gradually fall from cur-rent high levels. Domestic demand for ethanol is likely to increase, but not at the same pace at which cane supplies are increasing.

DemandModerately higher world prices are unlikely to have a noticable impact on levels of consumed sugar. In 2004-05, world sugar consumption is forecast to be 147.5 million tonnes (raw value), up 1.5 per cent against 2003-04.

In India, high domestic prices caused by lower domestic production will likely have a slowing impact on sugar consumption growth. High domestic prices, however, will encourage the release of sugar from stocks.

Import demand from the Russian Federation is forecast to increase in 2004-05 in response to strong economic growth, high internal prices and sluggish increases in domestic production that have not kept pace with growth in domes-tic demand. Stronger market access barriers have considerably raised domestic prices. The incentive to hold stocks in Russia at a time of high domestic prices has fallen, causing stocks to drop substantially. The relatively small stock reserves that remain are insuffi cient to meet con-sumption. Given the slow response of domestic production to high prices, and the rundown of stocks, it is likely that strong demand for sugar will be met by duty free imports of refi ned sugar from some former Soviet republics and from imports of raw sugar from the world market.

In China, demand for sugar is expected to increase as the artifi cial sweetener, saccharine,

continues to be replaced. However, increased domestic sugar production is expected to largely meet the increase in domestic demand.

Prospect for sugar trade with ChinaOpportunities for increased sugar exports to China appear limited because of trade barriers and China’s potential sugar production capac-ity.

Sugar cane production accounted for almost 90 per cent of China’s sugar production, of 11.5 million tonnes in 2002-03. Production is con-centrated in China’s southern provinces where total area has increased by an average of over 3.3 per cent a year over the past ten years. Few alter-natives to cane exist in the regions where it is grown, although provincial procurement prices infl uence production decisions. With current yields of around 60 tonnes per hectare compared with export oriented producer yields such as Australia’s of greater than 85 tonnes per hectare, there is scope to raise production by introducing higher yielding varieties. China’s capacity to expand sugar production is illustrated by the fact that, all else being equal, a one tonne increase in cane yield per hectare would provide enough sugar to meet a 1.7 per cent increase in China’s sugar consumption.

China’s per person sugar consumption has grown by almost 19 per cent over the past three years from 6.9 kilograms in 2001 to almost 8.2 kilograms in 2003. Much of this increased con-

China sugar

2001 20031997 1999

kg

2

4

6

8

US$/t

100

200

300

400

China domestic price

World price

Consumption per person


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262

sumption may be explained by a reduction in the domestic price. Over the three years to 2003 the domestic price for grade one granulated sugar fell by 31 per cent.

Consumption in China has been forecast to increase to around 9.4 kilograms per person by 2010. This implies an increase of around 1.9 million tonnes in total sugar consumption. However, given import constraints, it is likely that most increases in consumption will be met from increased domestic production rather than imports.

China imported almost 850 000 tonnes of sugar (raw value) in 2003, 17 per cent of which originated in Australia. China has a tariff quota system, which from January 2004 is 1.7 mil-lion tonnes in volume with an in-quota tariff rate of 15 per cent. However, the bound ‘most favored nation’ tariff is 50 per cent from Janu-ary 2004. Enterprises that are able to obtain an import licence are state owned enterprises, central enterprises with state reserve functions, enterprises with good import records for general trade, and sugar enterprises with the capacity to process 545 tonnes daily. In 2003 an average 38 per cent price premium for domestic sugar existed relative to the world price, with an in-quota tariff rate of 20 per cent. Despite a net price premium of around 18 per cent, 47 per cent of quota was fi lled. This suggests that, in addi-tion to the tariff system, a signifi cant barrier to trade exists through import licence restrictions.

Despite the prospect of sugar demand growth in China, barriers to imports, combined with China’s potential to increase production, limit the likely trade growth between Australia and China. Barriers to imports are imposed through tariffs and import licence restrictions, while scope for sugar cane yield increases underlie China’s sugar production potential.

AustraliaOverall, conditions leading up to the recently commenced Australian harvest have been bet-ter than was the case last year. Cane cut for crushing is forecast to rise by around 1 million

tonnes. Assuming average sugar yields and CCS (commercial cane sugar) of around 13.6, Austra-lian raw sugar production in season 2004-05 is forecast to rise by 4.5 per cent to over 5.2 million tonnes (raw value).

Farmers in several key cane growing regions in Australia are facing ongoing moisture chal-lenges. In the far north of Queensland, around Cairns, unusually heavy rainfall has caused waterlogging in some locations, and the lack of sunshine has adversely affected the laying of sucrose within the cane. Meanwhile, dry weather continues to plague the crops of cane growers in the central region of Queensland, around Mackay, following the more severely drought affected 2003-04 season.

In the minor sugar producing state of New South Wales, conditions have been good, and a record or near record crop is likely.

Queensland rainfall – deviation from historical average 1 March to 31 May 2004

Cairns

Mackay

Brisbane

600mm 400mm 200mm 100mm 50mm 25mm 0–25mm–50mm–100mm–200mm


l i v e s t o c k

LIVESTOCKlower Australian dollar to boost livestock export returnsDale Ashton, Brad James, Daniel McDonald and Stephen Apted

Livestock export returns have been boosted in recent months by depreciation of the Austra-lian dollar against the US dollar. However, the ongoing effects of the drought in some regions have continued to affect Australia’s livestock industries. In particular, an expected recovery in national livestock numbers has been slowed over recent months as increased livestock turnoff has followed dry seasonal conditions and poor pas-ture quality throughout much of south eastern Australia.

Wool

Prices to average lower in 2004-05Continuing the trend of declining wool prices observed over the past year, the Australian east-ern market indicator for wool continued to dip in the June quarter 2004, averaging an estimated 1.5 per cent lower than in the March quarter. Despite lower wool supplies over the past year, prices have fallen because of weaker demand as processors have substituted away from wool in favor of lower priced synthetic fi bres.

This has been particularly important in China, which is a large processor of both wool and syn-thetic fi bres. While the eastern market indicator fell by 35 per cent in Australian dollar terms dur-ing the course of the 2003 calendar year, strong appreciation of the Australian currency relative to the US dollar (and hence the Chinese currency as it is pegged to the US dollar) meant that prices

remained high in user currency terms. The recent depreciation of the Australian dollar has meant much lower wool prices in US dollars (and there-fore in Chinese currency terms) since February 2004, consequently improving the competitive-ness of wool relative to synthetic fi bres.

Although synthetic fi bre prices tend to be relatively unresponsive to changes in oil prices, recent rises in oil prices have resulted in higher prices for synthetic fi bres. Coupled with stron-ger overall demand for textiles and apparel — as world economic growth improves — higher synthetic prices are expected to further improve wool’s competitiveness and result in stronger demand for raw wool in the short term. Temper-ing the outlook for raw wool demand growth, however, is the prospect of slower economic growth in China.

Wool eastern market indicator

c/kg clean

USc/kg

Ac/kg

400

600

800

1000

Monthly, ended May 2004

Dec DecSep SepJunMar Mar2003 20042002• Dale Ashton • +61 2 6272 2368 • [email protected]


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Nevertheless, a forecast increase in wool production in 2004-05 is expected to result in weaker prices for the year as a whole, with the Australian eastern market indicator forecast to average around 780 cents a kilogram.

In March the Australian Wool Innovation Production Forecasting Committee forecast that shorn wool production would rise by over 4 per cent to 470 000 tonnes in 2004-05. This forecast increase is based on an assumption of improved seasonal conditions during the wool growing season, partly offset by the likelihood of greater emphasis on prime lamb production.

While wool prices have generally fallen across all micron categories, prices for 19 micron and fi ner wools have risen so far in 2004. The widening gap between prices for fi ner and medium wools has largely been driven by changes in supply. In many wool growing regions, seasonal conditions in 2003-04 were signifi cantly improved over the previous year (despite many areas still being in drought), resulting in less ‘hunger fi ne’ wool. This situa-tion is likely to continue over the coming year if seasonal conditions remain favorable and fi ne wool prices are expected to edge higher relative to medium wool prices in 2004-05.

China, a key player for Australian woolOver the past decade China has emerged as the world’s largest producer of textiles and apparel — including wool. As well as being a major

consumer of textiles and apparel, China is one of the world’s largest exporters of textile prod-ucts. As China’s capacity for producing fi nished textile and apparel products has expanded, there has been substantial growth in China’s domestic capacity to produce raw fi bres. Nevertheless, China remains a major importer of raw and semiprocessed wool, with Australia being the leading supplier of apparel type wools.

China’s large and growing population and rising disposable incomes in urban areas are particularly important to wool consumption. A cold climate in the northern parts of the country is conducive to the wearing of wool for warmth. As well, changes in consumer lifestyle and apparel preferences mean that there is a growing urban formal wear market associated with rising per person incomes and a trend toward western style formal fashions.

From record volumes in 2000, Australian shipments of wool to China nearly halved to around 157 000 tonnes in the 2003 calendar year. Despite this decline, China has remained Australia’s largest market for shipments of greasy and semiprocessed wool, accounting for 37 per cent of Australian wool exports in calen-dar 2003.

Prospects of a slowdown in economic growth in China greatly increase the downside risk to Australian wool prices in the short term. Over

World micron price indicatorsMonthly, ended May 2004

JulyJan Jan JulyJuly Jan2003

Jan20042001 2002

c/kg

400

600

800

1000

1200

1400

30µ

28µ

25µ

23µ21µ

19µ

Wool outlook

2002 2003 2004 %

-03 -04 s -05 f change

Sheep numbers million 98 95 99 4.2Sheep shorn million 118 102 104 2.0Wool production (greasy)– shorn kt 499 450 470 4.4– other kt 48 45 41 – 8.9– total kt 547 495 511 3.2Total closing stocks – weight (greasy) kt 105 119 114 – 4.2Wool exports (balance of payments basis)– volume (gr. equiv.) kt 505 484 503 3.9– value A$m 3 545 2 751 2 583 – 6.1Market indicator (clean) – eastern Ac/kg 1 049 819 780 – 4.8– western Ac/kg 1 032 793 755 – 4.8Auction price (gr.) Ac/kg 682 532 507 – 4.7



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the medium term, however, China is expected to remain a signifi cant buyer of Australian wool for domestic consumption and for processing and subsequently re-exporting fi nished and semi-fi nished wool products. In particular, China is expected to continue placing increased emphasis on producing higher quality products from fi ner types of wool.

Dairy

World overviewInternational spot prices for dairy products, particularly butter and cheese rose substantially during 2003-04, largely because of stronger demand and with world supplies constrained by drought in Australia and New Zealand. Over the coming year, the growth in international spot prices is expected to ease because of rising world supplies, with prices forecast to average marginally higher for the 2004-05 fi nancial year as a whole.

New Zealand, the world’s second largest exporter of dairy products, is expected to be the main source of increase in world supplies in 2004-05 because of improved seasonal condi-tions. Despite the recent expansion of the Euro-pean Union to twenty-fi ve countries, little change in total supply is expected in the short term as dairy producers in the new entrant countries will

need to adjust to meet quality requirements set by the European Union.

Among the major traded dairy products, stronger demand for cheese — particularly in Japan and the European Union — has been the main factor contributing to recent rises in world cheese prices. Continued strong demand and only modest increases in supplies is forecast to result in average international spot prices for cheese in 2004-05 averaging around 5 per cent higher than in 2003-04.

After many years of stagnant prices, world butter prices increased sharply in 2003-04, ris-ing by 34 per cent since July 2003. Improved demand in the Russian Federation, the world’s largest importer of butter, and the Middle East have been the main drivers of stronger world butter prices. With demand expected to remain strong for 2004-05, international spot prices for butter are forecast to average around US$1650 a tonne, 3 per cent higher than in the previous year but substantially higher than the average of US$1186 a tonne in 2002-03.

International spot prices for milk powders also increased during 2003-04, although not to the same extent as the increases for cheese and butter. International spot prices for both skim and wholemilk powder have increased by 15 per cent since July 2003. Although price rises have not been as strong as those for cheese and butter, demand for milk powders, particularly in south east Asia and the EU vealer sector, were key fac-

World dairy product prices Quarterly

June2001

June2002

DecDec June2003

June2004

DecDec June2005

2003-04US$/t

1500

2000

2500

1000

Cheese

Butter

Skim milk powder

• Brad James • +61 2 6272 2089 • [email protected]

Australian wool exports to China

A$b

Value

1991 1993 1995 1997 1999 2001 2003

0.5

1.0

1.5

2003-04ktgreasy equivalent

100

200

300


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tors behind the recent rises in world milk pow-der prices. While demand is expected to remain strong, increased supplies are forecast to result in monthly spot prices easing from current highs over the coming year. Nevertheless, interna-tional spot prices for milk powders are forecast to average 1–2 per cent higher in 2004-05.

Australian export returns to improveAfter dropping by an estimated 1.5 per cent in 2003-04, Australian farm gate milk prices are forecast to rise by 2.2 per cent in 2004-05 to average 27.3 cents a litre, as higher world prices and an assumed lower Australian dollar relative to the US dollar boost export returns.

Following a fall in Australian milk produc-tion in 2002-03, production for the ten months to April 2004 was down by a further 3.0 per cent as the drought continued to have a negative impact on pasture quality and irrigation water availabil-ity. Assuming an improvement in seasonal con-ditions and small increases in both cow numbers and milk yields, Australian milk production is forecast to rise by over 2 per cent in 2004-05, to 10.3 billion litres.

Dairy developing in ChinaFor many years, consumption of milk in China was largely the domain of babies, young chil-

dren and the elderly. More recently, the Chinese Government has recognised the health benefi ts attributed to milk and has encouraged and sup-ported the development of the dairy industry. For dairy products, China’s commercial milk production is still in its infancy — per person consumption of dairy products averaged 6.9 kilograms in 2000 compared with a world aver-age of 46.4 kilograms per person.

The dairy industry in China has a very short history but it has been growing rapidly. In 2000, China produced 11 billion litres of milk (similar to Australian production). Chinese milk produc-tion has increased by 35 per cent in the past two years as a result of recent high world prices and the relative profi tability of dairying compared with other agricultural production in China. Chinese milk producers have been expanding domestic milk production primarily by increas-ing herd size.

Dairy cow numbers in China have increased by an average of 210 000 cows a year between 1980 and 2000; however, low growth in yields (currently around 1800 litres per cow) have slowed the rate at which total milk production has increased.

Australian exports to China growing — including exports of dairy cowsIn recent years as part of Chian’s herd build-ing process, large numbers of live dairy cattle have been exported from Australia to China. For example, in 2003 around 34 700 live dairy cattle valued at A$57 million were exported from Aus-tralia to China.

Demand for whey powder in China is expected to continue increasing, as a lower priced substi-tute for skim and wholemilk powder. Austra-lian exporters are expected to continue to take advantage of this growing market by increasing exports of whey powder (a byproduct of cheese production) to China. Australian exports of skim and whole milk powders to China are likely to increase as demand for milk powders in China is expected to continue to grow with the increas-ing requirements for the rapidly expanding food processing sector and increasing requirements for milk powders for children and infant for-mula.

Dairy outlook

2002 2003 2004 %

-03 -04 s -05 f change

Cow numbers ’000 2 068 2 048 2 062 0.7Milk yields L/cow 4 993 4 932 5 014 1.7ProductionTotal milk ML 10 326 10 101 10 338 2.3– market sales ML 1 916 1 952 1 953 0.1– manufacturing ML 8 410 8 149 8 385 2.9Butter kt 149 131 133 1.5Cheese kt 368 366 385 5.2WMP kt 170 158 160 1.3SMP kt 215 207 210 1.4Milk price Ac/L 27.1 26.7 27.3 2.2Value of exports A$m 2 378 2 015 2 179 8.1World pricesButter US$/t 1 186 1 600 1 650 3.1Cheese US$/t 1 775 2 342 2 450 4.6SMP US$/t 1 587 1 825 1 850 1.4



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Beef and veal

Developments in the United States — Australia’s second largest export market for beef and veal — play an important part in determining returns to Australian beef producers. Despite embar-goes on US exports to most countries because of the discovery of a single case of BSE ( bovine spongiform encephalopathy or ‘mad cow’ dis-ease) that resulted in increased supplies to the domestic market, lower US beef production and stronger domestic demand for beef in the United States resulted in rising prices for imported manufacturing beef in 2003-04. Strong demand is also expected to lead to increased US imports of manufacturing beef in 2004-05, particularly from New Zealand and Uruguay.

While Australian exports to the United States are estimated to have increased in 2003-04, Aus-tralia’s ability to signifi cantly increase supplies to the US market is currently constrained by lower cattle numbers as a result of the drought and reduced turnoff as producers begin rebuilding herds. Overall, Australian exports to the United States are likely to be slightly lower in 2004-05.

In Japan and the Republic of Korea — Aus-tralia’s other two major export markets — con-tinued embargoes on US beef have contributed to stronger demand for imports of Australian

beef. In response, Australian exports to Japan and Korea were 31 per cent and 39 per cent higher respectively over the fi rst fi ve months of 2004 compared with the same period in 2003. Australian producers also increased the number of cattle on feed in response to increased export demand, with total numbers up 2 per cent from December 2003 to March 2004.

With embargoes on US exports assumed to be lifted by the end of October 2004, the number of Australian cattle on feed for export markets is expected to fall over the coming months as turnoff rises and new placements fall.

Forecast lower prices in Australia’s main export markets in 2004-05 as supplies increase are expected to translate into lower export re-turns in Australian dollar terms and, hence, lower Australian saleyard prices. However, an assumed depreciation of the Australian dollar will partially offset the effects of lower interna-tional prices.

Outlook for the United StatesUS prices for all beef grades increased signifi -cantly over the fi rst half of the 2003-04 fi nancial year as a result of strong domestic demand and lower supply brought about by reduced domes-tic production and trade restrictions on Canadian imports. Over the second half of 2003-04, trade bans on US beef exports resulted in extra prod-uct being diverted onto the domestic market

Beef and veal outlook

2002 2003 2004 %

-03 -04 s -05 f change

Cattle nos million 26.5 26.3 26.9 2.3– beef million 23.4 23.3 23.8 2.1Slaughterings ’000 9 228 8 699 8 320 – 4.4Production kt 2 073 1 992 1 958 – 1.7Exports (shipped weight)– to United States kt 350 352 348 – 1.1– to Japan kt 277 313 305 – 2.6– to Korea, Rep. of kt 82 77 75 – 2.6– total kt 902 845 828 – 2.0– value A$m 3 756 3 675 3 512 – 4.4Live cattle ’000 968 519 550 6.0Price– Saleyard a Ac/kg 256 287 280 – 2.4– US import b USc/kg 202 239 236 – 1.3– Japan import c USc/kg 322 413 388 – 6.1

a Dressed weight equivalent. b Frozen cow 90CL (cif). c Australian chilled grassfed full sets (c&f). See back tables for details. s ABARE estimate. f ABARE forecast • Daniel McDonald • +61 2 6272 2092 • [email protected]

Australian beef exportsMonthly, ended May 2004

kt shipped weight

20

60

40

J JM2003 2004

MA A S O N DJ F M MAJ F

United StatesJapanKorea


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and lower prices for fed beef. However, prices for manufacturing beef — which accounts for the majority of Australian exports to the United States — have not been signifi cantly affected by the trade bans. This is because the bulk of US exports consist of high quality grain fed beef that is not a perfect substitute for manufactur-ing beef. Rather, there is some complementarity between the product types, as imported cow beef is typically blended with fatty trimmings from grain fed beef to produce hamburger patties.

Continued strong demand in the United States, combined with lower domestic beef production, particularly of cow beef, resulted in

prices for imported manufacturing beef (frozen cow beef, 90CL, cif) rising by around 8 per cent over the second half of 2003-04. For 2004-05, manufacturing beef prices in the US market are forecast to ease slightly as supply increases.

Prospects for north Asian marketsImport prices in the north Asian market increased in the fi rst half of 2003-04, in response to stronger demand and lower supplies in the Pacifi c Rim market as a whole. Following the ban on US beef in north Asian markets, import prices for Australian beef increased sharply in the second half of 2003-04 as embargoes on US

Over the past decade there have been shifts in Chi-nese diets toward increased consumption of meat and an increasing importance of animal production in China’s agriculture. In the livestock sector, pork production remains the primary component of China’s livestock industries.

Meat is produced in China primarily for domes-tic consumption, and has tended to be concentrated in small scale subsistence farms using traditional technology. China’s high population density and competition for arable land is likely to limit the extent to which livestock industries can grow in the future, although there have been some increases in intensive livestock feeding activities in recent years.

It is likely that demand for animal products will continue to increase because of population growth, rising incomes of an increasingly urban popula-tion, and current policies that are supportive of animal production and consumption.

China is the world’s largest producer of pig meat and sheep meat, producing 45 million and 2 million tonnes respectively in 2003, and is the sec-ond largest producer of poultry meat (10 million tonnes) after the United States. Beef production in China was 6.1 million tonnes in 2003, making that country the fourth largest beef producer after the United States, Brazil and the European Union.

China imports large quantities of low quality poultry meat cuts, such as wings and drumsticks, which are primarily sourced from the United States. China imported 547 000 tonnes of poultry meat in 2002.

China did not import pig meat in signifi cant quantities until the mid-1990s when demand for pig meat in China increased rapidly. China’s pig meat imports reached 237 000 tonnes in 2002. Sheep meat and beef imports are small, at around 56 000 and 11 000 tonnes respectively in 2002.

Increased opportunities may arise over the medium term to increase meat exports to China. As China’s economy continues to expand and urbanisation increases, demand for animal pro-teins is expected to grow. With population and resource constraints limiting expansion of China’s meat production, demand for imported meat, par-ticularly pig meat, is expected to grow over the medium term to satisfy increasing demand. West-ern dietary infl uences are also likely to contribute to the growing demand for animal protein in China, particularly for beef.

Australia’s meat exports to ChinaAt present China is a relatively small, price sensi-tive market for Australian meat exports. In 2003, China was the destination for 4200 tonnes, or less than 1 per cent, of Australia’s total beef exports. Around 7300 tonnes of sheep meat were exported to China in 2003, mainly frozen lamb, representing 3 per cent of total sheep meat exported. Pig meat exports to China of 1400 tonnes in 2003 accounted for 2 per cent of Australia’s total volume exported. Around 4400 tonnes of poultry meat was exported to China in 2003, accounting for 21 per cent of the total volume exported by Australia in that year.

Meat production in China


l i v e s t o c k

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beef reduced supply. Because the United States exported grain fed beef to Japan and Korea, price increases since the ban have been greater for Australian grain fed beef rather than for grass fed product because of the perceived closer sub-stitution with banned US product. For instance, import prices in Japan (in US dollars) for Austra-lian short fed full sets increased by an estimated 20 per cent in the second half of the year, while prices for grass fed full sets increased by an esti-mated 16 per cent.

Assuming embargoes on US product are removed by the end of October 2004, increased supplies (because of the re-entry of US exports) are forecast to result in lower prices in north Asia. While prices are expected to remain fi rm in the near term, a sharp fall in price could occur once US product re-enters the market. Japanese import prices for Australian beef are forecast to fall by around 6 per cent in 2004-05.

Australian supply to contract as herds rebuiltAssuming seasonal conditions improve over the coming year, the Australian cattle herd is fore-cast to increase by 2 per cent to 26.9 million by June 2005.

Over the next year, Australian beef produc-tion will be constrained by lower overall cattle numbers, a drought affected calf crop, and the retention of stock to rebuild herd numbers. As a result, slaughterings are forecast to decline by

over 4 per cent in 2004-05. An increase in aver-age slaughter weights, with assumed better for-age conditions as well as a smaller proportion of cows and calves making up slaughter numbers, will partially offset lower slaughterings, with production forecast to fall by less than 2 per cent in 2004-05.

Sheep meat

Australian mutton production and exports fallingLower supplies and uncertainty about the timing and extent of rain in areas affected by drought are the key factors driving Australian sheep meat markets in the short term. Although wool prices are forecast to average lower in 2004-05, total returns from sheep production — both meat and wool — are expected to remain favorable enough to encourage producers to begin rebuild-ing sheep fl ocks, contingent on there being a sustained improvement in seasonal conditions.

In the short term, the most likely avenue for fl ock rebuilding will be the retention of adult sheep from sale for slaughter. As a result, adult sheep slaughter is forecast to fall further in 2004-05 to around 8.9 million and mutton pro-duction is forecast to fall by nearly 18 per cent to 184 000 tonnes.

… but lamb production and exports risingProvided that seasonal conditions improve over the coming winter and spring, lambing rates and marking percentages are expected to be slightly higher than in 2003-04. Despite a smaller over-all fl ock, a higher proportion of ewes, combined with better lambing rates, is expected to result in some increase in the number of lambs marked.

Continuing strong demand for lamb in domestic and export markets has resulted in lamb prices remaining high. In particular, strong demand for Australian lamb in the United States has been important. US lamb imports increased by 16 per cent in 2003, as imported product fi lled the shortfall created by declining US domestic supplies — 56 per cent of US lamb

Import prices for Australian beef

2005June

2004June

2003June

2002June

2001June

Quarterly, ended June 2005

USc/kg2003-04

100

200

300

400

US frozen cow 90 CL (cif)

Grassfed full sets in Japan (c&f)

• Dale Ashton • +61 2 6272 2368 • [email protected]


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imports were sourced from Australia and 44 per cent from New Zealand. Australia’s shipments of lamb to the United States increased 11 per cent in 2003.

US supplies accounted for 60 per cent of US lamb consumption in 2003, down from 65 per cent in 2002. Despite changes in market share, however, the overall size of the US lamb market is forecast to remain steady at around 152 000 tonnes.

In response to relatively good returns in 2003-04, the number of lambs produced for slaughter in 2004-05 is forecast to rise. Consequently,

increased lamb slaughter is forecast to result in saleyard lamb prices falling by around 4 per cent to 360 cents a kilogram in 2004-05.

In contrast, low supplies — as producers withhold sheep for fl ock rebuilding — and strong demand for mutton from the Middle East are forecast to result in sheep prices remaining high over the short term.

Adult sheep slaughter in 2003-04 fell by an estimated 19 per cent, although slaughter num-bers increased in the latter months of the year as seasonal conditions deteriorated in south east Australia. With the number of adult sheep slaughtered forecast to fall further in 2004-05, saleyard sheep prices are forecast to rise by 1.5 per cent in the coming year.

Sheep meat outlook

2002 2003 2004 %

-03 -04 s -05 f change

SlaughteringsSheep ’000 13 657 11 023 8 916 – 19.1Lamb ’000 16 870 16 375 17 383 6.2ProductionMutton kt 268 223 184 – 17.5Lamb kt 329 324 346 6.8Exports (shipped weight)Mutton kt 162 131 126 – 3.8Lamb kt 102 117 126 7.7– to United States kt 26 28 31 10.7– value $m 956 955 927 – 2.9Live sheep ’000 5 843 3 962 3 900 – 1.6Saleyard pricesMutton Ac/kg 167 197 200 1.5Lamb Ac/kg 338 375 360 – 4.0


Australian lamb exports to the United States

kt shipped weight

10

30

20

2004-05

2002-03

2000-01

1998-99

1996-97

1994-95


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MINERALS AND ENERGYChina’s role important to world marketsAndrew Maurer and commodity analysts

• Prices for all major minerals and energy commodities are forecast to rise in 2004, with support from higher demand associated with stronger global industrial activity.

• In 2005, however, prices for most com-modities are forecast to fall as producers expand output in response to the higher prices of 2004 and growth in demand slows, particularly in China.

• However, not all commodity prices will follow this profi le. Limited additional supply availability in the nickel and coal markets are expected to lead to further, albeit modest, increases in prices in 2005.

• Australian export earnings from minerals and energy exports are forecast to rise signifi -cantly in 2004-05, as a result of forecast in-creases in volumes shipped and world prices and an assumed weaker Australian dollar.

World outlook

Policy changes in China a key to future developmentsThe most signifi cant development in world min-erals and energy markets over the past quarter has been the Chinese Government’s introduc-tion of measures to moderate economic growth. These measures directly target investment in the aluminium and steel industries along with other sectors of the economy that consume signifi cant quantities of major minerals and

energy commodities — namely construction and car manufacturing. As the policy measures are aimed at both production and consumption, the net impact on China’s trade and world prices will depend on the magnitude of the policy effect on each sector.

For metals other than aluminium and steel, the government measures are targeting demand more so than supply. This is expected to lead to an increase in exports of the commodities where China is a net exporter (zinc and lead, for exam-ple) and a decrease in imports of the commodi-ties where China is a net importer (copper and nickel, for example). This will place downward pressure on world prices for these commodities. However, the impact on China’s exports and world prices will be moderated by reductions in the value added tax (VAT) rebates for exports. The VAT rebates on exports have fallen from 15 per cent to 8 per cent respectively for zinc and lead, from 17 per cent to 0 per cent and 5 per cent for copper anode and cathode respectively and from 13 per cent to 0 per cent for nickel anode.

In the case of aluminium and steel, both demand and supply have been directly targeted. On the demand side, China’s policy measures are expected to reduce activity growth in key end use industries. This, in turn, will lead to lower growth in domestic demand for steel and aluminium. On the supply side, the measures aimed at reducing investment in new capacity are likely to slow the rate of increase in production. In addition, the increase in regulated electricity prices is likely

• Andrew Maurer • +61 2 6272 2134 • [email protected]



to lead to higher production costs for all metal producers. As electricity accounts for a relatively higher share of costs in aluminium production, the adverse effect on China’s aluminium produc-tion is expected to be signifi cant.

As electricity costs are a lower proportion of the total cost of producing steel, higher power prices are likely to have less of an impact on growth in steel output. Further, as China is a net importer of steel, changes in the VAT rebates on exports are also likely to have a relatively low impact on steel production. The other policy measures are targeted more at investment in new steel making capacity. As a result, the net impact on consumption is expected to be greater than the impact on production and China’s net imports of steel are forecast to fall in the short term.

For both aluminium and steel, the reduction in production growth is expected to lead to lower growth in import demand for the key raw materi-als of alumina and iron ore.

Price outlook

Energy markets mixedPrices of the two main energy commodities — oil and thermal coal — are forecast to move in opposite directions in 2005. While both mar-kets are currently characterised by a degree of capacity constraint, relatively lower forecast growth in world oil consumption will allow oil producers to more easily meet growth in demand in 2005. As a result, forecast increases in world oil production in 2005 are expected to lead to higher stocks and lower prices. In contrast, as thermal coal production is expected to be unable to increase above consumption in 2005, further reductions in stocks and higher contract prices are in prospect for 2005.

Downward pressure on prices of metals in 2005Outcomes in the steel making raw materials markets of metallurgical coal and iron ore will also be driven largely by the ability of produc-ers around the globe to increase output. The forecast slowing in demand growth for iron ore and metallurgical coal combined with increased

supply availability are expected to place down-ward pressure on prices for these commodities as well as on ocean freight rates in 2005.

Gold prices are also forecast to fall in 2005. The negative impact on prices of assumed higher US interest rates and an associated stronger US dollar and lower producer dehedging are fore-cast to more than offset the positive effects of an increase in world fabrication consumption and a decline in world mine production.

ABARE’s leading indicator of the LMEX series (the London Metal Exchange’s index of base metal prices) points toward increases in this basket of prices over the coming six months in year on year terms. In 2005, however, pros-pects for most base metal prices are forecast to weaken, in line with lower assumed world growth in industrial production.

Growth rates in world consumption of the four main base metals (aluminium, copper, nickel and zinc) are expected to be relatively similar rates in 2005. Aluminium, copper and nickel consumption is forecast to rise by around 3 per cent, while consumption of zinc is fore-cast to grow by around 2 per cent in 2005. These rates are all signifi cantly lower than the forecast growth rates for consumption in 2004, refl ect-ing the assumed slowing of growth in global industrial activity in 2005. Despite the broadly similar consumption prospects, markedly dif-ferent production conditions are forecast to lead to different changes in world stocks of these

LMEX series and leading indicator

1993 20011995 1997 1999 2003

Monthly percentage change year on year, ended May 2004

–40

–20

%

20

40

60 LMEX

Leading indicator



metals. As a result, price outcomes are forecast to vary widely.

Aluminium and zinc stocks are forecast to rise by the relatively modest amounts of around 3 per cent and 4 per cent respectively in 2005. The availability of spare production capacity for these metals is expected to enable output to increase more than consumption. As a result, moderate price declines are forecast for 2005 — around 4 per cent for aluminium and 5 per cent for zinc.

With substantial increases in copper capac-ity expected in 2005, stocks are forecast to rise more rapidly than for other metals. As a result, the forecast decline in prices in 2005 is relatively higher, at 11 per cent.

… with nickel being an exceptionThe outlook for the nickel market in 2004 is in stark contrast to the other main base metals. The

lack of spare production capacity in 2004 and 2005 will constrain production increases and stocks are forecast to be decline from levels that are already historically low. As a result, nickel prices are forecast to rise in 2005, by 4 per cent, following a forecast increase of almost 40 per cent in 2004.

Australian minerals and energyThe total volume of Australian mine production is forecast to increase marginally in 2004-05, with lower output of energy commodities being more than offset by higher production of met-als and other minerals. The volume of energy minerals production is forecast to fall by 1.3 per cent in 2004-05, with lower output of crude oil and uranium more than offsetting higher produc-tion of coal, gas and uranium. In contrast, mine output of metals and other minerals is forecast

Major indicators of Australia’s mineral resources sector


-2000 -01 -02 -03 -04 s -05 f 2003-04 2004-05Australian exports % %Unit returns aEnergy minerals index 100.0 127.6 127.5 122.4 109.7 128.4 – 10.4 17.0Metals and other minerals index 100.0 117.6 112.7 108.7 104.6 116.1 – 3.8 11.0

Total mineral resources index 100.0 121.9 119.0 114.6 107.0 121.5 – 6.6 13.6

Value of exportsEnergy minerals A$m 18 422 25 678 25 411 24 161 21 430 26 969 – 11.3 25.8Metals and other minerals A$m 26 310 32 234 31 296 31 624 31 714 35 989 0.3 13.5

Total A$m 44 732 57 912 56 707 55 784 53 144 62 958 – 4.7 18.5

Mine productionVolume– energy index 108.7 113.5 114.5 112.3 107.3 105.9 – 4.5 – 1.3– metals and other minerals index 103.7 112.9 112.6 117.6 120.0 126.7 2.0 5.6Total index 106.5 113.2 113.7 114.7 113.4 115.8 – 1.1 2.1Gross value A$m 42 942 55 596 54 439 53 553 51 019 60 439 – 4.7 18.5

New capital expenditure b A$m 5 468 5 491 7 250 8 989 10 200 11 100 13.5 8.8

Exploration expenditurePetroleum A$m 723 1 044 883 995 1 056 na 6.1 naMetallic and other minerals A$m 676 684 640 733 760 na 3.8 na

Total A$m 1 399 1 727 1 523 1 728 1 816 na 5.1 na

a Base: 1997-98 = 100. In this table the unit return indexes have been re-referenced from the base years used in the original data sources andin the statistics section of this publication. b Mining industry (ANZSIC subdivision B) only. s ABARE estimate. f ABARE forecast. na Not available.Note: ABARE revised the method for calculating production indexes in October 1999. The indexes for the different groups of commodities are calculated on a chained weight basis using Fishers' ideal index with a reference year of 1997-98 = 100.Sources: Australian Bureau of Statistics; ABARE.



to rise by 5.6 per cent in 2004-05, supported mainly by increases in gold, copper, iron ore and nickel production.

The forecast increase in Australian mine pro-duction in 2004-05 partly refl ects higher levels of spending on exploration and investment in min-ing over the previous two years. The expected

increase in annual new capital expenditure on Australian mining projects of around 13 per cent to $10.2 billion in 2003-04 follows an increase of 24 per cent in 2002-03. These increases along with the additional 9 per cent increase in new capital expenditure in the mining industry in prospect for 2004-05 also augur well for mine production beyond 2004-05.

Australian export earnings to rise strongly in 2004-05Earnings from Australia’s minerals and energy exports are forecast to rise 19 per cent to $63 billion in 2004-05, as a result of higher volumes shipped and world prices for most products and an assumed weaker Australia dollar.

Export earnings from energy minerals are forecast to rise 26 per cent, to $27 billion in 2004-05, largely as a result of signifi cant increases in the value of coal exports. The combined export value of metals and other minerals is forecast to increase by 14 per cent to $36 billion, with the most signifi cant contributions forecast to come from iron ore and nickel.

$b

40

60

20

30

50

10

Australian exports

2003-04

1989-90

2004-05

2001-02

1998-99

1992-93

1995-96

Energy mineralsMetals and other minerals


ene r g y

ENERGYprices to remain high in 2004Gerard Burg, Simon Richmond, Ian Haine, Andrew Maurer and Tristan Wells

The recent strong increase in world oil prices to above US$40 a barrel is attributable to several factors, including strong global demand for oil, low OECD stocks, OPEC’s production policies and geopolitical concerns in the Middle East.

Following widespread concern that continued high oil prices would inhibit world economic growth, OPEC has announced an increase in its production quota by 2 million barrels a day from 1 July, with the possibility of a further 0.5 million barrels a day by 1 August. However, actual output is already at levels equivalent to the increased quota and, with very little spare capacity in most OPEC member countries, pro-duction may not increase signifi cantly as a result of this decision. Saudi Arabia and the United Arab Emirates, where there is some spare capac-

ity, have independently announced that they will increase their actual output by around 1.1 mil-lion barrels a day. If realised, these increases will place some downward pressure on prices.

ABARE’s newly developed econometric modeling of the world oil market suggests that with no deterioration of Middle East security concerns and a gradual easing of these tensions through 2005, world oil prices are likely to fall in the latter part of this year and in 2005 as global demand pressures ease. However, an alternative scenario focusing on the oil price response to a supply disruption has also been developed and is discussed later.

Global prices high, though easing in 2005Between January and early June 2004 the West Texas Intermediate (WTI) oil price rose, peaking at US$42.33 a barrel (equivalent to US$35.28 in

Crude oil prices since 1970World trade weighted prices, weekly, ended 28 May 2004

US$/bbl

40

20

60

80(2003)Real

Nominal

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Iraq invades Kuwait

Start ofIraq war

Iraq begins exporting oil under UN resolution 986

OPEC cuts production

Iranian revolution Shah deposed

Oil embargo begins

October 1973

Oil and gas


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world trade weighted price terms) in early June. This was the highest nominal price since the Ira-nian revolution in 1979. However, to put this in perspective, the peak in oil prices in early 1980 was over US$86 a barrel in world trade weighted price terms and in today’s dollars, well over twice the recent price peak. Current high prices are largely driven by strong growth in demand, particularly in China and the United States, and Middle East security concerns.

The tightness of the current market and potential for upside volatility is refl ected in the low level of OECD stocks. Commercially available OECD oil stocks have remained low for an extended period. While stocks at the end of March 2004 were low, there were indications that stocks were increasing in north America and Europe. The low level of commercial stocks in the past six months has been partly the result of governments of several countries, including the United States, increasing their strategic stock-piling of oil. The extent to which this continues will affect the rate of the expected buildup of OECD stocks and, hence, the rate of decline in oil prices.

In the fi ve months to the end of May 2004, world oil prices averaged US$36.60 a barrel for WTI crude, the equivalent of US$30.50 in world trade weighted price terms and US$32.39 for OPEC’s basket price (which is well above the

upper bound of OPEC’s target price range of US$22–28 a barrel).

In preparing these forecasts it has been assumed that there will be no signifi cant dete-rioration in the security situation in the Middle East and that tensions will ease in 2005. Prices are forecast to decline in the second half of this year, and in 2005, as production from Saudi Ara-bia and the United Arab Emirates increases and as demand for oil eases in line with an assumed slowdown in world economic growth.

Specifi cally, in 2004, world oil prices are forecast to average around US$37 a barrel for WTI crude, the equivalent of around US$31 a barrel in world trade weighted price terms. In 2005, oil prices are forecast to decline to around US$32 a barrel WTI or just under US$27 a bar-rel in world trade weighted price terms.

Crude oil spot pricesWeekly, ended 28 May 2004

Jan Feb Mar AprJuly Aug Sep Oct Nov May2003 2004

US$/bbl

OPEC basket price

West Texas Intermediate

20

25

30

35

40

Petroleum outlook

2003 2004 f 2005 f %

World change

Production mbd 79.4 81.5 82.5 1.2Consumption mbd 78.7 80.6 81.8 1.5Trade weighted crude oil price US$/bbl 27.25 30.91 26.70 – 13.6West Texas Intermediate crudeoil price US$/bbl 31.2 37.1 32.0 – 13.7

2002 2003 2004Australia -03 -04 s -05 f

Crude oil and condensateProduction ML 33 321 28 463 28 145 – 1.1Exports ML 20 950 18 865 19 200 1.8 – value A$m 6 402 5 266 4 976 – 5.5Imports ML 27 958 26 681 28 574 7.1Natural gas Production Gm3 36.8 37.3 42.6 14.2LNG exports Mt 7.83 7.94 10.61 33.6 – value A$m 2 607 2 245 3 228 43.8LPG Production ML 4 681 4 641 4 690 1.1Exports ML 3 194 3 148 3 170 0.7 – value A$m 855 717 747 4.2Petroleum productsRefinery production ML 42 473 39 998 41 500 3.8Other ML 7 507 7 157 7 144 – 0.2Exports ML 3 140 2 440 1 800 – 26.2Imports ML 5 497 8 720 7 500 – 14.0Consumption – total net ML 52 337 53 436 54 344 1.7

See back tables for details. s ABARE estimate. f ABARE forecast.• Gerard Burg • +61 2 6272 2052 • [email protected]


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It should be noted, however, that consider-able upside risk remains for world oil prices from any potential worsening of the security situation in the Middle East. Concerns about the security of oil supplies, particularly in Iraq and Saudi Arabia, but also in other countries such as Venezuela, remain a key factor in the world oil market. These concerns have resulted in a ‘risk premium’ being imposed on world oil prices, pushing oil prices higher than the market fun-damentals of actual supply and demand would indicate. Illustrating the magnitude of this effect, the recent terrorist attack in Saudi Arabia imme-diately added around $2 a barrel to oil prices.

Oil consumption growth robust in 2004Global consumption of crude oil is forecast to increase by around 2.4 per cent to average 80.6 million barrels a day in 2004 because of strong world economic growth. If realised, the forecast percentage increase in 2004 would be the largest since 1996.

The majority of this forecast growth is expected to occur in non-OECD countries, par-ticularly China. Non-OECD oil consumption is forecast to grow by around 4.6 per cent to 31.6 million barrels a day. This is markedly higher than OECD growth in oil consumption, which is expected to grow by around 1 per cent in 2004.

China remains the key player in global oil consumption growth. China, the world’s second largest oil consumer, is expected to increase con-sumption by almost 13 per cent in 2004, despite an expected slowdown in the latter part of the year, to average 6.2 million barrels a day or around 8 per cent of global oil consumption.

The United States, the world’s largest oil consumer, accounting for around a quarter of total world consumption, continues to increase consumption in line with its economic recovery. Consumption is expected to grow by 1.6 per cent in 2004 to average 20.4 million barrels a day.

… but expected to slow in 2005Assumed lower world economic growth in 2005 is expected to reduce growth in global oil consumption to around 1.5 per cent. Global consumption of oil is forecast to average 81.8 million barrels a day in 2005.

The anticipated slowdown in China’s eco-nomic and industrial production growth is expected to be a signifi cant factor in forecast lower global oil demand in 2005. In the early part of 2004 a signifi cant and growing propor-tion of China’s oil consumption was in the form of fuel oil used in the industrial sector for private electricity generation — brought about by inad-equate public electricity supply. In the March quarter 2004, China’s fuel oil imports averaged around 500 000 barrels a day, or 8 per cent of total oil consumption. Chinese government initiatives to curb industrial production growth, combined with additional coal fi red generation capacity expected to come on line, is likely to reduce fuel oil demand in 2005.

OECD oil consumption in 2005 is forecast to increase by around 1.1 per cent as economic growth slows in the United States and remains relatively stable in Europe.

Scope limited for non-OPEC production increases Non-OPEC oil producers produced close to their maximum capacity in the fi rst fi ve months of 2004 in response to the elevated price level. In the fi rst quarter of 2004, non-OPEC oil pro-duction averaged 49.8 million barrels a day, or around 61 per cent of total global production.

The potential for non-OPEC producers to increase production signifi cantly in the short term is limited. Total non-OPEC production is expected to grow by just 2 per cent in 2004, with the majority of the additional output expected to come from the Russian Federation and Kazakhstan. Western European production (mainly from the mature North Sea fi elds) is expected to decline, while new developments in the Gulf of Mexico are expected to marginally offset onshore oil production declines in north America.

The Russian Federation was the world’s largest oil producer in 2003 and is expected to increase production by 4.6 per cent in 2004 to average 9.1 million barrels a day. Russian oil production grew year on year by 10.2 per cent in the March quarter 2004. Production around current levels is close to Russia’s production capacity.


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Much of Russia’s production expansion in recent years is attributable to investment in mod-ern technology to improve effi ciency in existing mature oil fi elds in western Siberia and the Cas-pian Sea. While further gains during the short term are expected to come from de-bottleneck-ing in production infrastructure and effi ciency improvements, signifi cant further investment is required to upgrade Russia’s oil production facilities to increase production substantially. Also, uncertainties about Russia’s legal and taxation framework are expected to remain a serious impediment to foreign investment. Rus-sian oil production is expected to increase by a more modest 2.3 per cent in 2005 to around 9.35 million barrels a day.

Uncertainty in Iraq

Iraq, with proven conventional oil reserves second only to Saudi Arabia, has considerable potential to expand its oil production. However, security concerns about oil production infra-structure have so far restricted output to prewar levels. Technical problems and repeated sabo-tage have plagued the northern pipeline to Cey-han in Turkey, while poor weather and insurgent attacks at the southern terminal of Basrah have impeded exports.

March quarter 2004 production in Iraq aver-aged 2.1 million barrels a day, with crude oil exports of around 1.8 million barrels a day. Iraqi oil production in 2004 is expected to average

In order to forecast changes in the world oil market, ABARE has developed a model based on newly developed time series techniques. Specifi -cally, this model uses the cointegration theory in econometrics and incorporates the error correction processes generated by two equilibrium relation-ships in the world oil market. One is the long term relationship between world economic activity and oil consumption and the other between world oil consumption and production. In the model, any deviations from these long term relationships will lead to adjustments (error correction) of oil market variables, including prices, consumption, produc-tion and stocks, in the short term in an attempt to restore the equilibrium over the long term.

Compared with traditional forecasting tech-niques, this model has the advantage of capturing short term dynamics in world oil market behavior, while allowing long term equilibrium relation-ships to prevail. The model is also suitable for simulation and sensitivity analysis, with a specifi c focus on oil price response.

ABARE is undertaking research to fi ne tune this model, with an emphasis on oil consumption and production, by region and country.

Oil price sensitivity to Middle East shocksThe ABARE model forecasts base case world oil prices in 2004 to average around US$37 a barrel in WTI terms, equivalent to US$31 in world trade weighted price terms. The model forecasts base

case prices to decline in 2005 to average US$32 a barrel WTI or just under US$27 in world trade weighted price terms.

The oil production shock scenario models a situation where world oil production is reduced by an average of about 1 million barrels a day in the September quarter 2004. The production profi le from the December quarter 2004 is assumed to recover to levels consistent with the base case.

The effect on world oil prices of this shock is refl ected in an estimated increase in oil prices of over US$2 a barrel for the September quarter 2004. The average WTI price for 2004 as a whole increases to US$37–38 a barrel, an increase of 1–2 per cent. With the assumption of normal produc-tion in 2005 following the oil shock, the WTI price falls to US$32, largely unchanged from the base case.

The quarterly profi le of oil prices masks the potential for more signifi cant price changes within the September quarter 2004 in this scenario. For example, if the majority of the supply disruption is concentrated in a single month, the WTI price could peak at over US$50 a barrel within the month.

This simulation highlights the impact of changed expectations about Middle East supply disruptions on oil prices. In particular changed expectations about the size and duration of future disruptions will be refl ected in the futures market then rapidly transferred to the spot market.

Sensitivity analysis using ABARE’s oil forecasting model


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2.35 million barrels a day and to increase to around 2.5 million barrels a day in 2005.

For Iraq to realise its long term production potential would require signifi cant foreign investment. The International Energy Agency estimates that Iraq requires investment of more than US$5 billion over six years to expand pro-duction to around 3.7 million barrels a day. The uncertain outlook for stability in Iraq is likely to delay such investment in the short term.

The infl uence of OPECUnder the market conditions prevailing in the fi rst half of 2004 — strong demand, low stocks and with a signifi cant risk premium on prices — OPEC’s target price range of US$22–28 a barrel has been exceeded since 2 December 2003. This occurred despite OPEC’s production signifi cantly exceeding its quota.

OPEC’s decision on 3 June to increase its production quota by 2 million barrels a day to 25.5 million barrels a day may not signifi cantly increase output because OPEC’s actual produc-tion has exceeded their previous quota by about this amount. Spare OPEC capacity (capable of commencing production within thirty days) currently stands at around 2.5 million barrels a day, the majority of which is in Saudi Arabia. However, most of these reserves are medium to heavy grades of crude oil whereas current demand appears to be biased toward lighter grades, especially in the United States. Saudi Arabia and the United Arab Emirates have inde-pendently announced their intentions to raise output by 700 000 barrels and 400 000 barrels a day respectively. It is likely that this additional output, if realised, will assist in placing some downward pressure on prices.

Prices are expected to be around the upper band of OPEC’s target price range by mid-2005. Once prices fall within the target price range it is expected that OPEC will tailor its output to maintain prices within that range.

Australia’s production and export earnings to fallAustralia’s production of crude oil and con-densate continues to decline, largely because of falling production from mature fi elds in the

Gippsland Basin and in the Timor Sea. Total output in 2003-04 is estimated to fall by 15 per cent to around 28.5 gigalitres. In 2004-05, pro-duction is forecast to fall by a further 1 per cent to around 28.1 gigalitres. The relatively small decline in 2004-05 refl ects additional output from two new operations — the Bayu/Undan gas recycling project that commenced operations in February 2004 and the Mutineer/Exeter oil fi eld development due to begin operations next year. The Bayu/Undan gas recycling project delivered its fi rst shipment of condensate at the end of March. Production from the Mutineer/Exeter oil fi eld development in the Carnarvon Basin off Western Australia is expected to commence in early 2005 but it is not expected to be at its full capacity of 100 000 barrels a day until 2005-06. Refl ecting the location of these projects, the majority of production from the two facilities is expected to be exported.

Export earnings from crude oil and conden-sate in 2003-04 are estimated to fall by around 18 per cent to $5.3 billion. Earnings in 2004-05 are forecast to fall by a further 6 per cent to around $5 billion, with lower world oil prices more than offsetting higher export volumes and the effects of an assumed weaker Australian dollar.

Australia’s LNG production and exports will increase in 2004-05 after being relatively stable in recent years. The fourth train of Woodside’s North West Shelf project will commence opera-tions in mid-2004, increasing LNG production and export capacity by around 4.2 million tonnes a year. Export earnings from LNG in 2004-05 are forecast to rise by 44 per cent to $3.2 billion because of increased volumes and higher export prices.

CoalStrong global demand, especially in Asia, com-bined with supply constraints have led to sig-nifi cant increases in prices for both thermal and metallurgical coal in 2004. China’s domestic consumption of coal will continue to infl uence the world market, with reduced exports forecast for both 2004 and 2005.

• Gerard Burg • +61 2 6272 2052 • [email protected]


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Strong global demand for thermal coal

Thermal coal consumption is expected to grow strongly in 2004, boosting global thermal coal trade by around 3 per cent to 487 million tonnes. In 2005 lower assumed world economic growth is forecast to reduce growth in thermal coal trade to 2.5 per cent (around 499 million tonnes). The key growth region remains Asia, which is expected to account for 70 per cent, or about 8 million tonnes, of the total growth in trade in 2005.

In Japan, output of coal fi red electricity gen-eration continues to rise, underpinned by growth in energy demand associated with economic growth and a shift in preference toward coal. The ongoing closure of some nuclear power plants and limited additional LNG supply have led to an increase in the share of coal in Japan’s energy mix. New coal fi red generation capacity in Kan-sai, Joban and Tokyo in 2004 will boost Japan’s thermal coal consumption. Thermal coal imports are expected to reach 107.1 million tonnes in 2004, an increase of around 5 per cent.

For 2005, Japanese thermal coal imports are forecast to decline slightly to 106.6 million tonnes, following the assumed phased recom-missioning of idle Japanese nuclear power from late 2004. Increased nuclear power generation is also expected to result in lower oil fi red genera-tion.

Chinese consumption of thermal coal is expected to increase in 2004 and 2005 as new electricity generation capacity comes on line. Imports of thermal coal are expected to decline marginally in 2004 and 2005 from the 2003 level of 4.6 million tonnes as domestic production is expected to increase more than domestic con-sumption.

In Europe, demand for cleaner coal, a reduc-tion in production subsidies and the closure of coal mines have led to an increasing share of imports in total thermal coal consumption. Euro-pean thermal coal imports are forecast to rise by only 1 per cent in 2005, as the share of hydro-electric and nuclear electricity is expected to recover gradually from the low levels recorded in the past few years.

Coal outlook

Unit 2003 2004 f 2005 f %World changeTotal trade Metallurgical Mt 203.1 215.0 219.3 2.0Thermal Mt 473.5 487.1 498.5 2.3

Thermal coal importsAsia Mt 260.9 271.6 279.6 2.9

Japan Mt 102.2 107.1 106.6 – 0.5Korea Mt 54.5 56.5 58.5 3.5Other Asia Mt 104.2 108.0 114.5 6.0

Europe Mt 165.1 166.1 167.7 1.0Other Mt 47.5 49.4 51.2 3.6

Thermal coal exportsAustralia Mt 104.6 108.9 113.1 3.9China Mt 80.7 68.9 69.7 1.2Indonesia Mt 77.2 87.3 90.0 3.1South Africa Mt 70.6 73.8 76.0 3.0United States Mt 18.2 18.5 18.0 – 2.7Other Mt 122.2 129.7 131.7 1.5

Metallurgical coal importsAsia Mt 111.1 116.9 120.7 3.3

China Mt 2.6 6.1 8.8 44.3Chinese Taipei Mt 8.0 8.7 8.8 1.1India Mt 14.3 14.9 15.0 0.7Japan Mt 64.2 64.5 65.2 1.1Korea Mt 18.1 18.5 18.7 1.1Other Asia Mt 3.9 4.2 4.2 0.0

Brazil Mt 15.2 16.3 16.8 3.1Europe Mt 66.6 67.7 69.4 2.5Other Mt 10.2 14.1 12.6 – 10.6

Metallurgical coal exportsAustralia Mt 111.4 119.5 125.9 5.4Canada Mt 24.4 25.5 27.9 9.4China Mt 13.1 11.1 6.5 – 41.4Russia Mt 10.0 11.1 12.3 10.8United States Mt 22.1 25.2 24.0 – 4.8Other Mt 22.0 23.6 22.8 – 3.4

2002 2003 2004-03 -04 s -05 f

AustraliaProduction a Mt 274.1 287.4 305.3 6.2Domestic consumption Mt 66.3 67.5 68.7 1.8Volume of exports– thermal Mt 99.9 107.0 111.6 4.3– metallurgical Mt 107.8 112.8 125.0 10.8– total Mt 207.7 219.9 236.6 7.6Value of exportsThermal – nominal A$m 4 448 4 635 7 068 52.5Metallurgical – nominal A$m 7 448 6 671 9 229 38.3Total– nominal A$m 11 896 11 305 16 297 44.2



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Thermal coal supply constrained

In 2004, growth in world thermal coal trade is expected to be constrained by limited spare infrastructure capacity in Australia and South Africa and a reduction in exports from China. The ability of Australia and South Africa to expand exports is restricted by insuffi cient rail links to major ports. As a result, exports from these countries are forecast to grow marginally in 2004. However, the rail connection to port facilities at Newcastle is likely to be upgraded toward the end of 2005 and South Africa’s state owned railway announced plans in May 2004 to upgrade its infrastructure over the next fi ve years. These investments will allow exports to expand more rapidly in 2005 and beyond.

China’s exports of thermal coal are forecast to fall in 2004 as a result of strong growth in domestic consumption and government mea-sures to secure supply for domestic use. The Chinese authorities have increased the regulated domestic prices of thermal coal and electricity. In May, the government reduced the value added tax refund and transport infrastructure discounts that favored exports over domestic consumption. Further, the Chinese Government is expected to limit the issue of export licences for thermal coal to 69 million tonnes in 2004, a decrease of almost 15 per cent from last year. Increases in production capacity in 2005 are forecast to allow thermal coal exports to increase marginally to around 70 million tonnes.

With limited additional export capacity from Australia and South Africa and lower exports from China, Indonesia is forecast to account for most of the growth in world thermal coal trade in 2004. Indonesia’s thermal coal exports are forecast to increase by around 13 per cent to 87 million tonnes in 2004. Approximately 5 million tonnes of this increase is expected to come from nine new mines. With the expected increases in Australian and South African export capacity in 2005, growth in Indonesia’s thermal coal exports is forecast to moderate. Indonesia’s exports are forecast to rise by around 3 per cent to 90 million tonnes in 2005.

There are, however, downside risks to the forecast increase in Indonesia’s coal exports.

Seasonal weather disruptions, civil and political tensions and an uncertain investment climate may result in lower export volumes than cur-rently forecast in both 2004 and 2005.

Thermal coal prices to remain highThe price of thermal coal in the global market has risen markedly since late 2003, driven by strengthening demand, particularly in Asia, and the supply constraints in key producing nations.

The strong increases in thermal coal spot prices were refl ected in contract settlements for the 2004-05 Japanese fi nancial year (April–March), most of which were at close to US$45 a tonne, around 68 per cent higher than last

year. Spot prices rose further during the March quarter 2004, reaching US$59.40 a tonne at the end of May (a year on year increase of 147 per cent).

The combination of lower supply from China and limits to growth in Australian and South African exports is expected to provide consider-able support for world thermal coal prices in the short term.

World metallurgical coal consumption to increaseIn 2004, world metallurgical coal trade is fore-cast to increase by 6 per cent to 215 million tonnes, underpinned by higher blast furnace

Coal spot and contract pricesWeekly, ended 28 May 2004

Jan Mar July Sep NovMay Jan Mar May2003 2004

European spot thermal

Australia–Japan contract metallurgical

Australia–Japan contract thermalAsian spot

thermal

US$/t fob

30

20

40

50


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steel production in Asia, the Russian Federation and Brazil along with an incremental increase in Europe.

Developments in China will continue to have a signifi cant impact on global metallurgical coal markets. China’s growing demand for metal-lurgical coal for its expanding steel industry has led to the cessation of China’s hard coking coal exports.

In 2005, world metallurgical trade is forecast to increase by 2 per cent to 219 million tonnes, broadly in line with assumed lower industrial production growth in the OECD region. While the aggregate picture indicates a small increase in overall volumes, the composition of the changes in trade indicates signifi cant increases in key coke producing nations.

In 2003, China provided around two-thirds of global coke trade, and accounted for a third of global production. In order to secure coke for its expanding steel industry, China’s government has indicated that it will restrict export licences for 2004. Licences for around 10 million tonnes are expected to be issued in 2004, compared with the 14.7 million tonnes issued in 2003. Further, around 25 million tonnes of annual coke making capacity is under construction and is expected to come on line in China in 2005.

With a decline in the availability of seaborne coke, there has been signifi cant investment in new coke making capacity in steel producing countries, such as Japan, Germany, the Rus-sian Federation and Brazil. As a result, these countries will either produce or import more metallurgical coal to feed their new coke ovens in 2004 and 2005.

In 2005, Japan is forecast to increase con-sumption (and hence imports) of metallurgical coal by 700 000 tonnes, as high coke prices and new coke making capacity have increased the incentive for Japanese steel producers to increase coke production. In Brazil a growing domestic steel sector and increased steel exports to China are forecast to support an increase in metallurgi-cal coal imports to 16.8 million tonnes. China’s metallurgical coal imports are forecast to rise by 2.7 million tonnes in 2005, with domestic sup-pliers unable to meet growth in demand from the domestic steel sector. Increases in demand are

also forecast for the Republic of Korea, Chinese Taipei and India in response to increases in steel output associated with strengthening domestic economic activity.

Metallurgical coal supply to increase slowlyThe strength in demand growth for metallurgical coal and the prospect of further price rises have encouraged coal producers to make signifi cant investments in new production capacity, particu-larly in Australia and Canada. However, the time needed for constructing new mines means that few new facilities are expected to commence operation in 2004, with greater capacity coming on line during 2005.

Canada’s largest coal supplier, Elk Valley Coal, has decided to develop the Cheviot Creek hard coking coal mine. They plan to commence production in late 2004 and reach capacity out-put of 2.8 million tonnes a year in late 2005. Pine Valley has commenced development of the Wil-low Creek mine and plans to produce 1.1 million tonnes in 2004 and 2 million tonnes in 2005.

In Australia, coal producers could add as much as 25 million tonnes to hard coking coal and PCI production capacity over the next three years. Australia’s largest coking coal supplier, the BHP Mitsubishi Alliance, is currently con-structing the 3.6 million tonne a year capacity Broadmeadow underground mine that will be completed in 2005. It has also announced plans to expand output by 5 million tonnes across their other operations in the next two years through effi ciency improvements.

Rio Tinto is currently increasing production at its new Hail Creek mine toward its initial capacity of 5.5 million tonnes a year by 2005. Further developments are expected with the announcement of a long term supply deal with Japan’s Nippon Steel under which it will study an expansion of Hail Creek to 8 million tonnes a year.

Other mines that are expected to add to Aus-tralian exports in 2005 include: the Moorvale mine (with capacity of 1.6 million tonnes a year of pulverized coal injection); extensions to the Tahmoor North underground mine in New South Wales (1.6 million tonnes a year); the Eagle-


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fi eld opencut mine (1 million tonnes); and the Grasstree underground mine (5 million tonnes).

The strong growth in metallurgical coal demand from the rapidly expanding Asian steel mills (with smaller increases from Europe and South America) in an environment of limited short term supply availability underpinned an increase in negotiated metallurgical coal prices. Contract prices for the Japanese fi nancial year 2004-05 for hard coking coal increased by around US$10 to US$57 a tonne and semisoft prices rose by US$12 to US$42 a tonne. How-ever, prices are expected to come under down-ward pressure in 2005 as new supply becomes available in Australia and Canada.

Australian export capacity to expandAustralian coal exporters were forced to pay considerable demurrage costs (the costs payable to ships waiting to be loaded) during the fi rst quarter of 2004. The average demurrage cost for April 2004 was US$1.87 a tonne, compared with the 2003 average of US$0.90 a tonne. The increase in average demurrage costs associated with longer ship waiting times refl ects the lack of spare transport capacity in Australian coal.

The most notable increases in ship queues occurred at the Port Waratah Coal Services (PWCS) facility at Newcastle. The Newcastle port was unable to provide suffi cient coal to stop shipping queues lengthening because of limited spare capacity in the rail system from the mines. Export capability was also reduced at the Dal-rymple Bay port in Queensland following the collapse of a reclaimer during the fi rst quarter of 2004.

Repair work will allow shipments to increase from Dalrymple Bay in the second half of 2004. A more effi cient and coordinated quota system in Newcastle is expected to reduce ship waiting times, but export volumes will not increase sig-nifi cantly until late 2005 following an increase in the capacity of the rail network servicing the port.

Australian export earnings to rise signifi cantly

Growth in Australian thermal coal export ship-ments is forecast to be constrained during 2004 and most of 2005 by transport infrastructure. In 2004-05, Australian thermal coal exports are forecast to increase by 5 per cent to almost 112 million tonnes, supported by new mine develop-ments in Queensland and New South Wales.

Thermal coal export earnings are forecast to increase by around 53 per cent to $7.1 billion in 2004-05, supported by signifi cantly higher US dollar prices, an assumed lower Australian dol-lar and higher shipments.

With signifi cant new capacity coming on line and Australia’s close proximity to the expanding Asian market, Australian exports of metallurgi-cal coal are forecast to rise by 11 per cent to 125 million tonnes in 2004-05. Increased shipments and an assumed lower Australian dollar are fore-cast to result in Australian metallurgical coal export earnings increasing by 38 per cent to $9.2 billion 2004-05.

Australian metallurgical coal exports

50

100

25

75

Volume

Real value

2004-05

2002-03

2000-01

1998-99

1996-97

A$b2003-04

2

4

6

8

Mt


me t a l s

METALSworld demand strong in 2004, slowing in 2005Simon Richmond, William Mollard, Andrew Maurer, Ian Haine and Tristan Wells

Iron ore and steel

Improved world economic growth in 2004 is expected to lead to a signifi cant increase in world steel output, with global steel production rising to over 1 billion tonnes. Developments in China will continue to have a signifi cant impact on global steel and iron ore markets. Growth in China’s steel consumption is forecast to moder-ate in 2005, in line with an assumed slowdown in growth in industrial production.

China’s growing demand for iron ore will underpin a signifi cant rise in Australian iron ore exports. Increased shipments of iron ore and an assumed weaker Australian dollar, especially against the US dollar, is likely to drive Australian export returns signifi cantly higher in 2004-05.

Higher negotiated prices for 2004-05Strong growth in iron ore demand in the Asian region, including China, Japan, Chinese Taipei and the Republic of Korea, contributed mark-edly to a signifi cant increase of around 19 per cent in iron ore contract prices (to US36.57c/dltu for fi nes and US46.68c/dltu for lump) negoti-ated between Australian producers and Japanese steel mills for Japanese fi nancial year 2004-05 (April–March). The recent signifi cant increase in demand for iron ore and the improved price outlook, especially over the medium term, have encouraged iron ore producers, particularly in Australia and Brazil, to make signifi cant invest-ments in new production capacity. As a result, iron ore production is forecast to increase and

such an increase is likely to place downward pressure on iron ore prices beyond 2005.

Steel situation uncertain in ChinaChina’s importance in world steel market has increased markedly in recent years. In 2003, Chi-na’s steel consumption increased by 14 per cent to 278 million tonnes, the only major consumer recording a signifi cant rise in that year. In 2004, strengthening industrial activity in the OECD and many Asian countries is forecast to support more widespread increases in steel demand.

World steel and iron ore

2002 2003 2004 f 2005 f

Mt Mt Mt MtSteel production China 182 220 250 275 Japan 108 110 113 115 North America 108 106 109 110 European Union 15 159 160 161 163 Korea, Rep. of 45 46 47 47 Chinese Taipei 18 19 20 20World 903 960 1 008 1 050

Iron ore imports China 111 148 183 224 Japan 129 132 135 139 South Korea 41 43 45 47 Chinese Taipei 15 19 21 23 European Union 15 113 114 115 116

Iron ore exportsAustralia 166 188 214 246 Brazil 170 174 193 210

Seaborne trade 498 538 580 630

See back tables for details. f ABARE forecast.• Simon Richmond • +61 2 6272 2271 • [email protected]


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However, there is considerable uncertainty associated with the situation in China. In late April 2004, China’s government announced its determination to implement policy measures to moderate economic growth and ease infl ationary pressures. Restrictions have been implemented to slow bank lending to several industries that use steel products intensively, such as building construction and motor vehicle manufacturing. Car manufacturers and property development companies are now required to provide equity of 25 per cent (up from 20 per cent) to match any new fi xed asset borrowing.

Given the recent policy changes, growth in China’s steel demand is likely to slow in the short term. In year average terms, China’s steel consumption is forecast to increase by 7 per cent (to 298 million tonnes) in 2004 and a further 5 per cent (to 313 million tonnes) in 2005.

More stringent policy measures have also been implemented to slow expansion in China’s steel industry. In mid-2004, Chinese authorities halted construction of a US$1.3 billion steel mill that would have had a capacity of 8.4 million tonnes a year. Steel producers are now required to provide equity of 40 per cent to match any new fi xed asset borrowing (up from 20 per cent). In addition, China’s government abolished dis-counts given to steel companies on electricity and reduced the level of fi nancial assistance available to state owned expansion projects.

Refl ecting the adverse effects of the above policy measures, China’s steel production is forecast to increase at a slower pace in both 2004 and 2005. Steel production is forecast to increase by 14 per cent (to 250 million tonnes) in 2004 and 10 per cent (to 275 million tonnes) in 2005. This compares with an increase of 21 per cent in 2003.

Steel consumption and production in other regionsSteel consumption in the United States is fore-cast to increase by 3 per cent to 140 million tonnes in 2004, supported by continued strength in the construction industry and higher demand for manufactured goods. In 2005, growth in steel consumption is expected to slow, as assumed higher US interest rates are expected to lead

to weaker growth in industrial production, and hence steel consumption.

Steel consumption in Japan is forecast to rise by 1 million tonnes in both 2004 and 2005, supported by increased construction and higher demand for steel intensive manufactured items both domestically and in export markets.

In the short term, Japan’s steel production is forecast to rise, as a result of growth in domes-tic consumption and export demand for crude steel. In year average terms, steel production is forecast to increase by 2.6 per cent to 113 mil-lion tonnes in 2004 and a further 2 per cent to 115 million tonnes in 2005. This compares with growth of 2.4 per cent in 2003.

In the European Union 15, steel production is forecast to be around 161 million tonnes in 2004 and 163 million tonnes in 2005, a rise of around 1 per cent in each year. These forecast increases in steel production are consistent with assumed weak growth in industrial production in the region.

Chinese growth to benefi t AustraliaChina imported 148 million tonnes of iron ore in 2003 and is forecast to import 183 million tonnes in 2004, accounting for 37 per cent of world seaborne trade. The signifi cant increase in iron ore imports in China has lifted spot freight rates considerably over the past year. As freight

Iron ore and steel outlook

2003 2004 f 2005 f %

World production change

Iron ore Mt 1 196 1 269 1 302 2.6Steel Mt 961 1 008 1 050 4.2

2002 2003 2004-03 -04 s -05 f

AustraliaProductionIron ore Mt 198.9 229.0 241.0 5.2Iron and steel s Mt 9.40 9.71 10.10 4.0Exports Iron ore Mt 181.5 201.4 232.4 15.4– value A$m 5 342 5 418 7 601 40.3Iron and steel kt 3 589 4 016 4 656 15.9– value A$m 1 855 1 913 2 192 14.6PriceIron ore USc/dltu 28.28 30.83 36.57 18.6



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costs are a signifi cant component of the total cost of iron ore to consumers, higher freight rates increase the incentive for China to source iron ore from more proximate suppliers, such as India and Australia.

In the March quarter 2004, China’s imports of iron ore totaled 50.7 million tonnes. Around 36 per cent of these imports were sourced from Australia, while India and Brazil accounted for 27 per cent and 21 per cent respectively. India recorded the largest year on year increase in the March quarter, with exports to China rising by 62 per cent to 13.4 million tonnes.

Strong demand growth from China has encouraged signifi cant investment in new iron ore projects. In Australia, Rio Tinto is expected to increase capacity from 74 million tonnes to 116 million tonnes in 2005, following expansions at its Dampier port and Yandicoogina mine. BHP Billiton recently expanded its total Australian output capacity from 67 million tonnes to 100 million tonnes a year, with a further 10 million tonnes of capacity expected by late 2004.

In 2004-05, Australia is forecast to capture a greater share of Chinese imports as new capac-ity becomes available. Strong demand growth for raw materials has increased the incentive for steel makers to secure volumes for long term supply requirements. In early 2004, four major Chinese steel mills signed a deal with BHP Billiton for 4–6 million tonnes of iron ore to be shipped this year and 12 million tonnes

each year over the next twelve years. China’s Shanghai Baosteel Group has entered a joint venture with Rio Tinto to secure supply from the recently opened Eastern Ranges mine. The mine will produce around 10 million tonnes a year over a mine life of ten years. The two companies are also negotiating an agreement for the annual supply of an additional 7 million tonnes of iron ore for ten years.

Australian export returns to riseExport earnings from iron ore are estimated to be around $5.4 billion in 2003-04. Cyclone activity in the Pilbara restricted shipments in the March quarter 2004, with lower output recorded for the majority of operations.

With new capacity expected to be available during the course of 2004-05, Australian iron ore export shipments are forecast to increase by 15 per cent in 2004-05. Higher negotiated iron ore prices, signifi cantly higher shipments and an assumed lower value of the Australian dollar are forecast to lead to a 40 per cent rise in export earning to $7.6 billion in 2004-05.

NickelNickel prices rose signifi cantly in 2003, with support from strong demand growth, modest supply growth and declining stock levels. The high prices in late 2003 also refl ected an element of speculative buying activity and strategic stock building in China. Speculative support appears to have since moderated following concerns about lower growth in China and future rises in US interest rates. In contrast to other base met-als, nickel prices have fallen sharply since early January. However, prices are expected to return to an upward trend in the second half of 2004 as a result of increased demand against a backdrop of limited additional supply availability.

Consumption to grow strongly …World nickel consumption is forecast to rise by nearly 4 per cent in 2004, to 1.28 million tonnes. Assumed increases in industrial production will boost demand for stainless steel in key nickel

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consuming nations such as Japan, the Republic of Korea, Chinese Taipei and, to a lesser extent, Europe. The resultant higher prices for stainless steel are expected to boost output and lead to an increase in demand for nickel in 2004. In 2005, world nickel consumption growth is forecast to moderate slightly to 3.5 per cent in response to lower industrial production growth in China and the OECD.

Korea is expected to make the largest contri-bution to growth in nickel demand in both 2004 and 2005. Korea’s largest stainless steel pro-ducer, Posco, plans to raise capacity by 25 per cent at its recently commissioned Pohang steel works to 2 million tonnes.

Signifi cant capacity is also under construc-tion in China. However, growth in nickel con-sumption is expected to be constrained by the measures taken by authorities to curb growth in key nickel consuming sectors, such as building construction. Despite this, China’s largest stain-less steel mill, Shanxi Taigang, plans to raise output by 35 per cent to 0.9 million tonnes in 2004, and to 1.5 million tonnes in 2005. Another Chinese producer, Baosteel, is also constructing a new stainless steel making facility, with an additional 0.7 million tonnes of annual capacity expected to come on line in 2005. The quantity of new capacity becoming available at a time when growth in demand is expected to slow is

expected to lead to reductions in capacity utilisa-tion at the new and existing mills.

These new stainless steel facilities in Korea and China will be complemented by other new capacity in Brazil, South Africa and India.

Substitution away from nickel intensive steels has reduced growth in demand for pri-mary nickel. The increases in nickel prices over the past six months has led to the production of less high grade stainless steel, such as the ‘300 series’ (that contain around 10 per cent nickel) and more lower grade steels, such as the ‘200 series’ (that contain proportionally more man-ganese). However, the resultant sharp increase in manganese alloy prices is expected to reduce the incentive for further substitution away from nickel.

… while production remains constrainedWith no new signifi cant additions to nickel production capacity expected in 2004, growth in refi ned nickel output will be limited mainly to higher rates of capacity utilisation and incre-mental production growth at existing facilities. The lack of nickel refi ning operations coming on line over this period is mainly a result of relatively low prices, and hence low investment, over the past six years. The time needed for con-structing new metal refi neries means that only limited new facilities are expected to commence operations before 2006.

World refi ned nickel production in 2004 is forecast to rise by 4.5 per cent to 1.26 mil-lion tonnes. Increased refi ned nickel output is expected to come from Inco (the world’s sec-ond largest nickel producer). Inco’s output is expected to recover strongly in 2004 after strike activity restricted output in 2003.

In 2005, world refi ned nickel production is forecast to rise by 4 per cent to 1.31 million tonnes. Underpinning this assumption is that China’s largest nickel producer, Jinchuan Nickel will produce 30 000 tonnes of refi ned metal from its new smelter that is expected to come on line in 2005.

China has insuffi cient domestic nickel mine capacity to meet their expanding smelter capac-ity and, as a result, will need to import higher quantities of nickel concentrates. Australia’s

Nickel outlook

2003 2004 f 2005 f %

World change

Production kt 1 206 1 260 1 310 4.0 Consumption kt 1 233 1 280 1 325 3.5 Closing stocks kt 97 92 86 – 6.5 – weeks consumption 4.7 4.2 3.8 – 9.5 Price US$/t 9 637 13 300 13 850 4.1

USc/lb 437 603 628 4.1

2002 2003 2004 Australia -03 -04 s -05 f

Production Mine kt 210 217 224 3.2 Refined kt 130 129 140 8.5 Intermediate kt 101 116 111 – 4.3 Exports s kt 209 226 226 0.0 – value A$m 2 323 3 211 3 927 22.3



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close proximity to China is expected to result in Australian producers capturing a large share of Chinese imports. Starting in July 2004, Australian nickel miner Fox Resources will supply all the concentrates produced at the Radio Hill mine to Jinchuan Nickel. This deal follows others made by Australian producers with Jinchuan Nickel. In July 2002, Sally Malay Mining announced a life of mine contract to sup-ply around 7000 tonnes of concentrates a year. In August 2003 WMC agreed to sell 120 000 tonnes of nickel in matte over fi ve years, starting in 2005.

Prices to riseNickel prices were volatile on the London Metal Exchange in the fi rst half of 2004. After peaking at US$17 700 a tonne in early January, prices fell to a low of US$10 950 a tonne in late April. Prices then rose to around US$12 000 a tonne in late May and are forecast to increase in the remainder of 2004 and in 2005.

On balance, world nickel prices are forecast to rise moderately in the second half of 2004 to average US$13 300 a tonne over the full year. Historically low nickel stocks are forecast to fall further to 4.2 weeks of consumption in 2004, with supply unable to keep pace with growth in demand. The low level of stocks and lack of spare production capacity mean that nickel prices will be increasingly sensitive to any supply disrup-tions, such as strike activity or technical diffi cul-

ties. ABARE’s leading indicator of nickel prices suggests that prices may increase rapidly over the remainder of 2004. However, any price rises will likely to be constrained by increases in the availability of secondary scrap nickel.

Despite an assumed easing of China’s eco-nomic growth in 2005, growth in industrial production in the OECD is expected to support increases in nickel demand and lead to a reduc-tion in world stocks. As a result, nickel prices are forecast to average 4 per cent higher in 2005, at US$13 850 a tonne.

Australia to benefi tIn 2003-04 Australian nickel mine production is expected to rise by 3 per cent to 217 000 ton-nes. Higher March quarter output was recorded from the Cosmos Cawse and MPI Mines’ new Black Swan mine. In 2004-05, mine production is forecast to reach 224 000 tonnes, underpinned by higher output from Murrin Murrin and the ramp up of the Carniliya Hill, Radio Hill, Blair and Redross mines.

Australian refi ned nickel output is expected to fall by 1 per cent to 129 000 tonnes in 2003-04 as the full year impact of the November 2003 closure of the Bulong refi nery is realised. Fur-ther, high rainfall at Murrin Murrin in the March quarter 2004 restricted output to 6840 tonnes (down from 7790 tonnes in the previous quar-ter). Refi ned nickel output is forecast to rise by 9 per cent in 2004-05 to 140 000 tonnes, boosted

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primarily by the continued ramp up of the Mur-rin Murrin nickel refi nery.

The value of Australian nickel exports is forecast to rise by 22 per cent to $3.9 billion in 2004-05, underpinned by higher export volumes and prices.

AluminiumWorld aluminium prices (denominated in US dollars) rose at a more modest pace than other metals, such as nickel, copper and lead, in early 2004. While there was a signifi cant increase in demand in major consuming countries, alumin-ium production also rose strongly, leading to a smaller decline in stocks than the other metals.

In the second half of 2004 and 2005, alu-minium prices are forecast to ease, as eco-nomic growth in China is assumed to moderate from recent strong rates and interest rates in the United States are assumed to increase, leading to weaker increases in aluminium consump-tion.

Prices to easeAluminium prices on the London Metal Exchange (LME) increased markedly from a low of US$1578 a tonne (or US72c/lb) in early January 2004 to a high of US$1826 a tonne (US83c/lb) in late April. While this represents a price rise of around 16 per cent, it was less than the increase of 33 per cent recorded for copper and 31 per cent for lead over this period.

One contributing factor to this smaller in-crease for aluminium was a relatively high level of stocks. Over the past few years, aluminium production has been higher than world alu-minium consumption. At the end of April 2004, reported aluminium stocks were around 5.9 weeks of consumption, 6 per cent higher than the average recorded over the fi ve years ended 2003.

In the remainder of 2004 and 2005, world aluminium prices are forecast to ease from the highs achieved in the fi rst half of 2004, as strong demand growth moderates in China and the United States. ABARE’s leading indicator of aluminium prices suggests that monthly prices

will remain higher than in the correspond-ing months at mid–late 2003. In year average terms, the LME aluminium price is forecast to be around US$1640 a tonne (US74c/lb) in 2004 and US$1580 a tonne (US72c/lb) in 2005.

China a major infl uence on world marketsA signifi cant increase in industrial production in China, the United States, Japan and other Asian countries, including the Republic of Korea and Chinese Taipei, has been the main driver of strong growth in world aluminium consumption since late 2003.

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China, in particular, has had a major infl uence on global aluminium consumption. As alumin-ium is widely used in construction, food packag-ing, electrical and motor vehicle manufacturing, high levels of public sector investment in China (such as the Three Gorges Dam project), together with strong consumer demand, have resulted in signifi cant increases in aluminium consumption. In 2003, China consumed 5.2 million tonnes of aluminium and accounted for over 50 per cent of growth in world aluminium consumption. China’s strong demand for aluminium has con-tinued into the fi rst half of 2004, with consump-tion increasing year on year by 24 per cent in the March quarter 2004.

Looking forward, strong aluminium demand in China is forecast to ease as China’s govern-ment recently announced its determination to slow strong economic growth to a more sustain-able pace. Weaker economic growth in China could also have an impact on aluminium con-sumption in its neighboring countries, including Japan, Korea and Chinese Taipei, as economic, export and manufacturing activity in these coun-tries would be adversely affected.

Aluminium consumption in China is forecast to increase by over 13 per cent to 5.9 million

tonnes in 2004 and a slower 8 per cent in 2005 to 6.4 million tonnes.

China’s importance in world production The importance of China as an aluminium pro-ducer has also increased in recent years. In 2003, for example, China’s aluminium production increased by 29 per cent to 5.56 million tonnes and accounted for over 65 per cent of the rise in global aluminium production.

Despite signifi cant production increases in recent years, there are a number of factors that could infl uence China’s aluminium production in the short term. First, a lack of steady alumina supplies has led to a number of Chinese produc-ers sourcing alumina from the spot market, with signifi cantly higher prices pushing up produc-tion costs. This constraint, however, is expected to loosen toward the latter part of 2004 and 2005 as global alumina refi ning capacity gradually increases.

Second, a sharp increase in economic activity in China has resulted in a shortage of electricity, a major input to aluminium production. The elec-tricity shortage, nevertheless, is forecast to ease during 2005. Slower economic growth in China, together with planned investment in electricity generation capacity, could lead to more electric-ity being available for aluminium production.

Third, in an attempt to moderate strong eco-nomic growth, China’s government has identi-fi ed the aluminium industry as one of the sectors that offi cials believe is ‘overheating’. Aluminium

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USc/lb 64.9 74.4 71.7 – 3.6World alumina Spot price US$/t 280 343 275 – 19.8

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Production Bauxite Mt 54.5 56.6 58.7 3.7Alumina kt 16 413 16 794 17 462 4.0Aluminium kt 1 855 1 879 1 937 3.1ExportsAlumina kt 13 168 13 422 13 684 2.0– value A$m 3 660 3 711 4 019 8.3Aluminium kt 1 551 1 556 1 598 2.7– value A$m 3 696 3 414 3 811 11.6



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producers in China are now required to provide equity of 35 per cent to match any new fi xed asset borrowing, up from 25 per cent.

If the policy measures that are being imple-mented in China prove to be ineffective in moderating strong economic growth, there is a probability that China’s government could intro-duce more stringent restrictions on investment and bank lending to the manufacturing sector, including the aluminium industry.

Taking the above into account, aluminium production in China is forecast to increase at a slower 8 per cent to 6.0 million tonnes in 2004. Under the assumption that strong economic growth in China will moderate to a more sus-tainable pace in 2005 (currently assumed to be 7.3 per cent), aluminium production in China is forecast to increase by 10 per cent to 6.6 million tonnes in that year.

Demand in the United States also importantIncreased aluminium consumption in the United States, particularly in the building construction sector, has been another factor contributing to higher global aluminium prices. Use of aluminium in the building construction sector, a signifi cant consumer of aluminium, has grown markedly in the United States as building activity has risen in response to historical low interest rates.

Interest rates in the United States are assumed to increase gradually later in 2004 and during 2005. Higher interest rates are likely to ad-versely affect building activity and consumer demand, which in turn could weaken aluminium consumption in the United States.

Production forecast to increase in other countriesAluminium production is forecast to increase in the United States, Bahrain, the United Arab Emirates, India and Norway. In particular, the Alba smelter in Bahrain is expected to increase capacity by around 250 000 tonnes in 2005 and the Dubal smelter in the United Arab Emirates is likely to add around 175 000 tonnes of capac-ity in the next two years. Other increases are planned at the Alouette smelter in Canada and the Hindalco and Balco smelters in India.

Australian exports to increase

Australia’s export earnings from aluminium are estimated to be around $3.4 billion in 2003-04, a decline of nearly 8 per cent from the previous year. A higher Australian exchange rate, espe-cially against the US dollar, has more than offset a marginal increase in export shipments.

In 2004-05, the value of aluminium exports is forecast to increase by 12 per cent to just over $3.8 billion. This forecast increase in export earnings mainly refl ects an assumed weaker value of the Australian dollar and an increase in export volumes. With small increases in smelting capacity expected at the Kurri Kurri and Tomago smelters, export shipments of alu-minium are forecast to increase by nearly 3 per cent in 2004-05.

AluminaSpot alumina prices rose strongly in early 2004 in response to higher derived demand from aluminium production and weaker growth in alumina supply. The spot price reached a high of over US$500 a tonne in March 2004, before easing to around US$450 a tonne in May. In year average terms, alumina spot prices are forecast to average around US$343 a tonne in 2004, as alumina production increases in the latter part of the year.

Refl ecting a forecast increase in refi ning capacity, alumina spot prices are forecast to average US$275 a tonne in 2005, a decline of 20 per cent from 2004. Increases in alumina produc-tion are forecast for Australia, Brazil, China, the United States, the Russian Federation and India. In particular, China’s largest producer, Chalco, is planning a signifi cant increase in output in 2005. Australian production is expected to increase in 2005 with signifi cant additional production at Comalco’s new refi nery at Gladstone expected to be commissioned in late 2004. Alcoa is also planning an expansion at the Pinjarra refi nery in Western Australia which is expected to come on line late in 2005.

Export earnings from alumina are estimated to increase by over 1 per cent to $3.7 billion in 2003-04. A further increase of over 8 per cent to


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just over $4 billion is forecast for 2004-05, as higher expected export volumes and an assumed lower Australian dollar more than offset forecast lower world prices.

Gold

Infl uence of US dollar and higher interest ratesA signifi cant decline in the value of the US dol-lar was a major contributing factor to the marked increase in the gold price (denominated in US dollars) in 2003. The price of gold continued to rise in early 2004 as the US dollar depreciated further, especially against freely fl oating inter-national currencies.

Since early 2004 the relationship between the price of gold and the value of the US dollar appears to have become less strong. Despite a relatively weak US dollar against other inter-national currencies, the gold price declined be-tween early April and mid-May, before a partial reversal toward the end of May. The positive effect of a relatively weak US dollar on the gold price appears to have been offset, at least in part, by an expectation in fi nancial markets that inter-est rates in the United States could rise earlier than previously anticipated.

When interest rates (especially long term bond yields) are higher, investors can obtain higher returns from investing in interest bearing securi-ties, leading to a reduction in the attractiveness of investing in gold. Higher interest rates in the United States would attract an increase in capital infl ow to that economy, leading to a higher value of the US dollar.

Gold price could fall in the short termThe impact of the US dollar on the gold price is expected to change from the latter part of 2004, as the US dollar is assumed to appreciate gradu-ally against most other freely fl oating interna-tional currencies, in response to the assumed increase in US interest rates.

In preparing the current set of gold forecasts, the prime lending rate in the United States is

assumed to rise from an average of 4.1 per cent in 2003 to 4.3 per cent in 2004, before increas-ing to 6.0 per cent in 2005. A relatively stronger economic performance in the United States than in other major OECD countries is also expected to provide support for a stronger US dollar. As mentioned earlier, an appreciation of the US dollar, together with higher interest rates in the United States (and possibly in other OECD countries), is expected to place considerable downward pressure on the gold price.


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Official sector a t 606 680 650 – 4.4Private sector a t (783) (830) (800)Producer hedging b t (310) (300) 0

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AustraliaMine production t 278 268 288 7.5Exports t 282 305 290 – 4.9 Total A$m 5 133 5 303 4 732 – 10.8Price A$/oz 572 547 507 – 7.2



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The gold price is forecast to average around US$376 an ounce in 2004, an increase of 3 per cent on the average price in 2003. In 2005, the gold price is assumed to decline to average around US$330 an ounce.

There is considerable uncertainty about the outlook for the gold price. As gold is traditionally viewed as a ‘safe haven’ asset, any escalation in geopolitical uncertainty could increase demand for gold, leading to the gold price being higher than currently forecast. Despite the widely expected increase in US interest rates, there remains a probability that the actual increase in US interest rates could be signifi cantly less than current fi nancial market expectations. Under this scenario, the value of the US dollar would be weaker than assumed here. Consequently, the gold price (denominated in US dollars) could average higher than currently forecast.

Central banks agreement renewedIn the latter part of the 1990s, central bank sales of gold created considerable volatility in the gold price. In particular, the gold price fell sig-nifi cantly in 1999, largely as a result of market concern over potential increases in central bank sales. In response, an agreement (known as the Washington agreement) was struck between the major European central banks in September 1999 to restrict their collective sales of gold to 2000 tonnes over fi ve years.

In early March 2004, the existing parties to the Washington agreement announced the

renewal of the agreement for a further fi ve years. The main change is an increase of 100 tonnes in the maximum level of sales, to 500 tonnes a year. Given this outcome, central bank sales are not expected to have a signifi cant impact on the gold price in the short term.

Producer dehedging to continueGold producer books are expected to continue to be reduced in 2004, largely in response to relatively low interest rates and the high gold price. The rate of dehedging is likely to slow in the latter part of 2004 and 2005, as interest rates are expected to increase and the gold price is forecast to fall. In particular, new contracts are expected to match expiring contracts in 2005 and, as a result, the support to the gold price from dehedging is likely to decline.

Fabrication demand to riseWorld fabrication consumption reached a twelve year low of 3049 tonnes in 2003. In the short term, world fabrication demand is expected to increase as a result of stronger income growth and the forecast decline in the gold price. Since jewellery demand in developing countries, such as India and those in south east Asia, is price sen-sitive, the forecast lower gold price is expected to encourage higher fabrication demand.

World mine production to decline slightlyWorld mine production is forecast to decline slightly in 2004 (to 2589 tonnes), as expected lower production in South Africa and Indonesia more than offsets a forecast increase in Australia and Peru. In Indonesia, a rock slippage in late 2003 adversely affected the production from the high grade ore section of Freeport’s Grasberg mine in 2004. Production in South Africa con-tinues to be adversely affected by higher costs.

In 2005, world gold mine production is fore-cast to increase by 1.6 per cent to 2630 tonnes. In addition to a forecast recovery in mine produc-tion in Indonesia, the majority of this increase is expected to occur in Australia.

Australian exportsIn 2004-05, Australian mine production is forecast to increase by 7.5 per cent to 288

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tonnes. This follows a fall in 2003-04 when production was disrupted at a number of opera-tions in Western Australia by rain from tropical cyclones. The redevelopment of Newcrest’s Telfer mine in Western Australia is expected to be the major contributor to the forecast increase in 2004-05. Increases in production are also expected from the Bendigo Mine in Victoria, Cracow Mine in Queensland and Paulsens in Western Australia.

The increase in Australian export volumes in 2003-04 was supported by a reduction in gold stocks. In 2004-05, the volume of Australian exports is expected to be more closely aligned with domestic mine production. As a result, export volumes are forecast to fall by 5 per cent to 290 tonnes. Export volumes from gold, therefore, are forecast to decline by 11 per cent to $4.7 billion in 2004-05, because of a forecast lower Australian dollar gold price and the reduc-tion in export volumes.

CopperIn the early part of 2004, copper prices in US dollar terms rose rapidly under conditions of strong demand growth, falling stocks, supply disruptions, and speculative buying activities. Prices have since moderated, refl ecting expec-tations of slower demand growth in the latter part of the year and in 2005, as recent measures taken to slow economic growth in China and an expected increase in interest rates in the United States take effect. With demand expected to slow, and mine supply to increase, prices are expected to ease gradually over the period to the end of 2005.

Prices strong, but volatileDaily spot copper prices rose signifi cantly in the early part of 2004, reaching a high of US$3170 a tonne (US144c/lb) in mid-April, compared with a low of $2337 a tonne (US106c/lb) in early January 2004. Continuing strong demand growth in China, strengthening demand in the United States, supply disruptions and an element of speculative purchasing all contributed to the

strong price rise. Prices averaged US$3011 a tonne (US137c/lb) in March.

Since the April peak, world copper prices have eased, averaging US$2738 a tonne in May. With the physical supply and demand fundamentals for copper remaining very strong, expectations about future market developments appear to have played a key role in the recent easing in prices. The key factors infl uencing these expec-tations are likely to have been: measures taken in China to dampen economic growth, an antici-pated increase in interest rates in the United States and announcements of planned increases in production at a number of major mines.

Also, with copper being a favored investment choice for funds seeking exposure to base met-als, world copper prices can be subject to sub-stantial volatility. For example, the rapid rise in prices in the March quarter appears to have been the result of signifi cant speculative buying activ-ity by investment funds, while the subsequent decline in prices refl ects funds reducing their long exposure.

Despite an expected slowdown in copper demand in the latter part of the year, from the very rapid growth observed in early 2004, world copper consumption in 2004 is expected to signifi cantly exceed production and stocks are expected to decline to very low levels of around 3.7 weeks of consumption. World copper


Copper outlook

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World change

Production kt 15 252 15 750 16 770 6.5Consumption kt 15 484 16 280 16 740 2.8Closing stocks kt 1 414 876 915 4.5– weeks consumption 6.3 3.7 3.8 2.7Price US$/t 1 780 2 640 2 350 – 11.0

USc/lb 80.7 119.7 106.6 – 10.9

2002 2003 2004-03 -04 s -05 f

Australia Mine output kt 883 804 859 6.8Refined output kt 537 456 474 3.9Exports – ores and conc. kt 1 193 1 271 1 301 2.4– refined kt 359 290 308 6.2– total value A$m 2 005 1 956 2 202 12.6



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prices are forecast to average US$2640 a tonne (US$120c/lb) in 2004, an increase of 48 per cent on 2003 prices. This increase is supported by ABARE’s leading indicator of copper prices that suggests that prices will continue to rise in year on year terms over the remainder of 2004.

Refl ecting the current market volatility, and with world copper stocks expected to decline further in 2004, any signifi cant supply disrup-tion in the remainder of the year could result in a sharp increase in world copper prices. Conversely, a sharper than currently expected increase in US interest rates or a signifi cant eco-nomic slowdown in China could lead to further declines in world copper prices.

In 2005, slower growth in world copper demand, together with substantial planned in-creases in world mine output, is expected to result in a small increase in end of year stocks. In addition, an assumed appreciation of the US dollar is expected to place additional downward pressure on US denominated copper prices. As a result, world copper prices are forecast to average 11 per cent lower at US$2350 a tonne (US107c/lb) in 2005.

World copper demand robust in 2004 …World copper consumption is forecast to increase by 5 per cent to just under 16.3 million tonnes in 2004. The forecast increase refl ects strong economic and industrial production growth in China, the United States and in other

Asian countries generally. Copper consumption growth is expected to be lower in the second half of the year, compared with the fi rst half, because of an expected slowdown in Chinese and US consumption.

China remains the key driver of global copper consumption growth. In 2003, China’s copper consumption grew by 14 per cent to just over 3 million tonnes, accounting for 20 per cent of global copper consumption. The relocation of copper intensive manufacturing activity to China, together with massive infrastructure development, have led to China becoming the world’s largest consumer of copper. In 2003 the increase in China’s copper consumption accounted for just over 61 per cent of total global copper consumption growth.

In the March quarter 2004, China’s indus-trial production growth averaged almost 18 per cent, with copper consumption reported to have increased by 26 per cent in the fi rst two months of 2004. Recent measures taken by China’s gov-ernment to slow economic growth through credit tightening, however, are expected to lead to a signifi cant moderation in China’s consumption growth in the second half of 2004. Neverthe-less, China’s copper consumption is expected to remain relatively strong.

Expanding manufacturing and construction sectors are expected to result in a strong increase in US copper consumption in 2004. However, an expected increase in interest rates later this year is anticipated to lead to a decline in US housing construction demand and lower demand for pas-senger car and electrical goods.

… slowing in 2005In 2005, world copper consumption growth is forecast to slow to 2.8 per cent, as world indus-trial production growth declines from 2004 levels. World copper consumption is forecast to be 16.7 million tonnes in 2005. Measures being taken to moderate China’s economic and industrial production growth are expected to remain in place in the short term and to lead to lower copper consumption growth in 2005. The industries most affected are expected to be the construction, electronic, industrial machinery and car manufacturing industries.

Copper price and leading indicator Monthly percentage change year on year, ended May 2004

%

Price

Leading indicator

–60

–40

–20

20

40

60

1993 20011995 1997 1999 2003


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In the United States, increasing interest rates are expected to reduce copper consumption in the construction and automotive industries, in particular, in 2005.

Demand growth for copper in Japan is expected to rise in 2004 before easing in 2005 as industrial production growth declines. West-ern European consumption is expected to rise moderately in both 2004 and 2005 in line with modest growth to industrial production.

Production to increase in 2005With the recent substantial increases in world copper demand and prices, copper producers are currently expanding or planning to expand their operations. The most notable develop-ments in 2004 include Phelps Dodge’s intention to restart a number of idled operations in the United States, planned production increases at several Codelco operations in Chile and at BHP Billiton’s large Escondida copper mine.

A signifi cant increase in production is expected in 2005, most notably at Freeport’s Grasberg Mine in Indonesia, the Escondida mine in Chile and the Sossego mine in Brazil. World copper mine production is forecast to increase by over 4 per cent in 2004 and by a further 5 per cent in 2005 to just under 15 million tonnes.

Increased mine supply in 2004 will ease the tightness in world copper concentrate supply, which adversely affected world refi ned output in 2003. World refi ned copper output is forecast to increase by 6.5 per cent to 16.8 million tonnes in 2005.

Australian production and export earnings to increaseAustralia’s mine production of copper is esti-mated to have fallen by 9 per cent in 2003-04 to 804 000 tonnes, with lower production at several operations contributing to the lower output.

In 2004-05, mine production is forecast to rise by 7 per cent to 859 000 tonnes. An expected recovery in production at the Olympic Dam mine, following a series of technical problems, accounts for the majority of this increase. Addi-tionally, operations such as Newcrest’s Telfer mine redevelopment and Straits Resources’ new Whim Creek mine, both in Western Australia,

are expected to contribute to increased copper output in 2004-05.

Australian refi ned copper production is estimated to have fallen by 15 per cent in 2003-04, to 456 000 tonnes. The majority of this decrease can be attributed to the closure of the Port Kembla refi nery in the September quarter 2003. Refi ned copper production in 2004-05 is forecast to increase by 4 per cent to around 474 000 tonnes. Increased production from Olympic Dam is expected to more than offset lower output from Aditya Birla’s Mount Gordon operation. In the next few months, the Mount Gordon mine is expected to revert to producing concentrates for export, rather than cathode.

After falling by an estimated 2 per cent in 2003-04, Australian copper export earnings in 2004-05 are forecast to increase by 13 per cent to $2.2 billion. Increased export volumes, higher export prices and an assumed weaker Australian dollar are expected to contribute to the forecast earnings rise.

ZincIn mid-2004, world zinc prices (denominated in US dollars) were signifi cantly above last year’s levels, refl ecting solid market fundamentals of strong economic and industrial production growth, particularly in China and the United States, modest supply growth and declining stocks (albeit from a relatively high base). Later this year and in 2005, prices are forecast to ease mainly as a result of slowing world demand, principally in China and the United States, and capacity expansions in some key producing re-gions.

Prices to ease in 2005With world zinc consumption growing strongly, monthly average zinc prices remained above US$1000 a tonne (or US45c/lb) in the fi rst fi ve months of 2004. Prices peaked in March at above US$1100 a tonne, (US50c/lb), before easing to an average of US$1036 a tonne (US47c/lb) in May. The recent decline in world zinc prices was, in large part, in response to the

• Simon Richmond • +61 2 6272 2271 • [email protected]


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increasing prospect of slower economic growth in China and fi rming expectations in fi nancial markets about an increase in US interest rates. With zinc consumption closely correlated with manufacturing and construction activity, both of these developments would contribute to slower growth in zinc consumption in the short term.

Nevertheless, growth in zinc consumption is expected to remain relatively strong (but slow-ing) in the remainder of 2004. With zinc produc-tion forecast to increase only modestly, western world zinc stocks are likely to fall in the near term. This should provide support for zinc prices to remain above US$1000 a tonne in the next six months or so. These increases are supported by ABARE’s leading indicator of zinc prices that suggests that prices will rise in year on year terms over the remainder of 2004. In full year terms, world zinc prices are forecast to average $1050 a tonne (US48c/lb) in 2004, a rise of 27 per cent from last year.

In 2005, zinc stocks are expected to rise as production increases in response to cur-rent favorable prices and consumption growth slows as a result of slower economic growth in China and higher interest rates in the United States. Consistent with the expected increase in stocks, world zinc prices are forecast to decline by nearly 5 per cent to average $1000 a tonne (US45c/lb) in 2005.

Consumption growing strongly in 2004, easing in 2005In response to strong growth in industrial pro-duction, world zinc consumption increased sig-nifi cantly in early 2004, particularly in China, other Asian countries and the United States. This strong growth in consumption is forecast to ease in the short term largely as a result of assumed slower economic growth in China and the United States.

Slower economic growth in China is expected to lead to slower growth in demand for galvanised steel (and hence zinc), especially in the building construction and automotive manufacturing industries. Because China is a major destination for exports from its neighboring countries, there would be adverse fl ow-on effects on other Asian countries, including Japan, the Republic of Korea and Chinese Taipei, if economic growth in China were to slow signifi cantly. However, in preparing the current set of zinc forecasts, eco-nomic growth in China is assumed to be 8.0 per cent in 2004 and 7.3 per cent in 2005. Based on these assumptions, zinc consumption in China and other Asian countries is forecast to remain relatively fi rm, although easing in the latter part of 2004 and in 2005.

An assumed increase in interest rates in the United States is expected to adversely affect growth in zinc consumption in that economy in 2005. Higher interest rates could have a par-ticularly signifi cant impact on the construction

Zinc price and leading indicator Monthly percentage change year on year, ended May 2004

PriceLeading indicator

1993 20011995 1997 1999 2003

–40

–20

%

20

40

60

Zinc outlook

2003 2004 f 2005 f %

World change

Production kt 9 860 10 000 10 350 3.5Consumption kt 9 731 10 120 10 300 1.8Closing stocks kt 1 200 945 985 4.2– weeks consumption 8.8 6.7 6.9 3.0Price US$/t 828 1 050 1 000 – 4.8

USc/lb 37.6 47.6 45.3 – 4.8

2002 2003 2004-03 -04 s -05 f

Australia Mine output kt 1 529 1 369 1 440 5.2Exports – ores and conc. kt 1 913 1 910 1 954 2.3– refined kt 486 410 414 1.0– total value A$m 1 427 1 248 1 487 19.2



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sector in the United States, which is a heavy user of galvanised steel.

Taking the above factors into account, world zinc consumption is forecast to increase by 4 per cent in 2004 slowing to 2 per cent in 2005. This compares with growth of 3.7 per cent in 2003.

Zinc production forecast to increaseSignifi cant zinc capacity closures in the past two years, combined with limited new capacity coming on stream, have led to weaker growth in both mine production and smelter output. How-ever, the recent higher prices and an improved price outlook have encouraged a number of companies to announce higher production from existing mines and investment in new capacity. The majority of the increase is expected to occur during 2005.

World mine output is forecast to rise by 1.5 per cent in 2004 and 2.7 per cent in 2005 (to 10 million tonnes). Higher mine output is expected to come from the recently opened Skorpion mine in Namibia, Hudson Bay’s new 777 devel-opment in Canada and the currently expanding Tara mine in Ireland. Output expansions are also expected at the Rampura Agucha mine in India and the Lanping mine in China. Cominco’s large Lennard Shelf mine in Western Australia and the Pend Oreille mine in the United States are also scheduled to be reopened.

World refi ned zinc output is forecast to grow by 1.4 per cent in 2004 and 3.5 per cent in 2005 (to 10.4 million tonnes). Higher refi ned zinc

output is expected to come from the Skorpion facility in Namibia and planned new smelters in Kazakhstan and China. Output from existing smelters in China could also increase if current electricity shortages ease as economic growth slows.

Australia’s export earnings to riseWith lower output from Peryilia Mines’ Broken Hill operation (as a result of a haulage shaft problem) and Xstrata’s Macarthur River mine (diffi cult seasonal conditions), Australia’s mine output is estimated to fall by 10 per cent to 1.37 million tonnes in 2003-04.

Recent strong zinc prices and a depreciation of the Australian exchange rate are expected to lead to an increase in Australian mine produc-tion, including a possible restart of production at the Lennard Shelf operations. Under the assumption that the Lennard Shelf operations will reopen in early 2005, mine output is fore-cast to rise by 5 per cent to 1.44 million tonnes in 2004-05.

As a result of the closure of Cockle Creek smelter last year, Australia’s refi ned zinc output is forecast to fall from 577 000 tonnes in 2002-03 to 511 000 tonnes in 2003-04 and 504 000 tonnes in 2004-05.

Refl ecting higher concentrate shipments and an assumed lower Australian exchange rate, export earnings from zinc are forecast to be $1.49 billion in 2004-05, a rise of 19 per cent from an estimated $1.25 billion in 2003-04.


Ch i na e n e r g y

CHINA’S ENERGY SECTORrecent developments and outlookKaren Schneider

• China is the world’s second largest consumer of primary energy after the United States and a key player in world energy markets. China’s energy sector, including growth in energy de-mand and the share of different fuels in total energy consumption, has undergone major transformation in recent years.

• Coal consumption in China, which declined between 1997 and 1999, reverted to strong growth in 2003. Oil demand is burgeoning on the basis of strong growth in transport activ-ity, and expanding gas supply infrastructure is starting to underpin increases in gas con-sumption.

• At the same time, China’s energy sector is gradually becoming more commercially ori-ented, with a greater proportion of coal sup-ply priced through direct negotiation between buyers and sellers, and the commencement of market based reforms in the electricity sector.

• Continuing growth in China is putting pres-sure on domestic energy resources and China is becoming a larger importer of coal, oil and gas. This has the potential to make China a strategically important player in global en-ergy markets and to provide increased export opportunities for Australia’s energy supply industries.

Strong growth in economic output, especially in industrial production, reportedly led to a sig-nifi cant increase in China’s total primary energy consumption in 2003. This follows strong growth

in the previous year and reverses the downward trend in energy consumption in the late 1990s. A major driver of growth in 2003 and early 2004 was increased output in the electricity, iron and steel, aluminium and chemicals sectors.

Coal continues to dominate the fuel mix in China but its share is slowly declining (fi gure A).

In 2001 coal accounted for 69 per cent of total primary energy consumption, compared with 80 per cent in 1990 (IEA 2003). Oil accounted for around a quarter of primary energy consumption in 2001 and was used mostly in the transport sec-tor. While consumption of gas remains a minor proportion of energy consumption, at less than

• Karen Schneider +61 2 6272 2366 • [email protected]

China's primary energy consumption, by fuelA

%

20

40

60 1990

2001

Hydro and other renewables

NuclearGasOilCoal

Ch i na e n e r g y


4 per cent in 2001, it is expected to grow more rapidly than other fuels over the next decade and beyond.

Coal shortages emergeChina’s coal production in 2003 was a record 1.6 billion tonnes. Production grew by a further 16 per cent in the fi rst quarter of 2004. This fol-lows steady increases from a production low in 1997 of around 1 billion tonnes and was driven by strong increases in demand from all key sectors, but especially electricity and steel. A notable feature of production in 2003 was the increase in the share of coal from local town and village mines (fi gure B). These mines have been the subject of closure orders from the central government in recent years as they frequently employ unsafe and illegal production methods and are considered to underutilise existing coal reserves. Nevertheless, the increase in produc-tion in 2003 was insuffi cient to meet the growth in China’s demand for coal and shortages of both thermal and metallurgical coal were reported to have been widespread throughout the country. Physical shortages of coal were exacerbated by high prices and by rail transport constraints.

A signifi cant proportion of China’s thermal coal is subject to administrative price controls and all of this is sold to the major state owned electricity producers. Prices for the remaining

thermal coal and all metallurgical coal are deter-mined through direct negotiation between sellers and buyers. In this segment of the market, prices in 2003 are reported to have risen strongly. Some electricity producers were reportedly reluctant to purchase coal at the prevailing rates as they were unable to pass on higher production costs to their end users. This contributed to power blackouts in some parts of the country.

Bottlenecks in the transport system also contributed to coal shortages in some regions of China in 2003. Increased demand for transport from all sectors as a result of strong economic growth strained an already overstretched rail network and limited the ability of planners to switch rail allocation in favor of coal. Coal stocks in some regions reportedly reached record lows in 2003.

Despite tightness in the domestic market, China’s coal exports in 2003 were 12 per cent higher than in the previous year. Exports of ther-mal coal reached 81 million tonnes, compared with 71 million tonnes in 2002, while metal-lurgical coal exports were 13 million tonnes, slightly below their 2002 level (fi gure C). How-ever, toward the end of 2003 it was apparent that while China was continuing to meet its long term coal export commitments it was notably absent in the international thermal coal spot market. This made a signifi cant contribution to increases in international spot coal prices.

In order to overcome some of the domestic coal supply gap, China increased its imports of

China's coal production, by mine typeB

Mt

200

400

600

Township and village enterprise minesLocal state minesKey state mines

2003200220012000

China's coal exportsC

Mt

20

40

60

2000 2001 2002 2003

MetallurgicalThermal

Ch i na e n e r g y


coal in 2003. Thermal coal imports reached 8 million tonnes and metallurgical coal imports were 2.6 million tonnes. Most of the latter were of hard coking coal.

One of the outcomes of the domestic coal shortages has been a shift in China’s coal policy away from the export focus that has been domi-nant since 1999 to one of ensuring that domes-tic markets are satisfi ed. This is being seen in measures such as a reduced export target of 80 million tonnes for 2004 — encompassing both thermal and metallurgical coal; the slow release of export licences; changes to the VAT rebates on exported coal; and increases in other charges on coal exports that bring the treatment of exports into line with that of coal sold on the domestic market.

Export licences for 30 million tonnes of coal were released in January 2004 and a further 28.5 million in May. This would allow for a further 21.5 million tonnes to be released in the second half of the year but this could be reduced if the Chinese authorities judge that the domestic mar-ket has higher priority than exports. In addition, the situation continues to limit China’s ability to participate in international spot market coal trade.

The VAT rebate for thermal coal was reduced from the full 13 per cent to 11 per cent from 1 January 2004. The rebate on metallurgical coal and on coke fell from 13 per cent to 5 per cent from 1 January 2004 and was removed entirely on 24 May 2004. This signifi cantly reduces the price incentives to export coal compared with selling on the domestic market. It also has the effect of increasing China’s export prices on international markets.

The announced removal of other measures that were previously designed to support coal exports is also likely to have similar impacts. These include the removal of the exemption from the railway construction fee on four major west–east rail lines. This had been set at US$0.39 cents a tonne kilometre for exported coal. The exemption is estimated to have been worth US$2.45 a tonne of exported coal (Ball et al. 2003). In addition, exported coal will now pay the port construction fee that is applied to domestic coal, equal to around US84 cents a

tonne, and the port loading fee for exported coal will be set at the same rate as domestic coal. Together, these additional charges could increase the fob price of China’s coal exports by around US$4.00 a tonne.

While these measures are likely to have an impact on domestic supply in the short to medium term, there are underlying issues in China’s coal sector that need to be addressed in order to ensure long term supply security. In particular, while China has large reserves of coal, investment in key parts of the coal supply chain has not kept pace with demand. This is partly a result of the transfer of ownership of the key state owned mines from the central govern-ment to the provinces and the inability of the provincial administrations to expand fi nancial support for the sector. This should be addressed as the profi tability of the coal sector increases and could be assisted by creating more attrac-tive conditions for foreign investment in the sector. The security of coal supply could also be enhanced by encouraging increased imports of coal, especially in regions of China that are far from domestic coal reserves.

Oil demand rises stronglyWhile China’s domestic oil production remains relatively unchanged at 3.4 million barrels a day, much of this is produced from old fi elds in the eastern onshore basin that are in slow decline. Output from China’s oldest oil fi eld, Daqing, is forecast to fall slowly over the remainder of this decade and there are limited prospects for production increases from other fi elds. It is expected that China’s total oil production will decline gradually over the medium to longer term (IEA 2002).

Oil consumption was a record 5.3 million bar-rels a day in 2003, with China overtaking Japan to become the world’s second largest consumer of oil. The International Energy Agency recently reported that China’s fi rst quarter 2004 oil con-sumption had again risen sharply by 18 per cent on a year on year basis to 6.2 million barrels a day (IEA 2004).

The transport sector accounts for around 40 per cent of China’s oil product consumption and

Ch i na e n e r g y


is the largest source of growth in oil demand (IEA 2003). This situation is likely to acceler-ate over the medium term, with road transport playing a key role in future demand. At the end of 2002, China had almost 10 million private motor vehicles, compared with 816 000 in 1990 (APERC 2004). The volume of passenger traffi c on highways, measured as person kilo-metres, increased almost three times over the same period and road freight traffi c, measured as freight tonne kilometres, more than doubled (APERC 2004).

Aviation is also a rapidly growing component of the transport sector for both passengers and freight. Passenger miles traveled by air increased more than fi ve times between 1990 and 2002 and freight traffi c by a factor of more than six (APERC 2004). Rising personal incomes and commercial activity are expected to result in continued strong growth in oil demand in the transport sector.

China’s net oil imports rose sharply to an aver-age 1.9 million barrels a day in 2003 and reached an average 3.0 million barrels a day in the fi rst two months of 2004. This implies that China’s oil import dependency was 36 per cent in 2003 and potentially higher in 2004. This compares with a dependency ratio of 12 per cent only fi ve years ago. Around 50 per cent of China’s crude oil imports are sourced from the Middle East and this share is likely to increase with the apparent failure of China to secure Russian approval for the proposed Angarsk to Daqing oil pipeline.

Given the limited forecast increases in oil pro-duction it is likely that China’s oil import depen-dence will continue to rise over the medium to longer term (fi gure D) and net imports could exceed 5 million barrels a day by 2015. This will make China an increasingly signifi cant partici-pant in world oil markets and it can be expected to exert a stronger role in the determination of international oil prices.

In response to the increasing dependence on oil imports, China’s energy planners are paying considerable attention to issues of oil secu-rity. The establishment of strategic petroleum reserves was an objective of the Tenth Five Year Plan (2001–2005) and is being considered by the National Development and Reform Commission

(NDRC). The National Oil Reserve Offi ce was established in the NDRC in 2003 and is cur-rently preparing the fi rst phase of the National Oil Reserve Base. It is intended that strategic reserves will be established between 2006 and 2008 and that the level of reserves will rise to 90 days of net imports by 2015. Four oil storage sites have reportedly been selected and it is likely that the reserves will be funded by the central government and the state owned oil companies.

Other measures to address liquid fuel security include the construction of China’s fi rst coal liquefaction plant by the Shenhua Coal Lique-faction Corporation, with an expected start date of 2007. The facility will be located in Inner Mongolia and will have a capacity of 7.3 million barrels of petroleum products a year (EIA 2004). Encouragement is also being given to China’s oil companies to participate in the exploration and development of overseas oil reserves. The China National Petroleum Corporation has acquired oil concessions in Venezuela, Sudan, Iraq, Iran, Peru and Azerbaijan, and Sinopec has begun seeking to purchase overseas upstream assets. CNOOC has also purchased an upstream equity stake in the small Malacca Strait oil fi eld in Indonesia (EIA 2003).

Natural gas supply developsThe planned expansion of natural gas in China’s energy mix is also expected to contribute to over-all energy security objectives. China’s natural

China's oil production and consumptionD

mbd

2

4

6

8

1980 19901985 1995 2005 20102000 2015

Production

Net imports

Net exports

Consumption

Ch i na e n e r g y


gas consumption remains low relative to other fuels but recent developments in the sector are likely to underpin rapid expansion in gas supply. In 2003, natural gas met approximately 3 per cent of primary energy consumption and was used mainly in the industry sector, particularly as a feedstock for fertiliser production. The commercial/residential sector and electricity generation are smaller but increasingly important consumers of gas in China.

Since the mid-1990s, natural gas has increased in signifi cance in China’s short and long term energy planning. It is now the focus of accel-erated investment in exploration, production, transmission and LNG imports. The government has embarked on a major expansion of gas infra-structure, including pipelines and power plants, refl ecting the large domestic reserves base and increasing environmental pressures associated with the combustion of coal.

In 2003 all gas consumption was met from domestic sources. This included local fi elds in Sichuan and surrounding provinces and offshore reserves in the East China Sea. A major develop-ment in the past year was the completion of the eastern portion of the west–east pipeline, a major infrastructure project designed to bring gas from Xinjiang province in the far west of the country to some of the rapidly growing demand centres in the east. These include Shanghai and the prov-inces of Henan, Anhui, Jiangsu and Zhejiang.

Additional gas reserves in the central Ordos basin will also be connected to the pipeline. The project is expected to be fully operational in late 2004 and should signifi cantly increase gas vol-umes in the eastern provinces.

A further development in China’s gas market has been the commitment to import liquefi ed natural gas (LNG). In 2001, China approved the construction of the country’s fi rst LNG receiving terminal in Guangdong province. In 2002, Australia’s North West Shelf project was granted the foundation contract to supply around 3.3 million tonnes of LNG a year to the termi-nal for 25 years (table 1). Supply is expected to begin in mid-2006. A second phase of the Guangdong terminal is also under consideration and could bring supply capacity to more than 6 million tonnes a year by the end of the decade. In conjunction with the terminal, Guangdong province is constructing six 320 megawatt gas fi red power plants and converting some existing oil fi red plants to LNG.

Shortly after the Guangdong contract was awarded, China announced that Indonesia’s Tangguh project had been selected to supply a second LNG terminal in Fujian province. The contractual volume is 2.6 million tonnes a year for 25 years, with supply not expected to com-mence before 2007.

There have also been several recent announce-ments on possible additional LNG terminals that could begin operation toward the end of the decade. These include a terminal in Zhejiang province by 2009, with an import capacity of 3 million tonnes of LNG a year. Other proposed terminals are in Tianjin, Shanghai and Dalian (table 1). In 2003, Australia’s Gorgon gas project entered into an agreement with the China National Offshore Oil Company to supply China with 100 million tonnes of LNG over a 25 year period.

In the medium to longer term, China also has options to import natural gas by pipeline from neighboring Russia and some of the central Asian republics. A pipeline from the Kovykta fi eld near Irkutsk in eastern Siberia to north east China, with a possible extension to Beijing, was the subject of a recent feasibility study. The pipeline has not yet received approval from the governments involved and several outstanding

1 Possible LNG receiving terminals, China

Operator Capacity Startup

Mt/yrUnder constructionShenzen, Guangdong CNOOC 3.6 2006Putian, Fujian CNOOC 2.6 2007

ProposedGuangdong Phase 2 CNOOC 2.0–3.0 2008Ningbo, Zhejiang CNOOC 3.0 2009Tianjin CNOOC 3.0 2010Shanghai CNOOC 3.0 2008Qingdao, Shandong Sinopec 3.0 2010Nantong, Jiangsu CNOOC – –Jiangsu PetroChina – –Dalian, Liaoning CNOOC – –

Ch i na e n e r g y


issues, including pricing, are yet to be resolved. It is unlikely that such an international pipeline option will be economically viable over the next decade (Schneider et al. 2003).

Electricity capacity constrainedThe electricity sector in China is dominated by coal fi red generation (fi gure E) and is a major consumer of China’s coal output. Power genera-tion capacity in China reached 390 gigawatts in 2003 compared with 200 gigawatts in 1995 (Wu Yin 2004).

The power sector has come under increasing pressure over the past two years as a result of rap-idly increasing demand combined with emerg-ing supply side constraints. On the demand side, the rapid expansion has been a result of strong economic growth and rising personal incomes that have contributed to increasing residential demand for power. On the supply side, major factors have included underinvestment in new capacity in recent years, a shortage of hydro-power capacity because of drought conditions in some parts of China, and the recent coal supply shortages discussed above.

Electricity production grew nearly 16 per cent in 2003 (National Bureau of Statistics 2004) but was still not suffi cient to meet demand and power blackouts were widespread. In an attempt to overcome the tight supply situation, some power producers have reportedly been running their

generators at unprecedentedly high levels, leav-ing little time for maintenance and repairs, as well as bringing previously decommissioned power plants back on line. Provincial governments are also understood to have turned a blind eye to emissions of major pollutants from older power plants and have not been enforcing environmental levies for breaches of emission standards.

The impacts of the power shortages have been severe, with production at major industrial users, including steel mills and chemical plants, inter-rupted. As a result of the unstable power sup-ply, shipyards in Shanghai, for example, have reportedly operated at less than full capacity, despite full order books. Other industries have substituted diesel fuel for electricity but at sig-nifi cantly higher cost.

Electricity consumption is forecast to increase by 11 per cent in 2004, while generating capac-ity is expected to expand by 9 per cent. Even with 37 000 megawatts of new capacity expected to come on line in 2004, the supply–demand gap is likely to widen to 30 000–40 000 megawatts. Unless there is a signifi cant slowdown in eco-nomic growth, this situation is likely to persist for several years and sizable investment will be required to meet projected demand. Current plans are that coal will remain the dominant fuel in the power system but that increases in natural gas, hydro and nuclear capacity will also be important.

Key developments in the power sector are the interconnection of regional grids and the intro-duction of reforms that are designed to increase effi ciency and enhance the prospects for compe-tition in power supply.

In terms of grid interconnection, the west–east power supply scheme is under construction and is designed to bring power from the north west, the central west and the south west to the rapidly growing eastern regions. In the northern part of the scheme, coal fi red power plants in Inner Mongolia, Shanxi and Shaanxi, and hydropower plants in Gansu, Qinghai and Ningxia are being developed to supply electricity to Beijing, Tian-jin and other northern Chinese cities. Seven gigawatts of power is expected to be available by 2005, 18 gigawatts by 2010 and 40 giga-watts by 2020. In the central regions, up to 45

China’s electricity generation, by fuelEHydro and other renewables 19.0%

Nuclear 1.2%Natural gas 0.4%

Oil 3.2%

Coal 76.2%

Ch i na e n e r g y


gigawatts of power is projected to be provided from hydropower capacity in Sichuan and Gui-zhou provinces to the middle and lower Yangtze regions and parts of south China by 2020. And in the southern parts of the scheme, hydropower in Yunan and Guizhou is being developed for transmission to rapidly growing southern Chi-nese cities (FACTS Inc. 2003). These develop-ments are designed to strengthen the security and stability of China’s electricity supply system and to improve the capacity to deal with supply contingencies (Wu Yin 2004).

In March 2002, China’s State Council issued a Plan for Electric Power System Reform. This document sets out the basic principles of power sector reform, including the dismantling of monopolies, the introduction of competition through the establishment of fi ve power grid companies and the development of the State Electricity Regulatory Commission. To date, two power grid companies have been estab-lished. These are the Northeast China Electric Power Network Company and the East China Electric Power Network Company.

Energy outlook remains challengingUnder the pressure of strong economic growth, the energy demand–supply balance has become strained in China and the energy outlook is chal-lenging. Even if economic growth slows to the government’s target rate of 7–8 per cent, signifi -cant investment will be required to meet energy demand growth, not only in the electricity industry but in the coal and gas sectors as well. At the same time that China endeavors to meet its energy supply requirements, it is struggling to ensure that this is achieved in as environmentally sustainable a manner as possible. The policy challenge in this context is magnifi ed because of China’s signifi cant dependence on coal.

Regardless of the detailed outcomes, the magnitude and direction of developments in China’s energy sector will have increasingly important consequences for world energy mar-kets. For coal, the increasing emphasis on sup-plying domestic demand is likely to mean that China’s presence on export markets, particularly in spot markets, will be more volatile than in

recent years and will create greater uncertainty for other market participants. Increasing oil con-sumption and stable or declining production will certainly make China a more signifi cant deter-minant of international oil prices. And China’s growing demand for liquefi ed natural gas will be one of the key factors that drives expansion in global liquefaction capacity and price trends in the LNG market. In all of these areas, forecast trends in China will provide increased opportu-nities for competitive energy exporters, either in China’s domestic market, as in the case of oil and gas, or potentially in third markets as in the case of coal.

ReferencesAPERC (Asia Pacifi c Energy Research Centre)

forthcoming 2004, Energy in China, Tokyo.Ball, A., Hansard, A., Curtotti, R. and Schneider,

K. 2003, China’s Changing Coal Industry: Implications and Outlook, ABARE eReport 03.3, Canberra.

EIA (Energy Information Administration) 2003, China: Country Analysis Brief, Washington DC.

—— 2004, International Energy Outlook 2004, Washington DC.

FACTS Inc. 2003, China Energy Update: A Quarterly Briefi ng on Energy and Economic Developments in China, Honolulu, November.

IEA (International Energy Agency) 2002, World Energy Outlook, OECD, Paris.

—— 2003, Energy Balances of Non-OECD Countries, OECD, Paris.

—— 2004, Monthly Oil Market Report, OECD, Paris, April.

National Bureau of Statistics 2004, quoted in Business English Daily, Beijing, 20 May.

Schneider, K., Ye Qiang, Curtotti, R., Wu Zhon-ghu, Liu Xiaoli, Gao Shixian, Jiang Xinmin and Su Zhengming 2003, Natural Gas in Eastern China: The Role of LNG, ABARE Research Report 03.1, Canberra.

Wu Yin 2004, Electricity sector development strategy in China, Paper presented at the World Coal Institute/International Energy Agency/China National Coal Association Workshop on Coal Industry Investment: the Outlook to 2030, Beijing.


Ch i na m i n e r a l s

CHINA’S MINERALS SECTORstrong growth providing opportunities for AustraliaAndrew Maurer, Tristan Wells, Robert Curtotti, Trevor Johnston and Ian Haine

• Developments in China’s minerals and met-als sector have important implications for the Australian economy through the impacts on demand for Australia’s minerals exports. For most mineral commodities, China has be-come an important destination for Australian exports. The value of Australia’s mineral ex-ports to China has risen rapidly in the past fi ve years — from $1.3 billion in 1997 to around $3 billion in 2003.

• However, China has also become a rival producer of metals such as aluminium and the ready availability of labor and capital are likely to boost China’s production, and possibly exports, of other processed metals.

Over the past decade, strong growth in China’s economy has had a signifi cant impact on global consumption of mineral commodities. In 2003, China’s economic growth of 9.1 per cent was slightly higher than the average rate of 8.9 per cent achieved over the past decade. This compares with OECD economic growth of 2.0 per cent in 2003 and 2.6 per cent over the past decade.

China’s industrial production has grown even more strongly, averaging more than 13 per cent a year over the past ten years, compared with OECD growth of just 2.2 per cent over that period. As a result, China is now ranked fourth in the world in terms of the value of industrial output and rivals the United States as the world’s principal consumer of minerals and metals.

However, concerns have emerged about the sustainability of China’s rate of economic growth and hence demand growth for miner-als and metals. As a result, Chinese authorities have implemented a number of measures in an attempt to reduce growth in money supply and lending to sectors believed to be expanding too rapidly — namely steel, aluminium, car manu-facturing and property development.

If these measures prove successful, economic growth is expected to slow moderately in 2004 and 2005 and demand for mineral commodi-ties is expected to continue growing, albeit at a slower pace than in recent years. However, if the current measures are ineffective in limiting economic growth, more stringent measures may be applied that lead to a more severe drop in eco-nomic growth later in 2004 and in 2005. Such an eventuality would likely have adverse impacts on world economic growth, and therefore also on world demand and prices for mineral com-modities.

The economic transformationChina’s economy that was predominantly agri-cultural in the late 1970s has been progressively industrialised over the past twenty years. The associated structural changes have been rapid, with expanding manufacturing and service industries supporting rising levels of domestic income. Despite rapid economic growth and industrialisation, China remains a developing country with gross domestic product (GDP) per person still well below that of industrialised • Andrew Maurer +61 2 6272 2134 • [email protected]



nations such as the Republic of Korea and Japan (fi gure A).

The industrialisation of China’s economy has been promoted by a range of liberalisa-tion measures. Since 1978 the government has eased restrictions on private ownership, allowed greater movement of people between the prov-inces and cities and opened up various regions as free trade zones. Barriers to trade have also been lowered signifi cantly. The average tariff rate of 47 per cent in 1991 fell to around 14 per cent by 2001 (Heritage Foundation, www.heritage.org).

China’s entry into the World Trade Organi-sation (WTO) in 2001 also signals that further reforms are in prospect as China progressively complies with the requirements of WTO mem-bership. China’s government has indicated an

intention to lower trade barriers further and to relax restrictions on direct foreign investment.

Since 1990, foreign investment in China has increased more than fi vefold (fi gure B) and China has been the largest recipient of foreign investment outside the United States since 1974. Most of this investment has been directed into export oriented manufacturing industries and commercial construction, thus providing an important contribution to the industrialisation of the economy.

Phases of economic developmentAs economies progress through different stages of development, the relative importance of different sectors of the economy changes. Less developed economies are typically more dependent on agriculture. As economies become industrialised the manufacturing sector grows in relative importance through increases in domes-tic use of such products and increases in exports of manufactures. Manufacturing exports from developing economies are usually more compet-itive than exports from more developed nations because of relatively low production costs asso-ciated with lower wages and safety and environ-mental standards. In more developed economies the service and information sectors tend to make a larger contribution to economic growth.

Implications for metals consumptionGrowth in minerals and metals consumption also varies in different stages of economic development. Metals consumption per person in less developed agricultural economies is low. However, the expansion in manufacturing and construction activity associated with the process of industrialisation supports rapid growth in minerals and metals consumption in both abso-lute and per person terms.

In more developed economies, where the information and services sectors are more important, total metals consumption may grow, but metals consumption on a per person basis is likely to fall. Figures C, D and E show that metals consumption per person is declining in the developed Japanese economy but is still ris-ing rapidly in the newly industrialised Korean economy.

Gross domestic product per personin purchasing power parity terms

US$’000

1991 1993 1995 1997 1999 2001 2003

A

Korea

Japan

China

5

10

15

20

25

Total foreign investment in China

$USb1991 1993 1995 1997 1999 2001 2003

�

10

20

30

40

50

60



Even though China is one of the world’s largest metals consumers, per person metals consumption remains substantially below that of Japan and Korea. This refl ects China being in the early stages of the economic development process. However, as economic development continues, both domestic consumption and exports of metals intensive products will rise. As a result, metals consumption will rise on a per person and absolute basis. Given that China already consumes signifi cant quantities of met-als, the medium term outlook for growth in con-sumption is very positive.

As economic development leads to higher disposable incomes in China, durable goods consumption is likely to rise. As China has a large population, there is signifi cant potential

for China’s growth in durable goods consump-tion to translate into increased global durable goods production and, hence, increased metals demand. Over the past decade not only has there been signifi cant growth in the manufacture of durable consumer goods such as televisions, air conditioners and computers in China, there has also been a steady rise in the household owner-ship of such products (fi gures F and G).

Private motor vehicle ownership in China has increased nearly tenfold since 1990, with growth rates averaging 22 per cent a year since 1997 (fi gure H). However, private vehicle ownership accounts for only 43 per cent of the total motor vehicles used for civilian purposes. There is sig-nifi cant growth potential for this market as less than 1 per cent of the population currently owns

Consumption of steel per person

kg

1991 1993 1995 1997 1999 2001 2003

�

200

400

600

800Korea

Japan

China

Consumption of copper per person

kg

1991 1993 1995 1997 1999 2001 2003

�

5

10

15

20 Korea

Japan

China

Consumption of aluminium per person

kg

1991 1993 1995 1997 1999 2001 2003

�

5

10

15

20

Korea

Japan

China

China’s manufacture of durable goods�

30

million

40

10

20

50

60 1990199520002003

Micro-computers

Air conditioners

Color televisions



a motor vehicle. In recent years the manufacture of motor vehicles has also grown dramatically, from low levels in the early 1990s. In 2002, motor vehicle production grew by 30 per cent, as several major global manufacturers relocated production bases to China.

There has been signifi cant public sector in-vestment in infrastructure in China, such as in the Three Gorges dam, pipelines, electricity gen-eration and transmission, transport and commu-nications (fi gure I). Construction spending in China increased from 0.95 billion yuan in 1990 to 15 billion yuan in 2001. While infrastructure development has been rapid, it has not been suf-fi cient to keep pace with domestic requirements. For example, the lack of adequate electricity supply in many provinces is curtailing industrial

production growth and leading to power losses that negatively affect businesses and house-holds. Further, the lack of suffi cient internal transport infrastructure is slowing the supply of raw material imports (such as iron ore) that are required to boost industrial output. Growth in infrastructure development and spending will continue to boost minerals and metals consump-tion in China over the medium term.

Metal is considered to be consumed when it is transformed into a further processed product, such as in consumer appliances or in the con-struction of a building. As a result, part of the measured minerals and metals consumption in China is used in the manufacture of goods that are exported. If these exports are simply

replacing goods that would have been produced elsewhere there is no net growth in world metals consumption, there is only a change in the geo-graphic distribution of that consumption. How-ever, low manufacturing costs in China are likely to have led to a reduction in the price of metals intensive products relative to other goods. When this occurs, world consumption of manufactures is higher than it otherwise would have been and so to is the consumption of minerals and metals.

Risks to growthConcerns have emerged about the sustain-ability of China’s rate of economic growth and

Motor vehicle private ownership and manufacture in China

million1990 1992 1994 1996 1998 2000 2002

�

2

4

8

6Private ownership

Manufacture

Investment in public goods and infrastucture in China

yuanbillion

1991 1993 1995 1997 1999 2001

�

100

200

300Transport, storage and communications

Manufacturing

Electricity, gas and water

China’s urban household ownership of durable goods�

30

Units per 100 urban households

40

10

0

20

50199019952000

Air conditioners

Color televisions

Washing machines

Refrigerators



hence demand for minerals and metals. As a result, China’s authorities have implemented a number of measures in an attempt to reduce growth in money supply and hence reduce eco-nomic growth. For example, the government has increased the issue of bonds and has also increased the reserve requirements for com-mercial banks.

Further, the government has increased the equity participation requirement for investment in sectors believed to be expanding too rapidly — namely steel, aluminium, car manufacturing and property development. Companies wishing to borrow funds for developments in these sec-tors were previously required to provide 20 per cent of the required equity. Steel projects now require 40 per cent of the equity to be provided by the proponent companies, while projects in the other targeted sectors need to provide 25 per cent of the equity.

ABARE’s forecasts assume that China’s authorities will be successful in reducing eco-nomic growth to 8 per cent in 2004 and 7.3 per cent in 2005. Such an outcome is consistent with a ‘soft landing’. If, however, the current policies are ineffective in reducing economic growth, more stringent measures may be applied that lead to a more severe drop in economic growth later in 2004 and in 2005. Such a ‘hard land-ing’ would be likely to have adverse impacts on world economic growth, and thus also on world demand and prices for mineral commodities.

ABARE assumes that the Chinese economy will grow at a rate of around 8 per cent over the medium term. However, the potential economic, social and political impacts of a ‘hard landing’ may reduce the medium term economic growth path. This would have signifi cant implications for mineral commodity markets.

Modeling the impact of different growth pathsTo quantify the likely impacts of the potential future growth in China’s economy on individual Australian commodity sectors, ABARE’s global trade and environment model, GTEM, is used in this study. GTEM is a multiregion, multisector, dynamic general equilibrium model of the world economy. The capacity of GTEM to provide

growth projections for commodities is derived from its ability to capture the often complex and not so obvious interactions among sectors within an economy as well as the bilateral trade fl ows among various economies in the world. Details on the model are available on ABARE’s web site (www.abareconomics.com/research/models/models/html).

The methodology used for the GTEM projec-tions is as follows: fi rst, the model is used to set out a likely outlook (or reference case) for the global economy out to, in this case, 2015 in the absence of any policy changes or external shocks. The development of the reference case is based on a number of key assumptions including the rate of economic growth for individual regions, the fuel mix in electricity generation and, in the case of China, changes in the energy effi ciency in key end uses and total factor productivity in key nonagricultural sectors. The reference case provides an outlook for the Chinese economy with GDP growth of about 8.3 per cent a year over the period 2004–15. This projected growth rate is lower than the offi cial average growth rate of 8.9 per cent over the decade to 2003. As expected, given the development path of China’s economy, growth during the projection period is underpinned by substantial growth in the manu-facturing and services sectors (fi gure J).

To assess the impact of lower growth in China, an additional scenario is simulated by changing the Chinese GDP growth rate over the projection period to an average of 7.3 per cent

China’s growth performance Average annual growth 2004–15�

%

2

4

6

8 Reference caseLow growth

ServicesManu-facturing

EnergyAgricultureReal GDP



a year. This lower GDP growth rate for China accommodates to a certain extent the uncertainty surrounding the future growth of the Chinese economy.

Impact on Australian exportsAustralia’s exports to China are projected to grow strongly in real terms over the period to 2015 in both the reference and low growth sce-narios (fi gure K). Growth in Australia’s exports to China is supported by China’s increased import requirements for both industrial produc-tion and fi nal consumption in each scenario. In the reference case, the real value of Australia’s exports of mineral commodities (all ores and concentrates excluding coal) to China is pro-jected to grow at an average annual rate of 5.7 per cent from 2004 to 2015, after growing by 5.4 per cent a year in the period 1997–2004. The higher future growth in mineral commodity exports (ores and concentrates) over the projec-tion period refl ects the expansion of China’s metal refi ning capacity associated with the industrialisation of the economy. In the lower growth scenario, Australia’s exports of mineral commodities are projected to grow at an average annual rate of around 5.4 per cent a year between 2004 and 2015.

An implication of these results is that Austra-lia’s mineral commodity exports to China may not be very sensitive to growth rates. In the sce-narios modeled, the difference in China’s GDP

growth rate was 1 per cent a year, whereas the difference in growth of Australia’s exports was estimated at 0.3 per cent.

Australia’s nonferrous metal exports are even less sensitive to the changes in China’s economic growth modeled in this exercise, with growth in real value of around 5.6 per cent a year over the projection period in each scenario.

Faster growth in China’s economy is expected to quicken the pace of growth in both domestic demand for metal products and the construction of capacity to produce metals. As a result, in the higher growth reference case, imports of met-als have a lower share of a larger total market compared with the low growth scenario. The net result is that growth in China’s import demand for metals is similar in both the reference and low growth scenarios.

In both cases, projected Australian export growth rates at around 5.6 per cent a year are lower than the rate achieved in the period 1997–2004, over which the real value of Australia’s metal exports to China grew at an average annual rate of 5.9 per cent. The lower growth rate again refl ects the impact of industrialisation of China’s economy in both scenarios whereby expansion of the domestic metal refi ning capacity reduces the growth rate of imports.

Growth in exports of manufactured products from Australia to China is lower in the reference case than for exports of mineral commodi-ties and metals. The real value of Australia’s manufactured exports to China is projected to grow at an average annual rate of 4.3 per cent in the low growth scenario and 4.6 per cent in the reference case in the period 2004–15. These growth rates are both substantially lower than the growth rate of 5.9 per cent achieved in the period 1997–2004. Once again, strong growth in China’s manufacturing sector associated with industrialisation of China’s economy over the projection period reduces growth opportunities for manufactures in each scenario.

While changes in the overall growth in Aus-tralia’s exports of minerals and metals to China is consistent with the broad sectoral developments associated with the process of industrialisation, the outlook for individual commodities differs considerably. GTEM is used to analyse the steel,

Australia’s exports to China Average annual growth 2004–15�

Manufactured goods

Nonferrous metals

Mineral commodities

%

1

2

3

4




aluminium and alumina industries separately, while other commodities are grouped into cate-gories of ores and concentrates and other metals. The discussion of commodities within the broad category is qualitative. The outlook for each of these groups depends on different sensitivities to growth in the various end use sectors in the Chinese economy and different growth rates of domestic production capacity associated with relative costs of production (fi gure L).

Further, while economic growth is assumed to average 8.3 per cent a year in the reference case, growth is likely to fl uctuate around this rate over the projection period.

Aluminium and aluminaChina accounted for nearly 19 per cent of world aluminium consumption in 2003, compared with 4.8 per cent in 1990, and China is now the sec-ond largest consumer behind the United States (21 per cent of world consumption in 2002). Aluminium is consumed mainly in the con-struction, electrical, food packaging and motor vehicle manufacturing industries. There has been signifi cant growth in these industries and future expansion will provide signifi cant support to growth in China’s aluminium demand.

China’s primary aluminium production has increased rapidly in the past decade and, with output of 5.6 million tonnes in 2003 (20 per cent of world primary production), China is the world’s largest producer of primary aluminium. However, substantial amounts of secondary

(recycled) aluminium are produced in the major OECD countries. As a result, China is second to the United States as the largest producer of total aluminium.

China’s aluminium consumption is projected to grow at an annual average rate of 4.8 per cent in the reference case and 4.5 per cent in the low economic growth scenario in the period 2004–15. However, with production also projected to rise relatively strongly, the real value of China’s exports are also projected to grow (at 4.6 per cent a year), leading to a marginal increase in China’s share of world exports in the period to 2015.

The rapid increase in China’s aluminium pro-duction in recent years has contributed to electric-ity shortages in a number of provinces and has raised concerns of overinvestment in the sector. In 2001, China’s State Economic and Trade Com-mission (SETC) issued a directive that the central government would not support any new alumin-ium projects. However, new projects proceeded with the support of provincial authorities.

More recently, the aluminium sector was among the sectors subject to tighter lending restrictions. This is likely to slow development of new aluminium capacity while these measures remain in force. Growth in China’s aluminium production is also constrained by diffi culties in

China alumina and aluminium

2000 2001 2002 2003 s 2004 f

kt kt kt kt ktAluminaConsumption 5 829 6 574 8 499 10 849 11 682

– share of world (%) 12 13 17 20 20

Production 4 339 4 729 5 478 5 934 6 580– share of world (%) 9 10 11 11 12

Net imports 1 490 1 845 3 021 4 915 5 102

Aluminium Consumption 3 499 3 492 4 115 5 194 5 896

– share of world (%) 14 15 16 19 21


Net exports –705 –121 206 370 94

s ABARE estimate. f ABARE forecast.

China’s metals consumption Average annual growth 2004–15�

SteelAluminiumAlumina%

1

2

3

4




sourcing the key raw materials of alumina and electricity. These raw material diffi culties may have a greater impact on the development time-frame of new aluminium smelters in the short term than the new government policies.

If the measures adopted by China’s authorities to moderate economic growth prove effective, aluminium production and exports may rise in 2004 and 2005. Production may increase more freely because of more readily available supplies of electricity and alumina. Slower growth in Chi-na’s economy along with increases in electricity generation capacity may lead to more electricity being available to the aluminium sector. Further, increases in world alumina production capacity in 2005 and 2006 are expected to increase the availability of alumina.

China is expected to remain a net exporter of aluminium in the short to medium term and there is little prospect of signifi cant growth of Austra-lian exports to China in the foreseeable future. China accounted for only 3 per cent of Austra-lia’s aluminium exports in 2003. However, the projected rate of increase in the real value of Australia’s aluminium exports in the reference case (almost 2 per cent a year to 2015), will lead to Australia’s share of world exports rising from 20 per cent in 2004 to 23 per cent in 2015. This growth in export market share is projected to come largely at the expense of the market shares of the aluminium producers among the 25 mem-ber countries of the European Union (EU 25).

As China is the world’s largest producer of primary aluminium, it is also the world’s largest consumer of alumina. In 2003 China produced over 5.9 million tonnes of alumina, consumed almost 10.9 million tonnes and imported the residual of around 4.9 million tonnes. With no signifi cant increases in alumina capacity planned, China’s demand for imported alumina is expected to rise concomitantly.

China’s consumption of alumina is projected to grow at a similar rate to growth in aluminium consumption, rising by an average annual rate of 4.8 per cent in the period 2004–15 in the ref-erence case and 4.5 per cent in the low growth scenario. This is projected to result in the real value of China’s imports of alumina growing at an average annual rate of 5.2 per cent in the

reference case and 4.9 per cent in the low growth scenario over the outlook period.

Australia, as the world’s largest producer and exporter of alumina (32 per cent of total world production in 2003), is in a strong position to take advantage of China’s expected growth in alumina imports. Some of the new alumina refi n-ery developments in Australia are in response to prospective growth in demand in the Chinese market. Rio Tinto has recently stated that the expansion of its Gladstone plant in Queensland is specifi cally to meet increased Chinese demand. Other new alumina projects that are in a position to take advantage of China’s alumina demand include expansions to Comalco’s refi n-ery in Gladstone Queensland, and Nabalco’s refi nery in Gove, Northern Territory.

In the GTEM scenarios, the real value of Australia’s exports of alumina to China are pro-jected to rise at an average rate of 5.2 per cent a year in the reference case and by 4.9 per cent a year in the low China growth scenario over the period to 2015.

Steel and iron oreFrom 1990 to 2003, China’s consumption of crude steel increased from 70 million tonnes to nearly 255 million tonnes, making China the world’s largest consumer of steel. Over the same period, China’s production of crude steel also grew signifi cantly, at 10 per cent a year, to reach 220 million tonnes. As China’s consump-tion of steel exceeds its production, China is a signifi cant importer of steel, with net imports of around 35 million tonnes in 2003. With China’s rapid growth in the manufacturing and construc-tion industries, demand for steel has grown rap-idly over the past decade. It is expected that the growth in the demand for steel will continue to increase strongly.

However, the steel sector has been identifi ed by Chinese authorities as a key sector to target in their attempt to reduce domestic economic growth. The increase in equity requirements and the outright banning of some new steel projects is expected to signifi cantly reduce investment in steel making capacity over the remainder of 2004 and into 2005. However, steel output is expected to continue to rise under the ‘soft



economic landing’ scenario given the level of steel demand expected to be generated at the associated levels of industrial activity and the current production capacity of the industry. However, if China were to experience a ‘hard landing’, the level of steel demand could be signifi cantly lower than expected in the next few years.

Over the period to 2015, China’s steel con-sumption is projected to rise by an average of 5.7 per cent a year in the reference case. This growth is lower in the low economic growth scenario, at 5.3 per cent a year. In both scenarios, China is projected to remain a signifi cant importer of steel in the period to 2015. In the reference economic growth case, the real value of China’s steel imports is projected to rise at an average annual rate of 6 per cent. This growth results in China’s share of the real value of world imports rising from around 7 per cent in 2004 to 11 per cent in 2015. Australia does not export signifi -cant quantities of steel to China.

While China is a signifi cant producer of iron ore (240 million tonnes in 2003) its reserves and mine output are of insuffi cient quantity and qual-

ity to meet the growing demand from steel pro-ducers. As a result, China’s imports of iron ore have grown signifi cantly, rising from 14 million tonnes in 1990 to 148 million tonnes in 2003.

China is currently Australia’s second largest customer for iron ore, surpassed only by Japan. Australian exports of iron ore to China grew by an average of 10 per cent a year from 1990 to 2003. As a result of China’s increasing demand for iron ore, the major Australian producers BHP Billiton and Rio Tinto have embarked on major expansion plans, accelerating developments of mining projects and associated infrastructure. Iron ore exports are not currently modeled separately in GTEM, but are incorporated in an ‘other minerals’ category.

Other minerals and metalsIn GTEM, all metallic mineral ores and concen-trates other than alumina are currently analysed in a single ‘other minerals’ group and all metals other than aluminium and steel are in a single ‘nonferrous metals’ group. China’s share of the real value of world imports of other mineral ores and concentrates is projected to increase from 9 per cent in 2004 to 15 per cent in 2015 in the reference case. The only other signifi cant changes in shares are projected to occur in Japan (down from 17 per cent in 2004 to 14 per cent in 2015) and the EU 25 (down from 36 per cent to 31 per cent over the same period) in the refer-ence case. The rise in China’s demand for these products supports an average annual increase in Australia’s total exports of mineral commodities in this category to China of 5.6 per cent in the reference case and 5.2 per cent in the low eco-nomic growth scenario.

The increase in China’s share will help boost Australia’s share of the real value of world exports of other mineral ores and concentrates from 14 per cent in 2004 to a projected 15 per cent in 2015. South America is also projected to benefi t from increases in China’s import demand, with its share of world exports rising from 24 per cent to 25 per cent between 2004 and 2015.

China is both an importer and an exporter of commodities included in the nonferrous metals

China iron ore and steel

2000 2001 2002 2003 s 2004 f

Mt Mt Mt Mt MtIron oreConsumption 294 309 341 389 426

– share of world (%) 27 29 30 32 33

Production (adjusted fe content) 105 102 108 113 117

– share of world (%) 10 10 10 9 9

Net imports 70 92 111 148 183

SteelApparent consumption 137 169 204 255 276

– share of world (%) 16 20 23 27 27

Production 127 151 182 220 250– share of world (%) 15 18 20 23 24

Net imports 10 18 22 35 30

s ABARE estimate. f ABARE forecast



category. For example, China imports iron ore, refi ned copper and nickel, but is an exporter of refi ned lead and zinc. In the reference case, China’s imports of nonferrous metals grow at an average annual rate of 4.3 per cent over the projection period. China is projected to become a more important market for Australia’s exports of nonferrous metals over this period. China’s share of the real value of Australia’s total exports of nonferrous metals rises from 5 per cent in 2004 to 6 per cent in 2015 in the reference case. The share of Australia’s exports to most Asian countries, other than Japan, also rises over the projection period, while the importance of the EU 25 and the United States declines.

The increase in China’s imports of nonferrous metals supports an increase in Australia’s share of the real value of world exports of this com-modity category from 4.5 per cent in 2004 to 5.5 per cent in 2015 in the reference case. Other signifi cant changes in export shares over the pro-jection period include increases of around 1 per cent for Korea and a decline of nearly 5 per cent for the EU 25.

China’s exports of nonferrous metals are also projected to increase in the reference case, rising at an average rate of 4.8 per cent a year over the period to 2015. However, China is a relatively small exporter of nonferrous metals and this growth results in China’s share of the real value of world exports only increasing from 2 per cent in 2004 to 3 per cent in 2015.

CopperIn the past decade, refi ned copper consumption in China increased by an average of 15 per cent a year, and amounted to around 3.1 million tonnes in 2003. In that year, China was the world’s larg-est consumer of refi ned copper, accounting for 20 per cent of global consumption. In compari-son, since 1990, the rest of the world’s copper consumption grew at only 1.9 per cent a year.

According to the International Copper Study Group, around 50 per cent of copper in Asia is used in electrical and electronic applications. Building construction and transport equipment make up another 30 per cent. Growth in the man-ufacturing of household appliances and electron-ic goods, along with investment in construction

and telecommunications infrastructure, is ex-pected to underpin strong growth in China’s cop-per demand over the medium term.

China’s production of refi ned copper has also grown rapidly. Production of refi ned cop-per in 2003 was 1.8 million tonnes (12 per cent of global output), or about 60 per cent of domestic requirements. Mine production was 0.58 million tonnes (only 4.3 per cent of global output), so substantial imports of both ores and concentrates and refi ned metal were required to meet domestic demand. China’s net imports of refi ned copper were 1.4 million tonnes in 2003. Net imports of unrefi ned copper amounted to over 0.8 million tonnes.

China accounted for just 4 per cent of Australia’s exports of refi ned copper in 2003. However, Australia is a substantial supplier of copper concentrates. China accounted for 32 per cent of Australian concentrates exports in 2003 (370 000 tonnes), up from just 1.1 per cent (6500 tonnes) in 1990.

According to the US Geological Survey, despite several medium size copper deposits in the western provinces of China, production of concentrates is unlikely to rise at the same rate as refi ned production. As a result, China will rely heavily on imports of copper concentrates in the

China copper

2000 2001 2002 2003 s 2004 f

kt kt kt kt ktOres and concentratesConsumption 1 028 1 142 1 185 1 329 1 425

– share of world (%) 7 8 8 9 9


Net imports 578 655 621 794 850

Refi ned metalConsumption 1 928 2 307 2 684 3 065 3 365

– share of world (%) 13 16 18 20 21


Net imports 553 784 1 104 1 293 1 465




medium term. Australia is well placed to supply the growing requirements of the Chinese market, although it is expected that Chile, Indonesia and Peru will compete strongly for the same market.

GoldChina is largely self suffi cient in gold. In 2003, both mine production and consumption were around 210 tonnes. Over the past ten years, China was one of the few countries (along with Indonesia and Peru) where there was signifi cant growth in gold mining. China’s mine output expanded at a rate of 6.5 per cent a year over the period 1990–2003. China now ranks as both the world’s fourth largest producer and fourth larg-est consumer of gold. Around 98 per cent of gold is consumed as jewellery.

Trade in gold (bullion and retail) has been heavily regulated in China. However, China has begun to liberalise its gold markets and regulation is now restricted to the importing and exporting of the metal. The liberalising of the market and increasing personal incomes will support growth in consumer demand for gold as an investment product and for gold jewellery.

China’s gold mining industry is made up of numerous small producers, and many foreign companies are seeking to develop new mines. China’s gold production is expected to increase substantially over the medium term, providing little opportunity for growth in imports. Aus-tralia’s exports of gold to China in 2003 were negligible and there appears little prospect of signifi cant growth in the medium term.

Magnesium

Growth in China’s production of magnesium has been rapid, growing from 5000 tonnes in 1990 to 268 000 tonnes in 2003. In 2003, China was the world’s largest supplier of magnesium, contrib-uting 59 per cent of total world output. While the global market is small (450 000–500 000 tonnes a year), demand for magnesium is expected to grow strongly over the medium to long term. Magnesium’s low weight and high strength make it attractive for many uses, most notably in motor vehicle components. As stricter emis-sion and fuel consumption controls are placed on motor vehicles, particularly in developed countries, motor vehicle manufactures are increasingly using lightweight metal alloys and plastics.

Magnesium (like titanium and aluminium) is a resource that Australia has in abundance, and the Australian Government has established a Light Metals Action Agenda to encourage value added developments of these resources. The costs of extracting the ore represents only 2–3 per cent of the cost of the fi nal metal product. The majority of the cost of producing magnesium metal occurs in the fi nal refi ning stage. Similar to aluminium, magnesium is an abundant element but its reactivity means that it requires signifi cant energy to produce the fi nished metal.

Most magnesium is produced in China by the very low cost Pidgeon process. However, environmental regulations prohibit the use of this process in developed countries, making it diffi cult for developed countries to compete in the production of magnesium metal.

Despite this, there are many proposals for magnesium smelters around the world, includ-ing several in Australia. China’s domination of the world market through its large and rapidly rising output is likely to be an inhibiting factor to the success of at least some of these projects. The closure of Noranda’s Magnola magnesium plant in Canada and the recent cancellation of AMC’s Stanwell smelter construction project in Queensland testify to the diffi culties in estab-lishing new production capacity.

China gold

2000 2001 2002 2003 s 2004 f

t t t t t

Consumption 213 216 204 210 215– share of world (%) 6 6 6 7 7





In the medium to long term, however, increas-ing environmental standards in China may reduce the amount of magnesium produced with the Pidgeon process. Combined with the incen-tive to develop new, low cost production process, this may provide the opportunity for other coun-tries, such as Australia to develop magnesium production capacity.

NickelIn recent years China’s consumption of nickel has exceeded mine production. Nickel con-sumption has been growing at an average rate of 16 per cent a year since 1996, whereas nickel mine production has only been growing at 5 per cent a year. Consuming 133 000 tonnes in 2003, China is the world’s second largest nickel con-sumer. Nickel is used in various metal alloys, principally stainless steel.

Consumption of stainless steel is growing strongly, as demand is increasingly rapidly in applications where durability and corrosion resistance is important, such as food containers, sinks, piping, building construction and house-hold appliances.

As China’s proven reserves of nickel are small and there is only one mine of signifi cant

size (the Jinchuan nonferrous metals project in Gansu province) imports of nickel concentrates and refi ned metal are expected to rise strongly over the medium term.

Australia exported 30 000 tonnes of ores and concentrates and around 5000 tonnes of refi ned nickel to China in 2003. The expected strong growth in Chinese demand for nickel in all forms places Australia in a favorable position to be a signifi cant supplier to China in the medium to long term.

Zinc and leadThe consumption and production of both zinc and lead in China has more than trebled in the past decade. Average growth rates in consump-tion over the past fi ve years have been around 12 per cent and 17 per cent respectively for zinc and lead.

China is the world’s largest zinc user, consum-ing 2.0 million tonnes or 20 per cent of global consumption in 2003. The recent increase in zinc demand has been driven by increased domestic production of galvanised steel used primary in building construction, infrastructure develop-ments and motor vehicle manufacturing.

China is the world’s largest producer of mined zinc, producing slightly more than Australia. In 2003, China produced 1.7 million tonnes of zinc ore and concentrate (in terms of metal content), which is 18 per cent of the world’s total produc-tion. China is also the world’s largest producer of refi ned zinc, producing 2.3 million tonnes in 2003 or 23 per cent of the world’s total produc-tion. As there is a signifi cant shortfall between refi ned metal production and mine production, China imports signifi cant quantities of zinc ore and concentrate. In 2003, China imported 373 000 tonnes of zinc ore and concentrate (in terms of metal content) of which 73 000 tonnes or nearly 19 per cent came from Australia. Following the closure of many small zinc and lead mines in recent years, China is expected to remain a net importer of zinc ore and con-centrate. Under these conditions, prospects for Australian exports of zinc ore and concentrate to China remain favorable.

China is the world’s second largest exporter of refi ned zinc metal after Canada, and exported

China nickel

2000 2001 2002 2003 s 2004 f

kt kt kt kt ktOres and concentratesConsumption 51 58 62 74 84

– share of world (%) 3 4 5 9 9


Net imports 1 7 7 13 18

Refi ned metalConsumption 62 83 92 123 135

– share of world (%) 6 8 8 10 11


Net imports (includes scrap) 31 31 26 57 66




451 000 tonnes in 2003. In comparison, China’s imports of refi ned zinc metal in 2003 were 136 000 tonnes of which only 9500 tonnes (around 7 per cent) came from Australia. Given China’s large net export position for refi ned zinc metal, Australia’s exports of zinc metal to China are not expected to grow signifi cantly in the short to medium term.

In 2003, China’s consumption of refi ned lead was 1.2 million tonnes, making it the world’s second largest consumer behind the United States. Growth in lead consumption in China can be linked to the rapidly expanding motor vehicle manufacturing industry, as more than three-quarters of lead consumed worldwide is used in the manufacture of wet cell batteries. China is also the world’s second largest pro-ducer of lead ore and concentrate after Australia, producing 631 500 tonnes in 2003 or 22 per cent of the world’s mine production.

China’s production of refi ned lead is more than double mine output. Recycled secondary lead accounts for only about 7 per cent of refi ned

lead production. The result is that China imports large quantities of lead ore and concentrate. In 2003 China imported 216 000 tonnes of lead ore and concentrate (in terms of metal content), including 26 000 tonnes from Australia. The prospects for increased Australian exports of lead ore and concentrate to China are favorable as expectations are that Chinese imports will increase in order to meet their growing produc-tion of refi ned metal.

As recently as 1995, China did not trade signifi cant quantities of either lead metal or concentrates. In 2003, however, China was the world’s largest exporter of refi ned lead metal, shipping 438 000 tonnes of refi ned lead metal. China imports only minimal quantities of lead metal (33 000 tonnes in 2003), and Australian exports of refi ned lead metal to China are neg-ligible and are likely to remain so in the short to medium term given China’s large net export position.

ConclusionChina is both a signifi cant producer and con-sumer of mineral commodities. From Australia’s perspective, China is therefore both a competitor and a customer of the Australian resources sector. China is a signifi cant producer of lead, tin and zinc, and because its production costs are quite low for these commodities, they are particularly competitive. China also has the ability to produce low cost refi ned metals. This means that Austra-lian producers of refi ned and smelted metals such as aluminium, lead and zinc are competing against China for export market share.

Australian producers of iron ore, alumina, copper and nickel have benefi ted from China’s growing industrial production. China’s rapidly increasing production of steel and aluminium and the lack of suffi cient raw materials to support this production growth is expected to result in China importing increasing quantities of iron ore, nickel and alumina for the foreseeable future.

China zinc

2000 2001 2002 2003 s 2004 f

kt kt kt kt ktOres and concentratesConsumption 1 749 1 949 2 015 2 060 2 075

– share of world (%) 20 22 23 22 21


Net imports –31 377 391 373 354

Refi ned metalConsumption 1 350 1 500 1 750 1 900 2 150

– share of world (%) 15 17 19 20 22


Net exports 544 522 403 315 165

s ABARE estimate. f ABARE forecast


d u r um whea t

DURUM WHEATAustralia’s role in world marketsPeter Connell, Leanne Lawrance and Rohan Nelson

• Growers of high quality durum wheat in Australia have received prices over A$60 a tonne higher than for Australian premium white wheat in recent years. However, du-rum is a riskier crop for growers than mill-ing wheat varieties, being more susceptible to drought and requiring lengthier rotations between crops.

• Australian production of durum wheat averages under 2 per cent of world produc-tion, and around 5 per cent of world exports. About half of Australia’s durum wheat pro-duction is exported, mostly to Italy from ports in New South Wales and South Australia.

• Australian durum wheat exported to Italy is used to make pasta. Italy is the world’s larg-est exporter of pasta, with Italian exports to the rest of Europe growing strongly in recent years. Prospects for Australia’s exports of du-rum wheat to Italy are positive, with a grow-ing market for Italian pasta and a likelihood that changes to EU support policies will reduce Italian durum wheat production.

Durum wheat marketGrowers of high quality durum wheat in Aus-tralia have in recent years received prices more than $30 a tonne higher than the prices being received for ‘prime hard’ quality wheats, and $60 a tonne higher than prices for Australian ‘premium white’ wheat. Less than 1 million

tonnes of durum wheat have been grown in Aus-tralia in recent times, although there is potential for production to be well in excess of 1 million tonnes in a normal season (Hare 2001).

Durum wheat (Triticum durum) has the hardest kernel of all wheats. It differs from other wheats (Triticum aestivum) in that the endosperm, or heart of the wheat kernel, does not break down into a fi ne, powdery fl our when milled. The endosperm of durum is hard enough to hold together during milling, and the result is a granular product called semolina, which is used to make spaghetti, pasta and couscous.

Durum wheat has become a small but impor-tant contributor to Australian wheat production and exports, resulting in increased grower inter-est in durum markets. This information paper pro-vides a brief overview of world durum and pasta markets, and Australia’s links to world markets.

World production and useOver the three seasons 2001-02 to 2003-04, world production of durum wheat averaged 34 million tonnes a year and made up 6 per cent of world wheat production (fi gure A). Produc-tion has been concentrated in the twenty-fi ve member countries of the European Union (24 per cent), the Middle East, (19 per cent), north Africa (11 per cent), Canada (11 per cent), Kazakhstan (8 per cent) and the United States (7 per cent). Australian production averaged less than 2 per cent of world production over the past three seasons.

Over the past three seasons, durum wheat production accounted, on average, for over 50 • Peter Connell +61 2 6272 2042 • [email protected]

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per cent of all wheat production in the four north African countries of Algeria, Libya, Morocco and Tunisia. In Canada and the Middle East (largely Turkey and Syria), durum production averaged 18 per cent of total wheat production. In the other major producing regions, durum wheat was of less importance — for example, it accounted for only 8 per cent of total wheat production in the European Union.

Italy contributed 46 per cent of EU durum production over the past three seasons, followed by Spain (23 per cent) and France (18 per cent). Durum wheat averaged only 5 per cent of total US wheat production over the same period.

The effect of recently announced changes to farm support payments under the European Union’s Common Agricultural Policy for durum wheat production in the region (and hence world trade in durum wheat) is ambiguous. Direct support payments for durum wheat are to be reduced, and payments are to be decoupled from being based on current durum wheat production and based on historical production. However, EU countries can maintain the current payment system while decoupling 60 per cent of pay-ments. Also, a new durum quality program is being introduced that will link support payments to recommended agronomic practices, such as certifi ed seed (Agriculture and Agri-Food Canada 2003). Therefore, the quality of durum wheat produced in the European Union may improve and reduce import demand for high quality durum wheat.

Data are not available on the annual use and carryover stocks of durum wheat, but after account is taken of trade, durum wheat use is largely concentrated in the European Union, particularly Italy, followed by north Africa and the Middle East.

World tradeIn the three years to 2003-04, trade in durum wheat was around 7 million tonnes a year (fi gure B). North African countries imported around 44 per cent of world imports, with 58 per cent of north African imports going to Algeria. The other major regional market is the European Union, taking 23 per cent of world imports. Italy has been the major EU importer, purchasing nearly 73 per cent of all EU imports. Other mar-kets have included the United States (7 per cent), Venezuela (4 per cent) and Japan (3 per cent).

Data on exports of durum wheat, by country of destination, are available from the International Grains Council up to 2001-02. In the three years to 2001-02, Canada was the major exporter, shipping 50 per cent of all exports, followed by the United States (19 per cent), the European Union (8 per cent), Mexico (7 per cent), Turkey (6 per cent) and Australia (5 per cent).

Approximately 53 per cent of Canadian exports went to north Africa, 13 per cent to the United States, 9 per cent to Venezuela and 7 per cent to the European Union. The major markets for US exports of durum wheat were

World durum wheat production

Mt1997 20011999 2003

10

20

30

OtherMiddle EastNorth AfricaUnited StatesCanadaEuropean Union 25

A

World durum wheat imports

Mt1997-98

1995-96

2001-02

1999-2000

2003-04

2

4

6

OtherMiddle East

North Africa

United States

European Union 25

South America

B

du r um whea t


the European Union (36 per cent), north Africa (34 per cent) and the Middle East (11 per cent). Turkish exports were split 60 per cent to north Africa and 40 per cent to the European Union. North African countries were the major market for Mexican exports, with 60 per cent of exports going to these countries.

PricingWhen compared with other milling quality wheats with similar protein content, durum wheats are generally priced at a premium. Recent price movements of three representative wheats are given in fi gure C:• Canada western amber durum, St Lawrence;• Canada western red spring 13.5 per cent, St Lawrence (roughly comparable in quality to Australian ‘prime hard’, 14 per cent); and• US hard red winter, ordinary protein, fob US Gulf ports (roughly comparable in quality to Australian ‘premium white’ wheat).

The average premium for Canadian western amber durum wheat over Canadian western red spring wheat has been around US$44 a tonne since 2001, while the premium over US hard red winter wheat (commonly regarded as the world wheat indicator price) has been around US$70 a tonne.

Durum is not traded on world futures mar-kets to the extent that other wheats are traded. Between 1998 and early 2003, the Minneapolis Grain Exchange briefl y operated a durum con-

tract. However, interest in the contract was low and the contract was abandoned. This probably refl ected the low volume of durum wheat traded on world markets, and the dominant position of one seller, the Canadian Wheat Board.

Australian productionThere are no offi cial statistics collected by the Australian Bureau of Statistics on the production of durum wheat in Australia. International Grains Council estimates indicate that production has averaged less than 5 per cent of total Australian wheat production in recent years (fi gure D).

Not all of the Australian grain belt is suitable for growing durum wheat, particularly if the

quality required to attract premium prices is to be achieved. Regions with a relatively dry cli-mate, preferably with hot days and cool nights, are best suited to durum growing. Ideally, the crop requires a mild winter, a predominant win-ter rainfall pattern, and dry conditions around the grain fi lling stage. Production of high quality durum wheat requires fertile soils that support high protein grain, although nitrogenous fertilis-ers can be applied to increase soil fertility.

This combination of conditions means that durum growing in Australia is concentrated in New South Wales and South Australia in areas where Australian ‘prime hard’ and ‘hard’ wheat

World wheat pricesMonthly, ended March 2004

US$/t

1997 20011999 2003

Canada western amber durum

Canada western red spring

US hard red winter

100

150

200

250

C

Australian durum wheat production

kt1997 20011999 2003

200

400

600

D

du r um whea t


varieties are grown (map 1) (QDPIF 2004; Impi-glia and Anderson 1998).

Durum wheat is a riskier crop for growers than milling wheat varieties, being more suscep-tible to drought and requiring lengthier rotations between crops. According to Mayfi eld (1998), durum yields are similar to those of milling wheat varieties within the same region in an average or above average season, but losses can be greater when there is moisture stress during heading and grain fi lling. Durum varieties are also more sus-ceptible to the fungal crown rot disease (QDPIF 2004). This can make it necessary to rotate alter-native crops such as pulses and oilseeds for at least two years between durum crops.

A comparison is provided in table 1 of AWB pool returns for Australian durum (13 per cent protein content) and the three major milling grades of wheat, Australian ‘prime hard’ (13 per cent protein content), Australian ‘hard’ and

Australian ‘premium white’ wheat grades over the past fi ve seasons. The premium of Australian durum over Australian ‘prime hard’ has aver-aged $28 a tonne over the fi ve years and $62 a tonne over Australian ‘premium white’.

However, not all durum wheat deliveries met the required minimum quality standards to attract these premiums. There can, for instance, be quite signifi cant discounts applied to lower protein content durum deliveries. For the 2003-04 season, the discount for deliveries of durum wheat with a protein content of 10 per cent compared with durum deliveries with a protein content of 13 per cent was $36 a tonne, while for 2002-03, the discount was $40 a tonne.

The premium of durum wheat over other wheats is expected to narrow in 2004-05. Increased production in the major producing regions in the European Union and north Africa is likely to mean that import requirements in

Wheat growing regions in Australia1Durum wheat Prime hard wheat Hard wheat

Source: AWB Ltd (available at www.awb.com.au/AWBL/Launch/Site/Customers/Content/GrainProducts/Wheat/)

1 Estimated pool returns for Australian wheat

1999-2000 2000-01 2001-02 2002-03 2003-04 a

$/t $/t $/t $/t $/t

Australian durum b 274 294 321 327 257Australian ‘prime hard’ b 239 265 294 296 247Australian ‘hard’ c 206 247 277 272 234Australian ‘premium white’ d 192 234 259 258 226

a Pool not yet fi nalised. b 13 per cent protein, 5 per cent screenings, 12.5 per cent moisture. c 11.5 per cent protein, 5 per cent screenings, 12.5 per cent moisture. d 10 per cent protein, 5 per cent screenings, 12.5 per cent moisture.

du r um whea t


these regions will fall in 2004-05. With Canadian production also forecast to increase in 2004-05, there is likely to be increased competition for available export markets in the coming year.

Australian exportsWhile information on the quantity of durum wheat exports, by market, is available from ABS trade statistics, data on the value of exports are not made public. Australian durum wheat exports over the fi ve years to 2003-04 aver-aged nearly 300 000 tonnes a year (table 2). The major market has been Italy, taking on average 58 per cent of Australia’s exports. North African countries on average purchased 29 per cent of exports over this period. Approximately 51 per cent of durum wheat exports were shipped from New South Wales ports, with a further 43 per cent shipped from South Australian ports. Aus-tralian exporters compete against Canada and the United States for market share in Italy and north Africa.

World pasta marketsAustralian durum wheat exported to Italy is used to make pasta. Italy is the world’s largest exporter of pasta, exporting 53 per cent of world exports over the three years 2000 to 2002, fol-lowed by the rest of the European Union (14 per cent), China (9 per cent) and the United States (4 per cent). Australia accounts for less than 1 per

cent of world pasta exports (fi gure E; Comtrade 2004).

Italian exports of pasta increased by 5 per cent a year on average over the three years 2000 to 2002, mainly because of increased exports to other EU countries (fi gure F; Comtrade 2004). The rest of the European Union imported over 60 per cent of Italian pasta exports over this period, followed by the United States (10 per cent) and Japan (5 per cent). Australia imported around 1 per cent of Italian pasta exports over this period. EU pasta imports attract similar tariffs to durum wheat imports, providing signifi cant protection to the local industry.

After the European Union, the United States and Japan, fi ve nations, including Australia,

2 Australian durum exports

1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 a

kt kt kt kt kt kt

Italy 56 197 139 330 133 172Algeria 38 26Libya 61 74 147Morocco 5 21 6 4 28Tunisia 20 28United Arab Emirates 13 9 10 18 2South Africa 7 23 22Other 27 7 18 29 12 6

Total 101 273 307 580 216 208

a Exports up to March 2004.

Major world exporters of pasta

kt1996 20001998 2002

500

1000

1500

2000United StatesChina

EU25 other than ItalyItaly

E

du r um whea t


imported around 18 per cent of world pasta imports between 2000 and 2002 (fi gure G). Of these importers, the most signifi cant growth in imports has been in Mexico, mainly from the United States. There has been only modest growth in imports by Korea and Hong Kong of potential interest to Australian exporters of pasta.

ReferencesAgriculture and Agri-Food Canada 2003, Italy:

Wheat and Durum, Bi-weekly Bulletin, vol. 16, no. 22, 19 December.

Comtrade 2004, Commodity Trade Statistics Database, United Nations Statistics Division, New York.

Hare, R. 2001, Durum wheat in Australia – past, present, future, Farrer Memorial Oration, Syd-ney (www.agric.nsw.gov.au/reader/award-far-rer-oration/2001-farrer-oratation.htm).

Impiglia, A. and Anderson, W. 1998, ‘Essentials of a successful durum wheat crop’, Western Australian Department of Agriculture Farm Note 5/98, Perth.

Mayfi eld, A. 1998, ‘Grower experience with durum wheat production in South Australia’ in Department of Agriculture, Western Australia, Crop Updates 1998: Cereals, Perth.

QDPIF (Queensland Department of Primary Industries and Fisheries) 2004, Durum Wheat in Queensland, Brisbane (www.dpi.qld.gov.au/fi eldcrops/2348.html).

Other importers of pasta

kt1996 20001998 2002

100

200

300

400Australia

Rep. of Korea

Hong Kong

Mexico

Canada

GImporters of Italian pasta

kt1996 20001998 2002

200

400

600

800

1000United StatesEU25 other than Italy

Japan

F


de v e l opmen t p r o j e c t s

• The record number of minerals and energy projects that are currently committed to or un-der construction in Australia will add signifi -cantly to the sector’s production and export capacity in the short to medium term.

• In addition, the signifi cant number of large scale projects at less advanced planning stages that are under active consideration is expected to provide the platform for future sectoral growth in the medium term and be-yond.

Exploration expenditureIt is important to recognise that the ability of Australia’s minerals and energy sector to sustain its strong recent growth and expand its contribu-tion to national economic performance in the medium and longer terms depends critically on the amount of investment in minerals explora-tion. Most of the strong growth in the minerals and energy sector of recent years, and most of the expected growth implicit in ABARE’s list of planned projects, is underpinned by minerals exploration expenditure of the past decade.

Australian minerals exploration expenditure, in real terms (2003-04 dollars), for the period 1980-81 to 2003-04 is shown in fi gure A. The 2003-04 data are estimates based on actual data from the Australian Bureau of Statistics for July–December 2003, combined with data from the ABS survey of expected expenditure for January–June 2004.

Total Australian minerals exploration expen-diture is estimated to have risen by 5 per cent in 2003-04 to $1.82 billion. This increase follows a rise of 13 per cent in 2002-03. Among the major commodity categories, petroleum exploration expenditure is estimated to have increased in 2003-04, but expenditure for both gold and base metals is estimated to have fallen.

Petroleum exploration expenditure is esti-mated to have risen by 6 per cent in 2003-04, to around $1057 million. In real (2003-04 dollar) terms, this is higher than the annual average expenditure over the past decade ($981 million) but remains below the high expenditure years of 1997-98 and 2000-01 ($1148 million and $1121 million respectively).

Increases in petroleum exploration expen-diture in the past two years are likely to have been encouraged, to some extent, by relatively

MINERALS AND ENERGYmajor development projectsIan Haine and commodity analysts, Energy and Minerals Economics Branch

• Ian Haine +61 2 6272 2031 • [email protected]

1988-89

2003-04

1993-94

1998-99

$b

1.0

1.5

2.0

0.5

2.5

3.0

3.5

A Australian private minerals exploration expenditure In 2003-04 dollars

OtherBase metalsGoldOther energyPetroleum



high oil prices since mid-2002. However, the oil price rise in this period is unlikely to have been the sole reason for the rise in exploration expenditure. Infrastructure requirements for off-shore petroleum exploration require long term planning, and other factors, such as Australia’s relative prospectivity, some recent (but rela-tively small scale) exploration successes and a longer term view of oil prices, are also expected to have had a signifi cant bearing on exploration expenditure decisions.

Expenditure on gold exploration is estimated to have fallen by 3 per cent in 2003-04, follow-ing a rise of 14 per cent in 2002-03. A decline in Australian dollar denominated gold prices is likely to have been a contributing factor to the expected fall in gold exploration expenditure in

2003-04. At around $367 million in 2003-04, gold exploration expenditure is less than half the level, in real terms, of six years ago. For much of the 1990s, gold dominated nonenergy exploration expenditure and in 2002-03 gold still accounted for 56 per cent of the total.

Base metals exploration expenditure is esti-mated to have fallen by 3 per cent to $138 million in 2003-04. This expected decrease is caused by falls in expenditure on copper and zinc–lead–sil-ver more than offsetting a strong rise in expen-diture on nickel. The increase in expenditure on nickel exploration refl ects the dramatic rise in global nickel prices, particularly in the fi rst half of 2003-04 and, importantly, a reasonably posi-tive outlook for Australian dollar denominated nickel prices in the next year or so.

The full listABARE’s listings of major minerals and energy projects expected to be developed over the medium term are compiled every six months. Information contained in the lists spans the mineral resources sector and includes energy and minerals commodi-ties projects and minerals processing projects. The information comes predominantly from publicly available sources but, in some cases, is supple-mented by information direct from companies. The lists are fully updated to refl ect developments in the previous six months.

What’s in the listThe latest projects list contains information on 192 projects. Details listed against each project include:• project name• proponent company or joint venture• location• project status• expected startup date• additional output capacity• capital cost of the project• additional employment, where available.

With one industry exception, ABARE’s listing provides details of announced projects for which total capital expenditure is expected to exceed $40 million (in 2002-03 dollars). The exception is

the gold industry, which typically has a relatively large number of smaller projects. For gold, the expenditure threshold for inclusion in the table is $15 million.

In general, projects identifi ed are at relatively advanced stages of planning. That is, for new projects, stage of planning categories range from

‘feasibility study underway’ through to ‘under construction’.

Projects are listed by the principal mineral commodity to be produced, under the broad head-ings: ‘Mining projects – energy’, ‘Mining projects

– minerals’ and ‘Minerals processing facilities’. The table includes new greenfi elds projects as well as expansions of existing projects.

Where to get the listUp to December 2001, the lists were released in conjunction with each June and December issue of Australian Commodities. Since June 2002, the complete lists (around 12–14 pages) have been released separately. Commencing in 2003, the lists have been released around May and October each year. The lists are available only as an electronic product.

The list can be purchased from ABARE at: www.abareonlineshop.com enquiries: [email protected] or phone +61 2 6272 2010.

ABARE’s list of major minerals and energy development projects



Expenditure on base metals exploration in 2003-04 was the lowest, in real terms, since 1987-88 and the third lowest on record.

Apart from the main exploration sectors referred to above, two other commodities — coal and iron ore — are expected to show signifi cant expenditure increases in 2003-04. Spending on iron ore exploration is estimated to have risen by 39 per cent to $62 million and coal expendi-ture by 13 per cent to around $88 million. These expected increases refl ect a positive outlook for Chinese demand for these commodities.

Over the medium term, exploration expendi-ture in each of the main exploration sectors is expected to be infl uenced by a different set of factors.

In the petroleum sector, oil prices over the medium term will be a key factor in determining future exploration activity and expenditure. For gold, factors such as the US dollar/Australian dollar exchange rate and movements in global equities markets and their infl uence on the out-look for gold prices will be important.

In the base metals sector, the price outlook will clearly be important, as demonstrated by the recent rise in nickel exploration expenditure. Apart from nickel, a relatively positive outlook for copper, lead and zinc prices over the next couple of years may provide some impetus for exploration expenditure increases, although expenditure decisions may also be affected by movements in the US dollar/Australian dol-lar exchange rate. Other important factors are expected to be: the apparent trend toward com-pany rationalisation of exploration capacities (not only in Australia but also globally); expec-tations of the future strength (or otherwise) of Chinese demand for base metals; assessments of the development potential of several known (but as yet undeveloped) base metals deposits in Australia; and Australia’s relative attractiveness for exploration.

Capital expenditureData from the ABS surveys of new capital expenditure in the mining and metal products industries give an indication, in aggregate terms, of the pace and scale of development in the

minerals and energy sector, both historically and in the short term.

Based on ABS survey data, new capital expen-diture in the mining industry is estimated to have been around $10.2 billion in 2003-04, signifi -cantly higher (by 13 per cent) than in 2002-03. In real (2003-04 dollar) terms, new capital expen-diture in 2003-04 is estimated to have been the highest since the record expenditure in 1997-98 (fi gure B) and around 39 per cent above the aver-age annual expenditure for the past 23 years.

There are strong indications that capital expen-diture on mining will increase again next year. Based on industry intentions canvassed in the June quarter 2004, ABS data indicate that capital expenditure on mining in 2004-05 may increase by around 9 per cent to about $11.1 billion. The scale of this expenditure and its order of increase is consistent with the development trends shown in ABARE’s April 2004 list of major minerals and energy projects (see fi gure H).

Capital expenditure in the metal products sector, which includes the minerals processing activities covered in ABARE’s projects list, is estimated to be around $2.43 billion in 2003-04, 12 per cent above 2002-03 expenditure. Surveyed industry intentions suggest that metal products expenditure could rise by 5 per cent in 2004-05 to around $2.56 billion. In real terms, estimated expenditure in 2004-05 would be about 21 per cent above the 23 year annual aver-age of $2.07 billion (in 2003-04 dollars).

New capital expenditure In 2003-04 dollars

2004-05

2000-01

1992-93

1996-97

1984-85

1980-81

1988-89

2

$b

4

6

8

10

12

14 Metal productsMining

B



If the expenditure intentions for both the min-ing and metal products sectors are realised, total capital expenditure in the mineral resources sec-tor could rise by around 6 per cent in real terms in 2004-05.

Looking beyond the short term, there is some evidence to suggest that there is potential for fur-ther growth in resource sector capital investment. This assessment is based on the observation that there are a signifi cant number of advanced proj-ects in ABARE’s project list (particularly a num-ber of high cost petroleum developments), and that there now exists a number of large scale, but less advanced projects, that may be developed in a longer timeframe.

Recently commissioned projectsIn the six months ended April 2004, thirteen major minerals and energy projects, with a com-bined capital expenditure of $4.96 billion, were completed. Summary details of these are shown in table 1.

The project completion rate in the six month period to the end of April 2004 is higher than in any other similar period since the six months to December 1999 when there were sixteen completions (table 2 and fi gure C). Furthermore, the average value of projects completed in the

Completed projects

1998J D

1999J D

2000J D

2001J D

2002 2003 2004J D April AprilOct

$b

2

4

6

Total capital cost of projects Average capital

cost of projects

C

$m

100

200

300

1 Major mineral resource developments – projects completed, November 2003 to April 2004

Capital Commodity Project Location Company expenditure

$m Mining – energy projects Black coal Mount Arthur North New South Wales BHP Billiton 645 Moorvale Queensland Macarthur Coal 67

Petroleum Bayu/Undan Gas Recycle Timor Sea ConocoPhillips 2 500 Kambalda/Esperance pipeline Western Australia Esperance Pipeline Co 45

SEA gas pipeline Victoria to TXU/Origin/ 500 South Australia International Power Mining – minerals projects Gold Siberia Western Australia Siberia Mining na

Iron ore Eastern Ranges Western Australia Rio Tinto/Baosteel 105 Koolyanobbing Western Australia Portman 20

PACE project Western Australia BHP Billiton 647 Yandi expansion Western Australia BHP Billiton 42 Yandicoogina expansion Western Australia Rio Tinto 200

Lead/zinc Endeavour mine upgrade New South Wales CBH Resources 10

Minerals processing facilities Alumina QAL refi nery upgrade Queensland Queensland Alumina 175

Total capital expenditure 4 956

na Not available.



period to April 2004 ($381 million, in nominal terms) exceeds that of any other period in the past six years. Looking ahead, ABARE’s project list indicates that the rate of project completions is likely to accelerate, with another 27 major projects scheduled for completion in the remain-der of 2004.

Of the major projects completed in the six months ended April 2004, the largest in terms of capital cost was the ConocoPhillips’ led Bayu/Undan Gas Recycle project in the Timor Gap Zone of Cooperation. The project was developed at a capital cost of $2.5 billion and, at full capacity, will produce 115 000 barrels a day of condensate and LPG for export. The fi rst shipment of condensate was made on 31 March. The operation involves the stripping of natural gas liquids from the fi eld’s gas stream and rein-jecting the residual gas via dedicated wells for future use in Bayu/Undan’s second stage devel-opment (LNG production in Darwin) scheduled to commence in 2006.

Two other petroleum projects, both pipeline developments, were completed in the six months to April. The $500 million, 690 kilometre, SEA

Gas pipeline from Victoria to South Australia was commissioned just in time to alleviate the gas shortages caused by an explosion at the Moomba gas processing facility in South Australia on New Year’s Day. The Kambalda to Esperance pipeline — an extension of the Pil-bara to Goldfi elds pipeline — was completed at a capital cost of $45 million.

Refl ecting strong demand for iron ore from China, fi ve Western Australian iron ore and infrastructure projects were completed in the six months to April. The largest of these was BHP Billiton’s $647 million PACE (products and capacity expansion) project involving expan-sions to port and rail facilities. The development will lift shipping capacity at Port Hedland to 100 million tonnes a year from mid-2004. BHP Bil-liton also commissioned a $42 million, 3 million tonnes a year expansion of its Yandi mine. In the same region of the Pilbara, Rio Tinto completed its $200 million Yandicoogina mine and infra-structure expansion, lifting production capacity by 4 million tonnes a year. One new mine, Rio Tinto/Baosteel’s $105 million Eastern Ranges development, was completed in April. This operation will increase production capacity by 10 million tonnes a year. Further south, Port-man Mining completed a $20 million, 2 million tonne, expansion of its Koolyanobbing mine.

Two new coal mines were brought into pro-duction late in 2003. BHP Billiton’s Mount Arthur North mine near Muswellbrook was developed at a capital cost of $645 million and will produce around 12 million tonnes a year of thermal coal by 2006. In Queensland, Macarthur Coal’s $67 million Moorvale mine, near Coppa-bella, is expected to produce around 1.6 million tonnes a year of PCI coal.

In Gladstone, Queensland Alumina com-pleted its $175 million QAL refi nery upgrade. This development will improve the plant’s effi -ciency and environmental performance but will provide no increase in output capacity.

Two smaller developments — Siberia Min-ing’s Siberia gold mine and CBH Resources’ Endeavor zinc and lead mine upgrade — were also commissioned in the six months to April.

(Having come on stream, the above projects no longer appear in ABARE’s project list.)

2 Completed projects, June 1998 to April 2004

Capital cost of projects Number of projects Total Average

no. $m $mSix months endedJune 1998 3 415 138December 1998 18 3 500 194June 1999 19 6 500 342December 1999 16 4 300 269June 2000 9 1 800 200December 2000 9 1 700 189June 2001 5 282 56December 2001 5 262 52June 2002 10 1 082 108December 2002 10 2 110 211

Four months endedApril 2003 4 400 100

Six months endedOctober 2003 6 937 156April 2004 13 4 956 381

Total 127 28 244 222



Minerals and energy projects

Advanced projectsAt the end of April 2004, there were 62 projects at advanced stages of development included in ABARE’s project list — that is, projects that were either committed or under construction. The location of these projects is shown in fi gure D. The announced capital expenditure of these ad-vanced projects sums to $21.4 billion (table 3).

However, it should be borne in mind that even projects that have reached the committed stage may be deferred, modifi ed or even cancelled, if economic or competitive circumstances change suffi ciently.

The 62 advanced projects as at April 2004 indicate continued expansion across most of the minerals and energy industry spectrum. However, in terms of capital expenditure, there is a signifi cant weighting toward petroleum and coal projects.

Proposed energy developments account for just under 40 per cent (24) of the 62 advanced projects but account for more than half (or $11.1 billion) of the estimated capital cost of $21.4

billion for all advanced projects (table 3). Three large petroleum developments account for over 60 per cent of the total value of energy projects. The largest of these is ConocoPhillips’ $3 bil-lion, 3.5 million tonnes capacity Darwin LNG plant, scheduled to be completed in 2006 and which will use ‘recycled’ Bayu/Undan gas as feed. The recycled gas is natural gas that has been stripped of its liquids (condensate and LPG) during the fi rst phase of the Bayu/Undan project (the recently completed ‘gas recycle’ project) and reinjected into the reservoir. The two other major petroleum projects are both Woodside operated: the $2.5 billion North West Shelf fourth LNG train, aiming for completion in mid-2004; and the Enfi eld oilfi eld scheduled to be developed by 2006 at a capital cost of $1.48 billion. The twelve coal projects listed have a combined capital cost of $2.4 billion.

In the past six months there has been a con-siderable increase in the number and value of minerals mining projects currently committed. At the end of April 2004, there were 30 advanced minerals mining projects valued at $6.9 billion, compared with 22 projects valued at $3.8 billion

Advanced minerals and energy projectsApril 2004

Hobart

Brisbane

Canberra

Perth

Sydney

Darwin

Melbourne

Zinc ferrite plant (zinc)

Mt Garnet (zinc)Mutineer/Exeter (petroleum)

Darwin LNG plant

Lytton refinery (petroleum)

Kurnell refinery (petroleum)

Weipa (bauxite)

North West Shelf 4th train (LNG)

Burrup Fertilisers (ammonia plant)

Ellendale (diamonds)

Dartbrook extension (coal)

Camden (gas)

Dendrobium (coal)

Cracow (gold)

Whim Creek (copper)

Nifty (copper)

Tritton (copper)

Broadmeadow (coal)

Grasstrees (coal)Curragh North (coal)

Rolleston (coal)

Eaglefield (coal) Blackwater (coal handling and processing)

Comalco refinery (alumina)

Yabulu refinery (nickel)

Tomago (aluminium)

Telfer (gold)

Northparkes (copper) Mandalong (coal)

Tahmoor North (coal)

$0 –100m$101–500m$501–1000m

>$1000m

Capital expenditure

Processing facility

Mine/platform

HIsmelt (pig iron)Kwinana refinery (diesel)

Worsley refinery (alumina)Pinjarra refinery (alumina)

Yandicoogina (iron ore)

West Angelas (iron ore)Mining Area C (iron ore)

Ravensthorpe (nickel)

Sally Malay (nickel)

Yallourn (coal)Minerva (petroleum) BassGas (petroleum)

Kurri Kurri (aluminium)

Cannington (lead/zinc)

Moranbah (gas)

Telfer gas pipeline

Maggie Hays (nickel)

Perseverence (nickel)

Charters Towers (gold)

Adelaide

Frog’s Leg x2 (gold)St Ives (gold)

Stawell (gold)

Cowal (gold)

Bendigo (gold)Fosterville (gold)

Sunrise Dam (gold)

Magellan (lead)

Paulsens (gold)

Enfield (oil)

North Queensland gas pipeline

Ashton (coal)Mt Gibson (iron ore)

D



at the end of October 2003. In terms of project numbers, the largest increase is in gold, where there are now twelve projects either committed or under construction, double the number of six months ago.

Three ‘billion dollar’ projects, all in Western Australia, make up over 50 per cent of the total value of advanced minerals mining projects — Newcrest’s $1.2 billion Telfer gold mine redevelopment, expected to be completed soon (around mid-2004); Rio Tinto’s $1.25 billion Yandicoogina iron ore mine expansion, sched-uled for completion in 2005; and BHP Billiton’s $1.4 billion greenfi elds Ravensthorpe nickel mine, expected to be commissioned in 2007. In the case of iron ore and nickel, the impetus for development has come mainly from China’s bur-geoning demand for materials to meet its steel making requirements.

However, nickel is one commodity where the April 2004 list of advanced projects does not fully refl ect the degree of development activ-ity currently taking place. The strong gains in nickel prices over the past year have encour-aged a number of expansions, reopenings and new nickel mining projects that are not covered by the major projects list. They are not covered because, in almost all cases, the capital cost of individual nickel projects falls well below ABARE’s minimum capital expenditure cutoff value of $40 million for inclusion in the list. Such projects include a capacity expansion at

MPI Mines’ Black/Silver Swan mining com-plex and new operations by Mincor resources at North Miitel, Mariners and Redross, all cur-rently under construction in Western Australia. Each of these projects, together with several oth-ers that are less advanced, will make a relatively small contribution to nickel output as most plan to have annual capacity of less than 5000 tonnes and some currently expect an operating life of less than fi ve years. However, if they proceed to commissioning, their small scale should allow them all to commence operations in 2004 or 2005 and in combination they will make a sig-nifi cant contribution to Australian nickel pro-duction and exports.

At the end of April 2004, there were eight advanced minerals processing projects, a signifi -cant increase on the fi ve committed at the end of October 2003. The largest of these — Comalco’s $1.5 billion alumina refi nery project at Glad-stone — is expected to be commissioned toward the end of this year. Additional processing proj-ects committed since October 2003 include two more alumina projects: Alcoa’s $440 million Pinjarra refi nery upgrade; and BHP Billiton’s $265 million Worsley refi nery expansion. Together, these three alumina projects will add around 2.25 million tonnes of additional alu-mina production capacity, principally to meet strong Chinese demand.

Another notable processing project recently committed to is BHP Billiton’s $560 million

3 Committed projects, April 2004 — number and estimated capital cost, by state

Minerals Energy projects Mining projects processing Total

number cost number cost number cost number cost

no. $m no. $m no. $m no. $m

New South Wales 7 1 244 3 464 2 240 12 1 948 Victoria 2 380 3 342 0 0 5 722 Queensland 8 1 374 5 629 3 2 110 16 4 113 Western Australia 5 4 634 19 5 472 3 1 105 27 11 211 South Australia 0 0 0 0 0 0 0 0 Tasmania 1 450 0 0 0 0 1 450 Northern Territory 1 3 000 0 0 0 0 1 3 000

Australia 24 11 082 30 6 907 8 3 455 62 21 444



Yabulu nickel refi nery expansion, near Towns-ville. This project is linked to BHP Billiton’s Ravensthorpe nickel mine project in Western Australia, referred to above. When completed, the expanded refi nery will process an intermedi-ate combined nickel and cobalt product produced at Raventhorpe and shipped out of Esperance.

Figure E shows a breakdown of proposed cap-ital expenditure on advanced projects, by major commodity grouping. Figure F shows the esti-mated total capital expenditure on a state basis.

The number of advanced projects now sched-uled to be completed within the next fi ve years (62) is a record, being one more than the num-ber recorded in 1998 (fi gure G). However, the

total value of advanced projects in April 2004 (in 2004 dollars) is slightly less than the record value in 1998 (fi gure H).

The real average value of advanced projects at the end of April 2004 ($351 million) is just a little below the average for all years since 1995 ($354 million) (fi gure I).

Less advanced projectsProjects in the less advanced planning category are either still undergoing feasibility study (in some selected cases, prefeasibility study), or no defi nite decision has been taken on develop-ment following the completion of a feasibility study. Some of these projects cannot proceed for

Number of committed projects

1998 19991996 19971995 2000 2001 2002June

2002Dec

2003Apr

2004Apr

2003Oct

0

10

20

30

40

50

60

G Minerals processing

Minerals

Energy

Australian minerals and energy projects Committed capital expenditure over the medium term

Petroleum 42%

Coal 10%Alumina 10%

Gold 11%

Nickel 8%

Iron ore 7%

Other 12%$21.4 billion

E

Value of committed projects by state, April 2004

New South Wales 9%

Victoria 3%

Queensland 19%

Western Australia 53%

Tasmania 2%

Northern Territory 14%

$21.4 billion

F Value of committed projects In 2004 dollars

$b

5

10

15

20

1998 19991996 19971995 2000 2001 2002 2003 2004

H Minerals processing

Minerals

Energy



several years and may face changed economic or competitive conditions, or may be targeting the same emerging market opportunity, necessitat-ing rescheduling. In addition, securing fi nance for project development — even for high quality projects that have a high probability of success — can present problems, particularly in periods when there is perceived to be excess global sup-ply and/or an uncertain demand outlook.

However, despite the uncertainty that attaches to projects at these earlier stages of consideration, they provide a useful indication of the nature and extent of the platform for future development of the Australian minerals and energy sector.

4 Number of less advanced projects, April 2004

Potential capital NSW Vic Qld WA SA Tas NT Aust expend

no. no. no. no. no. no. no. no. $m

Mining – energy projectsBlack coal 9 0 15 0 0 0 0 24 3 784Petroleum 0 4 2 8 1 0 3 18 34 980Uranium 0 0 0 0 1 0 0 1 30

Subtotal 9 4 17 8 2 0 3 43 38 794

Mining – minerals projects Cobalt 0 0 0 0 0 0 1 1 192Copper 0 0 4 1 1 0 0 6 2 595Gold 2 1 0 5 1 0 2 11 1 019Iron ore 0 0 0 6 0 0 0 6 7 015Lead–zinc–silver 3 0 3 1 0 1 1 9 1 202Mineral sands 4 2 1 3 1 0 0 11 832Nickel 0 0 1 5 0 1 0 7 1 275Rare earths 0 0 0 2 0 0 0 2 115Tantalum 0 0 0 2 0 0 0 2 naOther commodities 1 0 3 8 0 0 0 12 2 159

Subtotal 10 3 12 33 3 2 4 67 16 404

Minerals processing Alumina 0 0 2 1 0 0 1 4 3 000Aluminium 3 0 2 0 0 0 0 5 4 800Crude iron and steel 3 0 0 0 0 0 0 3 1 200Ferrochrome 0 0 0 1 0 0 0 1 50Magnesium 1 1 0 0 1 1 0 4 3 148Titanium minerals 1 0 0 2 0 0 0 3 720

Subtotal 8 1 4 4 1 1 1 20 12 918

Total 27 8 33 45 6 3 8 130 68 116

Average value of committed projects In 2004 dollars

$m

200

100

300

400

1998 19991996 19971995 2000 2001 2002 2003 2004

I



Of the 192 projects in total in ABARE’s April 2004 project list, around 68 per cent (130 projects), remain uncommitted. Table 4 contains a summary of the numbers and commodity distribution of the 130 uncommitted projects to-gether with their potential capital expenditure. The potential capital expenditure data should be used as a rough guide only. This is for two main reasons: fi rst, many of the projects included under the one commodity heading are effec-tively competing with one another and in most cases market conditions will preclude some from proceeding, at least in the timeframe speci-fi ed; second, capital expenditure data for many early stage projects are either not yet available or, if available, will change signifi cantly if they do proceed to development.

However, most of the projects that will ulti-mately proceed to development in the medium term are included in ABARE’s current list of 130 less advanced projects.

Some of the more notable large scale projects in ABARE’s April 2004 list that are still undergo-ing feasibility studies include: Chevron Texaco’s proposed $11 billion Gorgon LNG development on Barrow Island; WMC Resources’ proposal to further expand its Olympic Dam mine, to more than double its current output capacity, at a capi-tal cost of $2–3 billion; and Alcan’s $1.5 billion proposal to expand its Gove alumina refi nery in the Northern Territory. A commitment to expand the Gove refi nery is expected to also trigger a commitment to develop the Blacktip natural gas discovery and to build a 1000 kilometre pipe-line to supply Blacktip gas to Gove — projects expected to involve additional capital expendi-ture of around $1 billion.

Projects new to ABARE’s listThere are 33 signifi cant projects at less advanced planning stages that are new to ABARE’s list since October 2003. This is a relatively high number compared with earlier periods and is one indication of renewed investment interest in the mineral resources sector. Figure J provides a summary of numbers of newly listed projects by commodity category.

One of the more signifi cant projects new to the list is BHP Billiton’s proposed iron ore capacity expansion project in the Pilbara, which could increase the company’s overall iron ore output capacity by 35–40 million tonnes a year by 2005-06. This project, together with several other proposed iron ore developments that are also new to the list, refl ects the increased interest in meeting China’s burgeoning demand for iron ore as its steel industry expands rapidly.

Projects added to listSix months to April 2004 Total = 33

0 2 4 6 8 10

Other

Alumina

Nickel

Iron ore

Gold

Petroleum

Coal

J

statistical tables

australiancommodities

336

s t a t i s t i c s


INDEX TO STATISTICAL TABLESOverview tables 1 Indexes of prices received by farmers 337 2 Indexes of prices paid by farmers, and terms of trade 338 3 Farm costs and returns 339 4 Australian unit export returns 340 5 Annual exports summary 341 6 Contributions to exports by sector 342 7 Quarterly exports summary 343 8 Industry gross value added 344 9 Volume of Australian production indexes 34510 Employment 34511 Business income 34612 All banks lending to business 34613 Farm indebtedness to fi nancial institutions 34714 Capital expenditure of private enterprises 34815 Private mineral exploration expenditure 34916 World macroeconomic indicators 35017 Australian macroeconomic indicators 35118 Annual world indicator prices of selected commodities 35219 Quarterly world indicator prices of selected commodities 353

Detailed commodity tables20 Australian gross unit values and prices of farm products 35421 World production, consumption, stocks and trade for selected commodities 35522 Australian commodity production 35823 Gross value of Australian farm and fi sheries production 36124 Crop areas and livestock numbers 36325 Average farm yields 36426 Volume of Australian commodity exports 36527 Value of Australian commodity exports 36828 Value of Australian imports and exports of selected commodities 371

Abbreviationskg kilogram ha hectaret tonne bbl barrelkt kilotonne mbd million barrels a dayMt megatonne lb poundL litre oz ounceML megalitre ct caratGL gigalitre fob free on boardm3 cubic metre c centmtu metric ton unit (10 kg) gr.eq. greasy equivalentdltu dry long ton unit SDR Special Drawing RightPJ petajoules 0 nil or a negligible amountTJ terajoules

RoundingSmall discrepancies in total are generally caused by the rounding of components


s t a t i s t i c s

1 Indexes of prices received by farmers

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 fCrops sector Grains Winter crops

Barley 87.7 109.2 126.6 132.4 152.3 131.0 126.5Canola 88.8 75.0 99.1 100.0 100.5 94.5 87.4Lupins 79.8 84.8 119.8 145.8 172.2 168.7 152.7Oats 63.7 74.9 68.7 91.3 118.8 90.5 89.7Wheat 94.5 96.6 114.9 129.5 129.7 112.8 112.0

Summer crops Sorghum 88.1 80.3 94.1 113.0 134.0 119.4 118.8

Total grains a 90.6 93.7 110.6 123.5 131.0 115.2 112.4

Cotton 88.5 97.5 106.2 92.8 93.9 84.0 79.7Sugar 94.4 80.7 76.5 94.7 83.4 71.6 75.9Hay 98.4 100.0 110.7 104.2 155.0 125.0 naFruit 108.7 100.0 102.0 115.7 113.0 116.3 117.5Vegetables 108.2 100.4 107.5 108.5 121.6 120.3 116.0

Total crops sector 94.6 94.3 105.6 112.9 116.3 107.9 105.5

Livestock sector

Livestock for slaughter Cattle 105.6 119.9 147.7 168.7 145.7 172.0 167.1 Lambs b 101.9 97.4 146.2 212.7 181.8 229.2 220.5 Sheep 83.7 71.5 78.9 184.4 190.9 272.6 277.3 Live sheep for export 94.0 95.3 111.4 156.1 179.3 174.6 186.0 Pigs 94.2 119.3 123.1 133.8 118.8 113.8 115.1 Poultry 94.1 90.9 90.8 93.8 98.7 93.3 91.6

Total 100.9 110.0 131.3 156.6 141.1 159.9 156.5

Livestock products

Wool 79.2 83.0 100.2 116.2 168.1 130.7 125.8 Milk 96.0 89.8 98.9 112.6 92.5 91.2 93.2 Eggs 85.3 84.0 79.1 80.7 86.0 83.9 85.6

Total 87.7 86.1 97.4 110.7 119.9 105.4 104.9

Store and breeding stock 100.9 105.0 126.0 145.3 118.2 138.0 129.2

Total livestock sector 95.3 99.4 116.4 136.2 130.0 135.6 133.0

Total prices received 96.1 97.1 110.5 123.4 122.1 120.4 118.0

a Total for the group includes commodities not separately listed. b Lamb saleyard indicator weight 18–20 kilograms. s ABARE estimate. f ABARE forecast. na Not available.Note: 1 ABARE revised the method for calculating these indexes in October 1999. The indexes for commodity groups are calculated on a chained weight basis using Fisher's ideal index with a reference year of 1997-98 = 100. Indexes for most individual commodities are based on annual gross unit value of production. 2 Prices used in these calculations exclude GST.Source: ABARE.

338

s t a t i s t i c s


2 Indexes of prices paid by farmers, and terms of trade

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

Farmers’ terms of trade a 96.1 94.1 100.4 109.7 102.2 100.0 96.7

Materials and servicesSeed, fodder and livestock

Fodder and feedstuffs 91.9 90.0 93.6 99.2 131.2 115.5 108.8Seed, seedlings and plants 100.6 102.7 105.2 115.8 125.0 119.8 114.3Store and breeding stock 100.9 105.0 126.0 145.3 118.2 138.0 129.2Total 94.7 94.9 102.5 111.6 130.1 121.7 114.6

Chemicals 100.4 101.6 103.3 105.6 108.0 109.9 111.5Electricity 100.7 102.9 108.5 110.5 112.6 114.7 116.8Fertiliser 102.7 98.6 106.4 104.3 106.9 111.2 114.0Fuel 95.2 115.5 138.6 131.2 138.5 135.6 139.7

Total 98.8 101.4 109.1 112.4 121.8 119.8 119.1

Labor 103.7 107.1 110.1 113.3 117.9 121.6 126.1

Marketing 102.7 105.0 109.3 112.4 115.9 119.5 122.9

OverheadsInsurance 102.8 105.1 109.8 118.6 124.5 130.1 135.4Interest paid 90.6 98.8 111.2 104.2 110.7 118.0 123.1Rates and taxes 102.1 107.1 112.4 115.5 119.1 122.8 126.2Other overheads 103.1 104.1 108.7 111.9 115.4 118.0 120.4

Total 96.5 102.5 111.3 109.7 115.2 120.7 125.1

Capital items 103.0 106.1 111.9 115.2 118.3 121.2 123.8

Total prices paid 100.0 103.3 110.0 112.5 119.4 120.5 122.0

Excluding capital items 99.5 102.8 109.6 112.0 119.4 120.2 121.6Excluding capital and overheads 100.2 102.9 109.3 112.5 120.3 120.1 120.8Excluding seed, fodder and

store and breeding stock 101.0 104.9 111.5 112.6 116.7 120.1 123.5

a Ratio of index of prices received by farmers and index of prices paid by farmers. s ABARE estimate. f ABARE forecast.Note: 1 ABARE revised the method for calculating these indexes in October 1999. The indexes for commodity groups are calculated on a chained weight basis using Fisher's ideal index with a reference year of 1997-98 = 100. 2 Prices used in these calculations exclude GST.Sources: Australian Bureau of Statistics; ABARE.


s t a t i s t i c s

3 Farm costs and returns

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

Costs Materials and services

Chemicals $m 1 620 1 633 1 760 1 550 1 786 1 831Fertiliser $m 1 840 1 920 2 105 1 820 2 004 2 054Fuel $m 1 450 1 643 1 583 1 520 1 671 1 716Marketing $m 3 150 3 226 3 440 2 950 3 701 3 824Repairs and maintenance $m 2 210 2 390 2 856 2 160 2 420 2 452Seed and fodder $m 2 900 3 156 3 662 5 632 4 492 4 298Other $m 3 080 3 295 3 575 3 273 3 444 3 535

Total $m 16 250 17 263 18 981 18 905 19 518 19 710

Labor $m 3 250 3 360 3 580 3 354 3 592 3 761Overheads

Interest paid $m 2 014 2 250 2 095 2 295 2 453 2 571Rent and third party insurance $m 372 389 404 415 424 440

Total $m 5 636 5 999 6 079 6 064 6 469 6 772

Total cash costs $m 21 886 23 262 25 060 24 969 25 987 26 482

Depreciation a $m 3 535 3 645 3 751 3 810 4 011 4 171

Total farm costs $m 25 421 26 907 28 811 28 779 29 998 30 653

Returns Gross value of farm production $m 30 418 34 618 39 733 31 499 35 989 35 686Increase in farmers’ assets held by

marketing organisations b $m 364 1 225 – 556 – 962 450 375Gross farm cash income c $m 30 054 33 393 40 289 32 461 35 539 35 311

Net returns and production Net value of farm production d $m 4 997 7 711 10 922 2 721 5 990 5 033Real net value of farm production e index 110.7 161.2 221.9 53.6 117.7 97.0Net farm cash income g $m 8 168 10 131 15 229 7 493 9 551 8 829Real net farm cash income e index 85.0 99.5 145.3 69.3 87.5 79.2Gross value added h $m 24 061 24 888 26 019 19 405 22 823 22 956

a Based on estimated movements in capital expenditure and prices of capital inputs. b Value of payments still to be made to farmers for their output. c Gross value of farm production less increase in farmers’ assets held by marketing organisations. d Gross value of farm production less total farm costs. e In Australian dollars. Base: 1987-88 = 100. Deflated by the consumer price index. Base: 1989-90 = 100. g Gross farm cash income less total cash costs. h Chain volume measures at basic prices. Reference year is 2001-02. s ABARE estimate. f ABARE forecast.Note: Prices used in these calculations exclude GST.Sources: Australian Bureau of Statistics; ABARE.

340

s t a t i s t i c s


4 Australian unit export returns

Annual indexes a 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

Farm 93.4 90.6 108.7 118.7 115.0 104.5 102.8Energy minerals 96.8 110.4 141.0 140.8 135.2 121.1 141.8Metals and other minerals 92.4 98.0 115.3 110.4 106.5 103.7 114.0

Total mineral resources 94.0 102.6 125.1 122.1 117.6 110.6 124.8

Total commodities 94.8 99.8 120.6 121.8 117.3 109.0 118.5

2002-03

Quarterly indexes b June Sep. Dec. Mar. p June s Sep. f Dec. f Mar. f June f

Farm 112.3 105.3 105.1 103.4 104.1 102.7 103.0 102.4 103.1Energy minerals 127.7 125.3 119.0 119.9 149.7 152.6 151.9 149.7 147.4Metals and other minerals 108.8 108.8 108.9 114.2 117.6 122.4 122.9 123.2 125.2

Total mineral resources 116.5 115.5 113.1 116.8 130.2 134.4 134.5 133.8 134.1

Total commodities 113.4 111.2 109.6 111.4 120.1 123.3 123.1 122.4 122.9

2003-04 2004-05

a In Australian dollars. Base: 1989-90 = 100. b In Australian dollars. Base: 1994-95 = 100. p Preliminary. s ABARE estimate. f ABARE forecast.Source: ABARE.


s t a t i s t i c s

5 Annual exports summary Balance of payments basis

1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f$m $m $m $m $m $m

At current prices RuralCereal grains and products 4 941 5 937 6 481 4 487 5 006 5 813Sugar and honey 1 229 1 330 1 610 1 363 1 110 1 342Meat and meat preparations 4 467 5 796 6 246 5 655 5 512 5 214Wool and sheepskins 2 963 3 897 3 687 3 545 2 751 2 583Other rural a 13 089 15 693 16 471 14 914 13 762 14 870

Total 26 689 32 653 34 495 29 964 28 140 29 822Mineral resourcesCoal, coke and briquettes 8 336 10 844 13 430 11 987 11 419 16 422Other mineral fuels 9 082 13 464 10 940 11 049 9 045 9 513Metalliferous ores and

other minerals bs 12 361 15 839 15 286 15 312 14 994 17 908Gold 5 164 5 229 5 300 5 718 5 665 5 066Other metals cs 9 123 11 638 10 991 10 944 11 348 13 396

Total s 44 066 57 013 55 947 55 009 52 469 62 304

Total commodities sector s 70 755 89 666 90 441 84 973 80 609 92 127

Other merchandise s 26 910 30 641 30 649 30 988 na na

Total merchandise s 97 665 120 307 121 090 115 961 na naServices 28 557 33 547 32 250 32 569 na naTotal goods and services 126 222 153 854 153 340 148 530 na na

Chain volume measures dRuralCereal grains and products 6 639 6 372 6 481 4 410 5 873 6 824Sugar and honey 1 799 1 420 1 611 1 706 1 765 2 066Meat and meat preparations 5 767 6 519 6 246 6 318 5 929 5 851Wool and sheepskins 4 051 4 229 3 686 2 954 2 899 2 791Other rural a 15 303 16 347 16 471 16 036 16 410 17 585Total 33 559 34 887 34 495 31 424 32 877 35 118Mineral resourcesCoal, coke and briquettes 11 960 13 107 13 431 14 059 14 861 15 998Other mineral fuels 10 349 11 130 10 939 10 243 9 347 9 995Metalliferous ores and

other minerals bs 14 027 14 736 15 286 17 180 17 993 19 908Gold 6 249 5 702 5 299 5 540 5 963 6 220Other metals cs 8 349 9 266 10 997 12 162 12 297 12 996

Total s 50 934 53 941 55 952 59 184 60 460 65 117

Total commodities sector s 84 493 88 828 90 447 90 608 93 337 100 235

Other merchandise s 29 139 31 620 30 642 30 245 na na

Total merchandise s 113 632 120 448 121 089 120 853 na naServices 30 894 34 584 32 250 31 673 na naTotal goods and services 144 374 154 976 153 339 152 528 na na

a Includes other farm, forest and fisheries products. Includes exports of wine and of paper and paperboard, which are not included in this balance of payments item by the ABS. b Includes diamonds, which are not included in this balance of payments item by the ABS. c Includes ABARE estimates for steel and nickel which were confidentialised by the ABS. d For a description of chain volume measures, see ABS, Introduction of chain volume measures, in the Australian National Accounts, cat. no. 5248.0, Canberra. Reference year is 2001-02. s ABARE estimate. f ABARE forecast. na Not available.Sources: ABS, Balance of Payments, Australia, cat. no. 5302.0, Canberra; ABARE.

342

s t a t i s t i c s


6 Contribution to exports by sector Balance of payments basis

Proportion ofmerchandise exports

Proportion of exportsof goods and services

a Includes farm, forest and fisheries products. Source: Australian Bureau of Statistics; ABARE.

2002-03

1998-99

1999-2000

2000-01

2001-02

Othermerchandise

27%

Rural a26%

Mineralresources 47%

Othermerchandise

28%

Rural a27%


Othermerchandise

26%

Rural a25%


Othermerchandise

25%

Rural a28%


Othermerchandise21%

Rural a20%

Services21%


Othermerchandise22%

Rural a21%

Services22%


Othermerchandise20%

Rural a23%


Othermerchandise22%

Rural a21%

Services21%

Services20%


Othermerchandise20%

Rural a22%

Services23% Mineral

resources 35%

Othermerchandise

26%

Rural a29%



s t a t i s t i c s

7 Quarterly exports summary Balance of payments basis

2002-03

June Sep. Dec. Mar. p June s Sep. f Dec. f Mar. f June f

$m $m $m $m $m $m $m $m $mAt current pricesRuralCereal grains and products 877 732 1 029 1 573 1 672 1 431 1 183 1 662 1 537Sugar and honey 211 418 339 174 179 547 409 204 182Meat and meat preparations 1 306 1 250 1 484 1 314 1 464 1 282 1 339 1 264 1 329Wool and sheepskins 581 605 740 647 759 577 762 630 615Other rural a 3 421 3 513 3 350 3 434 3 465 3 783 3 703 3 501 3 883Total 6 396 6 518 6 942 7 141 7 539 7 619 7 396 7 261 7 546Mineral resourcesCoal, coke and briquettes 2 733 2 609 2 535 2 441 3 834 4 060 4 059 4 162 4 141Other mineral fuels 2 315 2 558 2 143 2 068 2 276 2 367 2 387 2 387 2 372Metalliferous ores and

other minerals bs 3 767 3 652 3 964 3 349 4 028 4 280 4 285 4 565 4 778Gold 1 412 1 493 1 498 1 439 1 235 1 276 1 239 1 239 1 312Other metals cs 2 529 2 570 2 745 2 918 3 115 3 284 3 347 3 362 3 403

Total s 12 756 12 882 12 885 12 215 14 488 15 266 15 317 15 714 16 007

Total commodities sector s 19 152 19 400 19 827 19 356 22 027 22 885 22 712 22 976 23 553Other merchandise s 7 444 7 388 7 267 6 221 na na na na naTotal merchandise 26 596 26 788 27 094 25 577 na na na na naServices 6 725 8 081 8 529 9 884 na na na na naTotal goods and services 33 321 34 869 35 623 35 461 na na na na na

Chain volume measures dRuralCereal grains and products 903 812 1 200 1 897 1 964 1 678 1 386 1 954 1 806Sugar and honey 273 621 515 322 307 846 633 302 286Meat and meat preparations 1 497 1 448 1 577 1 370 1 534 1 421 1 482 1 427 1 520Wool and sheepskins 530 595 776 706 822 608 818 689 676Other rural a 3 798 3 992 3 893 4 357 4 167 4 357 4 351 4 204 4 674Total 7 001 7 468 7 962 8 653 8 795 8 910 8 669 8 577 8 962Mineral resourcesCoal, coke and briquettes 3 551 3 577 3 766 3 579 3 939 3 960 3 960 4 039 4 039Other mineral fuels 2 423 2 628 2 251 2 194 2 274 2 394 2 440 2 533 2 628Metalliferous ores and

other minerals bs 4 365 4 397 4 483 4 437 4 675 4 748 4 778 5 157 5 225Gold 1 450 1 509 1 511 1 487 1 456 1 516 1 548 1 548 1 609Other metals cs 3 095 2 912 3 131 2 963 3 290 3 219 3 236 3 247 3 294

Total s 14 884 15 024 15 142 14 660 15 634 15 837 15 962 16 523 16 795

Total commodities sector s 21 885 22 492 23 104 23 313 24 429 24 747 24 631 25 100 25 757Other merchandise s 7 446 7 592 7 991 5 848 na na na na naTotal merchandise 29 331 30 084 31 095 29 161 na na na na naServices 6 514 7 772 8 145 9 371 na na na na naTotal goods and services 35 845 37 857 39 240 38 532 na na na na na

2003-04 2004-05

a Includes other farm, forest and fisheries products. Includes exports of wine and of paper and paperboard, which are not included in this balance of payments item by the ABS. b Includes diamonds, which are not included in this balance of payments item by the ABS. c Includes ABARE estimates for steel and nickel which were confidentialised by the ABS. d For a description of chain volume measures, see ABS, Introduction of chain volume measures, in the Australian National Accounts, cat. no. 5248.0, Canberra. Reference year is 2001-02. p Preliminary. s ABARE estimate. f ABARE forecast. na Not available.Sources: ABS, Balance of Payments, Australia, cat. no. 5302.0, Canberra; ABARE.

344

s t a t i s t i c s


8 Industry gross value added a

Unit 1998-99 1999-00 2000-01 2001-02 2002-03

Agriculture, forestry and fishing

Agriculture $m 23 237 24 061 24 888 26 019 19 405 Forestry and fishing $m 1 433 1 569 1 646 1 643 1 657

Total $m 24 659 25 633 26 544 27 663 21 062

Mining

Mining (excludes services to mining) $m 27 355 29 340 31 255 31 122 31 030 Services to mining $m 2 562 2 259 2 666 2 700 2 949

Total $m 29 885 31 572 33 923 33 821 33 978

Manufacturing Food, beverage and tobacco $m 14 163 14 370 15 006 14 874 14 491 Textile, clothing, footwear and leather $m 3 095 2 982 2 752 2 402 2 173 Wood and paper products $m 4 053 4 376 4 268 4 515 4 712 Printing, publishing and recorded media $m 8 177 8 423 8 878 9 011 8 577 Petroleum, coal, chemical, etc. $m 11 441 11 828 12 105 12 480 13 621 Non–metallic mineral products $m 3 184 3 365 3 451 3 712 3 987 Metal products $m 10 474 10 023 9 979 10 586 10 814 Machinery and equipment $m 14 639 14 544 15 272 15 595 16 516 Other manufacturing $m 2 900 2 951 3 069 3 509 3 715

Total $m 72 198 72 835 74 739 76 686 78 607

Electricity, gas and water supply $m 15 582 15 896 16 021 15 977 16 145Taxes less subsidies on products $m 58 065 59 316 58 041 61 733 63 748

Statistical discrepancy $m – 1 – 1 – 1 0 2 702

Gross domestic product $m 649 550 673 944 687 720 714 370 735 710

a Chain volume measures, reference year is 2001-02.Source: ABS, National Income, Expenditure and Product, cat. no. 5206.0, Canberra.


s t a t i s t i c s

9 Volume of Australian production indexes

1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 fFarmGrains and oilseeds 126.0 117.1 129.5 58.0 125.7 118.2Total crops 114.6 113.0 121.1 77.6 113.1 114.8Livestock slaughterings 104.9 109.5 108.2 109.8 102.6 102.1Total livestock 105.4 108.0 107.5 104.2 98.0 98.5Total farm sector 110.5 110.8 114.7 90.8 105.8 107.0Forestry a

Broadleaved 118.4 116.0 117.0 117.0 119.5 121.5Coniferous 113.0 117.0 119.0 120.0 102.0 105.8Total forestry 116.0 116.0 118.0 119.0 110.3 113.3Mine bEnergy minerals 108.7 113.5 114.5 112.3 107.3 105.9Metals and other minerals 103.7 112.9 112.6 117.6 120.0 126.7Total minerals 106.5 113.2 113.7 114.7 113.4 115.8

a Volume of roundwood equivalent removed from forests. b Uranium is included with energy. s ABARE estimate. f ABARE forecast. Note: ABARE revised the method for calculating production indexes in October 1999. The indexes for the different groups of commodities are calculated on a chained weight basis using Fishers' ideal index with a reference year of 1997-98 = 100. Sources: Australian Bureau of Statistics; ABARE.

10 Employment a

1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 p’000 ’000 ’000 ’000 ’000 ’000

Agriculture, forestry and fishingAgriculture 378 366 385 373 386 326Forestry and logging 14 14 9 13 13 10Commercial fishing 14 14 16 19 18 17

Total (including services) 432 422 440 434 444 377

MiningCoal 24 18 20 18 20 21Oil and gas extraction 4 6 4 6 4 4Metal ore 31 31 29 30 34 35Other mining (including services) 24 25 25 24 23 26

Total 83 80 78 77 80 86

Manufacturing Food, beverages and tobacco 184 176 177 179 182 183Textiles, clothing, footwear and leather 94 93 86 84 74 73Wood and paper product 64 65 68 70 70 74Printing, publishing and recorded media 122 110 114 118 105 115Petroleum, coal and chemical product 99 103 110 107 107 112Non–metallic mineral product 46 48 49 42 43 47Metal product 181 172 178 175 156 164Other manufacturing 334 312 318 319 324 323

Total 1 123 1 080 1 099 1 094 1 060 1 091

Other industries 6 840 7 060 7 218 7 367 7 512 7 769

Total 8 477 8 641 8 835 8 972 9 096 9 323

a Average employment over four quarters. p Preliminary. Source: ABS, The Labour Force, Australia, cat. no. 6291.0, Canberra.

346

s t a t i s t i c s


11 Business income

1998-99 1999-00 2000-01 2001-02 2002-03

$m $m $m $m $mFarmNet value of farm production 4 368 4 997 7 711 10 922 2 721

Company profits in selected industries a

Mining 5 194 10 451 14 139 13 348 13 025

Manufacturing

Food, beverages and tobacco 3 025 2 716 3 146 na naTextiles, clothing and footwear 163 242 143 na naWood and paper products 864 988 870 na naPrinting, publishing and recorded media 1 397 1 628 1 292 na naPetroleum, coal and chemical product 2 246 2 254 1 536 na naNon–metallic mineral product 853 1 158 675 na naMetal product 450 1 043 2 139 na naMachinery and equipment 1 420 1 373 1 400 na naOther manufacturing 88 174 74 na na

Total 10 506 11 576 11 275 13 425 15 500

Other industries (including services) 13 669 15 898 11 019 12 376 23 265

Total (including services) 29 369 37 925 36 433 39 149 51 790

a Company profits before income tax. na Not available.Sources: ABS, National Income and Expenditure and Product, cat. No. 5206.0, Canberra; ABS, Company Profits, Australia, cat. no. 5651.0, Canberra; ABS, Business Indicators, cat. no. 5676.0, Canberra; ABARE.

12 All banks lending to business a

Dec. Mar. June Sep. Dec. Mar. June Sep. Dec. $b $b $b $b $b $b $b $b $b

Agriculture, fishing and forestry 24.9 21.0 26.8 26.8 27.0 27.2 28.9 29.9 31.0Mining 6.9 6.4 7.5 7.5 7.9 6.5 6.1 5.7 5.3Manufacturing 26.9 28.0 28.9 28.3 28.5 29.1 29.2 29.9 29.5Construction 15.1 12.3 12.8 13.0 14.2 13.4 14.3 14.9 15.6Wholesale, retail trade, transport and storage 35.4 37.5 40.7 40.2 40.6 41.9 43.8 44.4 46.3Finance and insurance 41.0 41.4 43.4 46.9 43.2 43.9 42.7 44.5 38.3Other 128.9 117.1 124.4 126.8 131.1 131.9 133.2 138.1 153.6

Total 279.2 263.6 284.5 289.5 292.6 293.9 298.4 307.5 319.7

2001-02 2002-03 2003-04

a Includes variable and fixed interest rate loans outstanding plus bank bills outstanding. Source: Reserve Bank of Australia.


s t a t i s t i c s

13 Farm Indebtedness to fi nancial institutions ab

1998 1999 2000 2001 2002 2003 $m $m $m $m $m $m

All banks b 17 266 18 679 21 613 23 412 24 808 26 726Other government agencies c 603 597 677 722 735 773Finance companies

Pastoral 625 476 630 641 667 411Other 1 354 617 1 897 1 998 2 025 1 250

Other farm debt ds 1 810 1 852 1 901 1 920 1 967 2 017

Total farm debt 21 658 22 221 26 718 28 693 30 202 31 176

a This table, which is largely based on data from the Reserve Bank of Australia, has been modified because of changes to data collection by the bank. The farm sector is defined as enterprises covered by ANZSIC (1993) agricultural categories 011 to 021. Credit outstanding in June of year indicated. b Derived from all banks lending to agriculture, fishing and forestry (table 12) less the fishing and forestry component, which is estimated to be around 6 per cent of that total in 1997. c Includes the government agency business of state banks and advances made under War Service Land Settlement. Prior to 1996 includes loans from the Queensland Industry Development Corporation. From 1996 these loans are included in bank lending. d Includes loans from life insurance companies, lease agreements and indebtedness to hire purchase companies, trade creditors, private lenders and small financial institutions. s ABARE estimate.Sources: Reserve Bank of Australia; ABARE.

348

s t a t i s t i c s


14 Capital expenditure of private enterprises

1998-99 1999-00 2000-01 2001-02 2002-03$m $m $m $m $m

At current pricesGross fixed capital formation a

All sectors 138 999 150 995 143 590 158 740 180 610

New capital expenditure Mining b 8 795 5 468 5 491 7 250 8 989Manufacturing

Food, beverages and tobacco 2 129 2 321 2 206 2 205 2 620Textiles, clothing, footwear and leather 268 212 256 213 230Wood and paper products 799 1 019 632 593 709Printing, publishing and recorded media 815 819 735 687 556Petroleum, coal and chemical product 1 533 1 857 1 466 1 284 1 500Non–metallic mineral products 506 488 543 554 982Metal products 1 977 1 577 1 254 1 541 2 166Machinery and equipment 1 370 1 617 1 855 1 854 2 182Other manufacturing 212 233 197 251 368

Total 9 609 10 142 9 144 9 181 11 313

Total surveyed industries 45 415 44 425 42 621 44 380 51 093

Chain volume measures cGross fixed capital formation a

All sectors 144 025 156 611 144 571 158 740 178 509

New capital expenditure Mining 9 438 5 793 5 612 7 250 8 941Manufacturing 9 446 10 408 9 182 9 181 11 766Other selected industries 24 303 27 730 27 556 27 949 32 048

Total surveyed industries 42 548 43 901 42 433 44 380 52 754

a Estimates taken from ABS national accounts, which include taxation based statistics. b Includes industries covered by Division B (for example, the metallic and nonmetallic minerals, coal, oil and gas, construction materials and other nonmetallic minerals industries) as defined in the 1993 edition of the Australian New Zealand Standard Industrial Classification (ANZSIC). c Chain volume measures. Reference year is 2001-02.Sources: Australian Bureau of Statistics; ABARE.


s t a t i s t i c s

15 Private mineral exploration expenditure

1997-98 1998-99 1999-00 2000-01 2001-02 2002-03$m $m $m $m $m $m

At current pricesEnergyPetroleum

Onshore 232.3 182.4 110.1 176.9 164.6 191.3Offshore 749.0 685.4 613.2 866.9 718.1 803.8

Total 981.3 867.8 723.3 1 043.8 882.7 995.1

Coal 64.8 39.9 35.3 41.2 50.4 77.8Uranium 22.2 15.5 11.6 8.4 8.7 6.9

Total 1 068.3 923.2 770.2 1 093.4 941.8 1 079.8

Metals and other minerals aGold 648.4 486.2 374.8 370.1 331.3 378.4Iron ore 30.0 41.6 29.7 23.4 25.2 44.5Base metals, silver and cobalt b 227.1 176.9 156.8 165.3 132.9 142.1Mineral sands 14.1 19.0 21.5 23.6 33.2 27.3Diamonds 42.8 41.0 29.8 31.8 35.4 29.9Other 17.6 17.7 16.9 19.5 23.6 25.9

Total metals and other minerals a 980.0 782.4 629.5 633.7 581.6 648.1

Total expenditure 2 048.3 1 705.9 1 399.4 1 727.4 1 522.8 1 727.5

a Uranium is included with energy. b Base metals include copper, lead, nickel and zinc.Sources: Australian Bureau of Statistics; ABARE.

350

s t a t i s t i c s


16 World macroeconomic indicators

Unit 1998 1999 2000 2001 2002 2003

Gross domestic product at constant pricesAustralia % 5.5 4.5 3.2 2.5 3.8 3.0China % 7.8 7.1 8.0 7.5 8.0 9.1India % 6.5 6.1 4.4 5.8 4.6 8.0Japan % – 1.1 0.1 2.8 0.4 – 0.3 2.5OECD % 2.7 3.1 3.9 0.7 1.6 2.0United States % 4.3 4.1 3.8 0.3 2.4 3.1Western Europe % 2.5 2.2 3.3 1.5 0.8 0.6

Industrial productionAustralia % 3.0 3.1 5.0 1.2 2.1 1.7China % 8.9 8.5 11.4 9.9 12.6 17.0India % 4.1 6.7 5.0 2.7 5.8 6.6Japan % – 7.2 0.5 5.2 – 6.5 – 1.3 3.3OECD % 1.8 3.0 4.9 – 2.6 – 0.4 0.7United States % 5.9 4.4 4.4 – 3.4 – 0.6 0.3Western Europe % 3.6 1.9 4.8 – 0.1 0.5 0.1

Consumer price indexAustralia % 0.9 1.5 4.5 4.4 3.0 2.8China % – 0.8 – 1.4 0.4 0.7 – 0.8 1.2Euro area % na na 4.5 4.4 3.0 2.8India % 13.2 4.7 4.0 3.7 4.4 3.8Japan % 0.7 – 0.3 – 0.7 – 0.7 – 1.0 – 0.3United States % 1.5 2.2 3.4 2.8 1.6 2.3

Interest rate – period average

Australia a % pa 8.2 8.0 9.2 9.3 8.4 8.4

China b % pa 6.4 5.9 5.9 5.9 5.3 5.3

Germany c % pa 9.0 8.8 9.6 11.0 11.0 8.4

India d % pa 13.5 12.5 12.3 12.1 11.9 11.5Japan e % pa 1.6 1.7 1.4 3.8 4.0 1.4

United States f % pa 8.4 8.5 9.5 6.9 4.7 4.1

Nominal exchange rates – period averageYen/US$ 130 114 108 121 125 115Euro/US$ na 0.94 1.08 1.12 1.06 0.88Rupee/US$ 41.26 43.06 44.94 47.19 48.61 46.58

a Prime lending rates to large businesses. b Lending rate. c Rate on loans under one million deutschmarks. d Commercial lending rate - prime. e Prime lending rates to large businesses. Regulated interest rates on short term bank loans over one million yen before 1997. f Base rate charged by most major US banks. na Not available.Sources: Australian Bureau of Statistics; International Monetary Fund; Organisation for Economic Co-operation and Development; Reserve Bank of Australia.


s t a t i s t i c s

17 Australian macroeconomic indicators

Unit 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 p

Economic activityGross domestic product % 4.5 5.3 3.8 2.0 3.9 3.0Gross agricultural value added % – 1.2 10.8 3.5 3.4 4.5 – 25.4Gross nonagricultural value added % 4.7 5.1 3.8 2.0 3.9 4.1Household final consumption

expenditure % 6.5 5.8 5.8 7.8 5.4 6.1Private gross fixed capital

formation % 14.4 4.6 10.5 – 4.0 11.5 16.2

LaborTotal employment % 1.4 2.2 2.7 2.1 1.1 2.5Unemployment rate a 8.3 7.4 6.6 6.4 6.6 6.1

PricesConsumer price index % 0.0 1.2 2.4 6.0 2.9 3.1

Interest rate – period average90-day bank accepted

commercial bill % pa 5.0 4.9 5.6 6.0 4.6 4.9Prime business lending rate % pa 8.4 8.0 8.4 9.3 8.1 8.410-year Commonwealth

Treasury bond % pa 6.0 5.5 6.5 5.8 5.9 5.4

TradeCurrent account balance $m –22 807 –33 610 –32 620 –18 560 –21 523 –41 064– as a percentage of GDP % – 3.7 – 5.2 – 4.8 – 2.7 – 3.0 – 5.6Terms of trade b 96.2 91.2 95.1 98.0 100.0 102.2

Exchange rates – period averageTrade weighted index for A$ c 58.3 56.0 55.2 50.1 50.6 53.0US$/A$ 0.679 0.626 0.630 0.539 0.524 0.580Yen/A$ 85.62 77.11 67.90 61.40 65.90 70.20Euro/A$ 0.00 0.28 0.63 0.60 0.59 0.56Deutschmark/A$ 1.22 1.10 1.23 1.18 1.14 1.09£sterling/A$ 0.42 0.38 0.39 0.37 0.36 0.43NZ$/A$ 1.14 1.18 1.25 1.23 1.21 1.28Renminbi/A$ 5.65 5.20 5.21 4.46 4.34 4.84Rupee/A$ 26.09 26.75 27.46 24.99 25.30 28.06

a Unemployed as a percentage of civilian labour force. b Ratio of implicit price deflator for exports of goods and services to implicit price deflator for imports of goods and services. Base: 2001-02 = 100. c Base: May 1970 = 100. p Preliminary. Sources: Australian Bureau of Statistics; Commonwealth Bank Australia; Reserve Bank of Australia; ABARE.

352

s t a t i s t i c s


18 Annual world indicator prices of selected commodities

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

CropsWheat a US$/t 113 129 128 160 161 153Corn b US$/t 90 87 90 107 115 117Rice c US$/t 231 184 192 200 222 224Soybeans d US$/t 208 200 203 245 330 290Cotton e USc/lb 52.9 57.3 41.9 55.7 70.0 63.0Sugar g USc/lb 7.3 9.8 7.6 8.0 7.6 8.0

Livestock productsBeef h USc/kg 199 196 227 202 239 236

Wool i Ac/kg 627 764 841 1 049 819 780

Butter j US$/t 796 1 293 1 152 1 186 1 600 1 650Cheese j US$/t 1 178 2 070 2 000 1 775 2 342 2 450Skim milk powder j US$/t 1 039 2 167 1 619 1 587 1 825 1 850

EnergyCrude oil

Dubai US$/bbl 23.24 25.76 21.83 25.90 29.06 29.11West Texas intermediate US$/bbl 26.18 29.45 23.85 29.92 33.91 35.16Brent US$/bbl 24.35 27.78 22.79 27.82 31.24 31.29World trade weighted average k US$/bbl 24.05 26.82 21.59 26.26 29.25 29.25

Coal lThermal US$/t 24.83 25.73 30.14 25.86 29.45 40.50Metallurgical US$/t 38.03 36.96 40.75 41.85 43.06 50.87

Uranium (U3O8) m US$/lb 9.40 7.83 9.58 10.23 14.18 14.80

Minerals and metals nAluminium US$/t 1 515 1 538 1 360 1 361 1 559 1 616Copper US$/t 1 738 1 787 1 508 1 595 2 325 2 480Gold o US$/oz 282 269 288 334 389 344Iron ore (negotiated) q USc/dltu 26.63 27.79 28.98 28.28 30.83 36.57Lead US$/t 465 476 474 445 693 788Manganese (negotiated) r US$/mtu 1.90 2.03 2.11 1.97 2.15 2.55Nickel US$/t 8 262 7 240 5 919 7 673 12 125 13 488Silver t USc/oz 520 467 442 461 580 685Tin US$/t 5 510 5 406 4 128 4 371 6 617 9 058Zinc US$/t 1 144 1 050 791 775 967 1 032

a US hard red winter wheat, fob Gulf. b US no. 2 yellow corn, delivered US Gulf. c Prices previously reported by the Thailand Board of Trade are no longer available. From September 1998 the price quoted is the USDA sourced nominal quote for Thai white rice, 100 per cent, Grade B, fob, Bangkok (August–July basis). d US cif Rotterdam (October–September basis). e Cotlook 'A' index. g Average of monthly averages of New York no.11 spot price; basis: fob Caribbean ports (October-September basis). h US cif price. i Australian Wool Exchange eastern market indicator. j Average of traded prices (excluding subsidised sales). k World trade weighted average price compiled by the US Department of Energy. Official sales prices or estimated contract terms for major internationally traded crude oils. l Average export unit value, fob Australia. m Average of weekly restricted spot prices over the period, published by Ux Consulting. n Average LME spot price unless otherwise stated. o London gold fix, London Bullion Market Association. q Australian hematite fines to Japan (fob) for Japanese fiscal year commencing 1 April. r Japanese fiscal year commencing 1 April. t London silver fix, London Bullion Market Association. Prior to March 2001, Handy and Harman, commercial bar price used. s ABARE estimate. f ABARE forecast.Sources: Australian Bureau of Statistics; Australian Dairy Corporation; Meat and Livestock Australia; Australian Wool Exchange; Cotlook Ltd; Food and Agriculture Organisation; General Agreement on Tariffs and Trade; International Energy Agency; International Wheat Council; ISTA Mielke and Co.; London Bullion Market Association; The London Metal Exchange Ltd; New York Board of Trade; Reuters Ltd; Ux Consulting Company; Platts Oilgram; US Department of Agriculture; US Department of Energy; World Bureau of Metal Statistics; ABARE.


s t a t i s t i c s

19 Quarterly world indicator prices of selected commodities

2002-03

Unit June Sep Dec Mar June s Sep f Dec f Mar f June f

CropsWheat a US$/t 141 146 163 168 165 152 154 156 151Corn b US$/t 107 101 108 123 128 118 113 118 118Rice c US$/t 204 203 201 230 244 232 228 225 220Soybeans d US$/t 247 252 323 377 320 298 286 290 295Cotton e USc/lb 58.2 61.6 74.3 74.0 70.2 65.7 62.3 62.3 61.7Sugar g USc/lb 7.4 7.1 6.9 7.2 8.2 8.1 8.0 7.9 7.9

Livestock productsBeef h USc/kg 185 214 245 246 252 245 239 231 229Wool i Ac/kg 948 905 805 789 777 800 785 770 765Butter j US$/t 1 283 1 392 1 558 1 692 1 758 1 704 1 689 1 642 1 564Cheese j US$/t 1 950 1 983 2 217 2 533 2 633 2 553 2 487 2 419 2 341Skim milk powder j US$/t 1 708 1 733 1 825 1 842 1 900 1 890 1 867 1 858 1 785

EnergyCrude oil

Dubai US$/bbl 24.47 26.88 27.22 29.80 32.33 31.18 30.02 28.43 26.82West Texas intermediate US$/bbl 29.06 31.07 30.44 35.17 38.98 37.72 36.49 34.20 32.25Brent US$/bbl 26.14 28.87 29.38 31.98 34.71 33.52 32.28 30.54 28.82World trade weighted average k US$/bbl 24.37 27.25 27.67 29.60 32.48 31.39 30.17 28.50 26.95

Coal lThermal US$/t 25.01 25.17 25.95 25.95 40.74 40.74 40.74 40.74 39.77Metallurgical US$/t 40.41 40.36 40.58 40.42 50.90 50.90 50.87 50.86 50.86

Uranium (U3O8) m US$/lb 10.88 11.47 13.83 16.50 14.92 14.87 14.83 14.78 14.73

Minerals and metals nAluminium US$/t 1 380 1 436 1 511 1 649 1 640 1 637 1 635 1 610 1 580Copper US$/t 1 643 1 754 2 059 2 467 2 753 2 600 2 470 2 450 2 400Gold o US$/oz 347 363 392 409 393 360 342 340 335Lead US$/t 456 511 634 842 786 798 795 790 770Nickel US$/t 8 401 9 388 12 411 14 701 12 000 13 000 13 500 13 650 13 800Silver q USc/oz 459 499 527 668 624 620 650 690 700Tin US$/t 4 666 4 801 5 295 6 957 9 134 9 267 9 167 9 000 8 800Zinc US$/t 772 822 930 1 071 1 046 1 052 1 030 1 032 1 015

2003-04 2004-05

a US hard red winter wheat, fob Gulf. b US no. 2 yellow corn, delivered US Gulf. c Prices previously reported by the Thailand Board of Trade are no longer available. From September 1998 the price quoted is the USDA sourced nominal quote for Thai white rice, 100 per cent, Grade B, fob, Bangkok. d US cif Rotterdam. e Cotlook ’A’ index. g Average of monthly averages of New York no.11 spot price; basis: fob Caribbean ports. h US cif price. i Australian Wool Exchange eastern market indicator. j Average of traded prices (excluding subsidised sales). k World trade weighted average price compiled by the US Department of Energy. l Average export unit value, fob Australia. m Average of weekly restricted spot prices over the period, published by Ux Consulting. n Average LME spot price unless otherwise stated. o London gold fix, London Bullion Market Association. q London silver fix, London Bullion Market Association. Prior to March 2001, Handy and Harman, commercial bar price used. s ABARE estimate. f ABARE forecast. Sources: Australian Bureau of Statistics; Australian Dairy Corporation; Meat and Livestock Australia; Australian Wool Exchange; Cotlook Ltd; Food and Agriculture Organisation; General Agreement on Tariffs and Trade; International Energy Agency; International Wheat Council; ISTA Mielke and Co.; Reuters Ltd; London Bullion Market Association; The London Metal Exchange Ltd; New York Board of Trade; Ux Consulting Co.; Platts Oilgram; US Department of Agriculture; US Department of Energy; World Bureau of Metal Statistics; ABARE.

354

s t a t i s t i c s


20 Australian gross unit values and prices of farm products a

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

Crops bGrains and oilseedsWinter crops

Barley $/t 172 199 208 240 206 199Canola $/t 309 307 384 386 363 336Field peas $/t 297 219 288 341 335 301Lupins $/t 145 205 250 295 289 260Oats $/t 106 132 175 228 174 172Triticale $/t 126 150 195 242 188 184Wheat $/t 195 232 262 262 228 226

Summer cropsMaize $/t 153 188 197 253 211 207Rice $/t 263 213 274 281 280 275Sorghum $/t 123 144 173 205 183 182Soybeans c $/t 344 377 353 384 383 338Sunflowerseed c $/t 375 360 390 423 414 373

Industrial cropsCotton lint d c/kg 199 256 194 222 227 200Sugar cane (cut for crushing) $/t 22 23 31 26 21 22Wine grapes $/t 800 876 888 810 810 814

Livestock for slaughterBeef e c/kg 217 266 306 256 287 280– yearling e c/kg 244 289 335 289 322 311– ox e c/kg 227 273 314 284 307 297– cow e c/kg 198 249 285 227 260 252Lamb eg c/kg 171 196 300 338 375 360

Mutton e c/kg 61 101 180 167 197 200Pig e c/kg 240 258 281 244 234 236Poultry h c/kg 359 354 380 385 394 401Livestock productsWool i c/kg 627 764 841 1 049 819 780Milk j c/L 26.2 29.0 33.0 27.1 26.7 27.3

a Average gross unit value across all grades in principal markets, unless otherwise indicated. Includes the cost of containers, commission and other expenses incurred in getting the commodities to their principal markets. These expenses are significant. b Average unit gross value relates to returns received from crops harvested in that year, regardless of when sales take place, unless otherwise indicated. c Price paid by crusher. d Australian base price for sales in the financial year indicated. e Average saleyard price (dressed weight). g Lamb saleyard weight indicator 18–20 kg. h Retail, frozen. i Australian Wool Exchange eastern market indicator. j Weighted average farmgate price. s ABARE estimate. f ABARE forecast.Note: Prices used in these calculation exclude GST.Sources: Australian Bureau of Statistics; ABARE.


s t a t i s t i c s

21 World production, consumption, stocks and trade for selected commodities a

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

FarmGrainsWheat

Production Mt 585 582 582 567 553 599Consumption Mt 583 584 586 600 587 602Closing stocks Mt 203 201 197 164 128 125Exports b Mt 108 101 107 104 101 99

Coarse grainsProduction Mt 877 860 892 871 897 930Consumption Mt 884 882 904 901 941 945Closing stocks Mt 211 188 176 165 122 107Exports b Mt 105 104 104 104 100 102

RiceProduction c Mt 409 398 399 378 391 402Consumption c Mt 396 393 411 408 413 418Closing stocks c Mt 146 148 137 107 86 69Exports bd Mt 24 28 27 29 25 26

Oilseeds and vegetable oilsOilseeds

Production Mt 304 314 325 330 336 378Consumption Mt 301 312 324 323 344 372Closing stocks Mt 20 22 23 30 22 28Exports Mt 65 72 71 73 64 66

Vegetable oilsProduction Mt 86 90 93 94 101 105Consumption Mt 83 89 92 96 101 104Closing stocks Mt 8 9 8 6 6 7Exports Mt 33 35 37 38 37 34

Vegetable protein mealsProduction Mt 169 175 183 186 197 211Consumption Mt 170 177 183 188 197 210Closing stocks Mt 6 5 6 5 5 5Exports Mt 50 54 55 61 54 55

Industrial cropsCotton

Production Mt 19 19 21 19 20 22Consumption Mt 20 20 21 21 21 22Closing stocks Mt 10 9 10 8 7 8Exports Mt 6 6 6 7 7 7

SugarProduction Mt 134 131 137 148 144 147Consumption Mt 128 131 136 142 145 147Closing stocks Mt 61 61 60 66 65 65Exports Mt 42 39 43 42 41 41

Continued

356

s t a t i s t i c s


21 World production, consumption, stocks and trade for selected commodities a continued

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

Livestock products Meat deg

Production Mt 194 198 205 205 209 212Consumption Mt 191 195 201 202 205 208Closing stocks Mt 5.7 5.4 9.2 12.7 16.4 21.1Exports b Mt 15.6 16.6 18.0 18.6 18.0 17.4

Wool hProduction kt 1 376 1 357 1 316 1 274 1 230 1 243Consumption di kt 1 326 1 500 1 407 920 916 917Closing stocks j kt 193 108 78 124 168 191Exports k kt 872 914 770 567 564 565

Butter dgProduction kt 5 561 5 662 5 747 5 759 5 812 5 733Consumption kt 5 175 5 402 5 429 5 511 5 651 5 262Closing stocks kt 542 460 731 733 784 485Exports kt 638 630 613 611 635 660

Skim milk powder glProduction d kt 3 298 3 294 3 507 3 060 3 020 2 971Consumption d kt 3 036 2 916 3 027 3 030 3 234 2 556Closing stocks d kt 617 777 1 129 1 044 949 775Exports kt 996 981 966 954 1 029 1 110

Energy d

Crude oilProduction

World m mbd 76.9 76.7 76.6 79.4 81.5 82.5OPEC n mbd 30.8 30.1 28.6 30.5 31.4 31.0

Consumption m mbd 76.2 76.8 77.0 78.7 80.6 81.8Closing stocks

OECD o days 52.0 54.0 51.0 51.0 na na

Coal dProduction

Hard coal q Mt 3 634 3 717 3 819 3 945 4 156 4 311Brown coal Mt 876 893 887 885 903 921

ExportsMetallurgical coal Mt 193 193 188 192 204 213Thermal coal Mt 402 429 435 474 487 499

Uranium (U3O8) dProduction rs kt 42.6 43.5 44.2 44.0 44.2 44.3Consumption kt 75.4 75.0 75.5 76.0 76.0 76.1

Metals d

Bauxite production kt 138 810 137 647 150 463 159 332 165 793 171 928Alumina production kt 52 366 53 757 56 123 57 058 61 841 64 129AluminiumProduction kt 24 465 24 541 26 145 27 800 28 756 29 849Consumption kt 24 903 23 546 24 925 27 425 28 796 29 718Closing stocks t kt 2 109 2 561 2 901 3 144 3 283 3 464Exports kt 15 285 15 160 15 872 15 407 16 023 15 703

Continued


s t a t i s t i c s

21 World production, consumption, stocks and trade for selected commodities a continued

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 fIron and steel dProduction

Iron ore Mt 1 084 1 054 1 131 1 196 1 269 1 302Pig iron Mt 543 549 580 622 666 695Crude steel Mt 846 849 902 961 1 008 1 050

ExportsIron ore Mt 489 477 507 552 497 545

Gold dMine production t 2 584 2 623 2 592 2 593 2 589 2 630Supply t 3 970 3 933 3 973 4 142 4 199 3 980Fabrication consumption u t 3 791 3 522 3 172 3 049 3 069 3 180Base metals dCopper

Production v kt 14 820 15 687 15 359 15 252 15 750 16 770Consumption kt 15 176 14 674 14 997 15 484 16 280 16 740Closing stocks w kt 960 1 636 1 711 1 414 876 915Exports kt 5 750 5 750 5 800 5 900 5 900 5 900

LeadProduction v kt 6 651 6 546 6 657 6 865 6 950 7 000Consumption kt 6 525 6 489 6 671 6 867 7 100 6 970Closing stocks w kt 435 437 492 400 370 375Exports kt 1 394 1 500 1 500 1 500 1 500 1 500

NickelProduction v kt 1 084 1 160 1 179 1 206 1 260 1 310Consumption kt 1 123 1 104 1 168 1 233 1 280 1 325Closing stocks w kt 93 100 97 97 92 86

TinProduction v kt 260 270 262 270 285 300Consumption kt 257 281 274 292 310 325Closing stocks w kt 35 52 49 38 20 20Exports kt 232 220 225 225 230 230

ZincProduction v kt 8 981 9 227 9 712 9 860 10 000 10 350Consumption kt 8 993 8 917 9 374 9 731 10 120 10 300Closing stocks w kt 654 932 1 095 1 200 945 975Exports kt 2 850 2 850 2 900 2 900 2 950 2 950

Mineral sands dProduction

Ilmenite x kt 9 217 9 623 9 739 9 548 9 680 10 249Titaniferous slag kt 2 148 2 225 2 049 1 987 2 130 2 160Rutile concentrate kt 420 418 435 365 383 560Zircon concentrate kt 1 022 1 090 1 127 1 135 1 157 1 303

a Some figures are not based on precise or complete analyses. b Includes intra–EU trade. c Milled equivalent. d On a calendar year basis, e.g. 1991-92 = 1992. e Beef and veal, mutton, lamb, goat, pig and poultry meat. g Selected countries. h Clean equivalent. i Virgin wool at the spinning stage in 65 countries. j Held by marketing bodies and on-farm in five major exporting countries. k Five major exporting countries. l Nonfat dry milk. m Includes crude oil, marine bunkers, refinery fuel, nonconventional oil and natural gas liquids. 1 million litres a year equals about 17.2 barrels a day. n Includes OPEC natural gas liquids. o Industry stocks in OECD countries at the start of the quarter. q Includes anthracite and bituminous coal, and for the United States, Australia and New Zealand, sub-bituminous coal. r World production data has been revised to exclude reprocessed uranium. t LME and producer stocks. u Includes jewellery consumption. v Primary refined metal. w Commercial stocks excluding former and current centrally planned economies. x Excludes some small producers and large tonnages produced from ilmenite–magnetite ore in the Commonwealth of Independent States. s ABARE estimate. f ABARE forecast. na Not available. Sources: Australian Bureau of Statistics; Meat and Livestock Australia; Commodities Research Unit; Commonwealth Secretariat; Consolidated Gold Fields; Department of Agriculture, Fisheries and Forestry Australia; Economic Commission for Europe; Fearnleys; Food and Agriculture Organisation; Gold Fields Mineral Services; International Atomic Energy Agency; International Energy Agency; International Iron and Steel Institute; International Lead–Zinc Study Group; International Sugar Organization; International Wheat Council; ISTA Mielke and Co.; Metallgesellschaft A.G.; Ministry of Agriculture, Forestry and Fisheries (Japan); New Zealand Dairy Board; New Zealand Wool Board; UNCTAD Trust Fund on Iron Ore; United Nations; Uruguayan Association of Wool Exporters; US Department of Agriculture; World Bureau of Metal Statistics; ABARE.

358

s t a t i s t i c s


22 Australian commodity production

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 fCropsGrains and oilseedsWinter crops

Barley kt 5 032 6 743 8 280 3 713 8 525 7 792Canola kt 2 460 1 775 1 756 841 1 622 1 484Chickpeas kt 230 162 258 136 178 132Field peas kt 357 456 512 160 407 466Lupins kt 1 968 1 055 1 215 716 953 996Oats kt 1 118 1 050 1 434 926 1 520 1 408Triticale kt 764 841 860 269 675 641Wheat kt 24 758 22 108 24 299 10 058 24 920 23 246

Summer cropsCottonseed s kt 1 046 1 140 1 054 546 443 705Maize kt 406 345 457 316 392 396Rice kt 1 101 1 643 1 192 391 535 656Sorghum kt 2 116 1 935 2 021 1 541 1 900 1 835Soybeans kt 104 49 63 18 74 70Sunflowerseed kt 170 77 70 25 58 58Other oilseeds a kt 87 57 40 72 75 81

Total grains and oilseeds kt 41 717 39 437 43 510 19 727 42 277 39 965

Industrial cropsCotton lint kt 740 806 745 386 313 498Sugar cane (cut for crushing) kt 39 699 28 117 32 260 37 968 36 892 38 055Sugar (tonnes actual) kt 5 448 4 162 4 987 5 461 5 022 5 249Wine grapes kt 1 129 1 422 1 606 1 411 1 765 1 865

Livestock slaughteringsNumber slaughteredCattle and calves ’000 8 642 8 930 8 587 9 228 8 699 8 320Cattle exported live b ’000 846 846 797 968 519 550Sheep ’000 15 585 16 628 14 441 13 657 11 023 8 916Lambs ’000 17 557 18 629 17 400 16 870 16 375 17 383Sheep exported live b ’000 4 859 5 936 6 443 5 843 3 962 3 900Pigs ’000 5 025 5 016 5 402 5 742 5 641 5 551Meat producedBeef and veal c kt 1 988 2 119 2 028 2 073 1 992 1 958Lamb c kt 347 367 348 329 324 346Mutton c kt 328 348 296 268 223 184Pig meat kt 363 365 396 420 410 406Poultry meat c kt 638 657 705 726 741 766

Total kt 3 664 3 856 3 773 3 816 3 690 3 661

Continued


s t a t i s t i c s

22 Australian commodity production continued

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

Livestock products Wool d kt 671 657 605 547 495 511Milk e ML 10 847 10 545 11 271 10 326 10 101 10 338Butter g kt 183 172 178 149 131 133Cheese kt 373 376 431 368 366 385Casein kt 15 13 14 13 10 10Skim milk powder h kt 247 249 243 215 207 210Wholemilk powder kt 187 205 239 170 158 160Buttermilk powder kt 18 16 17 16 16 16

ForestryVolume of roundwood equivalent removed from forests '000 m3 24 258 24 352 24 866 28 553 23 129 23 400

Fisheries i Tuna j kt 16.2 16.1 15.9 14.6 15.1 14.9Other fish k kt 113.5 122.0 137.3 148.2 129.0 129.2Prawns kt 26.8 30.1 29.4 25.9 25.1 24.7Rock lobster kt 20.5 16.8 14.3 17.1 20.0 18.2Abalone kt 5.6 5.7 5.9 5.1 5.2 5.2Scallops kt 12.0 9.2 5.6 9.7 10.6 8.8Oysters kt 9.7 9.6 10.2 9.9 10.4 10.9Other molluscs kt 8.5 10.9 9.0 9.8 8.8 9.0Other crustaceans kt 7.8 8.9 8.1 7.4 8.5 8.7

EnergyCoal

Black, salable Mt 239.4 258.2 272.6 274.1 287.4 305.3Black, raw Mt 298.7 321.5 344.4 351.0 360.7 353.9Brown Mt 67.4 65.0 67.8 67.4 67.9 64.4

PetroleumCrude oil and condensate ML 37 447 38 705 36 100 33 321 28 463 28 145Petroleum products l ML 47 630 47 690 46 677 46 976 44 299 45 853Natural gas m Gm3 33.4 34.3 35.8 36.8 37.3 42.6LPG (naturally occurring) ML 4 832 4 056 4 647 4 681 4 641 4 690

Uranium (U3O8) t 8 217 9 549 7 964 9 222 9 125 9 700

Metalliferous minerals and metals nAluminium

Bauxite Mt 51.0 54.6 53.9 54.5 56.6 58.7Alumina kt 15 037 16 098 16 417 16 413 16 794 17 462Aluminium (ingot metal) kt 1 742 1 788 1 809 1 855 1 879 1 937

CopperMine production o kt 796 876 876 883 804 859Refined, primary kt 477 517 561 537 456 474

GoldMine production o t 298.5 295.5 264.6 277.8 268.3 287.6Refined, Australian origin t 317.6 316.0 284.6 256.1 259.4 290.2Refined, overseas origin t 65.4 44.6 61.5 130.0 100.0 100.0

Continued

360

s t a t i s t i c s


22 Australian commodity production continued

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

Metalliferous minerals and metals (continued)Iron and steel

Ore and concentrate q Mt 159.7 175.6 185.3 198.9 229.0 241.0Iron and steel Mt 8.1 8.0 8.3 9.4 9.7 10.1

LeadMine production o kt 648 724 744 695 670 681Refined r kt 233 215 275 267 252 299Bullion kt 165 153 201 181 145 150

ManganeseOre, metallurgical grade kt 1 755 1 948 1 850 2 472 2 943 2 852Metal content of ores and concentrates kt 858 953 994 1 126 1 113 1 367

NickelMine production o kt 144 198 205 210 217 224Refined, class I s kt 89 108 120 117 116 128Refined, class II u kt 12 13 11 13 13 11Total ore processed v kt 180 242 248 256 271 275

SilverMine production o t 1 889 2 021 2 106 1 905 1 904 2 204Refined t 543 532 616 672 661 623

TinMine production o t 9 820 10 016 8 173 6 222 1 559 1 400Refined t 602 1 039 829 708 616 800

TitaniumIlmenite concentrate kt 2 134 2 092 1 843 2 069 2 042 2 204Leucoxene concentrate kt 33 34 34 43 66 131Rutile concentrate kt 185 209 207 208 157 246Synthetic rutile s kt 566 650 612 673 690 685Titanium dioxide pigment s kt 172 181 186 189 194 191

ZincMine production o kt 1 265 1 483 1 490 1 529 1 369 1 440Refined kt 405 534 572 570 506 498

Zircon concentrate kt 372 377 389 458 442 510

Other mineralsDiamonds ’000 ct 29 672 22 475 30 676 32 006 30 046 34 044Salt kt 9 610 9 492 9 213 10 305 10 535 10 400

a Linseed and safflowerseed. b Excludes animals exported for breeding purposes. c In carcass weight and includes carcass equivalent of canned meats. d Greasy equivalent of shorn wool (includes crutching), dead and fellmongered wool and wool exported on skins. e Includes the wholemilk equivalent of farm cream intake. g Includes the butter equivalent of butteroil, butter concentrate, ghee and dry butterfat. h Includes mixed skim and buttermilk powder. i Liveweight. j Tuna captured under joint venture or bilateral agreements or transhipped at sea is included. k Includes an estimated value of aquaculture but excludes inland commercial fisheries. l Includes production from petrochemical plants. m Includes ethane, methane and noncommercial natural gas. n Uranium is included with energy. o Primary production, metal content. q Excludes iron oxide not intended for metal extraction. r Includes lead content of lead alloys from primary sources. t Products with a nickel content of 99 per cent or more. Includes electrolytic nickel, pellets, briquettes and powder. u Products with a nickel content of less than 99 per cent. Includes ferronickel, nickel oxides and oxide sinter. v Includes imported ore for further processing. s ABARE estimate. f ABARE forecast. Sources: Australian Bureau of Statistics; Australian Dairy Corporation; Consolidated Gold Fields; Joint Coal Board; Queensland Coal Board; Raw Cotton Marketing Advisory Committee; ABARE.


s t a t i s t i c s

23 Gross value of Australian farm and fi sheries production

1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f$m $m $m $m $m $m

CropsGrains and oilseedsWinter crops

Barley 865 1 344 1 725 890 1 757 1 551Canola 760 545 675 325 589 499Chickpeas 78 75 130 65 83 56Field peas 106 100 147 55 136 140Lupins 286 217 304 211 276 259Oats 118 138 251 211 264 242Triticale 96 126 168 65 127 118Wheat 4 831 5 130 6 356 2 635 5 680 5 260

Summer crops

Maize 62 65 90 80 83 82Rice 289 350 327 110 150 180Sorghum 260 279 349 316 347 334Soybeans 36 18 22 7 28 24Sunflowerseed 64 28 27 10 24 22Other oilseeds a 42 33 23 43 47 46

Total grains and oilseeds 7 893 8 448 10 596 5 023 9 591 8 813

Industrial cropsCotton lint and cotton seed b 1 568 1 862 1 504 788 572 864Sugar cane (cut for crushing) 882 657 989 977 771 854Wine grapes 903 1 245 1 426 1 143 1 430 1 517

Total 3 402 3 803 3 955 2 943 2 788 3 250

Other cropsOther crops nei c 5 812 6 596 6 849 6 130 6 676 6 874

Total crops 17 107 18 847 21 399 14 096 19 055 18 937

Continued

362

s t a t i s t i c s


23 Gross value of Australian farm and fi sheries production continued

1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f$m $m $m $m $m $m

Livestock slaughteringsCattle and calves d 4 615 5 949 6 617 5 851 6 636 6 337Cattle exported live e 433 482 526 562 282 294Sheep g 205 368 544 447 531 445Lambs gh 669 776 1 181 1 184 1 467 1 508Sheep exported live 180 258 392 408 269 283Pigs 792 822 968 911 854 855Poultry 1 031 1 060 1 175 1 273 1 229 1 247

Total 7 924 9 715 11 403 10 636 11 268 10 969

Livestock products Wool i 2 149 2 541 2 713 3 547 2 508 2 480Milk j 2 845 3 053 3 717 2 797 2 697 2 822

Other livestock products k 392 462 501 423 461 478

Total 5 386 6 057 6 931 6 767 5 666 5 781

Total farm 30 418 34 618 39 733 31 499 35 989 35 686

Fisheries products l

Tuna m 257 329 323 305 245 240Other fin fish n 454 490 546 552 561 590Prawns 415 453 429 355 289 293Rock lobster 546 481 502 460 399 404Abalone 221 276 247 212 198 195Scallops 43 39 23 33 28 26Oysters 53 55 57 62 62 63Pearls 190 150 175 175 156 165Other molluscs o 92 78 43 63 55 60Other crustaceans 59 67 65 59 62 62

Total fish q 2 344 2 439 2 431 2 297 2 072 2 114

a Linseed, safflowerseed and peanuts. b Value delivered to gin. c Mainly fruit, vegetables and fodder crops. d Includes dairy cattle slaughtered. e Excludes animals exported for breeding purposes. g Excludes skin values. h Lamb saleyard indicator weight 18–20 kilograms. i Shorn, dead and fellmongered wool and wool exported on skins. j Milk intake by factories and valued at farmgate. k Mainlyegg production, honey and beeswax. l Value to fishermen of product landed in Australia. m Tuna captured under joint venture or bilateral agreements or transhipped at sea is included. n Includes an estimated value of aquaculture. o Includes Northern Territory aquaculture production. q Also includes fish and aquaculture values not elsewhere included. s ABARE estimate. f ABARE forecast.Note: The gross value of production is the value placed on recorded production at the wholesale prices realised in the market place. The point of measurement can vary between commodities. Generally the market place is the metropolitan market in each state and territory. However, where commodities are consumed locally or where they become raw material for a secondary industry, these points are presumed to be the market place. Note: Prices used in these calculations exclude GST. Sources: Australian Bureau of Statistics; ABARE.


s t a t i s t i c s

24 Crop areas and livestock numbers

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

Crop areasGrains and oilseedsWinter crops

Barley ’000 ha 2 596 3 454 3 707 3 772 3 800 3 760Canola ’000 ha 1 911 1 459 1 332 1 263 1 005 1 046Chickpeas ’000 ha 218 262 195 201 152 108Field peas ’000 ha 321 397 337 312 301 346Lupins ’000 ha 1 347 1 180 1 142 930 638 660Oats ’000 ha 584 650 784 906 880 862Triticale ’000 ha 361 389 409 305 356 346Wheat ’000 ha 12 168 12 141 11 529 11 045 12 401 12 509

Summer cropsMaize ’000 ha 82 74 83 60 79 82Rice ’000 ha 133 177 150 38 65 73Sorghum ’000 ha 622 758 823 673 625 664Soybeans ’000 ha 56 33 32 10 33 36Sunflowerseed ’000 ha 162 82 79 40 46 51Other oilseeds a ’000 ha 54 24 14 44 49 55

Total grains and oilseeds ’000 ha 20 634 21 098 20 630 19 621 20 452 20 622

Industrial cropsCotton ’000 ha 464 527 409 224 194 303Sugar cane b ’000 ha 428 411 417 423 415 420Winegrapes b ’000 ha 110 131 143 151 156 166

Livestock numbers cCattle

Beef million 24.45 24.50 24.74 23.40 23.26 23.83Dairy million 3.14 3.22 3.13 3.10 3.07 3.09 milking herd d million 2.17 2.18 2.12 2.07 2.05 2.06

Total million 27.59 27.72 27.87 26.50 26.33 26.92Sheep million 118.6 110.9 106.2 98.4 95.4 98.6

Pigs million 2.51 2.75 2.94 2.77 2.66 2.65

a Linseed and safflowerseed. b Cut for crushing. c At 30 June from 1999-00. Details for establishments with an estimated value of agricultural operations of $5 000 or more. d Cows in milk and dry. s ABARE estimate. f ABARE forecast.Sources: Australian Bureau of Statistics; ABARE.

364

s t a t i s t i c s


25 Average farm yields

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

CropsGrains and oilseedsWinter crops

Barley t/ha 1.94 1.95 2.23 0.98 2.24 2.07Canola t/ha 1.29 1.22 1.32 0.67 1.61 1.42Chickpeas t/ha 1.05 0.62 1.32 0.68 1.17 1.22Field peas t/ha 1.11 1.15 1.52 0.51 1.35 1.35Lupins t/ha 1.46 0.89 1.06 0.77 1.49 1.51Oats t/ha 1.91 1.62 1.83 1.02 1.73 1.63Triticale t/ha 2.12 2.16 2.10 0.88 1.89 1.85Wheat t/ha 2.03 1.82 2.11 0.91 2.01 1.86

Summer cropsMaize t/ha 4.95 4.66 5.51 5.27 4.96 4.84Rice t/ha 8.26 9.28 7.95 10.29 8.23 8.99Sorghum t/ha 3.40 2.55 2.46 2.29 3.04 2.76Soybeans t/ha 1.86 1.46 1.95 1.77 2.21 1.93Sunflowerseed t/ha 1.05 0.94 0.88 0.62 1.26 1.14

Industrial cropsCotton (lint) t/ha 1.59 1.53 1.82 1.72 1.62 1.65Sugar cane (for crushing) t/ha 93 68 77 90 89 91Winegrapes t/ha 10.26 10.89 11.24 9.34 11.30 11.26

LivestockWool a kg/sheep 4.30 4.31 4.38 4.25 4.40 4.47Wholemilk L/cow 4 996 4 846 5 309 4 993 4 932 5 014

a Shorn (including lambs). s ABARE estimate. f ABARE forecast.Sources: Australian Bureau of Statistics; ABARE.


s t a t i s t i c s

26 Volume of Australian commodity exports

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

FarmGrains and oilseedsWinter crops

Barley a kt 3 832 4 142 4 964 3 462 5 097 4 912Canola kt 1 893 1 479 1 303 612 980 1 343Chickpeas kt 217 218 278 89 160 117Lupins kt 1 424 714 414 199 430 535Oats (unprepared) kt 160 97 130 177 171 138Peas b kt 307 387 459 108 217 389Wheat c kt 17 329 16 621 16 464 10 851 14 911 18 160

Summer cropsCottonseed kt 531 658 594 259 158 208Rice kt 636 578 534 216 165 277Sorghum kt 539 691 586 70 205 406Other oilseeds d kt 21 53 23 16 18 35

Total grains and oilseeds kt 26 889 25 639 25 750 16 059 22 514 26 519

Industrial cropsRaw cotton e kt 703 834 718 596 420 357Sugar kt 4 028 2 966 3 499 3 975 3 801 4 019Wine ML 288 340 415 511 616 721

Meat and live animals for slaughter Beef and veal gh kt 852 959 902 902 845 828Live cattle i ’000 846 846 797 968 519 550Lamb g kt 98 116 118 102 117 126Live sheep i ’000 4 859 5 936 6 443 5 843 3 962 3 900Mutton g kt 176 192 166 162 131 126Pig meat g kt 39 44 59 63 52 58Poultry meat g kt 17 21 21 23 23 24Canned meat kt 10 3 6 3 3 3

Wool Greasy js kt 459 479 403 307 307 287Semiprocessed kt (gr.eq.) 271 281 227 169 144 173Skins kt (gr.eq.) 72 95 56 28 32 42

Total js kt (gr.eq.) 803 855 686 505 484 503

Dairy productsButter k kt 124 108 108 100 75 77Cheese kt 220 219 218 208 206 222Casein kt 14 10 9 8 8 8Skim milk powder kt 218 203 210 181 132 135Wholemilk powder kt 153 167 165 142 109 111

Continued

366

s t a t i s t i c s


26 Volume of Australian commodity exports continued

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

Forest productsWoodchips kt 9 365 10 096 9 490 10 935 10 387 10 560

Fisheries productsTuna l kt 12.6 14.8 13.9 12.6 12.3 12.5Other fish kt 15.0 13.3 17.5 17.4 15.7 15.9Prawns m

Headless kt 0.9 1.0 0.8 0.6 0.4 0.5Whole kt 10.1 10.8 10.9 8.7 9.3 9.3

Rock lobsterTails kt 1.7 1.0 0.9 1.7 1.8 1.8Whole kt 13.3 11.9 9.7 9.5 11.8 11.1

AbaloneFresh, chilled or frozen kt 1.6 1.5 2.0 1.7 2.3 2.3Prepared or preserved kt 2.2 2.0 2.0 2.5 2.6 2.5

Scallops n kt 1.7 2.1 1.5 1.2 1.6 1.4

Mineral resourcesEnergyCrude oil o ML 20 877 24 044 23 936 20 950 18 865 19 200LPG ML 2 857 2 785 3 211 3 194 3 148 3 170LNG qs Mt 7.923 7.530 7.600 7.826 7.938 10.610Bunker fuel r ML 2 314 2 291 2 267 2 238 2 231 2 220Petroleum products ML 4 116 4 564 3 409 3 140 2 440 1 800Metallurgical coal Mt 96.8 105.5 105.8 107.8 112.8 125.0Thermal coal Mt 79.0 88.0 92.0 99.9 107.0 111.6Uranium (U3O8) t 8 025 9 722 7 367 9 593 8 963 9 700

Continued


s t a t i s t i c s

26 Volume of Australian commodity exports continued

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f

Mineral resources (continued)Metalliferous minerals and metals tAluminium t

Alumina kt 11 654 12 721 13 091 13 168 13 422 13 684Aluminium (ingot metal) kt 1 364 1 471 1 490 1 551 1 556 1 598

CopperOre and concentrate kt 936 1 150 1 271 1 193 1 271 1 301Refined kt 306 366 388 359 290 308

Gold v t 330 302 280 282 305 290Iron and steel

Iron ore and pellets Mt 149.4 157.3 156.1 181.5 201.4 232.4Iron and steel w kt 2 941 2 931 3 297 3 589 4 016 4 656

LeadOres and concentrates kt 436 433 380 366 355 360Refined kt 258 199 236 269 240 260Bullion kt 135 119 153 150 140 140

Manganese Ore s kt 1 301 1 522 1 660 2 014 2 483 2 395

Nickel vs kt 177 208 210 209 226 226Titanium

Ilmenite concentrate x kt 1 133 1 012 914 1 020 811 1 095Leucoxene concentrate kt 41 70 60 41 140 131Rutile concentrate kt 179 190 190 195 149 234Synthetic rutile s kt 369 443 398 456 466 469Titanium dioxide pigment kt 135 140 145 147 153 143

Silver v t 1 967 1 902 1 957 1 929 1 850 1 850Tin v t 9 934 9 660 8 026 5 963 169 160Zinc

Ores and concentrates kt 1 496 1 903 1 849 1 913 1 910 1 954Refined kt 317 452 496 486 410 414

Zircon concentrate y kt 374 375 388 445 438 505

Other mineralsDiamonds ’000 ct 51 095 25 513 25 811 32 274 26 667 20 251Salt kt 8 389 8 636 8 912 10 172 10 171 10 192

a Includes the grain equivalent of malt. b Includes field peas and cowpeas. c Includes the wheat equivalent of flour. d Includes soybeans, linseed, sunflowerseed, safflowerseed and peanuts. Excludes meals and oils. e Excludes cotton waste and linters. g In shipped weight. Fresh, chilled or frozen. h Includes meat loaf. i Excludes breeding stock. j ABS recorded trade data adjusted for changes in stock levels held overseas by Wool International. k Includes ghee, dry butterfat, butter concentrate and butteroil, dairy spreads, all expressed as butter. lExports of tuna landed in Australia. Tuna captured under joint venture or bilateral agreements or transhipped at sea is not included. m Excludes volume of other prawn products. n Includes crumbed scallops. o Includes condensate and other refinery feedstock. q 1 million tonnes of LNG equals about 1.31 billion cubic metres of gas. r International ships and aircraft stores. t Uranium is included with energy. u Exports of bauxite are confidential. v Quantities refer to total metallic content of all ores, concentrates, intermediate products and refined metal. w Includes all steel items in ABS, Australian Harmonized Export Commodity Classification , ch. 72, ’Iron and steel’, excluding ferrous waste and scrap and ferroalloys. x Excludes leucoxene and synthetic rutile. y Data from 1991-92 refer to standard grade zircon only. s ABARE estimate. f ABARE forecast. Sources: ABS, International Trade, electronic data service, cat. no. 5464.0, Canberra; Australian Mining Industry Council; Department of Foreign Affairs and Trade; Department of Agriculture, Fisheries and Forestry Australia; ABARE.

368

s t a t i s t i c s


27 Value of Australian commodity exports (fob)

1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f$m $m $m $m $m $m

FarmGrains and oilseedsWinter crops

Barley a 822 1 101 1 278 954 1 176 1 128Canola 638 544 572 289 403 453Chickpeas 101 113 167 52 71 50Lupins 240 157 105 45 131 149Oats 27 22 37 44 38 32Peas b 90 112 157 43 64 119Wheat c 3 481 4 197 4 612 3 109 3 423 4 249

Summer cropsCottonseed 122 137 148 82 56 38Rice 386 369 286 113 105 180Sorghum 81 122 109 17 42 81Other oilseeds d 29 28 20 21 19 18

Total grains and oilseeds 6 018 6 900 7 490 4 770 5 529 6 496

Industrial cropsRaw cotton e 1 407 1 957 1 547 1 152 855 641Sugar 1 054 1 111 1 358 1 179 962 1 131Wine 1 352 1 630 2 101 2 399 2 556 3 027Total 3 813 4 698 5 006 4 730 4 374 4 799Other crops 2 780 3 145 3 432 3 420 3 062 3 207Total crops 12 612 14 744 15 928 12 919 12 964 14 502Meat and live animals for slaughter

Beef and veal 3 119 4 007 4 189 3 756 3 675 3 512Live cattle g 433 482 526 562 282 294Lamb 369 508 626 554 600 564Live sheep g 180 258 392 408 269 283Mutton 326 416 490 402 355 363Pig meat 159 186 265 256 186 227Poultry meat 21 26 26 22 22 28Canned meat 50 16 39 17 12 12Total 4 656 5 898 6 553 5 978 5 402 5 282Wool Greasy h 1 796 2 310 2 271 2 266 1 772 1 545Semiprocessed 1 031 1 289 1 119 991 735 898Skins 136 298 297 288 244 140

Total h 2 963 3 897 3 687 3 545 2 751 2 583Dairy products

Butter 291 291 297 224 174 187Cheese 807 950 1 033 800 704 791Casein 81 89 77 43 43 46Skim milk powder 478 694 698 406 319 337Wholemilk powder 403 580 571 380 302 318Other dairy products 380 442 520 526 473 500Total 2 439 3 047 3 196 2 378 2 015 2 179Other livestock exports 1 452 1 884 1 771 1 977 2 073 2 152Total livestock exports 11 510 14 725 15 207 13 877 12 240 12 197Total farm exports 24 122 29 469 31 136 26 796 25 204 26 699

Continued


s t a t i s t i c s

27 Value of Australian commodity exports (fob) continued

1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f$m $m $m $m $m $m

Forest productsWoodchips 646 744 712 808 772 777

Fisheries productsTuna i 259 332 326 321 254 264Other fish 134 146 176 164 138 155Prawns j

Headless 21 25 19 12 7 8Whole 209 258 239 193 125 167

Rock lobsterTails 95 60 65 113 91 98Whole 472 461 420 344 313 325

AbaloneFresh, chilled or frozen 94 104 123 109 124 121Prepared or preserved 129 145 140 107 112 101

Scallops k 42 53 34 29 37 39Pearls 436 419 404 332 295 320Other fisheries products 96 163 153 121 146 140

Total 1 988 2 169 2 100 1 844 1 643 1 738

Total rural exports lDerived as sum of above 27 686 33 449 35 239 30 758 28 941 30 422On balance of payments basis m 26 689 32 653 34 495 29 964 28 140 29 822

Mineral resourcesEnergyCrude oil n 5 292 8 137 6 390 6 402 5 266 4 976LPG 648 830 721 855 717 747LNG 1 949 2 671 2 613 2 607 2 245 3 228Bunker fuel o 666 899 760 775 675 653Other petroleum products 1 202 1 844 1 234 1 198 851 574Metallurgical coal 5 184 6 597 8 038 7 448 6 671 9 229Thermal coal 3 114 4 204 5 294 4 448 4 635 7 068Uranium (U3O8) 367 497 361 427 370 494

TotalDerived as sum of above 18 422 25 678 25 411 24 161 21 430 26 969On balance of payments basis (excl. bunker fuel) 17 418 24 308 24 370 23 036 20 463 25 934

Metalliferous minerals and metalsAluminium

Bauxite s 185 196 136 186 173 183Alumina 3 471 4 507 4 114 3 660 3 711 4 019Aluminium (ingot metal) 3 302 4 229 3 965 3 696 3 414 3 811

Copper pOre and concentrate 776 1 037 1 028 1 048 1 105 1 201Refined 840 1 249 1 131 956 850 1 001

Continued

370

s t a t i s t i c s


27 Value of Australian commodity exports (fob) continued

1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 f$m $m $m $m $m $m

Mineral resources (continued)Metalliferous minerals and metals (continued)Gold p 4 803 4 887 4 950 5 133 5 303 4 732Iron and steel

Iron ore and pellets 3 779 4 903 5 160 5 342 5 418 7 601Iron and steel 1 265 1 484 1 484 1 855 1 913 2 192

Lead pOres and concentrates 264 318 323 289 312 384Refined 187 167 211 203 234 308Bullion 155 151 195 165 150 249

ManganeseOre s 185 261 299 313 368 397

TitaniumIlmenite concentrate q 151 154 138 135 89 138Leucoxene concentrate 16 21 23 16 38 49Rutile concentrate 131 161 167 149 97 168Synthetic rutile s 226 313 296 292 253 280Titanium dioxide pigment 404 494 460 428 370 365

Nickel s 1 862 2 308 2 032 2 323 3 211 3 927Refined silver 129 142 163 136 101 152Tin p 70 76 49 38 1 2Zinc p

Ores and concentrates 682 977 735 670 683 774Refined 550 905 794 757 565 713

Zircon concentrate r 180 228 272 281 246 315

Total 23 614 29 170 28 125 28 073 28 605 32 960

Other mineralsDiamonds s 601 634 512 789 531 410Salt 221 253 267 233 183 199Other 1 874 2 177 2 392 2 529 2 395 2 420

Total mineral resources exports 44 732 57 912 56 707 55 784 53 144 62 958

Total commodity exports Derived as sum of above 72 417 91 361 91 946 86 542 82 086 93 379On balance of payments t 70 755 89 666 90 441 84 973 80 609 92 127

a Includes the grain equivalent of malt. b Field peas and cowpeas. c Includes the wheat equivalent of flour. d Includes soybeans, linseed, sunflowerseed, safflowerseed and peanuts. Excludes meals and oils. e Excludes cotton waste and linters. g Excludes breeding stock. h On a balance of payments basis. ABS recorded trade data adjusted for changes in stock levels held overseas by Wool International. i Exports of tuna landed in Australia. Tuna captured under joint venture or bilateral agreements or transhipped at sea is not included. j Other prawn products included in other fisheries products. k Includes crumbed scallops. l Sum of farm, forest and fisheries products. m The value of exports derived as the sum of published detailed items differs from the balance of payments aggregates shown in table 6 for two main reasons: the ABS makes special adjustments to some recorded trade data for balance of payments purposes; and ABARE derives its own estimates, (using non-ABS sources), for several items as footnoted. For more detail on a balance of payments basis, see table 7. n Includes condensate and other refinery feedstock. o International ships and aircraft stores. p Value of metals contained in host mine and smelter products are not available separately and are included in the value of the mineral product or metal in which they are exported. q Excludes leucoxene and synthetic rutile; data from 1991-92 refer to bulk ilmenite only. t Data from 1991-92 refer to standard grade zircon only. r As derived in table 6. s ABARE estimate. f ABARE forecast.Sources: ABS, International Trade, electronic data service, cat. no. 5464.0, Canberra; ABARE.


s t a t i s t i c s

28 Value of Australian imports and exports of selected commodities

1999-00 2000-01 2001-02 2002-03 2003-04 s$m $m $m $m $m

Vegetable oilseeds and products aImports 355 376 399 401 238Exports 838 743 784 443 786Dairy productsImports

Cheese 133 149 166 168 158Other dairy products 84 105 84 92 92Total 216 254 250 260 250

ExportsCheese 807 950 1 033 800 704Other dairy products 1 633 2 097 2 163 1 578 1 311Total 2 439 3 047 3 196 2 378 2 015

Edible fisheries productsImports

Shellfish b 317 361 352 360 378Fin fish 463 509 537 591 562Total 781 870 889 950 939

ExportsShellfish b 1 143 1 238 1 160 1 000 891Fin fish c 393 478 502 485 392Total 1 536 1 717 1 662 1 485 1 283

Forest productsImports

Sawnwood 548 428 443 505 425Wood based panels 189 152 165 200 160Pulp and paper products 2 583 2 792 2 591 2 670 2 647Other d 477 462 529 591 635Total 3 797 3 834 3 727 3 965 3 867

ExportsWoodchips 646 744 712 808 772Pulp and paper products 598 657 859 890 828Other e 332 411 433 419 529Total 1 576 1 812 2 003 2 117 2 094

PetroleumImports

Crude oil g 6 313 8 753 7 458 8 610 7 266Petroleum products h 1 375 1 816 1 625 2 050 2 907Total 7 688 10 569 9 083 10 661 10 173

ExportsCrude oil g 5 292 8 137 6 390 6 402 5 266LPG i 648 830 721 855 717LNG 1 949 2 671 2 613 2 607 2 245Bunker fuel j 666 899 760 775 675Other petroleum products 1 202 1 844 1 234 1 198 851Total 9 758 14 381 11 719 11 838 9 755

a Includes peanuts, oilseeds, vegetable oils and vegetable protein meals. b Includes all crustaceans and molluscs including canned. c Excludes tuna transhipped at sea or captured under joint venture or bilateral agreements. d Includes roundwood, other processed wood and minor forest products. e Includes roundwood, sawnwood, sleepers, processed wood and minor forest products. g Includes condensateand other refinery feedstock. h Includes LPG. i Naturally occurring and refinery byproduct gas. j International ships and aircraft stores. s ABARE estimate.Sources: Australian Bureau of Statistics; Department of Agriculture, Fisheries and Forestry Australia; ABARE.


managemen t

CLIENT CONTACTS

Executive director Brian Fisher bfi [email protected] +61 2 6272 2100

Deputy executive director Vivek Tulpulé [email protected] 6272 2033Chief economist – forecasting Jammie Penm [email protected] 6272 2030Commodity forecasting Andrew Maurer [email protected] 6272 2134

Research director Stephen Beare [email protected] 6272 2040

Agriculture and trade economicsResearch manager Andrew Dickson [email protected] 6272 2173Chief economist Terry Sheales [email protected] 6272 2054Agricultural trade reform Troy Podbury [email protected] 6272 2244Agriculture forecasts Rohan Nelson [email protected] 6272 2017Biosecurity and food John Hogan [email protected] 6272 2056

Natural resource economicsResearch manager Peter Gooday [email protected] 6272 2138Chief economist Rhonda Treadwell [email protected] 6272 2043Fisheries Peter Gooday [email protected] 6272 2138Forestry Alasebu Yainshet [email protected] 6272 2131Land and water Tim Goesch [email protected] 6272 2009

Energy and minerals economicsChief economist and research manager Karen Schneider [email protected] 6272 2366Applied general equilibrium modeling Helal Ahammad [email protected] 6727 2146Global change Kate Woffenden [email protected] 6272 2049International energy Karen Schneider [email protected] 6272 2366Minerals economics research Lindsay Hogan [email protected] 6272 2034

Surveys and statisticsResearch manager Vernon Topp [email protected] 6272 3823Australian farm statistics Peter Martin [email protected] 6272 2363Data management Geoff Armitage [email protected] 6272 2367

Research development managersEnergy and minerals Allan Hansard [email protected] 6272 2394Natural resources Colin Mues [email protected] 6272 2027

Corporate managementCorporate manager Annette Blyton [email protected] 6272 2222Conferences Yvonne Kingsley [email protected] 6272 2265Publication sales Denise Flamia dfl [email protected] 6272 2211

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