Australia’s mining sector set to recover, IBISWorld says
Iron ore mining and oil and gas extraction are expected to be the driving forces behind an Australian mining sector recovery in 2015-16, according to IBISWorld analysts.
Sector-wide revenue is forecast to grow by 8.6 percent in 2015-16 to reach $230.1 billion, turning around a dramatic drop in both revenue and exports in 2014-15 which was driven by increased production of some of Australia’s key resources and the subsequent global oversupply and slump in commodity prices, the company says.
The plummeting fortunes of iron ore mining, oil and gas extraction, and black coal mining caused revenue in the mining division to decline by 10 percent in 2014-15, to reach $211.8 billion.
"It is anticipated that 2015-16 will offer a much rosier picture for some of the nation’s largest industries, but black and brown coal mining may struggle to recover," IBISWorld senior industry analyst Spencer Little says, adding that "key commodity prices are set to rebound, while additional capacity in several key industries is also expected to come on line in 2015-16".
Iron ore, oil and gas
The mining sector’s poor performance in 2014-15 was underpinned by global supply factors for iron ore— the nation’s largest mining industry — which saw prices declining at an annualised 34.6 percent over the two years, falling to US$57.91 per dry tonne.
"A sharp fall in the world price of crude oil also led to struggles for the oil and gas extraction industry," IBISWorld reports. "The world price of crude oil declined at an annualised 26 percent over the two years through 2014-15, as a result of global oversupply.
"Like the mining sector’s other major industries, this price drop caused revenue and exports to fall in the oil and gas extraction industry."
Australian liquefied natural gas (LNG) export prices are based on the Asian LNG market, which typically dictates long-term contracts linked to the price of oil.
As a result, Little says, large LNG projects were downgraded or written down, with some production put on hold as the fall in prices threatened the viability of several major projects.
Iron ore mining revenue growth in 2015-16 "will likely be driven by the expansion projects of Rio Tinto, the largest player in the industry, while oil and gas extraction is also set to bounce back", IBISWorld says.
The company expects world iron ore prices to strengthen in Australian dollar terms while production volumes continue to rise
"Additional capacity in the oil and gas extraction industry is projected to come on line in 2015-16, including some of the first east coast LNG export facilities," Little says. "These gas projects are expected to contribute significantly to capital expenditure in the mining division in 2015-16 and also drive strong export growth."
Black and brown coal
Black coal revenue and exports have been on the decline due to falling prices, and the industry is unlikely to recover in 2015-16.
"World prices for both steaming and coking coal, which are used in electricity generation and steel manufacturing, fell in 2014-15 due to an oversupply in the global market," Little says.
A range of different factors contributed to the brown coal industry’s struggles in 2014-15, Little says.
While brown coal deposits are abundant in Australia, being found close to the earth’s surface and cheap to extract, "brown coal miners have been unable to develop export markets", he says. "This is because brown coal is too heavy, unstable and low in energy value to make overseas transport or use in other domestic applications economically viable."
Demand for brown coal is determined by energy demands in the downstream fossil fuel electricity generation industry, and weaker demand at power stations negatively affected the brown coal mining industry’s performance in 2014-15. This trend is expected to continue, IBISWorld says, causing a further drop in revenue in 2015-16.
Rising global demand for uranium has boosted world prices, helping the uranium mining industry to expand dramatically in 2014-15, with strong growth in revenue and exports also projected for 2015-16.
Despite ongoing environmental concerns, Little says, the continued expansion of nuclear electricity generation facilities — particularly in China, India and South Korea — has driven global demand for uranium oxide.
"The continued depreciation of the Australian dollar is expected to contribute to uranium revenue and export growth," he says. "Australia’s total uranium production and export volumes are likely to rise due to new mine developments and several expansion projects."
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