Critical Minerals Driving Future Growth

The Australian Government’s Resources and Energy Quarterly: September 2022 underlined the central role critical minerals will play in the future of the resources sector.

The Australian mining industry has long ridden on the back of a handful of key resources, but few have matched the outsized influence iron ore has had for much of the 21st century.

As the country’s largest source of export revenue, iron or has poured hundreds of billions into Australia’s coffers.

And while the key steelmaking ingredient is not going away any time soon, its spot at the top of the Australian mining food chain won’t last forever.

The world is changing, and as it continues its march towards a greener future the importance of critical minerals vital to achieving rapidly approaching net-zero targets – lithium, copper, nickel, et al – is only going to grow.

This growth was underlined in the Australian Government’s recent Resources and energy quarterly for September 2022.

Produced by the Department of Industry, Science and Resources, the report found that despite weakening iron ore prices, the surging global demand for critical minerals necessary for new low-emissions technologies is expected to deliver a record windfall of $450 billion for Australia’s 2021–22 resources and energy exports.

“The Resources and energy quarterly report for the September quarter 2022 underlines the importance of the sector for Australia’s ongoing economic wellbeing and shows the outlook for Australian resources and energy remains strong,” Federal Minister for Resources and Northern Australia Madeleine King said.

The record forecast follows last year’s $422 billion result.

Resources earnings are then forecast to fall to $375 billion in 2023–24, which would still represent the third highest ever), as world supply responds to high prices amid a backdrop of softer demand.

The increased forecast is also being driven by the search for alternative sources of energy following Russia’s invasion of Ukraine, as well as a surge in the US dollar against the Australian dollar.

King believes Australia is experiencing strong growth in demand and prices for minerals that are crucial for low-emissions technology due to growing demand for electric vehicles (EVs), batteries and cleaner energy.

“The Australian Government is strongly backing our critical minerals sector, which provides the crucial minerals needed to help Australia and the world meet our net-zero commitments,” she said.

It should be noted, however, that iron ore is still pulling its weight, although export earnings are forecast to ease from $119 billion in 2022–23 to $95 billion in 2023–24, reflecting moderating prices, relatively modest growth in global steel output, and rising iron ore supply.

The Resources and energy quarterly attributes lower iron ore prices to slowing global growth and weakness in China’s housing sector.

Iron ore prices are expected to ease further, as world supply grows faster than demand. Australian Mining takes a look at some of the key resources in the latest report.

Lithium

Australia’s lithium production is forecast to grow from 247,000 tonnes of lithium carbonate equivalent (LCE) in 2020–21 to 387,000 tonnes in 2022–23 and 469,000 tonnes of LCE in 2023–24.

And the country’s lithium export earnings are forecast to increase more than 10-fold in just two years, from $1.1 billion in 2020–21 to $13.8 billion in 2022–23, before easing to $12.9 billion by 2023–24.

Global lithium demand has continued to grow, driven by rising demand for EV batteries.

“Despite faltering global economic growth in the June quarter, sales and production of EVs continued their rapid growth trend,” the Resources and energy quarterly stated.

“World demand for lithium is estimated to increase from 583,000 tonnes of LCE in 2021 to 724,000 tonnes in 2022. Over the following two years, demand is forecast to rise by over 40 per cent, reaching 1,058,000 tonnes by 2024.

“Asia remains the major source of demand for lithium, despite the spread of new battery-manufacturing capacity into Europe and the US.”

Copper According to the Resources and energy quarterly, copper prices are forecast to fall by 4.9 per cent per cent to below $US8900/t in 2022, as COVID containment measures and high energy prices weigh on demand.

Prices are forecast to fall to $US8300/t in 2024 as mine production grows.

“Australia’s copper exports fell to 802,000 tonnes in 2021–22 as scheduled maintenance reduced production,” the report stated.

“Copper exports are expected to grow to 977,000 tonnes by 2023–24 as production from new mines and mine expansions come online.

“As output and export volumes grow, Australia’s copper export earnings are projected to lift from $12.3 billion in 2021–22 to $13.9 billion in 2023–24.”

As with other critical minerals, much of copper’s growth will be driven by decarbonisation, though other factors will likely play out in the short term.

“Over the longer term, the global energy transition is set to bolster the demand for copper, due to its relatively heavy use in renewable energy technologies, battery storage and EVs,” the report stated.

“Uncertainty in traditional energy markets resulting from Russia’s invasion of Ukraine is providing incentive for countries to accelerate this energy transition. This could see the increase in copper demand brought forward.”

Nickel

Nickel prices are expected to average $US24,900 a tonne in 2022, evidence of another resource boosted by the fallout from Russia’s invasion of Ukraine.

Prices are expected to ease over the outlook period, however, as a result of increased Indonesian production and improving liquidity in the LME nickel market.

“Recent high prices have boosted Australia’s nickel export earnings, which reached $4.4 billion in 2021–22,” the Resources and energy quarterly stated.

“Export earnings are forecast to rise to $5.1 billion in 2022–23, before easing to $4.6 billion in 2023–24.

“Australia’s export volumes are estimated to rise from 157,000 tonnes in 2021–22 to 202,000 tonnes in 2023–24, supported by the need for Australian nickel for the transition to low-emissions technologies.”

While nickel sits squarely in the pool of critical minerals vital for the world’s energy transition, the report found that “soft economic conditions create a short term drag on nickel demand”.

“Global headwinds and a price spike have seen nickel consumption weaken over the past year,” it stated.

“In the June quarter 2022, global nickel consumption rose 0.8 per cent on the March quarter, but was 3.8 per cent lower than in the June quarter 2021.” It is not all gloom and doom for nickel, however.

“Global nickel consumption is expected to exhibit stronger growth over the rest of the outlook period,” the Resources and energy quarterly stated.

“Nickel demand is forecast to be 3.3 per cent higher year-on-year, at almost 2.9 million tonnes in 2022. Nickel consumption is subsequently expected to grow strongly over the next two years, increasing by 5.3 per cent in 2023 and by 4.2 per cent in 2024, when consumption will be three million tonnes and 3.1 million tonnes, respectively.”

Iron ore Prices for Australia’s workhorse fell around 20 per cent in the September quarter.

A combination of growing global recessionary fears, new COVID outbreaks and weakness in China’s housing sector has dampened world steel and iron ore demand in recent months. But Australian exports have remained steady.

“Australian export volumes were 0.9 per cent higher year-on-year in the first half of 2022, with new greenfield supply starting to come online from major producers,” the Resources and energy quarterly stated.

“Exports are forecast to increase by 3.1 per cent in 2022–23 to reach 903 million tonnes and rise by 3.8 per cent to 937 million tonnes in 2023–24.

“Lower prices over the outlook are expected to see Australia’s iron ore export earnings ease from $134 billion in 2021–22 to $119 billion in 2022–23, and then to $95 billion in 2023–24.”

Overall, weaker demand and grater levels of supply are expected to push the price of iron ore, which averaged around $US100/t in the September quarter, down further.

“From a forecast average price of around $US110 per tonne in 2022,” the report stated, “the benchmark iron ore price is projected to average $US90 per tonne in 2023 and around $US70 per tonne in 2024.”

This feature appeared in the December issue of Australian Mining.

Australian Mining.

dollar
markets
mining
us dollar
nickel
copper
steel
iron