Req 2014 09

Resources and Energy Quarterly
September Quarter 2014

Bureau of Resources and Energy Economics
bree.gov.au
Acknowledgements
Individual commodity outlooks have identified BREE authors.
Cover image source: Shutterstock.
BREE 2014, Resources and Energy Quarterly, September Quarter 2014, BREE, Canberra, September 2014.
Commonwealth of Australia 2014
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ISSN 1839-499X (Print)
ISSN 1839-5007 (Online)
Vol. 4, no. 1
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Resources and Energy Quarterly, September 2014
Foreword
The Resources and Energy Quarterly provides data on the
performance of Australias resources and energy sectors and
analysis of key commodity markets. This edition of the Resources
and Energy Quarterly contains an update to BREEs medium-term
commodity forecasts over the period to 2019. There are also two
articles discussing the potential growth path of electricity supply in
emerging economies and a statistical review of the impact of the
mining boom on the Australian economy over the past decade.
The prospects for the resources and energy industry remain positive.
Continued economic growth in highly populated emerging
economies will sustain increased demand for both resources and
energy commodities into the future. Closer to home Australia is
moving decisively from the investment phase of the mining boom to
the production phase. We will continue to see expansions in capacity
from the Australian resources and energy sectors with increasing
supply of iron ore and coal as well as the commencement of major
new LNG projects across Australia. First LNG shipments from the
east coast are expected to start by the end of 2014, rapidly ramping
up over the period to 2019 to make Australia the worlds largest LNG
producer.
BREE projects Australias earnings from resources and energy

commodities to increase at an average rate of 7 per cent a year from
201314 to total $274 billion in 201819.
Higher export earnings will be driven by the substantial growth in
volumes of a number of commodities despite near term softness in
prices. In the short term, higher volumes of iron ore and coal will be
the principal drivers of export growth. As new LNG production
capacity comes online over the outlook period, LNG exports will
increase and make it one of Australias principal exports.
Wayne Calder
Deputy Executive Director
However, Australia is not alone in increasing production of resources

and energy commodities. Global supply has grown significantly over
recent years with the prospect of further increases in supply over the
next few years. This has placed pressure on commodity prices in the
medium term. Producers will need to focus on managing cost
pressures and improving their competiveness. However, it is
important to note that this is not a new phenomenon for the
Australian industry which has shown considerable resilience over
time in the face of commodity price cycles in the past. Commodity
price cycles and changing economic conditions both domestically
and globally have always been a part of the energy and resources
sectors.
bree.gov.au
Contents
Foreword
1. Macroeconomic outlook
2. Steel
21
3. Iron ore
31
4. Metallurgical coal
40
5. Thermal coal
45
6. Gas
56
7. Oil
65
8. Uranium
72
9. Gold
79
10. Aluminium
87
11. Copper
95
12. Nickel
102
13. Zinc
107
14. Fuelling the Future
112
15. The mining boom the story so far
127
16. Trade summary charts and tables
136
bree.gov.au
Macroeconomic outlook
Figure 1.1:
6
The global economy
The global economy is forecast to grow by 3.5 per cent in 2014,

driven by continued growth in emerging economies and improved
conditions in the United States. Emerging economies are forecast to
grow by 4.6 per cent in 2014 and the OECD by 2.0 per cent (table
1.1). China will continue to be a major driver of economic growth,
albeit at a slower pace than in previous years, as the cyclical
downturn in the housing sector acts as a drag on the economy. The
US economic recovery continued to strengthen in early 2014 and
key economies in the EU, such as Germany and the United
Kingdom, have recorded strong growth.
Over the medium term, world economic growth is assumed to rise to

4.0 per cent, with growth in emerging and OECD economies
increasing to 5.3 per cent and 2.6 per cent, respectively. Growth in
emerging economies is forecast to be driven by non-OECD Asian
economies, particularly China, India and ASEAN. Improving
performance in the US will be a major contributor to growth in the
OECD along with a moderate recovery in the EU.
While the outlook is generally positive, there are a number of risks to

global economic growth prospects over the short to medium term.
These include the degree to which the tapering of the US Federal
Reserves quantitative easing (QE3) packages affects emerging
economies through flow-on capital and currency effects and Chinas
ability to maintain economic momentum while transitioning to a
pattern of lower, more sustainable growth. The successful
implementation of Chinas reform agenda to achieve these goals will
be a key risk to both Chinas economic prospects and that of its
major trading partners.
A more detailed discussion on the economic outlook for key
economies follows.
World economic growth
3
2
1
%
-1
1999
2003
2007
2011
2015
2019
Sources: IMF; BREE.
Figure 1.2:
Economic growth in selected economies
8
7
6
5
4
3
2
1
%
China
Japan
2013
South Korea
2015
2017
India
United States
2019
Sources: IMF; BREE.
bree.gov.au
Table 1.1: Key world macroeconomic assumptions

%
Economic growth b
OECD
United States
Japan
European Union 28
Germany
France
United Kingdom
South Korea
New Zealand
Emerging economies
Non-OECD Asia
South East Asia d
China e
Chinese Taipei
India
Latin America
Middle East
World c
Inflation rate b
United States
2013
2014 a
2015 a
2016 a
2017 a
2018 a
2019 a
1.3
1.9
1.5
0.2
0.5
0.3
1.9
2.8
2.4
4.7
6.5
5.2
7.7
2.1
4.4
2.7
2.4
3.0
2.0
2.1
0.8
1.0
1.5
0.8
3.0
3.5
3.2
4.6
6.4
5.0
7.2
2.8
5.0
2.5
3.1
3.5
2.4
3.0
1.0
1.4
1.9
1.2
2.7
3.5
3.2
5.2
6.6
5.3
7.4
3.5
5.5
2.5
4.1
3.8
2.5
3.0
1.2
1.5
2.0
1.5
2.5
3.5
2.5
5.1
6.7
5.5
7.0
3.5
5.5
3.0
4.0
3.7
2.6
3.0
1.5
1.5
2.0
2.0
2.5
3.5
2.5
5.1
6.7
5.5
7.0
3.5
5.5
3.0
4.0
3.8
2.6
3.0
2.0
2.0
2.0
2.0
2.5
3.5
2.5
5.3
6.7
5.5
7.0
3.5
6.0
3.0
4.0
3.8
2.6
3.0
2.0
2.0
2.0
2.0
2.5
3.5
2.5
5.3
6.7
5.5
7.0
3.5
6.0
3.0
4.0
4.0
1.5
2.3
2.3
2.3
2.3
2.3
2.3
a BREE assumption. b Change from previous period. c Weighted using 2012 purchasing power parity (PPP) valuation of country gross domestic product by IMF. d Indonesia,
Malaysia, the Philippines, Thailand and Vietnam. e Excludes Hong Kong.
Sources: BREE; ABS; IMF; OECD.
bree.gov.au
The outlook for key economies
Figure 1.3:
US unemployment and participation, monthly
67
12
The US economic recovery has continued to gain momentum in

2014 with most headline indicators showing improvements after a
weather affected March quarter. The US Federal Reserve has
stuck with its scheduled draw down in bond purchases under QE3
and markets are now focused on when interest rates will begin
increasing. Inflation is contained in the US and there is scope for
interest rates to remain low in the short term to provide further
stimulus.
66
10
65
64
63
Over the remainder of 2014, the US is forecast to continue its

economic recovery, supported by stronger consumption
expenditure, exports and fixed investment. As an indication of
stronger economic performance, unemployment in July decreased
to 6.2 per cent which was down 1.1 percentage points from the
previous year.
62
The United States
In response to positive economic indicators, consumer and

business confidence has increased. The Federal Reserve reported
a rebound in business optimism in its August Beige Book. For 2014
as a whole, US GDP is forecast to be 2.1 per cent. Geopolitical
events weighing on business and consumer confidence are key
risks to growth over the remainder of 2014.
In 2015 US GDP growth is forecast to rise to 3 per cent due to
expected higher consumer spending and business investment in
new structures and equipment. Lower domestic energy prices
continue to provide a source of economic growth and support
higher household consumption and business investment. The
looming increase in interest rates in 2015 is a risk to US economic
growth and market responses to the change in monetary policy are
uncertain.
Over the remainder of the outlook period from 2016 to 2019, US
economic growth is projected to remain around 3 per cent a year
as the economy stabilises. However growth may be hampered by
interest rates rising too quickly, with subsequent flow on effects to
consumer spending and investment weighing on economic growth.
Jan-04
Jan-06
Jan-08
Jan-10
Labor force participation rate (lhs)
Jan-12
Jan-14
Unemployment rate (rhs)
Source: US Bureau of Labour Statistics.
Figure 1.4:
US GDP growth
6
5
4
3
2
1
%
-1
-2
-3
1999
2004
2009
2014
2019
Sources: IMF; BREE.
bree.gov.au
China
The Chinese economy expanded by 7.5 per cent in the June
quarter, up from 7.4 per cent in the first quarter, underpinned by
Central Government support measures announced earlier in the
year, including bringing forward investment in rail and public
housing construction. Despite the improved performance in June,
data releases for August suggest that Chinas economy remains
vulnerable. Growth in fixed asset investment, industrial production
and PMIs were all weaker in August compared with July.
Figure 1.5:
Chinas quarterly contribution to GDP
14
12
10
8
6
4
Credit growth dropped sharply in July reflecting concerns about

Chinas rising debt. Aggregate financing was 273 billion Yuan in
July, the lowest since October 2008. While credit supply increased
in August, overall supply remained low. The fall in credit supply has
been linked to the banking sectors desire to reduce risk exposure
and Central Government efforts to control credit growth.
One of the main drags on the Chinese economy has been the real
estate sector which is in the midst of a cyclical downturn in
response to tighter credit conditions, oversupply and weak buyer
sentiment. Residential sales and starts declined by 10 per cent and
14 per cent in the first eight months of 2014, respectively. Despite
weakening in the sector, land development regulations are
encouraging developers to continue with new projects which will
contribute to further growth in the housing stock. Developers have
attempted to clear stocks through lower prices, but there has been
limited interest from buyers.
2
%ytd
-2
Mar-10
Sep-11
Jun-12
Mar-13
Dec-13
gross capital formation
net exports
Source: CEIC.
Growth in Chinas fixed asset investment
Figure 1.6:
25
20
The real estate sector accounts for around 15 per cent of the
economy and is a major employer. There are indications that the
central and local governments are introducing measures to support
the sector such as easing purchase restrictions and plans to
introduce property tax reforms.
15
Chinas inflation was recorded at 2.0 per cent in August, the lowest
in four months. Weaker inflation data provided the Central
Government with the flexibility to introduce further policy easing
measures. In mid-September, the Central Government provided
state-owned banks with a cash injection to facilitate increased
credit availability to underperforming sectors.
bree.gov.au
Dec-10
final consumption expenditure
10
%ytd
Manufacturing
Railways
Jun-13
Sep-13
Real estate
Dec-13
Electricity
Mar-14
Total
Jun-14
Source: CEIC.
The cyclical downturn in the real estate sector is expected to

persist in the short-term as the housing stock is drawn down and
government support measures are introduced and slowly take
effect. The real estate sector is forecast to improve from 2016,
largely supported by the development of central and western China,
but may not return to previous high growth rates.
While the property sector has been weak, investment in hard
infrastructure such as rail, power grids and airports has been
expanding in response to increased government spending. Given
Chinas infrastructure is still underdeveloped compared with
advanced economies, infrastructure development is expected to
remain a key contributor to economic performance over the outlook
period.
Over the medium term, Chinas GDP growth is assumed to
moderate to average around 7.0 per cent by 2019. While the rate of
growth is lower than the past few years, it will still support large yearon-year increases in commodity demand.
Figure 1.8:
Chinas residential sales and starts
-50
-100
Source: CEIC.
Figure 1.9:
Chinas manufacturing PMI
57
120
56
100
expansion
55
80
54
60
53
40
52
20
51
%yr
50
-20
49
-40
Jan-08 Oct-08
48
Jul-09
Apr-10 Jan-11 Oct-11

Starts
Jul-12
Sales
contraction
Apr-13 Jan-14
Jan-10
Oct-10
HSBC
Data is three month moving average of monthly growth rate.

Source: CEIC.
bree.gov.au
Jul-11
Apr-12
Jan-13
Oct-13
Jul-14
China National Bureau of Statistics
Source: CEIC; Bloomberg.
India
Indias economy grew by 5.7 per cent year-on-year in the June
quarter 2014 amid renewed optimism about Indias growth
potential. In early 2014, Narendra Modi won Indias strongest
electoral mandate in 30 years on a platform of economic growth,
lower inflation and job creation. The renewed optimism in Indias
economy has spurred an increase in foreign direct investment on
expectations that stalled capital projects may finally be developed.
Reflecting this, the Dun and Bradstreet Business Optimism Index
increased by 9 per cent year-on-year in the second quarter.
Figure 1.10:
Indias quarterly contributions to GDP
40
35
30
25
20
15
10
However there remain considerable challenges in achieving

improved economic performance, including electricity shortages, a
persistent current account deficit and high inflation. Indias
electricity generation has not matched pace with consumption
resulting in increased prospects of blackouts. The shortfall has
been driven by the forced closure of some power plants, amid
constrained coal availability, and increasing demand for power,
caused by the increase in economic activity.
Indias current account deficit increased by around 5 per cent a
month through early 2014 to US$12.2 billion in July. The increasing
trade deficit was fuelled by rising gold imports following a relaxation
in import duties. Gold is Indias second largest import after oil and
in a bid to cut the current account deficit India increased import
duties on gold in 2013. Indias current account deficit will remain a
challenge over the medium term, particularly with the ongoing risk
of currency depreciation.
Indias inflation rate was around 10 per cent in 2013 and early
2014. In a bid to reduce inflation to 8 per cent by January 2015 and
6 per cent by 2016, Indias Reserve Bank recently has decided to
base interest rates on the Consumer Price Index. In July the CPI
increased by 8 per cent year-on-year.
Over the medium term Indias GDP growth rate is projected to
increase to 6.0 per cent in 2019, supported by increased
urbanisation, infrastructure development, particularly in rail and the
electricity grid, and increased exports.
5
INRbn
Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14
Final consumption expenditure
Fixed capital formation
Exports
Source: CEIC.
Figure 1.11:
Indias current account
50000
40000
30000
20000
10000
US$m
-10000
-20000
-30000
-40000
Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14
Exports
Imports
Trade deficit
Source: CEIC.
bree.gov.au
10
Japan
Figure 1.12:
Japans economy contracted at an annualised rate of 7.1 per cent in

the June quarter, the weakest performance since the Global
Financial Crisis. Growth was adversely affected by declining capital
expenditure and lower domestic consumption following an increase
in the sales tax introduced in April.
12
The performance of Japans economy over the coming months will

determine whether the Government will proceed with a second
increase in the sales tax scheduled for October 2015. July trade data
improved for the first time in three months, raising hopes that
increased exports will help partially offset the effects of the tax.
Japans longer term growth strategy hinges around raising

investment, employment and productivity. However, growth is likely
to remain constrained by an aging population and the need for fiscal
consolidation. Over the medium term, Japans economic growth is
projected to strengthen to 2.0 per cent by 2019.
Japans quarterly GDP, annualised
10
8
6
2
%qoq
-2
-4
-6
-8
Mar-10
Dec-10
Sep-11
Jun-12
Mar-13
Dec-13
Source: Bloomberg.
South Korea
South Koreas economy grew 0.5 per cent in the June quarter, down
from 0.9 per cent recorded in March. Growth was lower owing to
reduced exports to China. For 2014 as a whole South Koreas
economy is forecast to expand by 3.5 per cent. South Korea is
assumed to maintain this growth rate over the medium term,
supported by increased exports as the global economy improves and
a US$40 billion stimulus package announced in July that is designed
to encourage increased domestic consumption.
South Korea is heavily export dependent, with exports accounting for

54 per cent of GDP in 2013. China is South Koreas largest trading
partner, so its economic prospects are closely tied to China. If China
struggles to maintain its economic growth momentum and implement
its reform agenda, imports from South Korea are likely to decline.
Figure 1.13:
South Koreas quarterly GDP
2.5
1.5
0.5
%qoq
Mar-10
Dec-10
Sep-11
Jun-12
Mar-13
Dec-13
Source: Bloomberg.
bree.gov.au
11
Europe
In 2014 the EU28 is forecast to grow by 1.0 per cent underpinned
by growth in the UK and Germany which are forecast to expand by
3 per cent and 1.5 per cent, respectively. Geopolitical tension with
Russia over the Ukraine and subsequent sanctions are key risks to
confidence and gains from trade in the near term. In August 2014,
several consumer confidence indicators declined for both the EU
and the euro area compared to July.
In the June quarter 2014 the UK economy grew at 0.8 per cent
from the previous quarter driven by an expansion in the services
sector (up 1 per cent) and production output (up 0.3 per cent). The
UK economy is now 394 billion or 0.2 per cent above the predownturn peak of 2008. The UKs Office of National Statistics
estimates this increase to be consumer-led, with increased
spending on services in contrast to a contraction in manufacturing.
Germanys seasonally adjusted GDP contracted in the June
quarter 2014 by 0.2 per cent on the previous quarter due to growth
in imports (up 1.6 per cent) outpacing exports (up 0.9 per cent).
Shipments to Russia, a major destination for Germanys exports,
were down 15 per cent in the first five months of 2014 compared
with 2013.
France recorded no GDP growth in the June quarter and its
unemployment rate increased to 10.2 per cent. A cabinet reshuffle
in August resulted in a new government that is now considering
reforms such as changes to labour laws to assist economic growth.
Over the medium term growth in European economies is projected
to return to historical annual growth rates (between 2-3 per cent)
from 2016. Risks to this assessment include persistently low
inflation, high unemployment and a stalled economic recovery. The
European Central Bank announced further interest rate cuts in
August to stimulate spending citing low inflation as a concern.
Europes unemployment (seasonally adjusted)
Figure 1.14:
30
25
20
15
10
5
%
May-04
May-09
UK
EU27
France
May-14
Germany
Greece
Source: Eurostat.
Figure 1.15:
Europes industrial production, retail sales and inflation
140
130
120
110
100
90
2010
=100
Aug-04
Aug-06
Aug-08
Euro area industrial production
Aug-10
Retail Sales
Aug-12
Inflation (rhs)
Source: Platts.
bree.gov.au
12
Economic outlook for Australia

Australias GDP growth rate increased 0.5 per cent in the June
quarter 2014 in seasonally adjusted terms, slower than the 1.1 per
cent growth observed in the March quarter. An increase in
inventories following destocking during the March quarter,
consumption expenditure and private investment were partially
offset by lower net exports and public investment.
Figure 1.16:
Professional services
Financial services
In 2013-14 mining was the key contributor to Australias economic

growth, followed by financial services and construction. Although
commodity prices and investment in the sector have begun to
ease, production of key mineral and energy commodities increased
considerably over the past twelve months. Reflecting this, iron ore
and coal export volumes increased by 27 per cent and 10 per cent
year-on-year in the first half of 2014, respectively.
For the full year 2013-14, Australias GDP growth was 3.1 per cent,
supported by housing construction and consumption expenditure.
However, the high value of the Australian dollar, further declines in
capital investment as the construction of large-scale resources
projects are completed and the high cost of doing business will be
key challenges to maintaining this growth rate over the short term.
These challenges are expected to persist into 2014-15, contributing
to a forecast moderation in economic growth to 2.5 per cent.
Over the remainder of the outlook period to 2018-19, Australias
GDP is assumed to recover to trend growth of around 3.0 per cent.
Capital expenditure, particularly in resources and energy projects,
has been a key contributor to Australias economic growth over the
past several years. As these projects are completed and Australia
transitions to a period of higher commodity production, exports of
resources and energy commodities and sustained high levels of
residential construction activity will be the key drivers of GDP
growth over the medium term.
Contribution to growth Jun-13 to Jun-14
Transport
Construction
Mining
-0.5
%points
0.5
1.5
Source: ABS.
Figure 1.17:
Australias economic growth
6
5
4
3
2
1
%
-1
199091
199495
199899
200203
200607
201011
201415
201819
Sources: ABS; BREE.
bree.gov.au
13
Although the Australian dollar-US dollar exchange rate declined in

early September in response to expectations of further interest rate
increases in the US, the exchange rate remained relatively stable
throughout early 2014.
Despite declining commodity prices and subsequent deterioration in
the terms of trade, the Australian dollar has remained high by
historical standards. The relative strength of the Australian economy
and monetary policies of key central banks has supported demand
for the Australian dollar. The exchange rate averaged around 0.92 in
2013-14 and is forecast to remain at similar levels in 2014-15.
Over the medium term, the Australian dollar is assumed to
depreciate and average 0.87 in 2018-19 as commodity prices
decline and interest rates of key economies being to normalise.
Australias exchange rate and terms of trade
Figure 1.18:
160
120
140
100
120
80
100
60
80
Index
1993-94
=100
Index
2011-12
=100
199394
199899
200304
exchange rate
200809
201314
terms of trade ratio (rhs)
Sources: ABS; Bloomberg.
Table 1.2: Key macroeconomic assumptions for Australia

unit
201213
Economic growth bc
%
2.6
Inflation rate b
%
2.4
Interest rate d
%
3.1
Exchange rate e
US$/A$
1.03
201314
3.1
3.0
2.5
0.92
201415 a
2.5
2.7
2.5
0.92
201516 a
2.6
2.5
2.8
0.90
201617 a
2.7
2.2
3.0
0.89
201718 a
2.8
2.2
3.5
0.88
201819 a
3.0
2.2
4.0
0.87
a BREE assumption. b Change from previous period. c Seasonally adjusted chain volume measures. d Median RBA cash rate.
e Average of daily rates.
Sources: BREE; ABS; RBA.
bree.gov.au
14
Figure 1.19:
Exploration
In 2013-14 lower commodity prices and cost cutting led to a decline
in exploration. Exploration expenditure decreased 12 per cent,
relative to 2012-13, to $6.8 billion. A 0.4 per cent increase in
petroleum exploration was more than offset by a 32 per cent drop
in minerals exploration. With lower commodity prices forecast, a
pick up in exploration is unlikely in the short term.
Western Australia bore the brunt of the drop in exploration
expenditure which was down 17 per cent, or $839 million, to $4.2
billion. Expenditure in Queensland was down 19 per cent to $1.1
billion and the combined expenditure of New South Wales, Victoria
and Tasmania decreased 15 per cent to $382 million. Expenditure
in South Australia and the Northern Territory bucked the trend and
increased 5 per cent and 54 per cent, respectively.
The decrease in minerals exploration expenditure was evenly
spread between exploration at existing and new deposits which
were down 32 per cent and 33 per cent, respectively, in 2013-14.
Figure 1.20:
State exploration expenditure
9
7.5
6
4.5
3
1.5
A$b
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Petroleum
Mineral
Source: ABS.
Figure 1.21:
1200
1000
800
600
400
200
A$b
Australias exploration expenditure
Mineral exploration, by deposit type
A$m
WA
Qld
2010-11
NSW, Vic, Tas

2011-12
2012-13
SA
NT
Jun-2010
2013-14
Jun-2011
Jun-2012
Existing Deposits
Jun-2013
Jun-2014
New Deposits
Source: ABS.
Source: ABS.
bree.gov.au
15
Capital expenditure
Over the past decade, there was a rapid escalation in investment in
resources and energy projects fuelled by growing consumption and
higher global commodity prices. However, the state of the market is
no longer supportive of investment in resources and energy projects
despite the introduction of government initiatives to streamline the
approvals process and award major project facilitation status. In
2013-14, mining industry capital expenditure was $90.3 billion, down
4.6 per cent from 2012-13.
Given the forecast softness in commodity prices over the short term,
the outlook for investment in Australia is subdued. As high-value
LNG projects are completed over the coming years, the stock of
investment in the sector will be drawn down. The downturn in
investment has come from a very high point, and while investment
activity has slowed a substantial number of resources and energy
projects continue to be developed in Australia.
Australia has high quality mineral and petroleum deposits that can
be developed when market conditions improve. Over the outlook
period, Australia will compete with other resource-rich countries to
secure investment and will need to ensure it remains a world leading
destination for attracting capital.
Mining sector employment

Mining sector employment was 265 000 people in the June quarter
2014, up 1.6 per cent compared with the June quarter 2013, but 2.4
per cent lower than in the March quarter 2014. Cost pressures have
reduced the profitability of many producers who have sought to
reduce staff numbers. As part of the efforts to reduce costs, many
companies have been cutting jobs and insourcing some functions
that had previously been undertaken by contractors. Companies
servicing the industry have also been reducing the number of
employees.
While the reduction in investment will likely reduce employment in
construction related jobs, the projected increase in commodities
production will provide employment opportunities over the medium
term.
bree.gov.au
Figure 1.22:
Mining industry capital expenditure
30
25
20
15
10
5
A$b
Jun-2008
Jun-2009
Jun-2010
Buildings & structures
Jun-2011
Jun-2012
Jun-2013
Jun-2014
Equipment, plant & machinery
Source: ABS.
Australias resources and energy commodities, production and

exports
Commodity prices have declined steadily over the past twelve
months in response to substantial increases in supply rather than
because of waning demand. The decline in commodity prices,
alongside rising costs, have created a more challenging operating
environment for Australian producers. Sustained lower commodity
prices have encouraged cost-cutting drives and productivity
improvement measures. However, a sustained period of low prices
are now forcing high cost producers to exit the market
The supply glut that has emerged in most commodity markets is
expected to persist over the next couple of years and contribute to
continued softness in commodity prices. As supply growth slows in
response to reduced investment and the closure of high-cost
operations, projected consumption growth will begin to soak up the
surplus supply and support higher prices over the medium term.
16
Australias total earnings from mineral and energy commodities

increased by 12 per cent in 2013-14 to total $195 billion, supported
by robust growth in both minerals and energy export volumes.
Mineral commodity earnings were $124 billion, up 6 per cent from
2012-13, driven largely by increased iron ore export volumes.
Earnings from energy commodities were $71 billion, up 7 per cent,
underpinned by higher earnings from LNG, crude oil and coal.
In 2014-15, Australias earnings from mineral and energy
commodities are forecast to decline by 1 per cent to $192 billion as
higher export volumes for most commodities are more than offset by
forecast lower export prices and a persistently high Australian dollar.
LNG is forecast to deliver the greatest increases in volumes and
values following the commissioning of new LNG facilities. Iron ore
volumes are forecast to increase by 13 per cent in 2014-15,
underpinned by a full year of production by recently started mines.
However, earnings from iron ore are forecast to decline by 4 per cent
because of forecast lower prices.
Figure 1.23:
Total mining employment
300
250
200
150
100
50
000
people
Jun-06
Jun-08
Jun-10
Jun-12
Jun-14
Source: ABS.
Figure 1.24:
Mining sector employment
120
100
80
60
40
20
000
people
Exploration and services
Metal ore
Mar-13
Coal
Jun-13
Sep-13
Dec-13
Oil and gas

Mar-14
Other mining
Jun-14
Source: ABS.
bree.gov.au
17
Despite the forecast decline in export earnings in 2014-15, the

outlook for Australias resources and energy exports remains
positive. For several commodities, including iron ore and coal, prices
are projected to rebound after 2016 as consumption growth starts to
catch up with the recent jumps in production capacity and the recent
investment in the sector will contribute to a rapid increase in
Australias export volumes. Australias earnings from resources and
energy exports are projected to reach $251 billion (in 2014-15
dollars) in 2018-19. Resources and energy export earnings are
projected to total $115 and $136 billion (in 2014-15 dollars) in 201819, respectively.
Figure 1.25:
Australias resources and energy export earnings
160
120
80
40
2014-15
A$b
199091 199495 199899 200203 200607 201011 201415 201819
energy
resources
Sources: BREE; ABS.
Table 1.3: Medium term outlook for Australias resources and energy commodities
unit
201213
201314
201415 f
Value of exports
Resources and energy
A$m
173 997
195 141
192 357
real b
A$m
183 310
200 410
192 357
Energy
A$m
67 001
71 467
72 926
real b
A$m
70 588
73 396
72 926
Resources
A$m
106 996
123 674
119 431
real b
A$m
112 722
127 013
119 431
Mine production
Gross value
A$m
167 037
187 335
184 663
201516 z
201617 z
201718 z
201819 z
217 952
212 636
88 978
86 808
128 974
125 829
241 712
230 740
105 890
101 083
135 822
129 657
265 561
248 049
121 473
113 463
144 087
134 586
274 401
250 789
125 853
115 023
148 548
135 766
209 234
232 043
254 938
263 425
b In current financial year Australian dollars. f BREE forecast. z BREE projection.

Sources: BREE; ABS.
bree.gov.au
18
Table 1.4: Australias resources and energy commodity exports, by selected commodities
Alumina
Aluminium
Copper
Gold
Iron ore
Nickel
Zinc
LNG
Metallurgical coal
Thermal coal
Oil
Uranium
unit
kt
kt
kt
t
Mt
kt
kt
Mt
Mt
Mt
kbd
t
Volume
201314
201819 z
18 614
17 483
1 576
1 119
1 036
1 310
277
297
651
890
214
259
1 542
1 771
24
78
180
195
195
239
255
239
5 424
8 900
CAGR
1.2
6.6
4.8
1.4
6.4
3.8
2.8
26.5
1.5
4.2
1.3
10.4
unit
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
Value
201314
201819 z
5 711
6 880
3 482
2 802
8 691
13 158
13 009
16 138
74 824
88 112
3034
4 357
2 362
3 763
16 389
57 136
23 268
30 840
16 699
22 080
11 113
10 562
519
1 198
CAGR
3.8
4.3
8.6
4.4
3.3
6.3
9.8
28.4
5.8
5.7
1.0
18.2
f BREE forecast. CAGR is compound annual growth rate, in percentage terms.

Sources: BREE; ABS.
bree.gov.au
19
Australias major resources and energy commodity exports
Figure 1.26:
201415 f
volume
A$71.7b
Iron ore and pellets
A$74.8b
A$23.2b
Metallurgical coal
A$23.3b
A$18.4b
LNG
A$16.4b
A$15.1b
Thermal coal
A$16.7b
A$12.2b
Gold
A$13.0b
A$11.6b
Crude oil
A$11.1b
A$8.1b
Copper
A$8.7b
A$5.8b
Alumina
A$5.7b
A$3.6b
Nickel
A$3.2b
A$3.1b
Zinc
A$2.4b
A$2.4b
Aluminium
A$3.5b
A$1.9b
Lead
A$2.0b
A$b
15
30
45
60
201415 f
75
EUV
value
13%
15%
4%
2%
3%
0%
13%
1%
12%
1%
10%
9%
1%
7%
6%
8%
3%
4%
4%
3%
6%
6%
9%
2%
5%
6%
11%
11%
20%
33%
25%
8%
30%
9%
6%
4%
90
201314
f BREE forecast
EUV is export unit value
bree.gov.au
20
Steel
Figure 2.1:
World steel consumption
2000
Ben Witteveen
1600
World steel overview

In 2014 growth in world steel consumption is forecast to slow but
still increase by 2.6 per to total 1.62 billion tonnes. Lower growth in
steel production is forecast due to high prevailing inventory levels
and over production in some key producing nations in 2013. World
steel production is forecast to increase 1.6 per cent in 2014 and
total 1.6 billion tonnes.
Steel consumption in emerging economies has grown rapidly over

the past decade, yet many of these countries still have
considerably lower steel usage rates compared to advanced
economies. Steel intensities in these emerging economies are
unlikely to reach the levels of countries like South Korea and
Japan, whose economies are based on relatively high proportions
of exports of steel-intensive exports like ships and cars.
Nevertheless there remains considerable growth potential in highly
populated emerging economies that require further investment in
housing, infrastructure and manufacturing to support their growing
urban populations and industrial bases.
In the medium term, world steel consumption is projected to
increase at an average annual rate of 1.5 per cent and total 1.77
billion tonnes in 2019.
1200
800
400
Mt
2012
China
2013
2014
Rest of world
2015
2016
European Union 28
2017
2018
United States
India
2019
Japan
Sources: BREE; World Steel Association.
Figure 2.2:
Peak steel intensity since 1970
1400
Consumption per capita (kg)
Increasing urban populations and industrial output in

emerging economies has been a driving force of the world in
the past decade. Despite short term risks associated with the
current downturn in Chinas housing market, fixed asset
investment in housing, infrastructure and industrial
development in emerging economies will continue to support
growth in world steel consumption over the medium term.
Korea
2008
1200
1000
800
United
States
1973
600
400
200
China
2013
Japan
1990
Germany
2007
Vietnam Thailand
2013
2013
India
2013
10
20
30
40
GDP per capita (US$)

Sources: World Bank, World Steel Association
bree.gov.au
21
Table 2.1: World steel consumption

(Mt)
2012
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
European Union 28
156
150
152
154
157
159
162
164
United States
102
101
102
102
103
103
104
104
Brazil
28
29
30
31
31
32
32
33
Russian Federation
49
50
51
51
52
52
53
53
China
688
729
755
775
792
811
825
834
Japan
69
70
71
72
72
72
72
70
South Korea
56
54
55
56
57
58
58
59
India
77
79
83
87
91
96
101
105
1 541
1 578
1 619
1 647
1 682
1 717
1 746
1 769
2012
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
169
167
164
164
164
165
166
167
United States
89
87
88
89
90
92
93
95
Russian Federation
71
69
69
69
70
71
72
73
China
709
775
799
819
834
849
863
874
Japan
107
111
111
112
112
111
110
109
South Korea
69
66
67
67
68
69
69
70
India
77
81
85
90
94
98
103
107
1 537
1 602
1 628
1 656
1 684
1 712
1 740
1 766
World steel consumption
Table 2.2: Crude steel production

(Mt)
European Union 28
World steel production
f BREE forecast. z BREE projection

bree.gov.au
22
China
In the first eight months of 2014 steel prices in China have
continued to trend downwards due to overcapacity in the market
and slowing consumption demand growth. Benchmark prices for
hot-rolled sheet declined by 9 per cent to RMB3169 and rebar by
15 per cent to RMB2974 from January to September 2014. Chinas
benchmark prices are expected to remain subdued over the short
term, underpinned by high inventories, slower consumption growth
and excess capacity.
Chinas steel production capacity has grown at a rapid rate in the
past decade, but with slowing growth in residential, infrastructure
and business investment, capacity growth has out-paced
consumption growth. China invested heavily in new steel
production capacity over the past decade and now has installed
capacity far in excess of requirements. Despite steel consumption
growing 6 per cent in 2013 and Government directions to start
closing older, higher polluting steel mills it estimated that there is
still over 200 million tonnes of under-utilised production capacity in
China.
Excess capacity and declining prices have put many steel
producers under increasing financial pressure over the past three
years. Chinas steel industry profits have declined substantially
since 2011 with the proportion of loss making firms increasing from
around 10 per cent in 2011 to nearly 50 per cent in 2014. However,
since the start of 2014 this proportion has declined as input costs
have decreased and a number of loss making firms have closed in
accordance with government credit market reforms. Excess
capacity and low demand growth are likely to weigh on steel
producers for some time to come.
In an effort to reduce excess capacity and pollution in the sector,
particularly in Hebei and the north-east regions, the Chinese
Government has announced plans to shut 47 million tonnes of steel
capacity this year with further closures planed through to 2017.
Given Chinas excess capacity, these closures are not expected to
have a material effect on production in the medium term.
Figure 2.3:
China benchmark steel prices
5500
5000
4500
4000
3500
RMB
Jan 11
Jul 11
Jan 12
Jul 12
HR sheet
Jan 13
Jul 13
Jan 14
Rebar 25mm
Source: Bloomberg.
Figure 2.4:
China steel industry profitability
14000
70
12000
60
10000
50
8000
40
6000
30
4000
20
2000
10
%
Million
RMB
-2000
-4000
Jan 11
-10
-20
Jul 11
Jan 12
Jul 12
Monthly industry profit
Jan 13
Jul 13
Jan 14
% loss making firms (rhs)
Source: CEIC.
bree.gov.au
23
In the first half of 2014, Chinas steel production increased by 21

per cent year-on-year to 473 million tonnes. Growth in Chinas
steel production is forecast to slow over the remainder of 2014 in
response to waning sales growth and higher inventories amid a
downturn in Chinas housing sector. For 2014 as a whole, Chinas
steel production is forecast to increase by 3.1 per cent to 799
million tonnes.
The rapid rise in steel production in early 2014 contributed to
increased steel inventories and exports. Chinas steel inventories
were 14.4 million tonnes in July, up 10 per cent year-on-year, and
average inventory holdings in the first half of 2014 were 8 per cent
higher than first half 2013.
Slowing domestic steel demand growth has resulted in an increase
in steel exports. Chinas steel exports were up 34 per cent to 41
million tonnes in the first half of 2014. Current steel export levels
are not likely to be sustainable; in the past twelve months Chinas
steel exports were around the same as South Koreas annual
production in the same period. There is also mounting pressure on
governments to protect their local steel industries through tariffs on
Chinas steel imports, though the WTO has ruled against such
measures being used by the US this year.
In the short term, growth in Chinas steel production is forecast to
slow to 2.5 per cent in 2015 to reduce unsustainable levels of
growth in inventories and exports as well as in response to lower
demand growth. Over the next five years Chinas steel production
is projected to increase at an average rate of 1.3 per cent to 874
million tonnes in 2019. Although more mills are scheduled to close
there remains ample capacity to deliver this increase and new mills
in western provinces are expected to open as economic activity
picks up and requires more steel.
A protracted period of tight credit in China, as part of ongoing

market reforms, may accelerate the closure of unprofitable capacity
and accelerate the closure of marginal producers. However, it is
not anticipated to occur at a rate that results in lower steel
production in the medium term.
Figure 2.5:
China steel production
240
200
160
120
80
40
Mt
Mar 09
Dec 09
Sep 10
Jun 11
Mar 12
Dec 12
Crude steel production
Sep 13
Jun 14
Trend
Source: CEIC.
Figure 2.6:
China end of quarter steel inventory
18
15
12
3
Mt
Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar
08
08
09
09
10
10
11
11
12
12
13
13
14
Jul
14
Source: CEIC.
bree.gov.au
24
Swings in rail investment have previously been strong drivers of

steel sales (and iron ore price) cycles in China. While rail
investment is expected to pick up in 2014 due to plans to
substantially increase the kilometres of tracks laid, the downturn in
housing investment will weigh heavily on steel consumption.
Investment in residential construction has declined to 13 per cent in
2014, down from 20 per cent in 2013. Government policies
targeting credit market reforms have reduced new loans in 2014
and resulted in lower housing sales and starts. With the prices of
new developments and secondary sales still falling a rebound in
the short-term is unlikely.
Residential construction in China is a key driver of the economy

and is an important source of employment. While China is targeting
a shift from investment led to consumption based economic growth,
a lagging construction sector will challenge its ability to achieve
announced GDP growth and employment targets.
Measures to support the housing sector have already started to be
rolled out. The Peoples Bank of China has announced a series of
targeted measures including lowering deposit ratios and support to
first home buyers. Provincial governments have also started to free
up more land for residential development.
Figure 2.7:
China steel exports
25
20
15
10
5
Mt
Mar 09
Dec 09
Sep 10
Jun 11
Mar 12
Dec 12
Quarterly steel exports
Sep 13
Jun 14
Trend
Source: CEIC.
Figure 2.8:
China steel intensity
700
600
Most of the risk to steel production growth in China stems from

risks affecting steel consumption growth in the medium term. This
growth is unlikely to be uniform across the period and subject to
normal economic cycles, but in the medium and long-term the
central governments plans for economic growth are still expected
to support increasing urbanisation and continued investment in
infrastructure, housing, and heavy industry. All of which are key
determinants of steel consumption. As outlined by Wilkins and
Zurawski 20141, the level of infrastructure in China remains below
most developed economies and rail in particular still has
considerable scope for expansion.
2013
500
2009
2012
400
300
200
1980
100
10000
20000
30000
40000
50000
GDP per capita (RMB)
1. Wilkings, K., and Zurawski, A., 2014. Infrastructure Investment In China.

RBA Bulletin June Quarter 2014.
Sources: CEIC; World Steel; IMF.
bree.gov.au
25
Around 54 per cent of Chinas population currently live in urban

areas and by 2019 this rate is expected to have climbed to 60 per
cent. This migration in population will result in around 80 million
people moving to cities over the next 5 years. While an oversupply
of buildings exists in China today, over the medium term a rebound
in construction will be required in order to accommodate these
people in cities. Government policies promoting urban rejuvenation
and re-development of shanty towns are also expected to support
an eventual pick up in residential construction in China.
Chinas steel consumption is forecast to increase by 3.6 per cent in
2014 to 755 million tonnes. Over the outlook period Chinas steel
consumption is projected to increase at an average annual rate of
1.7 per cent and total 834 million tonnes in 2019.
Figure 2.9:
China fixed asset investment (3mma)
300
250
200
150
100
50
%
-50
Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14
Rail
Manufacturing
Real estate
Source: CEIC.
Figure 2.10:
China crude steel production by region
250
225
200
175
150
125
100
75
50
25
Mt
Hebei
Source: CEIC.
bree.gov.au
Rest of China
Jiangsu
Shandong
Liaoning
2010
2011
Tianjin
2012
Shanxi
Hubei
Anhui
Hunan
2013
26
India
While steel producers in China have faced lower steel prices, in
India steel prices have been relatively stable in 2014. In July the
price of pig iron in India was 4 per cent higher at US$543 than in
January (although down from US$551 in May) and rebar had
increased 2 per cent to US$781. Indias steel market is dominated
by a few, largely state owned companies, which keeps utilisation
rates comparatively high and prices stable. By comparison, China
has a more fragmented industry with many producers and lower
utilisation rates.
Figure 2.11:
India benchmark steel prices
900
800
700
600
500
Steel consumption growth in India has been erratic since 2009 and
regulatory barriers have often stifled investment potential. Delays
to starting and completing infrastructure projects have been
commonplace in this time. Indias new government was voted to
power on a platform of pro-business policies to quick-start the
Indian economy. It is expected that the new Governments reform
agenda and infrastructure plans will support higher steel
consumption in the medium term.
Initial indicators are positive for investment and reform and the
Indian purchasing managers index surged 2 per cent to 52.4 for the
September quarter (a recording over 50 indicates managers
believe their will be an expansion in the market), indicating that
steel production is likely to continue expanding in the near term.
400
US$/t
Jan 10
Jul 10
Jan 11
Jul 11
Jan 12
Pig iron
Jul 12
Jan 13
Jul 13
Jan 14
Apr 13
Jan 14
Jul 14
Rebar
Source: CEIC
Figure 2.12:
Indias steel production
8
7
In 2014 Indias steel consumption is forecast to grow 5 per cent

and total 83 million tonnes. In 2015, steel consumption is forecast
to increase by a further 4.8 per cent to 87 million tonnes.
Government investment in public infrastructure, including dedicated
freight networks linking landlocked northern states to the sea will
underpin this growth.
The government has also outlined plans to streamline project

approvals in an attempt to increase foreign direct investment into
India. Based on these plans and general investor optimism nearly
$14 billion of foreign funds have flowed into the Indian economy
this year.
5
4
3
1
Mt
Jan 08
Oct 08
Jul 09
Apr 10
Jan 11 Oct 11
Jul 12
India steel production
Trend
Source: CEIC
bree.gov.au
27
In 2014 Indias steel production is forecast to increase by 5 per

cent to 85 million tonnes and in the process, make it the fourth
highest steel producer in the world (behind China, Japan and the
US).
Over the outlook period annual growth in Indias steel production is
projected to average 4.1 per cent and result in steel production of
107 million tonnes in 2019. Ongoing urbanisation and continued
infrastructure investment is expected to support this growth.
Figure 2.13:
70
60
50
40
30
20
10
Japan
Japans steel consumption is forecast to grow by 1 per cent in 2014
to 71 million tonnes and 2015 to 72 million tonnes. Existing fiscal
spending on public infrastructure is expected to support growth
through this period. Japans steel consumption is projected to
remain broadly unchanged over the next five years and at around
70 million tonnes in 2019.
Japans steel production is estimated to grow by 0.5 per cent in
2014 to 111 million tonnes and then a further 0.5 per cent in 2015
to 112 million tonnes. Government expenditure on public
infrastructure is expected to provide the support for this production
growth. However over the remaining outlook period Japans steel
production is projected to average 1 per cent annual contraction
and total 109 million tonnes in 2019. Production is projected to
decrease as demand contracts following an end to the current
stimulus package, relocating manufacturers and shrinking exports.
Steel mills are also projected to begin moving offshore to take
advantage of lower costs.
India steel intensity
80
Over the remainder of the outlook period steel consumption in India

is projected to increase at an average annual rate of 4.8 per cent
and total 105 million tonnes in 2019. Projected growth will be
driven by Government initiatives to reduce infrastructure bottle
necks by starting additional rail and electrical generation projects.
GDP per capita (purchasing power parity)

Sources: CEIC; World Steel; IMF.
Figure 2.14:
Japan steel production and consumption
130
120
110
100
90
80
70
60
50
Mt
1995
1998
2001
2004
Production
2007
2010
2013f
Consumption
2016z
2019z

Sources: World Steel; BREE.
bree.gov.au
28
South Korea
In 2014 South Koreas steel consumption is projected to grow by 2
per cent to 55 million tonnes. Over the outlook period South
Koreas steel consumption is projected to increase at an average
annual rate of 1.2 per cent and total 59 million tonnes in 2019.
Production of steel intensive machinery, cars and ships for export
will remain the primary drivers of steel consumption in South
Korea; although over the outlook period these industries will face
increasing competition from new competitors in emerging
economies.
South Koreas steel production is estimated to grow by 1 per cent in
2014 to 67 million tonnes. Over the outlook period steel production is
projected to average 1 per cent annual growth and 70 million
tonnes in 2019. Steady demand growth to support higher exports of
steel intensive manufactured goods is expected to underpin this
growth.
United States
US steel consumption in 2014 is forecast to grow 0.5 per cent and
total 102 million tonnes. Growth in residential construction (which
accounts for 40 per cent of US steel demand) and car
manufacturing (which accounts for 25 per cent of US steel
demand) will underpin this increase. In 2013 US housing starts
increased 19 per cent and sales of US automotives grew 7 per cent
and provided momentum for further growth in 2014. In the medium
term, US steel consumption is projected to increase at an average
annual rate of 0.5 per cent and total 104 million tonnes in 2019.
US steel production is forecast to average 1 per cent annual growth
over the outlook period and 95 million tonnes in 2019. An increase
in domestic demand and cheaper production costs are expected to
support this growth. US steel mills have begun to utilise gas as a
power source helping to lower the cost of production and their
reliance on imports. A key risk to the US steel industry is the rise in
low cost steel imports from Asia. While the US government has
raised import duties on such items, the WTO has ruled that this is
inconsistent with its agreements on trade.
Figure 2.15:
South Korea change in steel use
40
30
20
10
%
-10
-20
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Production
Industrial production
Exports
Source: Bloomberg.
Figure 2.16:
US steel end-use growth
4000
3500
3000
2500
2000
1000
units
Dec 11
Jun 12
Dec 12
U.S. Housing Permits
Jun 13
Dec 13
Jun 14
Domestic car sales
Source: Bloomberg.
bree.gov.au
29
European Union (EU)

EU steel consumption is forecast to grow by 1.3 per cent in 2014 to
152 million tonnes, though this will not be evenly spread across
member nations. Steel consumption in Italy and Spain is forecast to
contract, while Germanys steel consumption is forecast to
increase with continued growth in its exports. EU steel
consumption is forecast to grow at an average annual rate of 1 per
cent over the next five years and total 164 million tonnes in 2019.
A broad-based return to economic growth, an increase in
household construction and increasing exports are expected to
support this growth.
Steel production in the EU is forecast to contract by 1.7 per cent in
2014 and 0.1 per cent in 2015 to 164 million tonnes. This
contraction will be the result of lower production in Italy and Spain
whos economies are yet to rebound following the eurozone debt
crisis. Over the remainder of the outlook period EU steel production
is forecast to rebound in line with improving economic conditions.
Steel production is projected to increase at an average annual rate
of around 1 per cent to 167 million tonnes in 2019 as the major
steel producing regions, Spain, Italy, France, UK and Germany,
return to growth.
bree.gov.au
Figure 2.17:
EU 28 steel market
230
210
190
170
150
130
110
1995
1998
2001
2004
Crude steel production
2007
2010
2013f
2016z
2019z
Crude steel consumption

Sources: World Steel; BREE.
30
Iron ore
Figure 3.1:
Daily iron ore and steel prices
200
900
150
675
100
450
50
225
Ben Witteveen
Iron ore prices have fallen 37 per cent since the start of 2014
due to increased supply from Australia and moderating
demand growth in China. Since the move to spot pricing iron
ore prices have displayed regular cyclical swings. While prices
are expected to rebound from current lows, over the medium
term the peak of each rebound and trough is likely to be lower
as more supply enters the market.
Prices
A rapid increase in iron ore supply combined with moderating growth
in Chinas steel production have pushed iron ore prices lower in
2014. Prices have fallen nearly 40 per cent down from around
US$130 a tonne (CFR China) in January to US$82 a tonne in
September. Iron ore price volatility is not uncommon; large in-year
price swings have occurred since the move to spot pricing 5 years
ago in response to seasonal shifts in steel and iron ore production in
China. While prices have decreased US$50 in 2014, similar cyclical
downturns happened in both 2012 and 2013 and produced price
ranges of US$62 and US$59, respectively.
In 2012, iron ore prices reached a low of US$87 a tonne in
September before rebounding to over US$140 a tonne by the end of
the year. The key difference with this latest cyclical price downturn is
the availability of supply. Since 2012 there has been a substantial
increase in iron ore mine capacity around the world. In Australia
alone over 200 million tonnes of new capacity has started production
in the past twelve months. The increased availability of supply has
altered the market dynamic and as the risk of having to pay higher
prices that comes with tighter supply conditions has not abated,
Chinese buyers do not appear to be stocking up on iron ore as they
previously did. In addition, price competition has increased between
suppliers who have been forced to offer lower prices to make sales
and offer higher discounts on lower grade ores.
bree.gov.au
Iron
ore
US$/t
China
steel
US$/t
TSI 62% CFR
rebar (rhs)
Source: Bloomberg.
Figure 3.2:
Iron ore price cycle
200
160
120
80
40
US$/t
Jan 09
Oct 09
Jul 10
Apr 11
Jan 12
Oct 12
Jul 13
Apr 14
Source: Bloomberg
31
The change in the iron ore market balance has been exacerbated by
a slowing in Chinas steel production growth. While steel production
has increased in 2014, it has been below previous levels and failed
to absorb the surge in supply. Credit market conditions in China
have affected end-user demand for steel and led to lower steel sales
growth and higher inventory levels. The drag of lower steel intensive
fixed asset investment growth ultimately feeds through to iron ore
demand and pricing, as it has in previous pricing cycles.
Iron ore prices are expected to rebound from the current low levels,
but remain well below the high prices seen in previous years due to
the supply overhang that is prevailing. As in previous price cycles, a
number of higher cost producers, both in China and around the
world, will be forced out of the market over time to reduce the
oversupply.
Iron ore prices are forecast to average US$94 a tonne for the full
year 2014, down 26 per cent relative to 2013. Unlike previous price
cycles, 2014 has had lower prices over a longer period and
subsequently produced a lower than expected average price. The
iron ore price is forecast to rebound from current low levels, but the
average price for 2015 is forecast to average US$94 and not return
the levels seen in early 2014.
Over the next 5 years, iron ore prices are projected to average
between US$90 and US$95 a tonne. Further increases in supply
indicate increasing price competition will be needed to push more
high cost supply out of the market over the next two years. Decisions
to close mines are unlikely to be made easily given the cost
associated with placing operations on care and maintenance. Iron
ore suppliers are therefore likely to persist as long as possible but
eventually prices that are substantially lower than high cost supplies
from both exporters and domestic producers in China will result in
reduced supply. The iron ore pricing cycle in expected to continue in
the medium term. Its peaks and troughs will be lower as pries trend
down in response to growing supply availability and iron ore prices
are projected to average US$86 a tonne in 2019 (in 2014 dollars).
Figure 3.3:
Quarterly iron ore prices
200
160
120
80
40
2014
US$/t
1999
2003
2007
2011
2015
2019
Fe 62% FOB Australia

Sources: Bloomberg; BREE.
Figure 3.4:
Iron ore price and China port stocks
120
200
100
160
80
120
60
80
40
40
US$/t
Mt
Mar 10
Dec 10
Sep 11
Jun 12
China iron ore port stocks
Mar 13
Dec 13
Sep 14
TSI 62% CFR (rhs)
Source: Bloomberg.
bree.gov.au
32
World trade in iron ore
Figure 3.5:
World iron ore import destinations
1800
Overview
Global iron ore trade is forecast to increase by 8.4 per cent in 2014,
relative to 2013, to 1.33 billion tonnes. Supply from Australia is
estimated to increase by 128 million tonnes while imports into China
are estimated to increase by 55 million tonnes. In 2015 world iron
ore trade is forecast to increase by 4.2 per cent to 1.38 billion
tonnes. Over the outlook period world iron ore trade is projected to
increase at an average annual rate of 2.9 per cent and total 1.6
billion tonnes in 2019. Existing producers are expected to increase
their market shares over the period by either starting new mines or
expanding production at existing ones. The increase in high quality,
low cost iron ore in the market will be partially offset by the closure of
higher cost international producers as well as lower production in
China.
Iron ore imports

China is forecast to import a record 875 million tonnes of iron ore in
2014, up 7 per cent on 2013. However moderating steel production
growth has resulted in higher port stocks. In June 2014 port stocks of
iron ore reached a record-high levels at 106 million tonnes indicating
that although Chinas imports are increasing, a large portion of this
additional supply is going to inventory.
Chinas domestic iron ore industry is also reporting higher ore
production in 2014, yet lower industry profitability and an increase in
the number of loss-making firms suggest the iron content of
production may not actually be higher. These profitability measures
also indicate the local iron ore industry is coming under increasing
pressure in China and more mine closures are likely in the near
term. The number of iron ore miners in China reporting a loss has
increased from 17 per cent in June 2013 to 21 per cent in June 2014.
While there is evidence that many have been successful in cutting
costs and some newer, low cost mines have started up, the domestic
iron ore industry looms as a test case for the governments desire to
implement market based reforms across the economy and support
local industries and employment.
bree.gov.au
1600
1400
1200
1000
800
600
400
200
Mt
2012
China
2013
Japan
2014 f
2015 f
2016 z
European Union 28
2017 z
Rest of world
2018 z
2019 z
Korea, Rep. of

Sources: BREE; UNCTAD.
Figure 3.6:
China iron ore import volumes
90
75
60
45
30
15
Mt
Jan 10
Jul 10
Jan 11
Australia
Jul 11
Jan 12
Jul 12
Jan 13
Jul 13
Brazil
Jan 14
Jul 14
other
Source: Bloomberg.
33
Table 3.1: World iron ore imports

(Mt)
2012
2013 f
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
European Union 28
121
128
125
124
126
126
126
127
Japan
131
136
135
136
137
136
135
133
China
745
820
875
933
970
1020
1075
1120
66
63
63
64
65
65
66
67
Korea, Rep. of
Table 3.2: World iron ore exports

(Mt)
2012
2013 f
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
Australia
492
579
Brazil
327
330
707
362
768
388
846
410
861
444
886
489
900
489
India (net exports)
16
12
22
25
24
23
21
Canada
35
36
37
32
28
25
25
25
South Africa
54
48
48
45
41
36
31
27
1 154
1 225
1 328
1 384
1 455
1 515
1 562
1 586
World iron ore trade

bree.gov.au
34
In 2015 Chinas iron ore imports are forecast to increase a further

6.6 per cent and to total 933 million tonnes. Chinas steel producers
are likely to continue facing challenging operating conditions with low
demand growth and overcapacity keeping downwards pressure on
prices in the short term. As a result they are expected to switch
increasingly to the lowest cost raw materials available in the market
which is imported iron ore. In both the short and medium term,
imports of iron ore from Australia and Brazil are expected to fill a
greater share of Chinas domestic iron ore requirements.
Over the period 2015 to 2019, Chinas iron ore imports are projected
to increase at an average annual rate of 4.7 per cent to total 1.12
billion tonnes in 2019.
Japans imports of iron ore are projected to contract slightly over the
outlook period, decreasing by an average 0.3 per cent a year to total
133 million tonnes in 2019. A projected decrease in Japans steel
production is expected to reduce demand for iron ore. South Koreas
iron ore imports are projected to increase at an average annual rate
of 1 per cent and 67 million tonnes in 2019.
Figure 3.8:
China port inventories
Figure 3.7:
China domestic iron ore production
450
27
400
24
350
21
300
18
250
15
200
12
150
100
50
Mt
%
Mar 07
Mar 08
Mar 10
Iron ore production
Mar 11
Mar 12
Mar 13
Mar 14
Per cent of loss making firms (rhs)
Source: CEIC.
Figure 3.9:
120
Mar 09
China other iron ore import sources and CFR costs
14
US$97
100
12
80
10
60
US$85
US$105
40
US$94
US$114
20
2
Jul 14
Apr 14
Jan 14
Oct 13
Jul 13
Apr 13
Jan 13
Oct 12
Jul 12
Apr 12
Jan 12
Jul 11
Oct 11
Apr 11
Oct 10
Jan 11
Jul 10
Apr 10
Jan 10
Mt
Mt
South Africa
Iran
Jun-13
Ukraine
Sep-13
Peru
Dec-13
Mar-14
Source: Bloomberg.
Sources: Bloomberg; AME.
bree.gov.au
Chile
Jun-14
35
Iron ore exports
Figure 3.10:
World iron ore exports are projected to surge in coming years as the
substantial investments made in new capacity come online. In
Australia over 200 million tonnes of new capacity has already started
production and further expansions are planned. Combined with
similar expansions that are also under construction in Brazil, the
share of world exports from existing large producers is projected to
increase in the medium term.
1800
In 2014 Australias iron ore exports are forecast to increase 22 per

cent to 707 million tonnes. The increase is expected to be provided
by the completion of expansions in production and infrastructure
capacity in the Pilbara. In 2015 Australias iron ore exports are
forecast to grow by 8.6 per cent to 768 million tonnes, supported by
initial production at Roy Hill, which at capacity is expected to
produce 55 million tonnes a year of high grade iron ore. Lower iron
ore prices are unlikely to affect most Pilbara based producers that
typically have low production cost and sufficient resources to
withstand increased price competition. Over the next five years
Australias iron ore exports are projected to grow at an average
annual rate of 5 per cent and total 900 million tonnes in 2019.
Brazils iron ore exports are forecast to grow by 10 per cent to 362
million tonnes in 2014. In the medium term Brazils exports are
projected to average 6 per cent growth and increase to 489 million
tonnes in 2019. Export growth is expected to come from expansions
to existing mines and the completion of Vales 90 million tonne
capacity Serra Sul mine in the Carajas region. Vale expects the
development of its Serra Sul mine along with increased use of the
Valemax bulk freighter to double its shipments to China in the next
five years.
Indias exports of iron ore are estimated to grow by 29 per cent in
2014 to 12 million tonnes. Over the remainder of the outlook period
Indias exports are projected to remain subdued and total 21 million
tonnes in 2019. In April Indias Supreme Court lifted a ban on mining
in Goa and Karnataka (Indias largest iron ore producing regions).
While exports have begun, production still faces legal obstacles as
output is restricted to 20 million tonnes a year until other regulatory
hurdles have been cleared.
bree.gov.au
World iron ore export sources
1600
1400
1200
1000
800
600
400
200
Mt
2012
2013 f
Australia
2014 f
Brazil
2015 f
Rest of world
2016 z
2017 z
India (net exports)
2018 z
2019 z
South Africa

Sources: BREE; UNCTAD.
Figure 3.11:
Australia annual iron ore production
1000
900
800
700
600
500
400
300
200
100
Mt
1995
1998
2001
2004
2007
2010
2013
2016 z
2019z
Sources: Company Reports; BREE.
36
Exports from other iron ore producing countries, including Ukraine,

South Africa and Iran are projected to decrease due to increased
price competition over the medium term. Higher production costs will
reduce the competitiveness of producers in these countries and
during the troughs of the price cycle their viability in the market is
lower than the low cost iron ore from Australia and Brazil.
Production at Simandou, one of the worlds largest sources of
untapped iron ore, in Guinea is not expected to significantly impact
world trade in iron ore over the outlook period. Difficulties with
developing essential infrastructure and the mine are expected to
contribute a delay in the first shipment of iron ore. The downward
trend in prices is also unlikely to be supportive of a positive final
investment decision. Due to the projects substantial capital cost its
incentive price exceeds projected prices in the medium term.
Figure 3.12:
400
200
350
175
300
150
250
125
200
100
150
75
100
50
50
A$m
25
US$
/t
Jun 09
Australian exports
Iron ore exploration expenditure fell 27 per cent in the June quarter
relative to the same period in 2013. This is in line with a significant
increase in Australian supply and lower iron ore prices. Based on
projected prices, iron ore exploration expenditure in Australia is not
expected to rebound in the medium term.
Investment in iron ore mine capacity and infrastructure has come off
its record high levels in recent years but there remains considerable
investment potential. Hancock Prospectings Roy Hill project has
commenced construction in 2014 and Baosteels acquisition of
Aquila Resources may support the development of the West Pilbara
iron ore project.
In 2013-14 Australias iron ore export volumes increased by 24 per
cent to 652 million tonnes. The surge in exports was supported by
record production from Pilbara mines with Rio Tinto, BHP and
Fortescue Metals Group all posting record high shipments. Export
values increased 31 per cent to $74.8 billion in 2013-14,
underpinned by a combination of higher volumes, a more favourable
exchange rate and higher prices in the first half of the financial year.
Australia iron ore exploration
Mar 10
Dec 10
Sep 11
Jun 12
Iron ore exploration in Australia
Mar 13
Dec 13
Iron ore FOB Australia (rhs)
Sources: ABS; Bloomberg.
Figure 3.13:
Australias iron ore exports
1000
100
800
80
600
60
400
40
200
20
2014-15
A$b
Mt
199899
200203
200607
volume
201011
201415
value (rhs)
201819
Sources: ABS; BREE.
bree.gov.au
37
In 2014-15, Australias iron ore export volumes are forecast to

increase by a further 13 per cent and to total 735 million tonnes.
Debottlenecking initiatives and higher production from existing mines
will support this growth. Iron ore export values are forecast to
decrease 4.2 per cent in response to lower prices.
Over the medium term Australias iron ore export volumes are
projected to increase at an annual rate of 6 per cent and total 889
million tonnes in 2018-19. This increase will be supported by the
opening and ramp up to full production of Hancock Prospectings
Roy Hill project, which is expected to begin operations in late 2015.
The big three producers in the Pilbara Rio Tinto, BHP Billiton and
Fortescue Metals Group, are all projected to deliver further
production increases as they move to reduce the fixed overhead
costs of their established infrastructure networks by increasing
volumes transported on them.
bree.gov.au
38
Table 3.3: Iron ore outlook

unit
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
nominal
US$/t
125.8
93.6
94.3
89.8
91.5
93.2
94.6
real d
US$/t
128.0
93.6
92.4
86.3
86.2
86.1
85.7
201213
201314
201415 f
201516 z
201617 z
201718 z
201819 z
World
Prices b
Iron ore c
Australia
Production
Iron and steel gs
Mt
4.85
4.53
4.33
4.29
4.25
4.21
4.17
Iron ore
Mt
555.5
678.0
764.8
846.9
879.0
902.4
917.9
Mt
0.99
0.87
0.85
0.81
0.80
0.79
0.78
nominal value
A$m
820
724
687
664
652
645
639
real value h
A$m
864
743
687
648
623
603
584
Exports
Iron and steel gs
Iron ore
Mt
527.0
651.5
735.3
818.3
850.5
874.1
889.7
nominal value
A$m
57 075
74 824
71 689
78 718
81 368
86 198
88 112
real value h
A$m
60 129
76 844
71 689
76 798
77 674
80 514
80 531
b fob Australian basis c Spot price, 62% iron content basis. d In current calendar year US dollars. e Contract price assessment for high-quality hard coking coal. g Includes all
steel items in ABS, Australian Harmonized Export Commodity Classification, chapter 72, Iron and steel, excluding ferrous waste and scrap and ferroalloys. h In current financial
year Australian dollars.
f BREE forecast. s BREE estimate. z BREE projection.
Sources: BREE; ABS; World Steel Association; UNCTAD.
bree.gov.au
39
Metallurgical coal
Kate Penney
Metallurgical coal prices have declined in response to

oversupply and reduced import demand from China stemming
from the cyclical downturn in the real estate sector. The market
balance is expected to tighten from 2016 as Chinas real estate
sector recovers and the closure of unprofitable mines reduces
supply availability.
Prices
Metallurgical coal spot prices declined steadily over the first eight
months of 2014 in response to a combination of increased supply
and lower import demand from China. Steel making raw material
prices have been adversely affected by the sustained downturn in
Chinas real estate sector. Unlike steel and iron ore prices,
metallurgical coal prices have been less volatile because the market
is relatively less oversupplied. Low volatility hard coking coal CFR
China averaged US$128 a tonne between January and August, 21
per cent lower than the corresponding period in 2013.
Australian benchmark contract prices for high-quality metallurgical
coal delivered in the September quarter settled at US$120 a tonne,
unchanged from the June quarter. For 2014 as a whole, contract
prices are forecast to average US$126 a tonne.
Many metallurgical coal operations are unprofitable at prevailing
prices. As a result, some companies have opted to reduce or close
capacity or change their product mix to produce more thermal coal.
However, it is likely to take some time before these announced cuts
materialise. Further, weakness in Chinese real estate is assumed to
persist throughout most of 2015 preventing any rapid recovery in
prices. Metallurgical coal contract prices are forecast to decline by
2.6 per cent to average US$123 a tonne in 2015.
Figure 4.1:
Metallurgical coal spot prices
410
360
310
260
210
160
110
US$/t
Jan-11
Jul-11
Jan-12
Jul-12
Prem Low Vol HCC CFR
Jan-13
Jul-13
Low Vol PCI CFR
Jan-14
Jul-14
Semi Soft CFR
Source: Bloomberg.
Figure 4.2:
Metallurgical coal benchmark prices, FOB Australia
400
300
200
100
2014
US$/t
1999
2003
2007
high quality hard coking
2011
2015
2019
semi-soft coking
Source: BREE.
bree.gov.au
40
From 2016, the market balance is expected to tighten as Chinas

real estate sector begins to recover and a prolonged period of
oversupply comes to an end through the closure of high-cost
operations. The metallurgical coal contract price is projected to rise
modestly to US$130 a tonne (in 2014 dollar terms) by 2019.
Figure 4.3:
14
12
10
8
Consumption and trade
Trends in world metallurgical coal use will be shaped by

developments in steel consumption patterns and plans for steel
production. Growth in world metallurgical coal use over the past
decade has been driven by developing economies, largely China
and India where steel use and production has been expanding
rapidly. Conversely use in more developed economies has been
more subdued.
2
%
-2
-4
European
Union 28
Source: IEA.
Table 4.1: Metallurgical coal trade
Growth in metallurgical coal use
United
States
1983-1993
China
Japan
1993-2003
South Korea
India
2003-2013
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
European Union 28
42
40
41
42
42
44
45
Japan
54
55
55
55
54
52
52
China
77
90
95
100
101
102
103
South Korea
31
32
32
32
32
32
33
India
38
43
43
43
44
45
46
Australia
170
181
187
186
191
193
196
Canada
33
34
34
35
35
35
36
United States
60
58
57
56
53
51
48
Russia
22
13
13
13
13
13
13
302
318
324
330
331
335
337
Imports (Mt)
Exports (Mt)
World trade
Sources: BREE; IEA.
bree.gov.au
41
World trade of metallurgical coal is forecast to increase by 5 per cent

to 318 million tonnes in 2014, with China accounting for most of the
growth in import demand and Australia the bulk of exports.
In line with projected moderate growth in steel production, world
trade in metallurgical coal is projected to increase at an average
annual rate of 1.0 per cent to 337 million tonnes in 2019.
World imports
Chinas imports of metallurgical coal are projected to increase at an
average annual rate of 2.7 per cent to 103 million tonnes in 2019,
underpinned by increased steel production. While China is by far the
worlds largest producer of metallurgical coal, domestic output is
typically higher cost and lower quality than imported coal.
Indias plans to expand steel production capacity to support growing
steel-use as investment in infrastructure increases are expected to
take time to implement. India has some metallurgical coal
production, but is likely to rely mostly on imports to meet growing
demand over the medium term. Indias imports of metallurgical coal
are projected to increase steadily to 46 million tonnes in 2019.
Imports into the European Union and South Korea are projected to
increase to 45 million tonnes and 33 million tonnes by 2019,
respectively while Japans imports are projected to decline to 52
million tonnes.
Figure 4.4:
Major metallurgical coal importers
300
250
200
150
100
50
Mt
1999
2004
European Union 28
2009
Japan
2014
South Korea
China
2019
India
Sources: IEA; BREE.
Figure 4.5:
Major metallurgical coal exporters
350
300
250
World exports
Lower prices and high operating costs have removed the incentive to
invest heavily in developing new capacity around the world. As such,
there is unlikely to be any significant additions to supply from
emerging producers and growth in exports from existing producers is
projected to remain subdued.
200
150
100
50
Mt
1999
Sources: IEA; BREE.
bree.gov.au
2004
Australia
2009
Canada
2014
US
2019
Russia
42
Exports from Canada are projected to increase to 36 million tonnes

by 2019, while Russias exports are projected to remain stable at 13
million tonnes. By contrast, exports from the US are projected to
decline by 3.7 per cent a year to 48 million tonnes in 2019. The US is
expected to use more production domestically, supported by a
projected expansion in steel production.
Most of the growth in world metallurgical coal exports is expected to
come from Australia. Australias metallurgical coal exports are
projected to increase at an average annual rate of 1.6 per cent to
Australias export volumes and values

Australias metallurgical coal production increased by 16 per cent to
184 million tonnes in 2013-14 supported by the completion of new
capacity including BHP Billiton Mitsubishi Alliances (BMA) Caval
Ridge and Peabody Energys North Goonyella expansion.
Production was also boosted by companies seeking to reduce unit
costs by increasing output.
Over the medium term, Australias production of metallurgical coal is
projected to rise at a more modest 1.2 per cent a year to 198 million
tonnes in 2018-19 as additions to capacity are partially offset by the
closure of mines that are no longer economic or have exhausted
their resources. High costs, a strong Australian dollar and lower
prices have increased pressure on the industry to continue to cut
costs and close mines.
Despite these pressures, a number of new projects are scheduled to
be completed over the projection period. These include Yancoals
Ashton South East opencut expansion, Whitehavens Maules Creek
and Peabody Energys Metropolitan expansion in 2015; BHP
Billitons Appin Area 9 and Anglo Americans Grosvenor in 2016; and
Aquila Resources and Vales Eagle Downs in 2017.
Figure 4.6:
Australias metallurgical coal production
200
160
120
80
40
Mt
1998-99
2002-03
2006-07
2010-11
2014-15
2018-19
Source: BREE; Coal Services; company reports.
Figure 4.7:
Australias metallurgical coal exports
250
50
200
40
150
30
100
20
50
10
201415
A$b
Mt
1998-99
2002-03
2006-07
volume
2010-11
2014-15
2018-19
value (rhs)
Sources: ABS; BREE.
bree.gov.au
43
Supported by strong production growth, Australias exports of

metallurgical coal increased by 17 per cent to 181 million tonnes in
2013-14. Exports are forecast to increase by a further 2 per cent to
185 million tonnes in 2014-15. The value of these exports is forecast
to remain steady at around $23.2 billion as the increase in volumes
is offset by lower assumed contract prices and a strong Australian
dollar.
Over the remainder of the outlook period, Australias metallurgical
coal exports are projected to increase at an annual average rate of
1.5 per to 195 million tonnes in 2018-19. Export earnings are
projected to increase by 3.3 per cent a year to around $28.2 billion
(in 2014-15 dollar terms) in 2018-19, underpinned by higher
volumes, assumed higher contract prices and a depreciating
Australian dollar.
Table 4.2: Metallurgical coal outlook

World
Contract prices bc
nominal
real d
Australia
Production
Export volume
nominal value
real value e
unit
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
US$/t
US$/t
158.5
161.3
125.8
125.8
122.5
120.1
130.7
125.6
137.3
129.4
140.6
129.9
143.5
130.0
201213
201314
201415 f
201516 z
201617 z
201718 z
201819 z
159.5
154.2
22 434
23 635
184.4
180.5
23 268
23 896
188.8
184.9
23 228
23 228
189.8
186.1
26 218
25 578
192.3
188.6
27 946
26 677
195.0
191.3
29 298
27 366
198.2
194.6
30 840
28 187
Mt
Mt
A$m
A$m
b fob Australian basis c Contract price assessment for high-quality hard coking coal. d In current calendar year US dollars. e In current financial year Australian dollars.
f BREE forecast. s BREE estimate. z BREE projection.
Sources: BREE; ABS.
bree.gov.au
44
Thermal coal
Kate Penney
The recent decline in thermal coal prices has been the result
of abundant supply and reduced import demand rather than a
decline in coal-use. Coal will remain an important energy
source over the medium term because of its affordability and
reliability. Large volumes of new coal-fired electricity
generation capacity are being developed worldwide,
particularly in India and China. As lower prices force less
competitive mines to close over the next few years, supply
availability will tighten and reduce some of the downward
pressure on prices.
Prices
Thermal coal prices declined steadily throughout early 2014 in
response to surplus supply, with Newcastle free on board spot prices
averaging US$73 a tonne in the first eight months of 2014, down 16
per cent year on year. Large Chinese producers, such as Shenhua,
reduced their offer price to domestic utilities multiple times in the first
half of 2014 in a bid to increase competitiveness against imported
coal. This contributed to reduced import demand in China, placing
further downward pressure on Newcastle spot prices. Domestic
producers in China stopped offering lower prices in August.
However, Newcastle spot prices continued to decline in early
September in response to speculation over potential restrictions on
coal imports into China.
Coal prices are forecast to remain subdued throughout the
remainder of 2014 in response to weaker import demand from China
and a continued abundance of supply. At lower spot prices many
producers are unprofitable, which is expected to support further costcutting measures and signals the risk of more mine closures or
production curtailments over the remainder of the year.
bree.gov.au
Figure 5.1:
Thermal coal spot prices
180
160
140
120
100
80
US$/t
Jan-11
Jul-11
Jan-12
Newcastle 6000kcal
Jul-12
Jan-13
Jul-13
Jan-14
Richard's Bay 6000kcal
Jul-14
QHD 5800kcal
Source: Bloomberg.
Figure 5.2:
JFY thermal coal prices
160
120
80
40
JFY 2014
US$/t
1999
2003
2007
2011
2015
2019
Source: BREE.
45
The 2014 Japanese Financial Year (JFY, April 2014 to March 2015)
benchmark contract price was settled at US$81.80 a tonne, 14 per
cent lower than the 2013 JFY price.
While coal consumption is forecast to remain robust in 2015,
particularly in the Asia-Pacific, the global supply overhang is
expected to persist and contribute to continued softness in prices.
Contract prices for JFY 2015 are forecast to decline by 6 per cent to
settle at US$77 a tonne. From 2016, the market balance is expected
to tighten as import demand continues to increase and lower prices
during 20142015 reduce investment in new capacity and force less
competitive operations to close. The contract price is projected to
rise to US$86 a tonne (in 2014 dollar terms) by 2019.
Figure 5.3:
Projected electricity generation by fuel
30000
25000
20000
15000
10000
5000
TWh
1990
coal
2011
oil
gas
2020
nuclear
hydro
other renewable
Source: IEA.
Figure 5.4:
Figure 5.5:
Major thermal coal importers
1000
1000
800
800
600
600
400
400
200
200
Mt
Mt
1999
Major thermal coal exporters
2003
EU 27
2007
Japan
2011
South Korea
2015
India
China
2019
1999
2003
South Africa
2007
Colombia
2011
Russia
2015
Australia
Sources: BREE; IEA.
Sources: BREE; IEA.
bree.gov.au
2019
Indonesia
46
Consumption and trade

Concern about the effect of coal-use on the environment has
prompted many countries to enact measures to reduce the role of
coal in the energy mix. While these measures will undoubtedly have
an adverse effect on the demand for coal, they have typically been
implemented in developed economies where growth in energy use is
likely to be more subdued.
Most of the growth in world energy demand will come from emerging
economies to fuel economic expansion and improve the standard of
living for their citizens. This demand will be met by many sources,
including coal, which is relatively abundant, low-cost and reliable.
While the growth in world coal use is unlikely to be as rapid as other
energy sources, it is still expected to play a large role in the world
electricity generation mix.
In line with higher consumption, world coal trade is projected to grow
at an average rate of 2 per cent to 1.2 billion tonnes in 2019.
Chinas quarterly electricity generation
Figure 5.6:
1600
1400
1200
1000
800
600
400
200
Billion
kWh
Mar-10
Dec-10
Sep-11
thermal
hydro
Jun-12
nuclear
Mar-13
Dec-13
wind
Source: CEIC.
World thermal coal imports

China
Chinas imports of thermal coal were 147 million tonnes in the first
seven months of 2014, steady year-on-year. Growth in imports has
been moderated by slower economic activity, increased utilisation of
hydropower and relatively low domestic prices which reduced the
competitiveness of imports. For 2014 as a whole, Chinas imports of
thermal coal are forecast to increase by 2 per cent to 255 million
tonnes.
The Chinese Government has announced multiple policy measures
aimed at lowering coal-use to improve air quality. Most of these
measures have been targeted at highly populated areas in Beijing
and neighbouring provinces. These areas are being encouraged to
substitute away from coal and oil-fired boilers into electricity by 2020,
with the electricity to be imported from other regions.
Chinas electricity generation capacity >50MW
Figure 5.7:
600
500
400
300
200
100
GW
coal
hydro
operational
nuclear
gas
under construction
oil
approved
other
renewable
Source: Enerdata, www.enerdata.net.
bree.gov.au
47
Concurrently, there are plans to create co-located coal mines, power

plants and coal chemical plants in northwest China, such as Inner
Mongolia, Shaanxi and Ningxia, which will be able to export
electricity to other regions through the development of ultra-high
voltage transmission capacity.
Figure 5.8:
80
70
Coal currently accounts for around 70 per cent of Chinas electricity

generation capacity. Coal-fired assets typically have an operating life
of 4060 years. Chinas coal-fired fleet is relatively new so it is likely
to be a few decades before any large-scale closure of existing
capacity. Using these coal-fired assets will not preclude China from
improving air quality, which can be achieved through the installation
and use of scrubbers, the use of higher-quality coal (both higher
energy and lower sulphur content) and improving the thermal
efficiency of existing plants.
60
Chinas electricity use is expected to continue to grow over the

medium term as the economy expands and household income and
consumption increase. To meet its growing energy needs, China is
investing in new electricity generation infrastructure. This includes
around 70 gigawatts of coal-fired generation capacity under
construction or approved.
Mt
While growth in coal use will slow, particularly towards the end of the
projection period, the growth in other energy sources is unlikely to be
sufficient to meet the increase in Chinas energy demand, let alone
reduce the need for coal. The development of nuclear power has
slowed post-Fukushima; there are limits to the expansion of
hydropower because of environmental concerns and the
displacement of large numbers of people; and the growth of solar
and wind are from a very small base. Further, plans to increase the
use of gas will be heavily reliant on the ability to source supply with
domestic gas production growing at a slower pace than expected.
The NDRC has scaled back targets for unconventional gas
production from 60100 billion cubic metres of shale gas in 2020 to
30 billion cubic metres each of shale gas and coal seam gas. This
would only meet about 1 per cent of Chinas current energy needs.
Small cities are now being discouraged from investing heavily in
gas-fired technology.
Chinas quarterly coal imports by source
50
40
30
20
10
Mar-10
Dec-10
Sep-11
Jun-12
Indonesia
Australia
Mar-13
Dec-13
Other
Source: McCloskey.
Figure 5.9:
Chinese coal producer losses
40
35
30
25
20
15
10
1
Billion
RMB
Jan-12
5
%
Jul-12
loss value
Jan-13
Jul-13
Jan-14
proportion of loss making firms (rhs)
Source: CEIC.
bree.gov.au
48
According to the China National Coal Association (CNCA), more

than 70 per cent of Chinas coal producers are loss-making. In
August, the CNCA urged coal producers to exercise self-discipline,
avoid cut-throat competition and reduce 2014 production by 10 per
cent to stabilise the domestic market. Despite this, China is expected
to remain the largest producer of coal over the projection period.
With costs in Chinas more mature mining regions increasing and the
transportation of coal over long distances between production and
consumption centres uneconomic, imported coal will remain
competitive over the medium term. Further, the importation of low
sulphur and high energy coal will assist in addressing air quality
issues. The Chinese Government has proposed restrictions on the
ash and sulphur content of imported coal from 1 January 2015. This
may affect some imports of coal, particularly high-sulphur coal, but
ash content can be addressed through further washing or blending.
Figure 5.10:
Indias quarterly electricity generation
300
250
200
150
100
50
Billion
kWh
Mar-10
Dec-10
Chinas imports of thermal coal are projected to increase at an

average annual rate of 2.6 per cent to 290 million tonnes in 2019.
Sep-11
thermal
Jun-12
hydro
Mar-13
Dec-13
nuclear
Source: CEIC.
India
Indias electricity demand is expected to rise substantially over the
projection period as household income increases, the middle class
expands and the government improves electrification. In mid-August,
Prime Minister Modi announced the Governments intention to
ensure that all Indian villages have 24 hour access to electricity by
2022. Coal-fired power is a major component of Indias existing
electricity generation capacity and this role is expected to expand
with more than 100 gigawatts of new coal-fired capacity under
construction.
Figure 5.11:
Indias electricity generating capacity >50MW
350
300
250
200
150
Coal-fired plants have been forced to increase generation output in

response to increased electricity use and a weak start to the
monsoon season that reduced hydroelectricity output. Consequently,
around half of Indias coal-fired plants have less than one weeks
worth of stocks, the lowest since widespread blackouts in 2012.
100
50
GW
coal
hydro
nuclear
gas
operational
under construction
bree.gov.au
oil
other
renewable
approved
49
Coal India has been unable to meet rising demand for coal and
many utilities have been reluctant to import coal at market prices
when domestic electricity prices are regulated. While India has
large coal reserves, domestic production has been unable to match
pace with demand because of difficulties in developing new
projects associated with land acquisition, environmental approvals
and transport infrastructure.
Coal and Power Minister Piyush Goyal has pushed for new
production capacity to be fast tracked to meet growing demand.
Following this directive, Coal India opened its first mine in five
years. The 12 million tonne a year Amrapali mine in Jharkhand
took more than a decade to develop because of difficulties in
obtaining relevant approvals. The Government is also accelerating
the development of rail capacity in Jharkhand, Odisha and
Chhattisgarh to help transport domestic output to utilities.
Although plans are underway to remove bottlenecks and rapidly
increase Indias domestic coal production, it will take a few years
before new output will materialise. As such, Indias coal imports are
projected to increase at an average rate of 4.7 per cent a year to
182 million tonnes in 2019. Some of this will be secured through
the development of foreign assets.
Japan
Japan has relied heavily on thermal power (oil, gas and coal) since
the end of 2013 when all of its nuclear capacity was closed. There
is still considerable uncertainty surrounding the timing and speed of
restarts. While the Nuclear Regulation Authority has approved the
restart of two reactors, they require support from the local
government and community before proceeding. Given this
uncertainty, Japanese utilities increased spot coal purchases in
mid-2014. However with most plants operating at close to capacity
there is limited upside potential to Japans coal imports.
In the New Basic Energy Plan released in mid-April, coal was
reaffirmed as an important source of baseload energy. There are
nine coal-fired power plants with a combined capacity of around 4.8
gigawatts at various stages of development in Japan. However, the
majority of these are unlikely to be commissioned until the start of
the next decade.
bree.gov.au
Japan and South Koreas quarterly imports
Figure 5.12:
70
60
50
40
30
20
10
Mt
Mar-10
Dec-10
Sep-11
Japan
Source: McCloskey.
Figure 5.13:
Jun-12
Mar-13
Dec-13
South Korea
Japan and South Korea electricity capacity >50MW
200
160
120
80
40
GW
Japan
operational
Japan
approved
Japan
construction
coal
hydro
Sth Korea
construction
Sth Korea
operational
nuclear
gas
oil
Sth Korea
approved
other renewable
50
As reactor restarts are approved and resume operations, high-cost

generation facilities will be progressively closed. As older coal-fired
capacity is closed, Japans coal imports are projected to decline at
an average annual rate of 2.2 per cent from 142 million tonnes in
2014 to 127 million tonnes in 2019.
Figure 5.14:
Indonesias thermal coal exports
450
400
350
South Korea
300
In an effort to curb growth in coal use a two-tiered levy on coal

imports was introduced in mid-2014. Although this will increase the
short term cost of imports, it is not expected to have a material effect
on volumes. The levy favours high energy coal because it is more
cost efficient but most South Korean coal-fired plants are designed
to use lower energy coal.
250
Over the medium term, South Koreas coal imports will be supported
by the development of eight coal-fired power plants with a combined
capacity of 7.3 gigawatts that are scheduled to be commissioned by
the end of 2016. South Koreas coal imports are projected to
increase at an average annual rate of 2.7 per cent to 111 million
tonnes in 2019.
50
200
150
100
Mt
2005
2007
2009
2011
2013
2015
2017
2019
Sources: IEA; BREE.
Figure 5.15: Indonesias electricity capacity >50MW
World thermal coal exports

Indonesia
The Indonesian government has been attempting to limit coal
production and exports in 2014 in order to preserve resources and
reduce downward pressure on prices. In early 2014, it set a cap of
421 million tonnes on coal production for the year. However,
Indonesia is on track to surpass this target, with the Ministry of
Energy and Mineral Resources reporting first half output of 213
million tonnes. Companies have continued to increase production to
meet contracts and reduce the effects of lower prices on profitability.
Over the medium term, the Indonesian Government is expected to
continue to strengthen its efforts to curb growth in production,
particularly unlawful mining, and exports.
35
30
25
20
15
10
5
GW
coal
hydro
operational
gas
under construction
oil
other
renewable
approved
bree.gov.au
51
The Government has introduced requirements for exporters to

provide evidence clearing them to produce before they can make
any shipments. Further, in October export licence regulations will be
introduced. With the implementation of these measures the volume
of unlawful production is expected to decline dramatically.
Following a change in government, new President Joko Widodo has
indicated a focus on providing Indonesians with access to cheaper
energy. Indonesian policy has tended towards reducing dependency
on oil and gas, suggesting an increased role for coal. The expansion
of domestic coal use will be supported by the Domestic Market
Obligation (DMO) - the proportion of output that needs to be
reserved for the domestic market. This will lower Indonesias
capacity to export coal to world markets. The Ministry of Energy and
Mineral Resources has estimated that the DSO could increase by 20
to 25 million tonnes in 2015, potentially reducing exports by the
same volume.
Given expected stagnation in Indonesias coal production and
increased domestic requirements, Indonesias coal exports are
projected to decline at an average rate of 1.9 per cent a year to 379
million tonnes in 2019. There will be a number of challenges for the
Indonesian Government in restraining production growth. If targets
are not met, exports are likely to be higher than projected.
Colombia
Colombias production of coal is forecast to increase in 2014
because of improved labour relations, which crippled output in 2013.
While there have been a couple of strikes in mid-2014, the effect on
production to date has been limited. Exports from Colombia are
forecast to increase by 11 per cent to 81 million tonnes in 2014.
Over the medium term, Colombias exports are projected to increase
at an average annual rate of 7.6 per cent to 117 million tonnes in
2019. This growth will be underpinned by the development of new
projects and infrastructure. Colombian coal is high quality and the
cost of producing is low so project development is still profitable
even at lower prices. Most of this new output is likely to be directed
to the Asia-Pacific market.
Figure 5.16:
Colombia, South Africa and US exports
250
200
150
100
50
Mt
2010
2011
2012
2013
Colombia
2014
2015
South Africa
2016
2017
2018
2019
United States
Sources: BREE; IEA.
Figure 5.17:
Coal used in electricity generation, US
300
250
200
150
100
50
Mt
Mar 10
Dec 10
Sep 11
Jun 12
Mar 13
Dec 13
Source: US EIA.
bree.gov.au
52
South Africa
South Africas coal exports have been affected by several stoppages
at the Richards Bay Coal Terminal (RBCT) and weaker demand for
South African coal which has been partially displaced by low-cost
coal from Australia. South Africas exports in 2014 are forecast to
increase by 1.7 per cent to 73 million tonnes.
While RBCT has a capacity of 91 million tonnes, exports have never
approached this volume because rail infrastructure has struggled to
operate consistently. While rail capacity is planned to be upgraded, it
is not expected to have a material effect on exports until toward the
end of the projection period. Exports from South Africa are projected
to increase at an average annual rate of 3.6 per cent to 87 million
tonnes in 2019.
Figure 5.18:
250
400
200
320
150
240
100
160
50
80
US$/t
A$m
Jun-09
US
The US is trying to achieve a sharp shift away from coal-use in
power generation through new regulation. While this might indicate
increased availability of coal for export, it has been cheaper to import
coal from Colombia rather than produce given low prices, high costs
and infrastructure limitations. This is expected to persist over the
medium term, contributing to US exports declining by 8.3 per cent a
year to 24 million tonnes in 2019.
Australias coal exploration expenditure
Jun-10
Jun-11
exploration expenditure
Newcastle spot (rhs)
Jun-12
Jun-13
Jun-14
Hard Coking Coal contract (rhs)
Sources: ABS; Bloomberg; BREE.
Figure 5.19:
Australias thermal coal production
350
300
Australia
Lower coal prices have reduced the incentive to invest in exploration
with many companies minimising their exploration activity as part of
cost cutting exercises. Australias coal exploration expenditure in
2013-14 was around $400 million, 27 per cent lower than 2012-13. In
the June quarter, expenditure was $81 million, down 32 per cent
from $120 million in the June quarter 2013.
250
200
150
100
Australias thermal coal production is forecast to increase at a

moderate pace over 2014-15 and 2015-16 as announced mine
closures are more than offset by increased output from projects
completed in previous years and producers increasing production to
reduce unit costs to remain profitable.
Source: BREE; Coal Services; company reports.
bree.gov.au
50
Mt
1998-99
2002-03
2006-07
2010-11
2014-15
2018-19
53
High costs, a strong Australian dollar and lower coal prices have
affected the profitability of Australian producers, increasing pressure
on the industry to make further cost cuts and mine closures. While
this may result in short term pain, including the potential for further
job cuts, the industry is expected to adapt.
From 2016-17, growth in production is projected to accelerate as
several projects completed during 2015 and 2016 such as
Whitehaven Coals Maules Creek (10.8 million tonnes a year) and
Idemitsu Kosans Boggabri expansion (3.5 million tonnes a year)
approach full capacity. Towards the end of the projection period,
production will be heavily influenced by the start of production from
the large scale projects being developed in the Galilee Basin in
Queensland including Adanis Carmichael mine (60 million tonnes a
year) which require the development of associated rail infrastructure
to move the coal to export facilities. It is expected that most of this
new capacity will be destined for India.
Over the medium term, Australias thermal coal production is
291 million tonnes in 2018-19.
Figure 5.20:
Australias thermal coal exports
250
25
200
20
150
15
100
10
50
5
201415
A$b
Mt
1998-99
2002-03
2006-07
volume
2010-11
2014-15
2018-19
value (rhs)
Sources: ABS; BREE.
Exports are forecast to increase by 1 per cent to 196 million tonnes

in 2014-15 reflecting moderate production growth. The value of
these exports is forecast to decline by 9 per cent to $15.1 billion as
the modest increase in volumes is more than offset by lower
assumed contract prices and a strong Australian dollar.
Over the remainder of the outlook period, Australias thermal coal
exports are projected to increase at an average rate of 4 per to 239
million tonnes in 2018-19. Export earnings are projected to increase
by 6.7 per cent a year to around $20.2 billion (in 2014-15 dollar
terms) in 2018-19.
bree.gov.au
54
Table 5.1: Thermal coal outlook

World
Contract prices b
nominal
real c
Coal trade
Imports
Asia
China
Chinese Taipei
India
Japan
South Korea
Europe
European Union 27
other Europe
Exports
Australia
Colombia
Indonesia
Russia
South Africa
United States
Australia
Production
Export volume
nominal value
real value d
unit
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
US$/t
US$/t
Mt
95
97
1 072
82
82
1 053
77
75
1 067
81
78
1 091
89
84
1 105
92
85
1 140
95
86
1 163
Mt
Mt
Mt
Mt
Mt
Mt
Mt
Mt
Mt
762
250
61
142
142
95
229
184
45
770
255
62
145
142
97
206
159
48
785
263
63
150
140
99
208
158
50
800
270
64
156
137
102
214
160
53
817
278
65
162
133
106
209
163
46
839
286
66
174
129
109
221
163
58
854
290
67
182
127
111
227
167
60
Mt
Mt
Mt
Mt
Mt
Mt
188
73
423
117
72
47
192
81
416
108
73
37
197
90
403
105
77
35
210
99
396
104
81
29
217
106
391
101
83
26
230
112
384
100
85
25
248
117
379
98
87
24
201213
201314
201415 f
201516 z
201617 z
201718 z
201819 z
238.9
181.7
16 169
17 035
247.6
194.6
16 699
17 150
250.2
196.3
15 125
15 125
252.3
198.9
15 419
15 043
270.3
217.5
18 088
17 267
274.8
222.4
19 920
18 607
290.5
238.7
22 080
20 180
Mt
Mt
A$m
A$m
b Japanese Fiscal Year (JFY), starting April 1, fob Australia basis. BREE AustraliaJapan average contract price assessment for steaming coal with a calorific value of 6700
kcal/kg gross air dried. c In current JFY US dollars. d In current financial year Australian dollars. f BREE forecast. z BREE projection.
Sources: BREE; ABS; IEA; Coal Services Pty Ltd; Queensland Department of Natural Resources and Mines.
bree.gov.au
55
Gas
Figure 6.1:
Tom Willcock and David Whitelaw
Over the medium term, Australian gas production will more

than double. This growth will be underpinned by Australian
LNG production which, in concert with rising Chinese gas
consumption, will result in a much larger global LNG market
by 2019. Supply growth and lower oil prices will also place
downward pressure on LNG prices.
25
130
20
104
15
78
10
52
26
Prices
Asian LNG prices
Prices for delivered LNG into Northeast Asia have been flat during
the June quarter 2014. Landed prices in Japan hovered around
US$17 a gigajoule between March and June. Chinese prices were
also flat, averaging US$12 a gigajoule for the quarter. Landed
prices reflected stable oil prices, to which contracts are linked.
They were in contrast to spot prices which began falling in the
middle of the year and have continued a substantial decline to
levels not seen since early 2011 prior to the Fukushima incident.
Average landed prices are not reflective of the large drop in spot
prices given the relatively low market share of spot supply.
Northeast Asian spot prices are expected to rebound over the short
term. While inventory levels are reportedly still high, the
approaching Northern winter will drive some renewed import
demand which will meet a reasonably tight market over the next 12
to 18 months. The tightness is expected to ease in late 2015 to
early 2016 as new projects in Australia ramp up to full production.
The remainder of the outlook period is likely to see increasing
supply volumes place downward pressure on spot prices. Contract
prices, which cover the majority of LNG traded in Asia, are
expected to be more stable over the outlook period as they are less
affected by rising supply. Falling oil prices, to which contracts are
linked, are expected to result in a steady decline in landed
Japanese LNG prices to 2019.
bree.gov.au
Monthly Asian LNG and oil prices
US$/
bbl
US$/
GJ
Jan-12
Jul-12
Jan-13
Japan landed
North Asia Spot
Sources: Argus LNG; METI; BREE.
Figure 6.2:
Jul-13
Jan-14
Jul-14
China landed
Japan Customs-cleared Crude (rhs)
Annual international gas and oil price outlook
20
125
16
100
12
75
50
25
2014
US$/
0 bbl
2014
US$
/GJ
2007
2009
US Henry Hub
2011
2013
Japan landed LNG
2015
2017
2019
Japan Customs-cleared Crude (rhs)
Sources: IEA; BREE; METI.
56
Domestic prices
Figure 6.3:
A milder than expected winter resulted in most domestic gas prices

remaining relatively flat over the June quarter 2014. In contrast, the
price at the Brisbane Short Term Trading Market (STTM) continued
to fall to an all-time low around $2 a gigajoule in July. This is
mainly a result of increased CSG production associated with rampup for LNG projects meeting flat domestic consumption, particularly
from the electricity generation sector.
10
Domestic prices are expected to stay low over the remainder of the
year. The start-up of new LNG projects in late 2014 and through
2015 will create upward pressure on prices, particularly on the East
Coast where prices could rise towards the netback price (currently
estimated to be around $10 a gigajoule in Queensland, but subject
to downward pressure with lower expected LNG prices).
Global LNG developments

Global LNG import demand has been relatively stagnant over the
past three years, hovering around 235 million tonnes a year. This is
mainly due to the tightness of the market as global LNG production
capacity remains very close to consumption. As new supply
becomes available, global LNG imports are projected to grow to
Japan and South Korea are expected to remain among the largest
LNG importers; however, growth will come from other countries.
China, in particular, is expected to increase LNG imports rapidly to
meet growing gas consumption. Europe is expected to increase
LNG imports as domestic production falls and countries look to
diversify away from Russian pipeline gas. Poland and Lithuania
both have regasification plants currently under construction.
The global LNG market is expected to remain tight until at least

2015. Challenges at African projects (Soyo LNG in Angola and
Egyptian and SEGAS LNG in Egypt), where around 17 million
tonnes of production capacity is currently offline, as well as the
planned shutdown of Arun LNG in Indonesia will offset the early
start-up of PNG LNG and the expected start-up of Queensland
Curtis LNG (QCLNG) later this year.
bree.gov.au
Indicative monthly Eastern Australian gas prices
$/GJ
Jan-12
Jul-12
Jan-13
Sydney STTM
Adelaide STTM
Sources: AEMO; BREE.
Figure 6.4:
Jul-13
Jan-14
Jul-14
Brisbane STTM
Victoria wholesale
Global LNG imports
350
300
250
200
150
100
50
Mt
2015
2017
China
Rest of Asia
Europe
2019
Rest of the World
57
Japan
2013
South Korea
Sources: BREE; IEA.
From 2015, large volumes of LNG are expected to hit the AsiaPacific market in rapid succession: Gladstone LNG (GLNG),
Australia Pacific LNG (APLNG) and Gorgon LNG (all in Australia)
are scheduled to begin production next year. This growth will
accelerate in 2016 and 2017 as these projects ramp-up towards full
capacity and Ichthys, Wheatstone, and Prelude (all in Australia),
and Sabine Pass (United States), Sulawesi (Indonesia) and
Petronas FLNG (Malaysia) also enter the market.
Figure 6.5:
The growth in Australias exports over the period to 2019,

underpinned by 61.8 million tonnes a year of new capacity, greatly
alters the Asia-Pacific LNG market and is expected to make
Australia the worlds largest LNG exporter by 2019. The majority of
other new liquefaction capacity will come from the United States
where Sabine Pass, a 16 million tonne a year facility currently
under construction was recently joined by Cameron LNG, a 12
million tonne a year facility that achieved a Final Investment
Decision (FID) in August 2014. Other new US projects yet to reach
FID are also assumed to enter the market by 2019.
Figure 6.6:
Global installed liquefaction capacity and total LNG

imports
450
400
350
300
250
200
150
100
50
Mt
2013
2015
2017
2019
Rest of the World
Africa
Australia
Russia
North America
Imports
Sources: BREE; IEA.
Global nameplate liquefaction capacity as of August 2014
100
80
60
40
20
Mtpa
Australia
Qatar
Africa
North America
Indonesia
Malaysia
Other Asia
Pacific
Other Middle
East
Europe
Latin America
Existing
Committed/under construction
Note: Includes capacity at projects not current operating such as Angola and Egypt LNG.
Sources: BREE; LNG Insight; company reports.
bree.gov.au
58
Figure 6.7:
Global LNG flows
350
300
250
200
150
100
50
Japanese companies have been particularly active in supporting a

number of new US LNG projects. A growing US LNG export sector
would increase liquidity in what is currently a very tight global
market. This would in turn depress spot prices and place longer
term pressure on contract pricing and the mechanisms under which
contracts are negotiated.
There continues to be considerable downside risk to Japans LNG
import outlook. In particular, the speed and scale of nuclear
restarts remains uncertain. If a significant program of restarts
occurred it would decrease gas-fired electricity generation
sufficiently to lower LNG import demand, potentially to 80 million
tonnes a year by 2019.
Mt
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Asia
Rest of the world
Sources: BREE; IEA.
Regional LNG markets

Japan
Japan produces a very small amount of gas domestically and is
reliant on LNG, of which it is the worlds largest importer and the
destination for the majority of Australias exports. Since the
Fukushima incident in 2011, the electricity generation sector
accounts for around two thirds of Japanese gas consumption, with
the remainder going to the commercial, residential and industrial
sectors.
Japans LNG imports are projected to remain around 89 million
tonnes a year to 2019 as other fuel sources meet marginal energy
consumption growth. Japans LNG import sources are expected to
shift as a number of contracts with new Australian LNG producers
commence, combined with increased purchases of US Gulf Coast
LNG (both under contract and from the spot market) from 201516
onwards. Australia and the US will replace supply from Middle
Eastern projects, much of which is currently purchased on the spot
market. This will result in Japans LNG import mix becoming less
diversified over the medium term as Australia increases its share of
the Japanese market to 45 per cent.
bree.gov.au
Figure 6.8:
Japanese LNG import outlook by supplier
100
80
60
40
20
Mt
2013
Australia
2015
North America
2017
ASEAN
Middle East
2019
Other
Sources: BREE; IEA.
59
China
Chinas gas consumption has grown rapidly over the past decade,
at 33 per cent a year, to reach 162 billion cubic metres in 2013.
Chinas share of global gas consumption is still small (by
comparison the US consumed around 737 billion cubic metres of
gas in 2013) but was responsible for around half of the growth in
global gas consumption in 2013.
60
Chinas gas consumption is currently supply constrained. In

response, a large number of import terminals and new pipelines
are being built, and the central government has set ambitious
targets for conventional and unconventional gas production. The
Chinese government is aiming to improve air quality in major cities
and gas for residential, transport, and industrial use in those areas
is a key component of that goal. While there is uncertainty about
the balance between coal, gas, renewables and nuclear in the
Chinese energy mix, gas consumption is expected to grow
strongly.
30
LNG imports are projected to grow at 20 per cent a year to

increase from 18 million tonnes in 2013 to around 55 million tonnes
in 2019. Australia and ASEAN (Malaysia, Brunei and Indonesia)
are expected to be the main beneficiaries of rapid Chinese growth.
China is expected to double its share of the global LNG market
from around 8 per cent now to 16 per cent in 2019.
The main constraint on Chinas LNG import growth is price
competiveness. Pipeline gas from Central Asia and Russia will be
a strong competitor. However internal pipeline transportation costs,
particularly to Southern China, increase the attractiveness of LNG
imports in the south. The recently announced pipeline deal to
import 38 billion cubic metres of gas from Russia (starting in 2018)
will likely displace some LNG imports, although the main impact is
after 2019. Over the outlook period, expansions on the
Turkmenistan to China pipeline will take its capacity to 80 billion
cubic metres (from 30 billion cubic metres currently) and provide
stronger competition.
Chinas LNG import outlook by supplier
Figure 6.9:
50
40
20
10
Mt
2013
2015
Australia
ASEAN
Middle East
2017
2019
North America
Other
Sources: BREE; IEA.
Figure 6.10:
Share of total global LNG flows by country
60
50
40
30
20
10
%
1999
2001
2003
2005 2007
Japan
2009
2011
2013 2015
South Korea
2017
2019
China
Sources: BREE; IEA.
bree.gov.au
60
South Korea
South Korea is the worlds second largest LNG importer after
Japan, consuming around 39 million tonnes in 2013. Like Japan,
gas is mainly consumed in the electricity generation sector and
almost entirely sourced as LNG, apart from very small domestic
production.
South Koreas gas consumption has grown rapidly over the past
decade and spiked in 2013 due to a nuclear reactor shutdown.
Consumption fell sharply in the June quarter 2014 however, and is
expected to continue declining over the short term. South Korea
and the worlds largest LNG importing company KOGAS, is
reported to be deferring at least 10 LNG cargoes due for delivery in
the Northern Autumn due to sluggish domestic consumption and
high inventories after a milder than expected winter.
Slight growth in the context of a rebalancing with nuclear, coal and
renewables is expected over the remainder of the outlook period.
LNG imports are thus expected to fall over the short term before
some growth returns in line with the economy. This is expected to
result in total imports of 39 million tonnes in 2019, identical to 2013.
South Korea will source an increasing quantity of LNG from
Australia over the outlook period as supply from new projects
displaces gas from the Middle East and ASEAN.
Australia
Production
Australia produced 15.9 billion cubic metres of gas in the June
quarter 2014, 6 per cent higher than in March. In the domestic
market, the main sources of growth were at the Otway and
Gippsland basins in Victoria (associated with winter consumption)
and in Queensland (growth in CSG production associated with
LNG projects resulted from Origins Kenya East gas plant and
Condabri Central Train 1 coming online). Production also increased
at the North West Shelf project in Western Australia.
Figure 6.11:
South Korean LNG import outlook by supplier
40
30
20
10
Mt
2013
2015
Australia
ASEAN
2017
Middle East
2019
North America
Other
Sources: BREE; IEA.
Figure 6.12:
Monthly LNG imports
16
12
Mt
Jul-11
Jan-12
Japan
Jul-12
Jan-13
Jul-13
South Korea
Jan-14
China
Source: Argus LNG.
bree.gov.au
61
Australias gas production in 201314 increased by one percent

from 201213 to reach 62.8 billion cubic metres. Increased
production capacity at the Macedon gas plant in Western Australia
and at facilities associated with LNG plants in Queensland
outweighed declines in some existing fields. Gas production for
both LNG plants in Western Australia also increased in 201314,
contributing to higher total production and exports.
Figure 6.13:
Australian gas production outlook by market
160
120
80
Outlook
Australian gas production is expected to grow at an average rate of
16 per cent a year over the outlook period as seven new LNG
projects commence production. These projects will dominate gas
production growth in Australia to 201819, dwarfing domestic
projects. Current gas production of 62.8 billion cubic metres in
201314 is projected to more than double to 150.0 billion cubic
metres by 201819.
Growth in eastern market gas production will be almost entirely
associated with the commissioning and operation of LNG projects
in Gladstone, Queensland. Eastern market gas production is
projected to increase from 22.0 billion cubic metres in 201314 to
57.7 billion cubic metres in 201819.
QCLNG, the most advanced project, is expected to begin
operations later this year and reach full production in late 2015 to
early 2016. The APLNG and GLNG projects are both expected to
start-up in mid-2015 and take 24 and 36 months to ramp-up,
respectively. All three projects are expected to reach full
operational capacity by 2018.
LNG plant operators in Queensland have begun running upstream
production and processing equipment on electricity delivered from
the National Electricity Market rather than on in-situ gas. This has
resulted in a lowered assumption for gas consumption in the LNG
production process and hence lower total production in the Eastern
market than previously projected.
40
Bcm
201213 201314 201415 201516 201617 201718 201819
Western market
Eastern market
Northern market
Note: Production associated with Darwin LNG is not included in the Northern market
as it comes from the Bayu-Undan Joint Petroleum Development Area.
Source: BREE.
Figure 6.14:
Australian liquefaction capacity and LNG exports
90
60
30
Mt
201213
201314
Western market
201415
201516
Eastern market
201617
201718
Northern market
201819
Exports
Source: BREE.
bree.gov.au
62
Western market production will double from 40.1 billion cubic

metres in 201314 to 80.1 billion cubic metres in 201819. The
Gorgon and Wheatstone LNG projects will account for the majority
of this production through both LNG exports as well as domestic
market capacity. The Prelude floating LNG platform is expected to
add another 5 billion cubic metres of export production per year by
201819.
Figure 6.15:
Australian LNG exports by market in 2019
The Northern market, currently the smallest at less than 1 billion

cubic metres of production in 201314, will grow rapidly in 201617
as the Ichthys project begins operations. Total production is
expected to exceed 12.2 billion cubic metres a year by 201819. A
number of other potential projects in the region, including FLNG
and brownfield projects harnessing resources in the Bonaparte and
Browse basins, are yet to make FID.
Exports
Australia produced 6.1 million tonnes of LNG in the June quarter,
with production increasing at all three LNG facilities as a result of
higher customer nominations and plant performance. Total export
volumes for 201314 increased slightly to 24.2 million tonnes from
23.9 million tonnes in 201213. This was mainly a result of a new
supply contract and improved operation at Pluto LNG which ran
close to capacity after reliability issues during the previous year.
Australian LNG projects ability to operate close to nameplate
capacity in 201314 was also assisted by a very tight global LNG
market.
LNG export values decreased slightly in the June quarter to $4.3
billion, from $4.4 billion in March. Despite this, total export value for
201314 exceeded the 201213 value by around $2.5 billion in real
dollars. The depreciating Australian dollar, strong spot prices
(during the March quarter in particular), and consistently high oil
prices throughout the year underpinned a record $16.4 billion in
exports in 201314.
Source: BREE.
bree.gov.au
63
Figure 6.16:
Outlook
Export volumes are expected to grow rapidly over the next five
years, more than tripling by the end of the outlook period. Late
2014 will see first production at QCLNG in Queensland which will
mark the beginning of a wave of project completions and ramp-ups
for the Australian LNG sector. Expected to follow soon after are
GLNG, Gorgon, and APLNG in 2015 and Ichthys, Wheatstone and
Prelude in 2016 and 2017. By 2018, Australias installed
liquefaction capacity will be the highest in the world at 86.1 million
tonnes a year, up from 24.3 million tonnes in 201314. Exports
over the period will be underpinned by more than 65 million tonnes
a year worth of contracts in 201819. Total exports are expected to
reach 78.4 million tonnes in 201819, making Australia the largest
LNG exporter in the world.
In line with growing volumes, export value is forecast to continue
increasing from $18.4 billion in 201415 to $52.2 billion in 201819
(in real 201415 dollars). This growth will be almost entirely
volume driven, as spot and oil prices are expected to ease and the
Australian dollar depreciate only slightly over the remainder of the
outlook period.
Table 6.1:
Australian LNG exports
80
60
60
45
40
30
20
15
Mt
2006-07
2008-09
2010-11
2012-13
Exports
2014-15
2016-17
2014-15
$Ab
0
2018-19
Value (rhs)
Sources: ABS; BREE.
Gas outlook
unit
201213
201314
Bcm
Bcm
Bcm
Bcm
Mt
A$m
A$m
62.1
22.4
39.0
0.7
23.9
13 741
14 476
62.8
22.0
40.1
0.7
24.2
16 389
16 832
201415 f
201516 z
201617 z
201718 z
201819 z
68.3
25.8
41.8
0.7
27.3
18 408
18 408
94.2
42.2
51.3
0.7
43.6
31 839
31 062
119.7
53.0
61.6
5.0
59.3
43 825
41 836
144.9
56.4
77.1
11.5
76.4
56 266
52 556
150.0
57.7
80.1
12.2
78.4
57 136
52 220
Australia
Production b
Eastern market
Western market
Northern market c
LNG export volume d
nominal value
real value
b Production includes both sales gas and gas used in the production process (i.e. plant use). c Browse basin production associated with the Ichthys project is classified as
Northern market. d In current financial year Australian dollars. f BREE forecast. z BREE projection.
Sources: BREE; ABS; Company reports; World Bank.
bree.gov.au
64
Oil
Figure 7.1:
Weekly oil prices
140
Pam Pham and Kieran Bernie
120
Global oil consumption is projected to increase in the medium

term, driven by growth in non-OECD economies. Non-OPEC
producers will support stronger growth in supply, leading to a
gradual decline in oil prices over the outlook period. Australias
crude oil and refined product production is projected to
continue to decline over the medium term.
100
80
60
40
Prices
Oil prices declined in July as weak demand from OECD refineries
offset concerns that conflicts in Iraq, Libya and the Ukraine would
disrupt supply. Prices continued to decline in August, with the price
of West Texas Intermediate (WTI) falling to $US97 a barrel. The
price of Brent also fell in August, to average $US102 a barrel for the
month.
For 2014 as a whole, the price of WTI is forecast to average US$99
a barrel, while the price the price of Brent is forecast to average
US$108 a barrel.
In the medium term, higher non-OPEC production and a continued
decline in OECD consumption are expected drive oil prices lower.
The real price of WTI is projected fall to US$85 (in 2014 dollars) a
barrel in 2019, and the price of Brent to US$94 a barrel.
Oil prices may be subject to considerable volatility over the medium
term due to changes in economic and political conditions.
Geopolitical tensions may lead to supply disruptions that place
upward pressure on prices. Conversely, weaker-than-assumed
economic growth may put downward pressure prices over the
outlook period.
20
2014
US$/bbl
Sep 2010
Sep 2011
Figure 7.2:
Sep 2012
Brent
Sep 2013
Sep 2014
WTI
Annual oil prices
140
120
100
80
60
40
20
2014
US$/bbl
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Brent
WTI
Source: BREE.
bree.gov.au
65
World oil consumption
Figure 7.3:
60
In 2014 world oil consumption is forecast to increase by 1.3 per cent

to average 92.8 million barrels a day. Over the outlook period, world
oil consumption is projected maintain this growth rate, to reach 99.1
million barrels a day in 2019.
50
40
Growth will be driven by non-OECD economies, where increasing

levels of passenger vehicle ownership and expanding industrial
activity are expected to continue to support oil consumption. In
contrast, oil consumption in OECD economies is expected to
continue to fall as a result of improving transport fuel efficiency and
declining oil use in the electricity generation sector. Non-OECD oil
consumption is expected to exceed OECD consumption from 2014
onwards.
Oil consumption in non-OECD economies is projected to increase by

2.8 per cent a year from 46.8 million barrels a day in 2015 to 54.0
million barrels a day in 2019, led by increases in China, India and the
Middle East.
Oil consumption in China is forecast to increase by 3.5 per cent in
2014 to average 10.5 million barrels a day. Growth continues to be
supported by improving levels of disposable household income and
associated increases in passenger vehicle ownership. In the medium
term, Chinas oil consumption is projected to increase by 3.1 per
cent a year to average 12.3 million barrels a day in 2019.
An increasing number of passenger vehicles and expanding

economic activity is also supporting growth in oil consumption in
India. Indias oil consumption is forecast to increase by 2.3 per cent
in 2014 to average 3.5 million barrels a day. Over the outlook period,
oil consumption in India is projected to increase by 2.4 per cent a
year to average 4.0 million barrels a day in 2019. In the medium
term, the majority of Indias oil consumption is expected to be
sourced from imports, despite efforts to increase domestic
production.
30
20
10
mbd
2003
2005
2007
2009
OECD
2011
2013
2015
2017
2019
Non-OECD
Sources: IEA; BREE.
Figure 7.4:
Passenger vehicles in China and India
80
70
Millions of vehicles
Non-OECD countries
World oil consumption
60
50
40
30
20
10
2002
2004
2006
China
2008
2010
2012
India
Sources: National Bureau of Statistics China; The Ministry of Statistics and

Programme Implementation, India.
bree.gov.au
66
In the Middle East, oil consumption is forecast to grow by 3.1 per

cent in 2014 to average 8.2 million barrels a day. Most of the
increase will come from the electricity generation sector to
accommodate a growing population. Over period 201519, oil
consumption in the Middle East is projected to increase by 3.7 per
Figure 7.5:
Oil consumption per person
3.0
2.5
2.0
OECD economies
1.5
OECD oil consumption is forecast to remain flat in 2014, at an

average of 46.0 million barrels a day. Over the outlook period, OECD
oil demand is projected to fall marginally by 0.5 per cent a year to
average 45.0 million barrels a day in 2019. A shift toward a less
energy-intensive economic activities and the promotion of energy
efficiency policies in OECD-Europe and the United States are
expected to contribute to the ongoing decline.
In OECD-Europe, the decline in oil consumption is expected to be
driven by continued improvements in transport fuel efficiency. In
2014, oil consumption in OECD-Europe is forecast to fall slightly to
average 13.6 million barrels a day. Oil consumption is projected to
continue to decline further over the outlook period, by 0.4 per cent a
year to average 13.4 million barrels a day in 2019.
In the US, oil consumption is forecast to increase marginally by 0.4
per cent in 2014 to average 19.0 million barrels a day. In contrast,
US oil consumption is projected to fall gradually over the period
201519 to average 18.6 million barrels a day in 2019. Energy
efficiency policies and fuel substitution away from oil underpin most
of the projected decline in US oil consumption over this period.
In 2014, Japans oil consumption is forecast to fall by 3.1 per cent to
average 4.4 million barrels a day. This trend is expected to continue
into the medium term, supported by government policies designed to
lower dependence on oil imports and improve energy efficiency in
the industrial and residential sectors. The gradual recovery of
nuclear power generation capacity is also expected to contribute to
the decline in oil consumption. Between 201519 Japans oil
consumption is projected to decline by 0.9 per cent per year to
average 4.2 million barrels a day in 2019.
1.0
0.5
toe/
person
1992
India
2002
China
Japan
2012
Australia
United States
Source: IEA.
Figure 7.6:
Oil consumption
20
16
12
4
mbd
China
India
Middle East
2013
OECD
Europe
United
States
Japan
2019
Sources: IEA; BREE.
bree.gov.au
67
World oil production

Despite recent conflict in Libya, Iraq and Ukraine, world oil
production is forecast to expand by 1.2 per cent in 2014 to average
92.6 million barrels a day. The rise in production is underpinned by
increased supply from non-OPEC economies, particularly from the
US, Canada and Brazil. This growth is forecast to continue over the
outlook period. A smaller increase in OPEC supply will also support
oil production in the medium term. Between 2015 and 2019, world oil
production is projected to increase by 1.3 per cent a year to average
99.5 million barrels a day in 2019.
Non-OPEC oil production

Tight oil in the US, oil sands in Canada, and deepwater fields in
Brazil continue to contribute to oil production growth in non-OPEC
economies in the short and medium term. In 2014, oil production in
non-OPEC economies is forecast to increase by 2.4 per cent to
average 56 million barrels a day. Between 2015 and 2019
nonOPEC oil production growth is projected to increase by 1.6 per
Hydraulic fracturing techniques have contributed to record high US
oil production in 2013 and are expected to continue to support
growth in the medium term. Over the period 201519, US oil
production is projected to increase by 2.1 per cent a year to average
Development of oil sands projects and increased investment in the
petroleum sector is expected to contribute to the expansion of
Canadian oil production. Between 2015 and 2019, Canadian oil
production is projected to grow by 4.8 per cent a year to average 5.2
million barrels a day in 2019.
Oil production in Brazil also continues to grow strongly, driven by
increased activity in a number of pre-salt deepwater fields. Over the
period 201519, Brazil is projected to be the fastest-growing
nonOPEC oil producer, growing by 7.8 per cent a year to average
Figure 7.7:
World oil production
100
80
60
40
20
mbd
2003
2005
2007
OPEC crude oil
2009
2011
2013
2015
OPEC natural gas liquids
2017
2019
Non-OPEC
Source: BREE.
Figure 7.8:
Oil production in the United States
12
10
2
mbd
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013
Source: IEA.
bree.gov.au
68
OPEC oil production

OPEC oil production remained stable in early 2014, despite conflicts
in Libya and Iraq. For 2014 as a whole, OPEC oil production is
forecast to remain relatively flat at around 36.6 million barrels a day.
Over the period 201519, OPEC oil production is projected to
increase slightly by 1.0 per cent a year to average 38.7 million
barrels a day in 2019.
Increased Iraqi production is expected to underpin much of this
production growth. The Iraqi government has established an official
production target of 9.0 million barrels a day by 2017, nearly three
times its 2013 production level of 3.1 million barrels a day. However,
this target is unlikely to be met due to political disputes and a
number of infrastructure limitations. Iraqi oil production is projected
to grow by 4.0 per cent a year to average 3.9 million barrels a day in
2019.
In 2014, Saudi Arabias oil production is forecast to increase by 2.1
per cent to average 9.6 million barrels a day in 2014. However,
future growth in Saudi Arabian oil production is likely to be
constrained by declining mature fields. Over the period 201519,
Saudi Arabias oil production is projected to remain relatively stable
at around 9.5 million barrels a day.
Figure 7.9:
Oil production
14
12
10
8
6
4
2
mbd
United States
Canada
Brazil
2013
Iraq
Saudi Arabia
2019
Source: IEA.
Figure 7.10:
Australian petroleum production
800
In the medium term, potential supply disruptions due to ongoing

unresolved conflicts in the Middle East may impede OPEC
production growth. OPEC member countries may also adjust
production to keep prices stable if US production surges as
anticipated. These factors present downside risks to projected OPEC
production over the medium term.
700
Australias production and exports
300
600
500
400
200
Australian production of crude oil and condensate declined in the

June quarter 2014 as a result of lower production from the Van
Gough and North West Shelf projects, which were both offline during
the quarter. In 201314 Australian production of crude oil and
condensate declined by 8.4 per cent to average 336 thousand
barrels a day. The fall in output reflects the continued decline in
production from mature fields.
bree.gov.au
100
kbd
1998-99
2002-03
2006-07
Crude oil
2010-11
Condensate
2014-15
2018-19
LPG
Source: BREE.
BREE
69
Production is predicted to increase to 379 thousand barrels a day in

201415 as output from the new Coniston and Balnaves projects in
the Carnarvon basin becomes available. However, production is
expected to fluctuate somewhat in the medium term, as new
capacity comes on to replace declines in mature fields. Australian
production of crude oil and condensate is projected to average 364
thousand barrels a day in 2019, with increased output of condensate
offsetting a continued decline in crude oil production.
Historically high oil prices have driven expenditure on petroleum
exploration in Australia to record levels. Expenditure on petroleum
exploration fell slightly in 201314 , in real terms, down $13 million
from a high of $1.2 billion in 201213.
In 201314 the volume of crude oil and condensate exports fell by
6.1 per cent in line with production to average 255 thousand barrels
a day. Exports are projected to increase in 201415 before falling to
average 239 thousand barrels a day in 201819.
The value of Australian exports of crude oil and condensate totalled
$11.4 billion in 201314, up by 3.7 per cent in real terms compared
with 201213 . In 201415, export earnings are expected to increase
slightly by 1.5 per cent to $11.6 billion, driven by higher export
volumes.
Over the outlook period, the value of crude oil and condensate
exports is projected to fall by 4.0 per cent a year in real terms to $9.7
billion in 201819. The net effect of lower export volumes and lower
prices that outweigh the effect of an assumed depreciation of the
Australian dollar.
Production of refined products declined by 12 per cent in 201314 to
average 589 thousand barrels a day, largely due to the closure of the
Clyde refinery in Sydney. Refinery output is projected to fall further
over the outlook period in line with the announced end to refining
activity at the Kurnell and Bulwer Island facilities, which are expected
to cease refining by mid-2015.
As a result, imports of refined products are projected to rise over the
outlook period, by 4.6 per cent a year to average 766 thousand
barrels a day in 201819.
Figure 7.11:
Australian crude oil and condensate exports
500
15
400
12
300
200
100
kbd
1998-99
2013-14
A$b
2002-03
2006-07
2010-11
Volume
2014-15
2018-19
Value (rhs)
Source: BREE.
Figure 7.12:
Australian petroleum exploration expenditure
1.4
120
1.2
100
80
0.8
60
0.6
40
0.4
20
0.2
2013-14
A$b
1993-94
1997-98
2001-02
2005-06
Expenditure
2009-10
2013-14
US$
2013-14
WTI (rhs)
Source: BREE; U.S. Bureau of Labor Statistics.
bree.gov.au
70
Table 7.1: Oil outlook

World
Production b
Consumption b
WTI crude oil price
nominal
real c
Brent crude oil price
nominal
real c
Australia
Crude oil and condensate
Production b
Export volume b
nominal value
real value d
Imports b
LPG
Production be
Export volume b
nominal value
real value d
Petroleum products
Refinery production b
Exports bg
Imports b
Consumption bh
unit
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
Mbd
Mbd
91.5
91.4
92.6
92.8
94.3
94.2
96.0
95.6
97.4
96.8
98.5
98.0
99.5
99.1
US$/bbl
US$/bbl
97.8
99.5
99.1
99.1
96.4
94.5
95.3
91.6
94.4
88.9
93.7
86.6
93.4
84.6
US$/bbl
US$/bbl
108.7
110.6
108.2
108.2
106.6
104.5
105.4
101.3
104.4
98.4
103.8
95.9
103.8
94.0
201213
201314
201415 f
201516 z
201617 z
201718 z
201819 z
kbd
kbd
A$m
A$m
kbd
366
272
10 447
11 006
516
336
255
11 113
11 413
488
379
275
11 582
11 582
419
350
255
10 985
10 717
433
369
253
11 009
10 509
424
382
250
10 957
10 235
406
364
239
10 562
9 654
406
kbd
kbd
A$m
A$m
61
41
1 088
1 146
66
42
1 265
1 299
74
51
1 564
1 564
69
47
1 472
1 436
73
50
1 587
1 515
75
51
1 636
1 529
72
49
1 579
1 443
kbd
kbd
kbd
kbd
670
16
408
945
589
11
424
944
434
10
635
992
389
9
691
1 007
384
9
717
1 024
378
9
743
1 042
372
9
766
1 061
b Number of days in a year is assumed to be exactly 365. A barrel of oil equals 158.987 litres. c In current calendar year US dollars. d In current financial year Australian dollars.
e Primary products sold as LPG. g Excludes LPG. h Domestic sales of marketable products.
f BREE forecast. z BREE projection.
Sources: BREE; ABS; IEA; Energy Information Administration (US Department of Energy); Geoscience Australia.
bree.gov.au
71
Uranium
Figure 8.1:
Uranium prices, monthly
150
John Barber
125
Uranium prices remain depressed in response to abundant

supply and slow progress on the long awaited re-start of
Japans nuclear power industry. While growth in nuclear
power in Non-OECD economies is expected to drive higher
uranium consumption in the medium term, a number of large
mines are close to completion that can meet most of this
demand. Although Australia accounts for over a third of the
worlds uranium resources, high construction and operating
costs will be a challenge to bringing new projects on line in
the next five years.
100
75
50
25
US$/lb
Jul-05
Prices
In July 2014 the average monthly uranium price rebounded, albeit
slightly, and finished higher than the preceding month for the first
time since November 2013. Nevertheless, uranium prices remain
at low levels due to a prolonged supply overhang driven by delays
in Japan restarting any of its nuclear power plants. Some moderate
support for prices has been forthcoming through August due to
geopolitical tension in the Ukraine and the suspension of
operations at Camecos Saskatchewan facilities due to labour
disputes.
It is unlikely that these events will fundamentally alter market
conditions and provide lasting support to uranium prices unless
Camecos McArthur River mine (the worlds largest uranium mine)
remains offline for a substantial period of time. A demand side
response, namely in the form of Japan restarting its nuclear power
industry, is required to provide some lasting stimuli for higher
uranium prices.
Jul-06
Jul-07
Jul-08
Jul-09
Spot
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Long term
Source: Cameco.
Figure 8.2:
Quarterly uranium prices
150
125
100
75
50
25
2014
US$/lb
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Sources: Cameco; BREE.
bree.gov.au
72
In 2014, the uranium spot price is forecast to average US$32.10 a

pound, down 16 per cent from 2013. In 2015 prices are expected to
rebound in response to higher uranium consumption and nuclear
power output in China and as the last shipments under the USRussian Highly Enriched Uranium deal work their way through the
market. The uranium spot price is forecast to average US$39.50 in
2015, 23 per cent higher than 2014.
Figure 8.3:
Although uranium consumption is projected to grow through the

outlook period, brownfield expansions at existing mines,
particularly in Kazakhstan, as well as the ramp up to full capacity of
recently and nearly completed mines in Africa and Canada are
expected to meet most of the additional demand and prevent prices
from growing too rapidly.
2000
Over the outlook period uranium prices are projected to increase in

response to tighter market supply conditions to around US$62 a
pound in 2019 (in 2014 dollars). The rate at which Japans nuclear
power industry restarts and Chinas industry expands are key
factors affecting this projection and delays to either may slow the
rate of price growth over the medium term.
World nuclear power generation
3500
3000
2500
1500
1000
500
TWh
1994
1997
Sources: IEA; WNA; BREE.
Figure 8.4:
Consumption
2003
OECD
2006
2009
2012
2015
2018
Non-OECD
New nuclear capacity
70
Nuclear power generation
60
The 2011 Fukushima reactor incident has led to a decline in

nuclear power output since 2011. Nevertheless, the medium and
long term prospects for nuclear power remain positive given the
large number of new reactors under construction and the increased
focus on limiting growth in carbon emissions in emerging
economies. There are currently 72 nuclear reactors under
construction around the world with a combined capacity of over 76
gigawatts. When completed these new reactors will underpin
substantial increases in both nuclear power output and uranium
consumption.
50
40
30
20
10
GWe
China
Source: WNA.
bree.gov.au
2000
Other Asia Eastern

Europe
North
America
Under Construction
Western
Europe
Africa Middle
East
South
America
Planned
73
Nuclear power electricity generation in OECD countries has

declined by 16 per cent since 2010 to around 1960 terawatt hours
in 2013 due to the idling of Japans nuclear power industry and
closure of several reactors in Germany, the US and Canada. By
comparison, output in Non-OECD countries has increased by 9 per
cent to around 510 terawatt hours in the same period as a result of
new nuclear power reactors commencing operations in China and
India.
Over the outlook period, world nuclear power electricity generation
is projected to increase by around 23 per cent to over 3000
terawatt hours. A moderate rebound in output in OECD countries is
expected over the next five years as Japan restarts some of its
nuclear reactors and new reactors commence operations in the US
and South Korea. Non-OECD countries are expected to the be the
principal driver of growth in nuclear power in the medium term with
output projected to increase at an average annual rate of 8 per cent
to around 827 terawatt hours in 2019.
World uranium consumption

In 2014 world uranium consumption is forecast to increase 2.7 per
cent and to around 79 000 tonnes of U3O8. Increased consumption
associated with new reactors starting up and ramping up to full
capacity will be offset by the near full year closure of Japans
nuclear industry and temporary closures of a number of reactors in
South Korea.
Over the outlook period to 2019, uranium consumption is forecast
to increase at an average annual rate of 4.4 per cent and to total
99 400 tonnes of U3O8 in 2019. Substantial increases in world
nuclear power electricity generation, particularly in Non-OECD
countries, will underpin this growth in uranium consumption. The
push to diversify energy balances and limit growth in carbon
emissions by emerging economies is likely to result in additional
reactors being built in the long term, though given the average
construction time for a new nuclear reactor, it is unlikely that these
will start producing electricity before 2019.
bree.gov.au
Figure 8.5:
World uranium consumption (U3O8)
110
100
90
80
70
60
kt
1994
1999
2004
2009
2014
2019
Sources: IEA; WNA; BREE.
Prior to the Fukushima incident in 2011, Japan was the third largest
consumer of uranium in the world with 54 operating nuclear
reactors that consumed around 9400 tonnes of uranium in 2010.
The future of Japans nuclear power industry will be one of the key
determinants of the uranium consumption growth rate over the next
five years. However, there is considerable uncertainty about the
industrys future and progress on restarting reactors in 2014 has
stalled. Over the outlook period it is assumed that up to five
reactors a year will restart which will result in only 50 per cent of
Japans previous capacity coming back online by 2019.
China is expected to the be the principal source of uranium

demand growth over the next five years. With 29 nuclear reactors
already under construction, Chinas nuclear power industry is
expected to more than triple its capacity over the next five years to
around 55 gigawatts. To fuel this increase in nuclear power output,
Chinas uranium consumption is projected to increase at an
average annual rate of 14 per cent to total 17 400 tonnes of U3O8 in
2019.
74
The US will remain the largest producer of nuclear power in the

medium term despite the strong growth in emerging economies.
While five reactors have been closed over the last two years, this
should be offset over the medium term by the five new reactors
currently under construction and increased output rates at a
number of existing plants. Uranium consumption in the US is
total around 25 500 tonnes of U3O8 in 2019.
While countries in the Middle East have historically been heavily
dependent on fossil fuels due to their large domestic reserves of oil
and gas, their domestic energy policies are seeking to diversify
their energy mix and reduce the rate of their resource depletion.
The UAE has already commenced construction of two reactors at
its first nuclear power plant which will eventually have a total
capacity of 5.6 gigawatts. Saudi Arabia is also progressing plans to
develop its nuclear power industry although no reactors are
expected to start before 2019.
Figure 8.6:
World uranium production (U3O8)
30
25
20
15
10
5
kt
Kazakhstan
Africa
2007
Canada
2011
2015
Other
Australia
2019
Sources: WNA; NEA; UXC; BREE.
Production
In 2014 world uranium mine production is forecast to decrease 5.7
per cent and to total 65 900 tonnes. Production at most uranium
mines in 2014 has continued either at similar or higher levels to
2013 despite lower prices. This will be more than offset by lower
production at ERAs Ranger facility in Australia which processed
less material in the first half of 2014 following a waste spill in
December 2013, the closure of Paladin Energys Kayalekera mine
in Malawi and the suspension of production at Camecos McArthur
River mine in Canada due to a labour dispute.
The end of the US-Russia Highly Enriched Uranium program in
December 2013 has reduced secondary supplies of uranium in the
market by around 10 000 tonnes (U3O8 equivalent) but has yet to
affect the uranium market balance.
Figure 8.7:
Uranium demand-supply balance (U3O8)
110
100
90
80
70
60
kt
2010
2013
Consumption
Sources: WNA; IAEA; UXC; BREE
bree.gov.au
2016
Primary Production
2019
75
Over the outlook period uranium mine production is projected to

rebound and grow at an average annual rate of 5.4 per cent to total
87 400 tonnes in 2019. The proportion of world uranium
consumption sourced from primary production is expected to
increase over the outlook period. As many new mines have higher
production costs this is expected to support a rebound in uranium
prices over the outlook period.
A number of planned new mines have been delayed due to the
prevailing lower uranium price but there are still several new mines
that are expected to start up during the outlook period. The Husab
and Trekkopje mines in Namibia, Imouraren mine in Niger and
Cigar Lake mine in Canada are advanced projects that are
expected to support higher production over the next five years.
These new mines could provide up to 20 000 tonnes of uranium to
the market but are likely to take several years to achieve their full
capacity and, in some cases, only start production once prices
rebound.
Kazakhstan has been one of the driving forces shaping uranium
markets over the past decade. Between 2006 and 2013,
Kazakhstans uranium production increased by around 295 per
cent, or 18 000 tonnes of U3O8. By comparison, the idling of
Japans nuclear industry has reduced world uranium consumption
by around 9500 tonnes. Brownfield expansions at Kazakhstans low
cost in-situ mines are also expected to support higher production in
the outlook period as prices rise.
Figure 8.8:
Australias uranium production (U3O8)
12
10
2
kt
1998-99
2003-04
2008-09
2013-14
2018-19
Source: BREE.
Figure 8.9:
Australias uranium exploration
75
75
60
60
Australia
45
45
Production
30
30
15
15
Australias uranium exploration expenditure has continued to decline

in line with lower prices since 2011. Uranium exploration expenditure
in the June quarter 2014 increased 62 per cent, relative to March,
and totalled $10.4 million. However, this was down 19 per cent
relative to the June quarter 2013. The decision to allow uranium
exploration in New South Wales may provide some support to
expenditure, but given mine development lead times, new mines are
not expected to open by 2019.
bree.gov.au
US$
/lb
A$m
Jun-09
Sep-10
Dec-11
Exploration expenditure
Sources: Cameco; ABS.
Mar-13
Jun-14
Uranium price (rhs)
76
In 2013-14 Australias uranium mine production is estimated to have

decreased 36 per cent to 5710 tonnes. The start of production at the
Four Mile mine in South Australia in April 2014 was more than offset
by production at ERAs Ranger facility being suspended for nearly
six months following a waste spill in December 2013 and the closure
of the Honeymoon mine in response to low prices.
Figure 8.9:
12
1200
10
1000
800
600
400
200
2014-15
A$m
Australias uranium production is expected to rebound in 2014-15 as

Ranger returns to normal production (but continue processing
existing ore stocks rather mine new material) and Four Mile has a
full year of production. Uranium production is forecast to increase 11
per cent from 2013-14 and total 6360 tonnes.
In 2015-16 Australias uranium production is projected to decline as
the ore pile at Ranger is run down over the next two years.
Production is then expected to rebound as the new Ranger 3 Deeps
mine and Toro Energys Wiluna project in Western Australia come
online. In 2018-19 Australias uranium production is projected to total
8900 tonnes; however, the start date of these new mines is uncertain
due to the prevailing low uranium prices and delays may result in a
lower level of production.
While Australia has several other planned uranium projects under
development, these projects face the common challenge among
Australian mining projects of comparatively high capital and
operating costs which make them less commercially viable until
prices recover or ways to reduce costs can be identified.
Exports
Australias uranium export volumes are estimated to have decreased
35 per cent in 2013-14 to around 5400 tonnes in line with lower
production. Although spot prices declined substantially in 2013
company reports indicated a high proportion of long term contract
sales partially insulated Australian producers from the price drop.
Nevertheless, uranium export earnings are still estimated to have
declined by around 36 per cent to around $519 million due to the
lower volume exported.
bree.gov.au
Australias uranium exports
kt
1998-99
2003-04
2008-09
Volume
2013-14
2018-19
Value (rhs)
Sources: BREE; ABS; ASNO.
In 2014-15 uranium export volumes are forecast to rebound 11

per cent with the increase in production and total 6042 tonnes.
Export values are forecast to increase 13 per cent to $586 million
due to higher prices.
Over the outlook period Australias uranium exports will be
assisted by the recently signed bilateral nuclear cooperation
agreement with India that facilitates uranium trade between the
two countries. Supported by growing production and world
demand, Australias uranium export volumes are projected to
increase at an average annual rate of 10 per cent and to total
8900 tonnes in 2018-19. Export values are projected to increase
at an average annual rate of 17 per cent to total $1095 million in
2018-19 (in 2014-15 dollars).
77
Table 8.1: Uranium outlook

World
Production
Africa b
Canada
Kazakhstan
Russia
Consumption
China
European Union 27
Japan
Russia
United States
Spot price
real c
Australia
Production
Export volume
nominal value
real value d
Average price
real d
unit
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
kt
kt
kt
kt
kt
kt
kt
kt
kt
kt
kt
US$/lb
US$/lb
69.9
11.5
11.0
26.5
3.3
76.7
7.9
23.7
0.4
6.0
23.1
38.2
38.8
65.9
11.6
10.9
26.4
3.5
78.8
9.6
23.4
0.7
6.8
23.0
32.1
32.1
69.3
11.4
12.8
26.8
3.5
84.1
14.4
22.9
2.0
5.2
25.7
39.5
38.7
71.4
12.7
13.9
28.3
3.6
87.9
12.3
25.2
3.9
6.9
25.3
47.0
45.2
76.1
15.4
14.1
29.4
4.2
92.8
11.1
22.9
5.2
6.1
25.4
56.8
53.5
82.2
19.5
14.9
30.3
4.3
95.5
15.5
23.3
6.5
6.3
25.2
63.0
58.2
87.4
22.4
16.7
30.8
4.3
99.4
17.4
22.3
6.5
7.3
25.5
68.0
61.6
201213
201314
201415 f
201516 z
201617 z
201718 z
201819 z
8 936
8 391
823
867
98.1
103.3
5 710
5 424
519
533
95.6
98.2
6 360
6 042
586
586
97.0
97.0
5 980
5 980
617
602
103.2
100.7
6 525
6 525
731
698
112.0
106.9
7 650
7 650
951
889
124.4
116.2
8 900
8 900
1 198
1 095
134.6
123.0
t
t
A$m
A$m
A$/kg
A$/kg
b Includes Niger, Namibia, South Africa and Malawi. c In current calendar year US dollars. d In current financial year Australian dollars. f BREE forecast. z BREE projection.
Sources: BREE; ABS; Cameco, WNA, IEA.
bree.gov.au
78
Gold
Figure 9.1:
Daily gold prices
2000
1600
1200
800
400
John Barber
In the first half of 2014 gold prices were supported by safe

haven purchasing in response to a series of geopolitical
conflicts. Prices have now started to fall in response to a
substantial decline in fabrication demand, lower investment
purchases and speculation over an increase in US interest
rates in 2015. Australias gold production has increased in the
first half of 2014, but both export volumes and values are
down. Gold exploration expenditure in Australia has
continued to fall and new project development has stalled in
response to lower prices.
Bond
Rate %
5
US$
/oz
Jul08
Prices
In 2014 gold prices reached a high of US$1379 an ounce in March,
underpinned by safe haven purchases and growth in fabrication
consumption in the March quarter. Gold prices have since dropped
to US$1260 per ounce in September in response to lower
investment demand, a substantial decline in jewellery purchases in
the June quarter and mounting speculation of an increase in US
interest rates within the next twelve months. Prices are forecast to
remain subdued through the remainder of 2014 and average
US$1283 per ounce for the year, down 9 per cent from 2013.
In 2015, a higher US interest rate, albeit marginally higher, is
expected to further reduce the appeal of gold relative to other
investment assets and support lower prices. A moderate rebound
in jewellery purchases in response to lower prices is not expected
to offset this decline in gold investment or market speculation that
accompanies it. The average price of gold is forecast to decrease a
further 4.7 per cent in 2015 to US$1223 per ounce.
Jul09
Jul10
Jul11
Gold price (AM fix)
Jul12
Jul13
Jul14
US 10yr bond rate
Sources: LBMA; US Federal Reserve.
Figure 9.2:
Quarterly gold prices
2000
1600
1200
800
400
2014
US$/oz
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Sources: LBMA, BREE.
bree.gov.au
79
Over the outlook period to 2019, gold prices are projected to recover
and average around US$1336 (in 2014 dollars). This rebound will be
underpinned by growing fabrication demand, particularly jewellery
purchases in emerging economies, and an eventual return to growth
in investment purchases as lower prices become appealing to
speculators. Central banks are expected to remain net gold
purchasers over the outlook period and provide further price support.
Gold mine production is not projected to grow significantly over the
next few years. Forecast lower prices in 2014 and 2015 are
expected to slow the development of new mines with production
from low cost projects that do start up likely to be offset by declining
production at existing mines or closure of higher cost producers.
Consumption
In 2014 world gold demand, including both fabrication and
investment demand, is forecast to remain at similar levels to 2013.
Forecast lower fabrication demand is expected to be offset by a fall
in ETF gold sales. Based on World Gold Council 1 estimates,
fabrication consumption, measured by jewellery consumption and
industrial usage, declined sharply in the June quarter 2014. World
fabrication demand totalled 619 tonnes which was down 25 per cent
year-on-year. This was underpinned by lower jewellery consumption
in India and China which was down 18 per cent and 45 per cent,
respectively, despite lower gold prices.
The seasonal upswing in Indias gold purchases for Diwali may be
supported by lower gold prices and improved post-election consumer
confidence, but for the full year 2014 both Indias and Chinas
jewellery consumption are forecast to be lower. As the two largest
jewellery buying countries, this is forecast to result in world jewellery
consumption decreasing 4.6 per cent to around 2250 tonnes in 2014.
Industrial use of gold is forecast to remain broadly unchanged in
2014 at around 405 tonnes. Total fabrication consumption in 2014 is
forecast to decrease 4.5 per cent to total 2651 tonnes.
Figure 9.3:
ETF stocks and gold prices (% change)
6%
15%
4%
10%
2%
5%
0%
0%
-2%
-5%
-4%
-10%
-6%
-15%
ETF
-8%
Sep-10
Price
-20%
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
ETF Stocks %mth (lhs)
Sep-13
Mar-14
Price %mth (rhs)
Source: Bloomberg.
Figure 9.4:
World gold demand
6000
5000
4000
3000
2000
1000
tonnes
-1000
-2000
2004
2005
Central Bank
2006
2007
Jewellery
2008
2009
Bar and coin
2010
2011
2012
Technology
ETF
2013
Source: World Gold Council.

1. All historical data quoted is sourced from the World Gold Council unless otherwise stated.
bree.gov.au
80
While lower gold prices tend to support higher jewellery purchases,

investment demand responds more positively to expectations of
higher prices. The unrealised expectation for inflation in economies
pursuing expansionary monetary policies has dampened investment
purchases over the past 2 years and the appeal of gold as an asset
class has diminished, particularly in the wake of decreasing prices.
The wind down of the US Federal Reserves bond purchases and
expectation for increase rate increases in 2015 have resulted in
world gold bar and coin purchases in the first half of 2014 decreasing
48 per cent. Exchange trade funds have remained net sellers of gold
in 2014, though the volume has decreased significantly relative to
the first half of 2013. Central banks continue to be net gold buyers
and one of the only sources of growth in gold demand. Central bank
purchases were up 28 per cent year-on-year in the June quarter to
118 tonnes.
A rebound in private investment demand for gold is not anticipated in
the short term as prices are forecast to continue declining. However,
world investment demand for gold is forecast to increase 11 per cent
to around 4100 tonnes in 2014, but this is mainly due to a lower sell
off of holdings by ETFs in 2014. All investment purchases except
those of central banks are forecast to be lower in 2014 relative to
2013.
The global financial crisis and resulting developed economies
implementation of unconventional monetary policies have led to
some profound changes in gold markets. Therefore the reaction of
the world economy to the end of QE3, as well as a return to normal
interest rates in the US, are areas of considerable uncertainty. In
looking at the potential impacts of a return to a more conventional
monetary policy stance in the US it is an opportune time to recap
some of the key changes in gold markets over the seven years of the
post-GFC world.
In 2007, world jewellery consumption was around 2400 tonnes and

trending higher. Gold bar and coin purchases were 440 tonnes and
growing steadily. ETFs were net purchasers of gold and bought 253
tonnes in 2007. In aggregate, central banks were net sellers of gold
and sold around 480 tonnes.
Figure 9.5:
Gold jewellery consumption
800
600
400
200
tonnes
UK &
Italy
Russia
Turkey
Figure 9.6:
Middle
East
Rest of
World
India
China
2008
2013
Rest of Thailand, Europe

World Vietnam
India
China
Gold bar and coin purchases
500
400
300
200
100
tonnes
Middle
East
US
Turkey
Source: World Gold Council
bree.gov.au
US
2008
2013
81
Jump forward to 2009 and jewellery purchases totalled around 1816

tonnes, down 24 per cent from 2007. Gold bar and coin investment
rose 90 per cent to 835 tonnes. ETF purchases surged 30 per cent
to 623 tonnes and central bank net sales declined 87 per cent to 34
tonnes. The average annual gold price also increased 140 per cent
from US$695 to US$970 per ounce.
Figure 9.7:
Move forward another four years to 2013 and while the debate over
the state of the world economy lingered (and still does), the impact of
monetary policies and the GFC was still being felt in gold markets.
Jewellery consumption recovered to 2360 tonnes, but only after a
large increase of 360 tonnes in 2013. Gold bar and coin purchases
jumped a further 111 per cent to 1766 tonnes. But perhaps one of
the most significant swings in the gold market has been the switch
from central banks being net sellers to net buyers. In 2013 central
banks purchased 409 tonnes of gold and alone accounted for a 910
tonne swing in the demand-supply balance in the gold market.
Although ETFs were net buyers through most of this period, in 2013
the mid-year gold price drop resulted in a rapid decline in ETF gold
holdings. In 2013, ETFs sold nearly 880 tonnes of gold once
speculation of QE3 tapering started in May 2013.
Over the outlook period from 2015 to 2019, forecast lower gold
prices are expected to initially underpin growth in jewellery
purchases. Later in the period the growing incomes and middle class
populations of emerging economies, particularly China and India, will
support further growth in jewellery purchases. Industrial use of gold
is not expected to pick up over the period. In total, fabrication
consumption is projected to increase at an average annual rate of
3.1 per cent and total 3151 tonnes in 2019.
In the short term, forecast lower prices are expected to reduce the
appeal of gold as an investment asset. Inflation in most key
economies remains below historical averages which will also subdue
purchases of gold as a store of value. Therefore demand for gold
bars and coins is forecast to decrease further in 2015 and ETFs are
expected to remain net sellers. Over the outlook period, a jewelleryled price rebound is projected to restore investment opportunities in
gold and motivate increased bar and coin purchases. This growth,
combined with continued purchases by central banks, will underpin a
projected recovery in investment demand towards 2019.
bree.gov.au
Central bank purchases
200
Central bank selling
2000
150
1750
100
1500
50
1250
US$
/oz
tonnes
-50
750
-100
500
-150
-200
Jun-07
Central bank buying
Jun-08
Jun-09
Jun-10
250
Jun-11
Central bank purchases
Jun-12
Jun-13
0
Jun-14
Gold price (rhs)
Figure 9.8:
Recycled gold supply
700
2000
600
1800
500
1600
400
1400
300
1200
200
1000
100
800
US$
/oz
tonnes
Jun-07
Jun-08
Jun-09
Jun-10
Recycled gold
Jun-11
Jun-12
Jun-13
Jun-14
Gold price (rhs)
82
Production
Figure 9.9:
In 2013 total world gold supply decreased 4.3 per cent to 4261
tonnes. A 6 per cent increase in mine production was more than
offset by a 22 per cent decline in gold from secondary sources.
350
300
In the first half of 2014 mine production is estimated to have

increased 4.1 while lower prices have further reduced secondary
sources which are 8 per cent lower relative to 2013. For the full year
2014, gold mine production growth is forecast to increase 2.1 per
cent and total 3088 tonnes. Production growth is expected to taper
off in the second half due to curtailments and closures of higher cost
mines around the world. Gold from secondary sources is forecast to
decrease 11 per cent to 1128 tonnes in response to lower prices.
From 2009 to 2013 world gold mine production increased by around
25 per cent. During this period, new projects have been supported
by rising gold prices and several large mines have been developed
around the world. Over the next five years, forecast lower gold prices
will result in a moderation of world gold mine production growth.
Figure 9.10:
Australias gold production
250
200
150
100
50
kt
1998-99
2003-04
2008-09
2013-14
2018-19
Source: BREE.
World gold mine production
700
600
500
400
300
200
100
tonnes
Africa
South America
Sources: GFMS; Thomson Reuters; BREE.
bree.gov.au
North America
2004
China
2009
2014f
Other Asia
Other
Australia
2019f
83
The development of new mines over the next 18 months, particularly

large capital intensive mines and start ups by new producers, is
expected to slow as project financing in a period of lower prices and
rising interest rates will be a challenge for many of these projects.
Smaller projects with high grade deposits and brownfield expansions
that can increase output at low cost are more likely to be drivers of
production growth over the next five years. World gold mine
production is forecast to increase, on average, by less than 1 per
cent a year to around 3180 tonnes in 2019.
Australias gold exploration
Figure 9.11:
250
2000
200
1600
150
1200
100
800
50
400
Australia
Exploration and Production
Gold exploration in Australia has fallen in line with declining world
gold prices. Gold exploration expenditure in the June quarter 2014
totalled $104 million, down 31 per cent year-on-year. Total
expenditure for the financial year 2013-14 decreased 34 per cent
relative to 2012-13 and was also down $300 million from its peak
levels in 2011-12. Based on forecast gold prices, further declines in
exploration expenditure in Australia can be expected over the next
twelve months.
In 2013-14 Australias gold imports continued to decline and were
down 6 per cent to $4.6 billion. Papua New Guinea accounted for 41
per cent of Australias gold imports.
The past year has been a turbulent time for the Australian gold
industry. The fall in gold prices has pushed many producers to reevaluate their mine plans, drive productivity improvements and
reduce costs. A number of higher cost mines were placed on care
and maintenance while others were sold to new owners. Although a
challenging year, the upside of 2013-14 has been the increase in
production from new mines starting up, such as the Tropicana and
Andy Well mines in Western Australia as well as the Cadia East
mine in New South Wales. Several producers have also reported
higher production from existing mines in 2013-14 and in total, gold
mine production in Australia is estimated to have increased 7.5 per
cent and totalled 274 tonnes.
bree.gov.au
US$
/oz
A$m
Jun-09
Sep-10
Dec-11
Mar-13
Sources: Cameco, ABS.
Figure 9.12:
Jun-14
Gold price (rhs)
Australias gold imports
12
10
8
6
4
2
A$m
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Other
PNG
UK
Thailand
USA
NZ
Indonesia
Source: ABS
84
Looking forward, the robust production growth in 2013-14 is not

expected to be repeated over the outlook period. Lower forecast
prices over the next 18 months are expected to challenge a number
of higher cost producers in Australia and many of the easier gains in
cost cutting have already been reaped. Investment in new gold
projects in Australia has already dried up in the past year; this trend
is not expected to reverse during a period of lower prices and
accessing finance for new projects will be increasingly difficult,
especially for aspiring new producers. Brownfield development or
investment that improves operating efficiency is more likely to occur
over the next few years. Over the outlook period, Australias gold
production is projected to increase at an average annual rate of 1 per
cent and total 288 tonnes in 2018-19 with most of this growth
occurring later in the period.
Figure 9.13:
Exports
tonnes
In 2013-14 Australia exported less gold despite the increase in mine

production. Gold export volumes were down 1.1 per cent, relative to
2012-13, and totalled 277 tonnes. Exports to China surged again in
2013-14 and increased 46 per cent, relative to 2012-13, to 178
tonnes. In the past 3 years, gold exports to China have increased
1173 per cent and the share of exports to China has increased from
5 per cent in 2010-11 to 64 per cent in 2013-14.
Australias gold exports
500
20
400
16
300
12
200
100
1998-99
2014-15
A$m
2003-04
2008-09
Volume
2013-14
2018-19
Value (rhs)
Sources: ABS; BREE.
As a result of the combination of lower export volumes and lower

gold prices, Australias gold export values decreased 14 per cent in
2013-14 and totalled $13.0 billion.
Over the outlook period to 201819, projected growth in domestic
gold production will underpin Australias gold exports increasing at
an average annual rate of 1.2 per cent to 297 tonnes in 2018-19. The
combination of higher export volumes, a moderate rebound in gold
prices and projected lower Australian dollar exchange rate is
expected to result in the value of Australias gold export values
increasing at an average annual rate of 1.7 per cent to $14.7 billion
(in 2014-15 dollars) in 2018-19.
bree.gov.au
85
Table 9.1: Gold outlook

World
Fabrication
consumption b
Mine production
Price c
nominal
real d
Australia
Mine production
Export volume
nominal value
real value e
Price
nominal
real e
unit
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
t
t
2 770
3 024
2 651
3 088
2 784
3 097
2 865
3 126
2 947
3 150
3 034
3 167
3 151
3 180
US$/oz
US$/oz
1 411
1 436
1 283
1 283
1 223
1 199
1 279
1 229
1 381
1 302
1 449
1 338
1 475
1 336
201213
201314
201415 f
201516 z
201617 z
201718 z
201819 z
t
t
A$m
A$m
255
280
15 056
15 862
274
277
13 009
13 360
271
280
12 231
12 231
273
283
12 466
12 162
278
287
13 933
13 300
283
293
15 259
14 253
288
297
16 138
14 749
A$/oz
A$/oz
1 561
1 645
1 410
1 448
1 357
1 357
1 370
1 337
1 510
1 442
1 622
1 515
1 688
1 543
b Includes jewellery consumption and industrial applications. c London Bullion Market Association AM price. d In current calendar year US dollars. e In current financial year
Australian dollars. f BREE forecast. z BREE projection.
Sources: BREE; ABS; London Bullion Market Association; World Gold Council.
bree.gov.au
86
Aluminium
Figure 10.1:
Daily aluminium price
3000
Emma Richardson
2500
Over the past two years oversupply in world aluminium

markets has resulted in lower prices. With a number of
smelters in North America, Europe and Australia since closing
down or curtailing production this oversupply is starting to
shrink and aluminium prices are starting to recover. High
energy costs and the prospect of further production increases
from smelters in China remain key challenges confronting
aluminium producers around the world.
Price
Compared to most commodities, aluminium prices have fared quite
well in 2014. After starting the year at around US$1740 a tonne
LMG prices rebounded by around 20 per cent to $2100 in late
August. Production curtailments and smelter closures have started
to address the oversupply that has been created by the rapid
growth in new capacity in China, the Middle East and India. For the
full year prices are forecast to average US$1810 a tonne, down 2
per cent from 2013.
While aluminium consumption is forecast to grow in 2015 the
abundance of spare capacity in China and potential for output to
respond quickly to any price gains will limit the prospects of a
substantial price recovery in the short term. In 2015 aluminium
prices are forecast to average US$1905 a tonne, 5.2 per cent
higher than 2014.
Over the next five years continued growth in aluminium

consumption in emerging economies is expected to be matched by
commensurate growth in output. The resulting competition,
particularly between traditional producers of aluminium in
developed economies and new producers in emerging economies,
is likely to keep price growth subdued. Aluminium prices are
projected to average US$1984 in 2019 (in 2014 dollars).
2000
1500
1000
US$/t
2008
2009
2010
2011
2012
LME Spot
2013
2014
3 MMA
Sources: LME; Bloomberg.
Figure 10.2:
Annual aluminium prices and stocks
3000
12
2500
10
2000
1500
1000
500
2014
US$/t
Weeks
of cons.
1999
2003
2007
Stocks
2011
2015
2019
Prices
Sources: ABS; BREE.
bree.gov.au
87
World consumption
World aluminium consumption in the first half of 2014 is estimated
at 24.3 million tonnes, an increase of 6.6 per cent from the same
period in 2013. Chinas aluminium consumption was again the
main driver of growth and was up 993 000 tonnes, or 9.3 per cent,
to 11.4 million tonnes.
Growth in world aluminium consumption is forecast to slow in the
second half of 2014 due to slowing economic growth in China. For
the full year 2014, world aluminium consumption is forecast to
increase 5.3 per cent and total 48.7 million tonnes. Most of the
growth in aluminium consumption will come from emerging
economies; while OECD economies are experiencing moderate
economic recoveries their aluminium consumption is still expected
to remain below pre-GFC levels.
Figure 10.3:
World aluminium consumption
70
60
50
40
30
20
10
Mt
Over the period 2014 to 2019, the growing incomes and size of the
middles classes in emerging economies will be the driving forces of
increased aluminium consumption. While these highly populated
countries are projected to increase their per capita consumption of
aluminium they are not expected to catch up to OECD economies
within the next five years. Therefore, in the long-term aluminium
consumption is likely to grow further. More moderate consumption
growth is projected in OECD economies due to low population
growth and subdued increases in consumer discretionary
spending. In total, world aluminium consumption is projected to
increase at an average annual rate of 3.1 per cent over the next
five years and total 57.7 million tonnes in 2019.
China is already the worlds largest consumer of aluminium and

accounted for around 47 per cent of world aluminium consumption
in 2013. This has increased from 19 per cent in 2003. Over the
outlook period continued growth in Chinas production of
automobiles and aluminium intensive consumer goods to meet the
increasing demands of its rapidly expanding middle class will
support aluminium consumption increasing at an average annual
rate of 4.5 per cent. As a result Chinas aluminium consumption is
projected to total 29.4 million tonnes in 2019 and account for
around 49 per cent of total world aluminium consumption.
1999
2003
2007
USA
Europe
2011
Rest of World
2015
2019
China
Sources: WBMS, BREE
Figure 10.4:
World aluminium intensity
16000
12000
8000
4000
World
GDP per
capita 3.0
4.0
5.0
6.0
7.0
World aluminium consumption per capita

Sources: IMF, WBMS, World Bank
bree.gov.au
88
Indias aluminium consumption will follow similar patterns to

Chinas over the outlook period and grow as a result of increased
consumer expenditure as well as rising residential and utility
construction. In 2019 Indias aluminium consumption is projected to
total 2.5 million tonnes which will make it the third largest
aluminium consumer in the world behind China and the US.
Aluminium consumption in Europe is projected to grow at lower
rates than the emerging economies. As the larger EU economies
continue to recover from the eurozone debt crisis, spending on
aluminium intensive products is expected to pick up moderately.
Lower population growth rates will also moderate aluminium
consumption which is projected to increase at an average annual
rate of 1.1 per cent and to total 8.1 million tonnes in 2019.
US aluminium consumption is projected to increase at an average
annual rate of 2.8 per cent over the outlook period and total 5.7
million tonnes in 2019. Unlike the EU, the US is projected to
rebound to its pre-GFC aluminium consumption levels within the
next five years.
Figure 10.6:
Key aluminium consumers
Figure 10.5:
Chinas aluminium consumption
35
30
25
20
15
10
5
%yr
-5
2005
2007
Consumption growth
2009
2011
2013
GDP growth
Consumption trendline
Sources: WBMS; IMF; BREE
Figure 10.7:
US and Europe aluminium consumption
16
25
14
20
12
10
15
8
10
2
Mt
Mt
2000
2005
China
2010
Europe
2014f
2005
2007
US
2009
2011
2013
Europe
USA
2015
Sources: WBMS; BREE.
Sources: WBMS; BREE
bree.gov.au
2017
2019
89
World production
In 2014 world production is forecast to increase 1.0 per cent,
relative to 2013, and total 48.1 million tonnes. Growth in production
in emerging economies has been offset by a number of refinery
closures around the world, particularly in OECD economies, due to
a combination of low prices and rising energy costs making
operations unprofitable. However, forecast production growth in
China (8 per cent), India (27 per cent) and Saudi Arabia (140 per
cent, but coming from a low base) will more than offset these
closures and other production curtailments.
The medium term outlook for aluminium production follows a
similar trend to consumption. While growth is projected, this is
expected to occur in emerging economies where consumption
growth is occurring or energy prices make production more
commercially viable. In contrast, production in OECD economies is
not expected to rebound substantially as consumption in their
domestic market is not supporting higher growth and competition
for export markets is growing. In total, world aluminium production
is projected to grow at an average annual rate of 3.7 per cent and
total 58.9 million tonnes in 2019.
Increased production in Chinas northwest provinces will underpin
production increasing to a projected 30.5 million tonnes in 2019. An
additional 15 to 20 million tonnes of aluminium capacity is planned
to be developed in Xinjiang province by 2020. However this will be
partially offset by efforts to curb production at inefficient and
outdated smelters in heavily industrialised provinces.
Production in India is projected to increase at an average annual
rate of 21 per cent to 4.5 million tonnes in 2019, supported by the
commissioning of a number of large-scale projects over the outlook
period, headlined by Vedantas 1.25 million tonne Jharsuguda II
project.
Aluminium production in the Middle East will growing substantially
over the next five years as a result of several new refineries
starting production. Low energy costs in this region give producers
a competitive advantage over established producers in Europe,
North America and Australia where costs have been rising.
bree.gov.au
Figure 10.8:
World aluminium production
60
50
40
30
20
10
Mt
1999
2003
Australia
2007
Canada
Russia
2011
Rest of world
2015
2019
China

In 2013-14 Australias aluminium production decreased by 1.0 per
cent, relative to 2012-13, and totalled 1.77 million tonnes. Despite
this marginally lower production, export volumes increased 0.5 per
cent to 1.58 million tonnes. The value of Australias aluminium
exports increased 6.3 per cent to $3.5 billion as a result of more
favourable Australian dollar exchange rate.
Australias aluminium production will decrease due to the closure of
the Point Henry smelter which was officially closed in August 2014.
This closure will reduce Australias aluminium production capacity
by around 25 per cent, or 500 000 tonnes. In 2014-15 Australias
aluminium production is forecast to decrease 24 per cent to 1.35
million tonnes. Export volumes are also forecast to decrease 25 per
cent to 1.19 million tonnes with export values down 31 per cent to
$2.4 billion due to lower prices.
90
Over the medium term aluminium production in Australia will be

challenged by rising production costs and growing competition for
export markets. Further production curtailments are a risk and
Australias aluminium production is projected to decrease to around
1.27 million tonnes in 2018-19. Export volumes are projected to
decrease at an average annual rate of 4.8 per cent and total 1.11
million tonnes in 2018-19. Export earnings are projected to rebound
after 2014-15 due to projected higher aluminium prices and total
$2.6 billion (in 2014-15 dollars).
Alumina
Prices
In the June quarter of 2014 the price of alumina fell 1.6 per cent
from the previous quarter to average US$323 a tonne. World
alumina oversupply has driven prices lower over the past two years
despite increasing demand from emerging economy aluminium
industries. In 2014 the alumina price is forecast to remain at similar
levels to 2013 and average US$325 a tonne.
Over the medium term alumina prices are projected to stay at
similar levels in real terms due to ongoing oversupply and growing
competition from new producers in emerging economies. The
alumina price is projected to be around US$327 in 2019 (in 2014
dollars).
Figure 10.9:
Australias aluminium exports
1.5
0.5
Mt
1998-99
2002-03
2010-11
Volume (lhs)
Sources: ABS; BREE
Figure 10.10:
2006-07
2014-15
2014-15
A$b
2018-19
Value (rhs)
World Alumina production
140
120
100

In 2013-14 Australias alumina production totalled 21.5 million
tonnes, down 0.5 per cent from 2012-13. Bauxite production at
Gove is continuing but is expected to be mostly exported.
Production in 2014-15 is forecast to fall a further 7 per cent and
total 20 million tonnes due to the full-year impact of the Gove
refinery closure. Rio Tintos Yarwun and Queensland Alumina
Limited operations achieved strong production results in the first
half of 2014 and higher production rates are anticipated in 2015.
80
60
40
20
Mt
1999
2004
2009
2014
2019

Source: World Bureau of Metal Statistics.
bree.gov.au
91
The impact of reduced production capacity in Australia is a

decrease in the volume of exports in 2014-15 to 17.4 million
tonnes, or 6 per cent lower than in 2013-14. Export earnings from
alumina are projected to increase to $5.8 billion in 2014-15 (an
increase of 2.3 per cent from 2013-14) as a higher world prices
offset reduced volumes produced in Australia.
Over the outlook period from 2015-16 to 2018-19 Australias
alumina production is projected to stabilise around 19.9 million
tonnes. No further closures are announced at this point and
Australias existing alumina producers are maximising capacity.
Export volumes in 2018-19 are projected to total 17.5 million
tonnes and export values are projected to total $6.3 billion (in 201415 dollars).
Bauxite
Figure 10.11:
20
10
16
12
In 2013 Indonesia accounted for 19 per cent of world bauxite

production and since January this year its exports have declined
rapidly. In the first half of 2014 Indonesias produced 11 million
tonnes of bauxite, down 54 per cent from the year before.
In 2014-15 Australias bauxite production is forecast to increase 2
per cent and to total 81.8 million tonnes due to marginal production
growth at existing mines. Australias bauxite export volumes are
forecast to increase by 11 per cent due to increase shipments from
Rio Tintos Gove operations where, due to the closure of the
alumina refinery, ore is no longer being processed. Export volumes
are forecast to total 16.8 million tonnes and underpin export
earnings also increasing 9 per cent to $596 million.
bree.gov.au
2014-15
A$b
Mt
1998-99
Australia
Australia produced 80.3 million tonnes of bauxite in 2013-14, an
increase of 2 per cent from the previous year. Australias exports of
bauxite increased substantially as producers took advantage of
favourable world market conditions that prevailed after the
Indonesian government ban on the export of unprocessed mineral
ores. In 2013-14 Australia exported 15.2 million tonnes worth $546
million which were 21 per cent and 43 per cent higher, respectively.
Australias alumina exports
2002-03
2006-07
Volume (rhs)
2010-11
2014-15
2018-19
Value (lhs)
Sources: ABS; BREE.
Figure 10.12:
Australias bauxite production
100
80
60
40
20
Mt
2005-06
2009-10
2013-14
2017-18
Source: BREE.
92
In 2018-19 Australias production of bauxite is projected to increase

to 90.3 million tonnes as new mines are developed. In late 2017
Bauxite Hills is expected to begin production followed soon after by
the South of Embley project. Most of this new production is expected
to be sold overseas and underpin Australias bauxite export volumes
increasing to 22.6 million tonnes in 2018-19 with export earnings
increasing to $732 million (in 2014-15 dollars).
Figure 10.13:
Australias bauxite exports
25
750
20
600
15
450
10
300
150
Mt
1998-99
2002-03
2006-07
Volume
2010-11
2014-15
2014-15
A$m
2018-19
Value (rhs)
Sources: ABS; BREE.
bree.gov.au
93
Table 10.1: Aluminium outlook

World
Primary aluminium
Production
Consumption
Closing stocks b
weeks of consumption
Prices
World aluminium c
nominal
real d
Alumina spot
nominal
real d
Australia
Production
Primary aluminium
Alumina
Bauxite
Consumption
Primary aluminium
Exports
Primary aluminium
nominal value
real value e
Alumina
nominal value
real value e
Bauxite
nominal value
real value e
Total value
nominal
real e
unit
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
kt
kt
kt
47 693
46 236
7 171
8.1
48 065
48 674
6 562
7.0
49 873
50 401
6 033
6.2
51 968
52 125
5 877
5.9
53 940
53 978
5 839
5.6
56 978
55 702
7 114
6.6
58 853
57 665
8 303
7.5
US$/t
US$/t
1 847
1 879
1 810
1 810
1 905
1 868
2 013
1 934
2 113
1 991
2 140
1 977
2 190
1 984
US$/t
US$/t
327.3
333.0
325.3
325.3
332.5
326.0
343.5
330.2
351.0
330.8
359.0
331.7
361.0
327.0
201213
201314
201415 f
201516 z
201617 z
201718 z
201819 z
kt
kt
Mt
1 788
21 645
78.9
1 773
21 532
80.3
1 347
19 975
81.8
1 284
19 900
82.3
1 277
19 900
82.7
1 275
19 900
83.4
1 272
19 900
90.3
kt
220
197
161
146
153
153
153
kt
A$m
A$m
kt
A$m
A$m
kt
A$m
A$m
1 569
3 276
3 452
18 914
5 342
5 628
12 567
382
402
1 576
3 482
3 576
18 614
5 711
5 865
15 146
546
561
1 186
2 420
2 420
17 416
5 841
5 841
16 767
596
596
1 138
2 476
2 416
17 460
6 219
6 068
17 223
612
597
1 124
2 622
2 503
17 474
6 497
6 202
17 523
622
594
1 122
2 738
2 557
17 478
6 705
6 263
18 041
640
598
1 119
2 802
2 561
17 483
6 880
6 288
22 575
801
732
A$m
A$m
9 000
9 482
9 739
10 002
8 857
8 857
9 307
9 080
9 742
9 300
10 084
9 419
10 484
9 582
b Producer and LME stocks. c LME cash prices for primary aluminium. d In current calendar year US dollars. e In current financial year Australian dollars. f
BREE forecast. z BREE projection.
Sources: BREE; ABS; LME; World Bureau of Metal Statistics.
bree.gov.au
94
Copper
Emma Richardson
The prospect of a copper market surplus appears to have

subsided, again, with production from new mines continuing to
fall short of expectations. In the medium term, copper
consumption is projected to continue growing, albeit at lower
rates, as a result of the continued economic development of
highly populated emerging economies.
Prices
Forecasts for a copper surplus in 2014 have again proven premature
with world copper consumption continuing to rise and new
production taking longer to ramp up to promised output rates. LME
copper stocks have decreased substantially through the year, from
around 365 kt in January to 155 kt in September. While copper
prices are lower in 2014, the rate of decrease has slowed despite an
investigation into and crack down on the use of copper as collateral
in China. In mid September copper was trading at around US$6950
a tonne, down from US$7350 in January. For the full year, copper
prices are forecast to average US$6936 in 2014 which is 5.3 per
cent lower than 2013.
Figure 11.1:
Monthly LME copper price
12000
10000
8000
6000
4000
2000
US$/t
2000
2002
2004
2006
2008
2010
Monthly LME spot
2012
2014
6 MMA
Sources: LME; Bloomberg.
Figure 11.2:
Annual copper prices and stocks
10000
7.5
In 2015, world copper stocks are forecast to rebound from current

levels as supply from new mines is scheduled to support supply
increasing faster than consumption. Large mines, such as Oyu
Tolgoi in Mongolia and Grasberg in Indonesia, are expected to
overcome some of their recent troubles and produce close to full
capacity in 2015. Copper prices are forecast to decrease 3.7 per
cent in 2015 to US$6680 a tonne and with stocks to increase from
2.9 weeks of consumption at the end of 2014 to 3.5 weeks of
consumption at the end of 2015.
8000
6000
4.5
4000
2000
1.5
Copper prices are projected to rebound over the medium term as

robust growth in emerging economies absorbs the new market
supply scheduled to come online over the next few years. In 2019
copper prices are projected to be US$6874 (in 2014 dollars).
2014
US$/t
Weeks
of cons.
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Price (lhs)
Stocks (rhs)
bree.gov.au
95
World consumption
The World Bureau of Metal Statistics estimates world refined
copper consumption increased 9.5 per cent in the first six months
of 2014 and totalled 11.1 million tonnes. This growth was
underpinned by copper consumption in China increasing 19 per
cent to 5.3 million tonnes and consumption in India increasing 18
per cent to 234 800 tonnes. Growth in both countries has been
underpinned by continued growth in residential construction and
electricity infrastructure.
Consumption growth in China is likely to slow for the remainder of
2014 due to a downturn in housing sales in early 2014 and as the
largest consumer in the world this is expected to moderate world
growth in 2014. For the full year 2014, world copper consumption is
forecast to increase 4.1 per cent and total around 21.9 million
tonnes.
Over the period 2015 to 2019, growth in world copper consumption
is expected to be driven by the continuing development of
emerging economies. The copper intensity of the world economy is
projected to continue growing as urban population rates and
electricity consumption in these highly populated emerging
economies rise. In 2019 world copper consumption is projected to
total 25.3 million tonnes and grow at an average annual rate of 2.6
per cent.
In 2014 Chinas copper consumption is forecast to increase to 10.4
million tonnes, a 5.8 per cent increase from 2013. From 2015
Chinas consumption if forecast to grow at an average annual rate
of 3.5 per cent to total 12.6 million tonnes in 2019. Based on this
projected growth rate, China will account for around 50 per cent of
world copper consumption in 2019 and will consume six times as
much copper as the US and three times as much as all of Europe.
Over the outlook period continued growth in construction activity
and rising urbanisation requiring the expansion of electricity
networks will underpin higher copper consumption in China. Higher
copper consumption in China will also be supported by the
expected shifts in its industrial base towards producing more high
value-add and technologically advanced products, such as cars
and consumer electronics.
bree.gov.au
Figure 11.3:
World copper consumption
30000
25000
20000
15000
10000
5000
kt
2000
2002
2004
2006
Europe
2008
US
2010
2012
Rest of world
2014
2016
2018
China
Sources: WBMS; BREE
Figure 11.4:
World copper intensity
14000
2013: $7326
12000
10000
8000
2001: $1577
2000: $1814
6000
4000
GDP
per
capita
1980: $2189
1.9
2.1
2.3
2.5
2.7
2.9
3.1
World copper consumption per capita

Sources: World Bank; IMF; WBMS.
96
Copper consumption growth in advanced economies had been

declining prior to the GFC as their electrical and
telecommunications networks were well-developed and low
population growth rates had stymied construction activity. A shift in
manufacturing of electronics and copper intensive consumer items
to low cost emerging economies has also contributed to this
decline. Copper consumption in advanced economies is projected
to rebound, moderately, as these economies continue to recover.
However, their copper consumption is expected to remain below
previous high levels.
In India, the recently elected Modi government has indicated that
addressing electricity supply shortages in India is a priority. A more
rapid rate of investment in electricity generating capacity and
distribution networks is expected that will support higher copper
consumption. Over the next five years Indias copper consumption
is projected to increase at an average annual rate of 4.6 per cent
and total 567 thousand tonnes in 2019.
Chinas share of world copper consumption
Figure 11.6:
100%
Figure 11.5:
Chinas copper consumption
14000
12000
10000
8000
6000
4000
2000
kt
2000 2002 2004
Figure 11.7:
2006
2008
2010
2012
2014
2016
2018
Chinas monthly copper imports
800
700
80%
600
500
60%
400
40%
300
10400
20%
7385
3656
200
100
1928
0%
kt
2000
2005
China
2010
Rest of world
f BREE forecast. Source: World Bureau of Metal Statistics.
bree.gov.au
2014f
Jan-2011
Oct-2011
Other
Jul-2012
Chile
Apr-2013
Peru
Jan-2014
Australia
97
World production
Mined production
In the first half of 2014 the World Bureau of Metal Statistics
estimated copper mine production at 9.2 million tonnes, 5 per cent
higher than in 2013. In 2014 world mine production is forecast to
reach 18.9 million tonnes. Turquoise Hills Oyu Tolgoi operation in
Mongolia continued to increase to full production in the June
quarter (despite delays caused by faults with machinery) and
produced 36 thousand tonnes of copper in concentrate. The
Caserones mine in Chile, began commercial production at the end
of May 2014 with targeted production in 2014 of around 75kt.
These increases will be offset by decreases at other operations.
Toromocho Copper Mine of Chinalco Peru revised down 2014
production to 100kt. The Indonesian government banned mineral
ore exports in January 2014 and after reaching an agreement with
Freeport McMoRan the Grasberg mine will recommence exports
from in August 2014. Newmont is in negotiations with Indonesias
government to reopen the Batu Hijau mine.
Over the outlook period world mine production is forecast to
increase to 24.1 million tonnes in 2019, as new projects ramp up to
full production around the world. Sierra Gorda mine in Chile, owned
by KGHM, will ramp-up to full capacity of 120kt annually beginning
in early 2015. The Las Bambas project in Peru (sold to a
consortium led by MMG in August 2014) is advanced and is
scheduled to commence production in 2015.
Refined production
In the first half of 2014 the World Bureau of Metal Statistics
estimated world refined copper production increased 2.7 per cent
compared to 2013, from 10.5 to 10.8 million tonnes. The largest
contributors to growth in world refined production were China (up
7.9 per cent to 3486kt) and India (up 37 per cent to 358kt). Over
the outlook period to 2019 world refined production is expected to
reach 25.1 million tonnes, an increase of around 2.5 per cent per
year from 2014 as world processing capacity is expanded,
particularly in China.
Figure 11.8:
World copper mine production
25000
20000
15000
10000
5000
kt
2004
2007
2010
2013
2016
2019
Sources: Bloomberg, BREE.
Figure 11.9:
World refined copper production
18000
16000
14000
12000
10000
8000
6000
4000
2000
kt
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
China
Rest of Asia
Chile
Rest of America
Australia
Sources: Bloomberg, BREE.
bree.gov.au
98
Australia
Figure 11.10:
150
10000
120
8000
90
6000
60
4000
30
2000
A$m
US$/t
Production
Australias copper exploration expenditure decreased 33 per cent
year-on-year in the June quarter 2014 in response to lower copper
prices and cost cutting efforts.
In 2013-14 Australias copper mine production increased 1.6 per
cent from 2012-13 to total 985 000 tonnes. Refined copper
production was 505 000 tonnes, up 11 per cent from the previous
year as Townsville Refinery increased throughput to increase
production. Increases mine production in NSW and South Australia
were offset by decreases in Western Australia and Queensland.
BHPs Olympic Dam in South Australia increased productivity to
increase production in 2013-14. BHP also lodged an application for
a demonstration plant that could further increase productivity after
2016. Cadia Valley increase production by 12 per cent in 2013-14
compared to 2012-13 by mining higher grade ore and
commissioning a new crusher at Cadia East.
Aditya Birlas Nifty copper mine in Western Australia remained
closed in the June quarter after a sink hole event earlier in the
year. The mine is expected to return to full production in the
September quarter. Minmetals MMG is in the process of shifting
production at its Rosebery and Golden Grove operations from
copper to zinc and lead production.
In 2014-15 Australia is forecast to produce more copper as a
number of new projects ramp up to full production. Mined copper is
forecast to increase 3.9 per cent to 1.02 million tonnes and refined
copper is forecast increase 0.6 per cent to reach 508kt. Cudecos
Rocklands mine in Queensland is expected commence production
in late 2014 and Newcrests recently started Cadia Valley mine is
expected to increase its production in 2015. Australias refined
copper production will increase with Malaco Minings Leichhardt
operation ramping up through 2014-15.
Australias copper exploration
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Price (lhs)
Source: ABS
Figure 11.11:
Australias copper mine production
1400
1200
1000
800
600
400
200
kt
2004
2007
2010
SA
QLD
2013
WA
NSW
2016
2019
TAS
Sources: ABS; BREE.
bree.gov.au
99
In 2018-19 Australias copper mine production is projected to reach

1.3 million tonnes, an average annual increase of 5 per cent from
2013-14. Refined production is projected to decrease as the
Townsville Refinery reaches the end of its life and no substantial
new refineries are expected to offset the reduction. By 2018-19
refined production is projected to be 232 000 tonnes, an average
annual decrease of 8.9 per cent from 2013-14.
Figure 11.12:
Australias copper exports
1400
14
1200
12
1000
10
Exports
800
In 2013-14 Australia exported 1.04 million tonnes of copper by

metal content, up 6.3 per cent on the previous year. The value of
copper exports increased 8 per cent from the previous year to $8.7
billion in 2013-14.
600
400
200
kt
2014-15
A$b
2018-19
In 2014-15 Australias copper export volumes are forecast to

remain broadly unchanged at around 1 million tonnes of copper by
metal content. The value of Australias copper exports is projected
to decrease 6.4 per cent to $8.1 billion in 2014-15 due to the lower
world copper prices.
199899
200304
200809
Volume (lhs)
201314
Value (rhs)
Over the outlook period to 2018-19 closures of refineries in

Australia will result in copper exports shifting from refined products
to ores and concentrates. Demand from China and India is
expected to remain strong due to increased incomes and
urbanisation, signalling to Australian producers to continue
increasing production to meet demand. Export volumes are
projected to increase to 1.3 million tonnes in 2018-19, an average
annual increase of 4 per cent from 2013-14. The value of exports is
projected to total $12.0 billion in 2018-19 (in 2014-15 dollars) due
to a combination of projected higher production and prices.
bree.gov.au
100
Table 11.1: Copper outlook
World
Production
mine
refined
Consumption
Closing stocks
Price LME
nominal
real b
Australia
Mine output
Refined output
Exports
ores and conc. c
refined
Export value
nominal
real d
unit
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
kt
kt
kt
kt
18 302
21 395
20 993
916
2.3
18 866
22 150
21 852
1 214
2.9
20 212
22 842
22 540
1 516
3.5
21 596
23 125
23 228
1 412
3.2
22 460
23 777
23 920
1 269
2.8
23 383
24 461
24 625
1 105
2.3
24 064
25 120
25 270
955
2.0
US$/t
USc/lb
US$/t
USc/lb
7 326
332
7 455
338
6 936
315
6 936
315
6 680
303
6 549
297
6 892
313
6 624
300
7 111
323
6 701
304
7 402
336
6 838
310
7 590
344
6 874
312
201213
201314
201415 f
201516 z
201617 z
201718 z
201819 z
kt
kt
970
454
985
505
1 023
508
1 161
500
1 242
322
1 286
232
1 297
232
kt
kt
2 182
360
2 127
456
1 989
457
2 556
449
3 556
289
4 071
209
4 113
209
A$m
A$m
8 044
8 474
8 691
8 926
8 134
8 134
9 628
9 393
11 360
10 844
12 528
11 702
13 158
12 026
b In current calendar year US dollars. c Quantities refer to gross weight of all ores and concentrates. d In current financial year Australian dollars. f BREE forecast. z
BREE projection.
Sources: BREE; ABS; International Copper Study Group; LME; World Bureau of Metal Statistics.
bree.gov.au
101
Nickel
Figure 12.1:
Nickel daily price
30000
Ben Witteveen
25000
Nickel prices increased substantially in the first nine months

of 2014, driven by reduced supply availability following the
introduction of an export ban on unprocessed nickel ore from
Indonesia. The absence of Indonesian ore from the market will
contribute to supply tightness until 2016 when new production
from China, the Philippines and Russia eases some of the
supply constraint.
20000
15000
10000
5000
World
Nickel prices increased by 33 per cent over the first eight months of
2014, underpinned by reduced world supply after Indonesia
implemented a ban on exports of unprocessed ore in January.
Prices received further support in early September from
speculation about the implementation of a similar ban in the
Philippines.
Over the remainder of 2014, prices are forecast to moderate
supported by increased production from the Philippines, continued
high stocks and slowing demand in China. For 2014 as a whole,
nickel prices are forecast to average US$17 599 a tonne, an
increase of 17 per cent relative to 2013.
Indonesias President-elect Widodo, has reaffirmed Indonesias
commitment to the export ban and in the short term this policy is
not expected to be reversed. Prior to the export ban, Indonesia
accounted for 21 per cent of world nickel mine production and was
the primary supplier to Chinas nickel pig iron industry.
In 2015, nickel prices are forecast to increase by 3.7 per cent to
average US$18 250 a tonne as consumption exceeds production,
resulting in a drawdown in stocks. From 2016, new production
capacity in China, the Philippines and Russia will ease the tight
market balance and contribute to a projected decrease in prices to
US$14 548 (in 2014 dollars) in 2019.
bree.gov.au
US$/t
Jan 10
Jul 10
Jan 11
Jul 11
Jan 12
Nickel LME
Jul 12
Jan 13
Jul 13
Jan 14
90 day moving average
Source: Bloomberg.
Figure 12.2:
Nickel prices and stocks
50 000
12
37 500
25 000
12 500
3
Weeks
of cons.
2014
US$/t
1999
2003
2007
stocks (rhs)
2011
2015
2019
price
Sources: BREE; LME.
102
World nickel consumption is forecast to increase by 2.6 per cent to

1.82 million tonnes in 2014 and by a further 1.7 per cent to 1.85
million tonnes in 2015. China is forecast to remain the principal
source of nickel demand, supported by increased production of
stainless steel for infrastructure development. In 2014, Chinas
nickel consumption is forecast to increase by 3 per cent to 920 000
tonnes and a further 1 per cent in 2015 to 940 000 tonnes.
Over the period 2015 to 2019, world nickel consumption is
projected to increase at an annual average rate of 1.1 per cent and
total 1.95 million tonnes in 2019. China is projected to remain the
largest nickel consumer over the outlook period, driven by
continued growth in stainless steel output.
In 2014 world nickel mine production is forecast to decline by 11
per cent to 2.03 million tonnes reflecting lower production in
Indonesia following the implementation the unprocessed ore ban.
Indonesias nickel exports declined by 73 per cent since the export
ban started, from 55 000 tonnes a month in January to 15 000 in
June. The loss in supply from Indonesia is forecast to be partially
offset by increased production from other countries. Production in
the Philippines is forecast to increase by 6 per cent to 400 000
tonnes and in Russia by 15 per cent to 276 000 tonnes. However,
geopolitical tension in Russia may reduce demand for its nickel
exports.
In 2015, world nickel mine production is forecast to decline by a
further 3.6 per cent to 1.96 million tonnes as Indonesian nickel ore
exports are completely removed from the market. Over the
remainder of the outlook period, production is projected to increase
at an annual average rate of 1.6 per cent to 2.14 million tonnes in
2019, supported by increased production in China, the Philippines
and Russia.
Despite this new production, world nickel mine production is not
projected to return to 2013 levels within the next five years. Large
deposits of nickel have recently been discovered in Chinas
Qinghai province. However, given the time to develop new
deposits, these are unlikely to be developed over the outlook
period.
Figure 12.3:
World nickel consumption
2500
2000
1500
1000
500
kt
2012
China
2013
2014
European Union 28
2015
Rest of world
2016
2017
United States
2018
Japan
2019
South Korea
Sources: BREE; World Metal Statistics.
Figure 12.4:
World nickel mine production
2500
2000
1500
1000
500
kt
2012
2013
Rest of world
2014
2015
Indonesia
2016
Philippines
2017
Russia
2018
2019
Australia
Canada
bree.gov.au
103
The Philippines Governments Natural Resource Committee has

approved a bill to ban the exports of processed ore, which could
potentially remove 400 000 tonnes a year from the market.
Following the decline in Indonesias nickel exports, the Philippines
has taken over as Chinas principal source of nickel. Should this
export ban be implemented, world mine production may be lower
than projected, presenting a downside risk to this assessment.
World refined nickel production is forecast to decline by 6 per cent
in 2014 to 1.82 million tonnes. This will be underpinned by a
forecast 15 per cent decline in Chinas production following the
switch to lower grade ore after the export ban in Indonesia. Over
the remainder of the outlook period refined nickel production is
projected to increase at an annual average rate of 1 per cent and
total 1.95 million tonnes in 2019.
Indonesias refined nickel capacity represents an upside risk to
world refined production. Should Indonesia commission refineries
at a faster than expected pace world refined nickel production will
rise above projection.
Australia
Exploration
Australias exploration expenditure on nickel and cobalt declined by
40 per cent to $99 million in 2013-14 in response to lower prices.
Exploration expenditure increased in the June quarter relative to
March in response to stronger nickel prices.
Production
Australias nickel mine production in 2013-14 decreased by 12 per
cent to 214 000 tonnes, primarily due to a decline in production at
Nickel Wests Perseverance mine where operations were
suspended due to safety concerns. Remediation activities critical to
restart operations at Perseverance have not been undertaken as
BHP endeavours to sell its Nickel West operations.
bree.gov.au
Figure 12.5:
World refined nickel production
2500
2000
1500
1000
500
kt
2012
2013
Rest of world
2014
China
2015
Russia
2016
Japan
2017
2018
Canada
2019
Australia
Figure 12.6:
Australias nickel exploration expenditure
90
30000
75
25000
60
20000
45
15000
30
10000
15
5000
A$m
Jun-09
US$t
Mar-10
Dec-10
Sep-11
Nickel exploration a
Jun-12
Mar-13
Dec-13
Nickel price (rhs)
a. Includes cobalt.
Sources: ABS; LME.
104
The sale of Nickel West may affect operations at the

Leinster/Perseverance, Cliffs and Mt Keith mines and the
Kalgoorlie and Kwinana refineries.
In 2014-15 Australias nickel mine production is forecast to
increase by 1.9 per cent to 218 000 tonnes. The start of production
at the Barnes Hill and Avebury mines in Tasmania and Lucky
Break in Queensland are expected to support this growth.
Figure 12.7:
Australia mine production
300
250
200
150
Over the remainder of the outlook period Australias nickel mine

production is projected to increase at an annual average rate of 3.5
per cent to 259 000 tonnes in 2018-19. Growth is projected to be
supported by the resumption of operations at idle mines, including
Lake Johnston in Western Australia, and the start of operations at
the Nova-Bollinger mine also in Western Australia. The NovaBollinger mine is expected to produce 26 000 tonnes a year from
2018.
100
50
kt
2004
2006
2008
2010
WA
In 2013-14 Australias refined nickel production increased by 3.0

per cent to 139 000 tonnes, driven by increases in the Kwinana
(Western Australia) and Yabulu (Queensland) refineries. Over
2013-14, the share of domestically refined ore increased from
around 49 per cent in September 2013 to 62 per cent in June 2014.
Over the outlook period Australias refined nickel production is
forecast to remain around 139 000 tonnes in 2018-19.
Exports
In line with lower nickel production, Australias exports of nickel in
2013-14 fell by 12 per cent to 223 000 tonnes. Nickel export
earnings decreased by 17 per cent to $3.2 billion owing to a
combination of lower volumes and nickel prices.
From 2014-15 the volume of nickel exports is projected to increase
at an average annual rate of 3 per cent to 262 000 in 2018-19.
Higher volumes, combined with relatively high projected prices and
a depreciating Australian dollar will support growth in earnings of 7
per cent a year and $4 billion (in 2014-15 dollars) in 2018-19.
2012
QLD
2014
2016
2018
TAS
Sources: BREE; ABS.
Figure 12.8:
Volume and value of Australian nickel exports
300
12
250
10
200
150
100
50
kt
2014-15
A$b
199899
200203
200607
volume
201011
201415
201819
value (rhs)
Sources: BREE; ABS.
bree.gov.au
105
Table 12.1: Nickel outlook

World
Production
mine
refined
Consumption
Stocks
Price LME
nominal
real b
Australia
Production
mine cs
refined
intermediate
Export volume ds
nominal value s
real value es
unit
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
kt
kt
kt
kt
2 275
1 941
1 772
353
10.4
2 027
1 822
1 818
357
10.2
1 955
1 799
1 848
308
8.7
2 018
1 854
1 883
279
7.7
2 080
1 915
1 913
281
7.6
2 107
1 932
1 933
279
7.5
2 137
1 945
1 952
272
7.2
US$/t
Usc/lb
US$/t
Usc/lb
15 025
682
15 290
694
17 599
798
17 599
798
18 250
828
17 892
812
18 075
820
17 373
788
17 400
789
16 396
744
16 625
754
15 359
697
16 063
729
14 548
660
201213
201314
201415 f
201516 z
201617 z
201718 z
201819 z
242
135
61
253
3 642
3 837
214
139
67
223
3 034
3 324
218
138
75
229
3 570
3 570
229
139
75
233
3 788
3 695
232
139
73
236
3 872
3 696
246
139
73
250
4 086
3 817
259
139
72
262
4 357
3 982
kt
kt
kt
kt
A$m
A$m
b In current calendar year US dollars. c Nickel content of domestic mine production. d Includes metal content of ores and concentrates, intermediate products and nickel
metal. e In current financial year Australian dollars. f BREE forecast. s BREE estimate. z BREE projection.
Sources: BREE; ABS; International Nickel Study Group; LME; World Bureau of Metal Statistics.
bree.gov.au
106
Zinc
Ben Witteveen
Zinc prices have increased in response to limited supply as

several large-scale mines begin to exhaust their resources.
The market balance is projected to remain tight until 2015
when higher projected prices support the development of new
projects in Australia, Indonesia and Russia.
Zinc prices and stocks

Zinc prices increased steadily over the first nine months of 2014,
driven by reduced supply availability and a subsequent drawdown in
stocks. Between January and mid-September, zinc prices increased
by 11 per cent to US$2268, while stocks declined by 21 per cent
from January to around 700 000 tonnes at the end of August. Zinc
prices are forecast to increase over the remainder of 2014 as the
closure of several large zinc mines contributes to a further tightening
of supply. For 2014 as a whole, zinc prices are forecast to increase
by 9 per cent to average US$2084 a tonne.
Over the medium term, zinc prices are projected to increase at an

average rate of 2 per cent a year to US$2343 a tonne (in 2014
dollars) in 2019. The increased use of galvanised steel is projected
to support increased zinc consumption over the outlook period,
particularly in China. Growth in consumption is projected to outpace
production, which will be adversely affected by the closure of largescale mines over the next two years. These closures are unlikely to
be offset by new production until the end of the outlook period when
projected higher prices support the development of new projects.
In 2014 world zinc consumption is forecast to increase by 4 per cent
to 13.5 million tonnes. From 2014 to 2019 zinc consumption is
projected to increase at an average annual rate of 4 per cent and
total 16.3 million tonnes in 2019 supported by increased use of
galvanised steel in infrastructure in emerging economies.
Figure 13.1:
Zinc daily price
2700
2500
2300
2100
1900
1700
US$/t
LME spot price
90 day moving average
Source: Bloomberg.
Figure 13.2:
Annual zinc prices and stocks
4500
10
4000
3500
3000
2500
2000
1500
1000
3
Weeks
of cons.
2019
2014
US$/t
1999
2003
2007
stocks (right axis)
2011
2015
price
Sources: BREE; LME.
bree.gov.au
107
China is projected to remain the main driver of growth in world zinc

consumption over the medium term. Around half of Chinas zinc
consumption is used to produce galvanised steel for use in
automobile manufacturing. Chinas automobile production has grown
at an average rate of 10 per cent a year since 2010 and is expected
to continue to grow over the outlook period in response to increased
domestic demand. Chinas zinc consumption is projected to increase
at an average annual rate of 6 per cent to 8.2 million tonnes in 2019.
World zinc mine production is forecast to increase by 2 per cent in
2014 to 13.4 million tonnes as new production in Australia and
Sweden more than offsets the closure of capacity. Following the
closure of 300 000 of capacity in 2013, a further 200 000 tonnes of
zinc mine output is expected to be closed in 2014.
Over the outlook period zinc mine production is projected to increase
at an average annual rate of 3 per cent to 16.1 million tonnes in
2019. The supply response is projected to be led by Australia,
Indonesia and Russia following the commissioning of new projects.
These include the McArthur River expansion and the Dugald River
mine in Australia; the Dairi project in Indonesia; and the Ozernoye
project in Russia. Production growth in China, the worlds largest
producer of mined zinc is projected to remain subdued over the
medium term as there are no known plans for any new major
developments.
Projected higher zinc prices over the outlook period may encourage
some producers to restart operations placed on care and
maintenance. Should this occur, world zinc mine production will be
higher than projected, presenting an upside risk to this assessment.
In 2014 world refined zinc production is forecast to increase by 3 per
cent to 13.3 million tonnes. Increased production is expected to be
driven by increased utilisation of existing capacity rather than the
commissioning of new capacity. A number of refineries, particularly
in China, are reported to have revised maintenance schedules to
continue production and take advantage of higher prices.
Figure 13.3:
World zinc consumption
20000
15000
10000
5000
kt
2012
China
2013
2014
Rest of world
2015
United States
2016
India
2017
2018
South Korea
2019
Japan
Figure 13.4:
World zinc mine production
20000
15000
10000
5000
kt
2012
China
2013
2014
Rest of world
2015
Australia
2016
Peru
2017
India
2018
2019
United States
bree.gov.au
108
World refined zinc production is projected to increase at an average

annual rate of 4 per cent to 16.4 million tonnes in 2019. Growth in
refined production is projected to be driven by new smelters in the
US, Bulgaria and South Africa.
Figure 13.5:
18000
15000
Australia
12000
Exploration
9000
In 2013-14, Australias zinc exploration expenditure declined by 43

per cent to $45.8 million in response to subdued zinc prices, which
were largely unchanged on 2012-13. The decline in exploration
expenditure moderated in the June quarter following an increase in
zinc prices at the beginning of 2014.
6000
3000
kt
2012
Production
In 2013-14 Australias zinc mine production (total metallic content)
increased by 2.4 per cent to 1.5 million tonnes supported by
increased output from recently commissioned projects. These
include Lady Loretta (126 000 tonnes) and the George Fisher
expansion (64 000 tonnes) in Queensland. This was partially offset
by lower production at the Terramin mine in South Australia that was
placed on care and maintenance.
Over the medium term, Australias zinc mine production is projected
to fluctuate as existing mines reduce production as they exhaust
resources and new mines are commissioned to replace the lost
capacity. Growth in Australias zinc mine production will be
supported by the McArthur River mine expansion (380 000 tonnes)
which is scheduled to be completed in 2014-15 and the Dugald River
mine (220 000 tonnes) in 2017-18. The Century mine, Australias
largest zinc mine with a capacity of 500 000 tonnes is expected
begin to exhaust its resources and reduce output from 2015-16.
Australias mine production is projected to increase at an average
rate of 1.9 per cent a year to 1.7 million tonnes in 2018-19.
World refined zinc production
China
2013
2014
Rest of world
2015
EU 28
2016
India
2017
2018
South Korea
2019
Canada
Figure 13.6:
Australias zinc exploration expenditure
25
3000
20
2400
15
1800
10
1200
600
A$m
Jun 09
US$t
Mar 10
Dec 10
Sep 11
Zinc exploration
Jun 12
Mar 13
Dec 13
Zinc price (rhs)
Sources: ABS; LME.
bree.gov.au
109
Australias refined zinc production is forecast to increase by 1 per

cent in 2014-15 to 501 000 tonnes. Over the outlook period, minor
refinery curtailments will contribute to Australias refined zinc
production declining by a projected 1.4 per cent a year to 458 000
tonnes in 2018-19.
Exports
Australias zinc exports (total metal content) decreased by 5 per cent
in 2013-14 to 2.4 million tonnes driven by lower output at the Hobart
smelter. Export values increased by 8 per cent in 2013-14 to $2.4
billion as higher zinc prices more than offset lower volumes.
Australias zinc exports are forecast to increase by 11 per cent in
2014-15 to 1.7 million tonnes supported by an increase in production
from McArthur River. Export volumes are forecast to decline by 14
per cent in to 1.5 million tonnes in 2015-16 as the closure of the
Century mine contributes to a substantial decline in Australias zinc
mine production. However, over the remainder of the outlook period
zinc export volumes are projected to increase at an average annual
rate of 5 per cent to 1.8 million tonnes in 2018-19 as new projects
are completed.
Earnings from zinc exports are projected to fluctuate in line with
export volumes. Australias zinc export value is projected to increase
by 7 per cent a year over the outlook period to total $3.4 billion (in
2014-15 dollars) in 2018-19, supported by increasing volumes and
projected higher prices.
Figure 13.6:
Australian mine production
2000
1600
1200
800
400
kt
2004
2006
2008
2010
2012
Queensland
New South Wales
Tasmania
Sources: BREE; ABS.
Figure 13.7:
2014
2016
2018
Northern Territory
Western Australia
South Australia
Australias zinc exports
2000
1500
1000
500
2
201415
A$b
kt
199899
200203
200607
volume
201011
201415
201819
value (right axis)
Sources: BREE; ABS.
bree.gov.au
110
Table 13.1: Zinc outlook

World
Production
mine
refined
Consumption
Closing stocks
Price
nominal
real b
Australia
Mine output
Refined output
Export volume
ore and conc. c
refined
total metallic content
Export value
nominal
real d
unit
2013
2014 f
2015 f
2016 z
2017 z
2018 z
2019 z
kt
kt
kt
kt
13 210
12 892
12 982
1 888
7.6
13 426
13 334
13 524
1 698
6.5
13 831
13 943
14 059
1 582
5.9
14 247
14 598
14 615
1 565
5.6
14 972
15 253
15 227
1 592
5.4
15 669
15 873
15 853
1 612
5.3
16 129
16 418
16 322
1 708
5.4
US$/t
USc/lb
US$/t
USc/lb
1 910
87
1 944
88
2 084
95
2 084
95
2 235
101
2 191
99
2 378
108
2 285
104
2 482
113
2 339
106
2 534
115
2 341
106
2 587
117
2 343
106
201213
201314
201415 f
201516 z
201617 z
201718 z
201819 z
kt
kt
1 507
496
1 508
501
1 666
500
1 425
475
1 497
459
1 609
458
1 721
458
kt
kt
kt
2 472
433
1 591
2 350
438
1 542
2 735
439
1 716
2 275
413
1 476
2 463
398
1 548
2 705
397
1 660
2 943
397
1 771
A$m
A$m
2 193
2 311
2 362
2 426
3 145
3 145
2 968
2 895
3 198
3 053
3 429
3 203
3 763
3 439
b In current calendar year US dollars. c Quantities refer to gross weight of all ores and concentrates. d In current financial year Australian dollars.
f BREE forecast. z BREE projection.
Sources: BREE; ABS; International Lead Zinc Study group.
bree.gov.au
111
Fuelling future electricity growth

Kate Penney
A key question emerging for the 21st century is what happens

when developing economies start to catch up to the living
standards of the OECD? Electricity is vital to modern lifestyles,
yet around 130 years after the first electricity system was
developed 1.3 billion people still do not have adequate access
to electricity. In 2012, the OECD accounted for 49 per cent of
world electricity consumption but only 17 per cent of the
worlds population. Closing the gap in electricity consumption
rates may be one of the challenges that defines the 21st
century.
Figure 14.1:
Electricity consumption per person and

population share, 2012
100
10000
80
8000
60
6000
40
4000
20
2000
kWh
OECD
Introduction
population share
Electricity is the cornerstone of economic development and an

essential component of modern lifestyles. Rapid growth in electricity
use underpinned the industrialisation of OECD economies and
supported substantial improvements in living standards. An
overwhelming 82 per cent of the worlds population resides in nonOECD countries, yet they only account for 51 per cent of world
electricity consumptionthis is roughly 1700 kilowatt hours a person
compared with 7600 kilowatt hours a person in the OECD (figure 1).
Source: IEA.
World electricity use increased by 85 per cent over the past two
decades to 20 915 terawatt hours in 2012 (almost 90 times
Australias total electricity consumption). Developing economies,
particularly in Asia, were the key contributors to this growth (figure
2). As these highly populated developing economies begin to catchup to the living standards of the OECD during the 21st century, the
challenge of how they meet their growing electricity needs will gain
more attention.
Thailand
The purpose of this review is to focus on how the worlds electricity

needs may grow over the next decade and the investment that is
already in train to meet this challenge.
Non-OECD
Figure 14.2:
World
electricity consumption per person (rhs)
Growth in electricity use, 1992-2012, and population

(2012, millions)
7037
OECD
1254
23
Australia
67
1237
India
Turkey
75
South Korea
50
Malaysia
29
Indonesia
247
155
Bangladesh
China
1351
Vietnam
89
%
250
500
750
1000
1250
1500
1750
Source: IEA.
bree.gov.au
112
Electricity and economic prosperity

Electricity is essential to industrial development. Basic access to
electricity allows for the introduction of mechanical power which can
improve the efficiency of production processes or replace the need
for manual labour. It can also create opportunities for improving
transportation and communication systems that enable the exchange
of ideas and information (IEA 2010; Bryce 2014).
When an economy begins to industrialise, access to low-cost
electricity is fundamental to the establishment of a low-cost
manufacturing base that is globally competitive. As an economy
becomes more developed, growth in electricity use typically slows as
activity becomes structured around less energy-intensive sectors,
such as services, and they can afford to invest in energy saving
technologies.
There was a strong relationship between economic growth in OECD
countries during the 20th century and electricity consumption.
Figures 3 to 6 demonstrate the correlation between economic and
electricity consumption growth in Japan, South Korea, the United
States and Germany over the past thirty years.
Increased electricity availability and use is also closely linked to an
improved standard of living as measured by the United Nations
Human Development Index (HDI). Clearly, those countries that have
higher per person consumption of electricity have an improved
quality of life (figure 14.7). For example, the US consumes almost
13 000 kilowatt hours of electricity per person each year and has an
HDI of 0.91. By contrast households in India, which has low
electrification rates, consume around 760 kilowatt hours of electricity
per person which has an HDI of 0.58.
Access to electricity is vital in delivering clean water and sanitation
and the provision of basic health and education services which can
improve the productive capacity of a countrys labour force. With
improved access to electricity households can use basic appliances
such as refrigeration and cooling. As incomes rise, electricity access
allows for the use of luxury items that improve comfort such as
televisions.
Figure 14.3:
Japans GDP and electricity use
14
12
10
8
6
4
2
%
-2
-4
-6
-8
1972
1977
1982
1987
1992
1997
electricity consumption
2002
2007
2012
2007
2012
GDP
Sources: IEA; World Bank.
Figure 14.4:
South Koreas GDP and electricity use
25
20
15
10
5
%
-5
-10
1972
1977
1982
1987
1992
1997
2002
GDP
bree.gov.au
113
The availability of electricity also allows households to move away

from using traditional solid fuels, such as biomass, for cooking. This
prevents exposure to smoke and other pollutants from the use of
these fuels and reduces the incidence of respiratory diseases (IEA
2010; Bryce 2014).
Given the close association between increased electricity use,
economic growth and an improved standard of living, it is clear that
as more economies continue along their development path, world
electricity consumption will continue to grow. GDP per person and
electricity consumption per person in many countries is well below
advanced economies such as the US (figure 14.8).
If developing economies follow a similar path to their predecessors,
as these economies expand their per person electricity consumption
will increase. Developed economies tend to have high electricity
consumption per person, but typically have relatively small
populations. Conversely, developing economies tend to have low
electricity consumption per person and larger populations (figure
14.9). Given the size of the population in these economies, even if
they achieve small increases in electricity use per person, this will
translate into large absolute increases in total electricity
consumption.
Universal electricity accessstill some way to go
Figure 14.5:
US GDP and electricity use
10
8
6
4
2
%
-2
-4
-6
1972
1977
1982
1987
1992
1997
2002
2007
2012
2007
2012
GDP
Figure 14.6:
Germanys GDP and electricity use
10
8
6
An estimated 1.7 billion people gained electricity access between

1990 and 2010, supported by economic development, urbanisation
and international energy access programmes. Low-cost energy
sources were vital to securing the provision of electricity over this
period. For every person that gained access to electricity through
solar and wind energy, four gained access through hydropower, six
through gas and 13 through coal (Bryce 2014).
While electricity access has improved worldwide, there remains a

large share of the population that still do not have adequate access
to electricity. IEA estimates for electricity access suggest that in
2011 almost one-fifth of the world population, or around 1.3 billion
people (almost the population of China) did not have access to
electricity.
bree.gov.au
4
2
%
-2
-4
-6
-8
1972
1977
1982
1987
1992
1997
2002
GDP
114
Figure 14.7:
Electricity use and human development,
Figure 14.8:
20000
US
Japan
Electricity use per person (kWh)
0.9
Sth Korea
Human Development Index
Electricity use and economic development
0.8
0.7
China
0.6
India
0.5
0.4
16000
US
12000
Sth Korea
Japan
8000
China
4000
India
5000
10000
15000
20000
20000
Electricity use per person (kWh)

Sources: IEA; United Nations Development Programme.
Figure 14.9:
40000
60000
80000
GDP per person (2005 $US)

Electricity consumption per person and population
14000
1400
OECD countries typically have small populations
that consume a lot of electricity per person.
12000
1200
10000
1000
8000
800
Conversely developing countries have larger populations
that consume small volumes of electricity per person.
6000
600
4000
400
2000
200
millions
kWh
United
States
South
Korea
Australia
Japan
Germany
China
India
Brazil
electricity consumption per person
Thailand
Vietnam
Indonesia
Pakistan Bangladesh
population (rhs)
Source: IEA.
bree.gov.au
115
Almost 97 per cent of those that do not have access to electricity are
located in Africa and developing Asia. India alone accounted for 25
per cent of the total, with around 306 million people lacking basic
electricity access.
Aside from basic access to electricity, there are also concerns about
the quality of electricity supply, which can loosely be defined as
availabilitythe ability to use it; affordability; adequacysufficient
supply; convenienceeasy to access and use at times that suit the
user; and reliabilitydelivered at the right voltage and available most
of the time (IEA 2012).
Perhaps one of the most important factors outlined above is
affordability. High electricity prices can also contribute to energy
poverty. If the cost of electricity is too high, it could potentially
remove access for the poorest parts of the population even if the
electricity is there to be consumed. Electricity prices have increased
in many countries in response to high fuel input costs and increased
adoption of higher-cost energy sources such as renewables.
The challenge ahead

World economic growth in the 21st century will be driven by
developing economies as they industrialise, accelerated by
investment in education, health care and increasing
interconnectedness. Over the past decade many developing
economies have exhibited strong rates of economic growth, reducing
poverty and creating a growing global middle class. For example,
between 2003 and 2013, Chinas economy grew at a compound rate
of 9.2 per cent, India by 6.8 per cent, Vietnam by 5.8 per cent and
Bangladesh by 5.6 per cent (figure 14.10).
Chinas economic growth is expected to slow over the medium to
longer term as the Central Government aims to transition to a lower,
more sustainable pattern of growth. While the rate of growth will
decline, it will remain robust compared with growth rates observed in
OECD economies.
bree.gov.au
Table 14.1: Electricity access and electrification, 2011
Population
without electricity
access (millions)
Share of
population with
no access to
electricity (%)
Africa
600
57
Nigeria
85
52
Ethiopia
65
77
Democratic Republic of the

Congo
62
91
Developing Asia
615
17
India
306
25
Indonesia
66
27
Bangladesh
61
40
Pakistan
56
31
Philippines
28
30
0.2
Latin America
24
Middle East
19
0.1
1 258
18.1
China
Transition economies and

OECD
World
Source: IEA.
116
Outside of China, it is expected that growth in other developing

economies will remain robust over the medium to longer term,
supported by favourable demographics and low-cost manufacturing.
As a result, it can be assumed that electricity consumption in these
economies will continue to grow at a rapid pace.
Figure 14.10:
Given the trends outlined above, governments in developing

economies will face the following challenges:
Bangladesh
Compound average GDP growth 2003-2013
China
India
Vietnam
Argentina
Indonesia
1. Ensuring that all citizens have access to affordable, adequate

and reliable electricity;
Philippines
Malaysia
Turkey
2. Planning for and investing in new generation and transmission

capacity to meet expected increases in electricity consumption;
and
3. Determining the appropriate energy mix for meeting electricity
needs while meeting economic growth and environmental
objectives.
The scale of this challenge is often underestimated. China and India
are not the only growth engines. Six of the eight next largest
countries by population are developing economiesIndonesia,
Brazil, Pakistan, Nigeria, Bangladesh and Russia. Combined these
countries have almost 270 million people without adequate access to
electricity. They also have low per person electricity consumption,
which is likely to increase over the medium to longer term. There are
many other developing economies, particularly in Southeast Asia,
that are expanding at a rapid pace and have large populations that
will also contribute to growing world electricity demand.
There is no single energy option that will allow a country to meet all
of its growth and environmental objectives. Each technologycoal,
gas, nuclear and renewablescomes with its own set of technical,
economic, environmental, social and political issues that will need to
be considered. Further, relying on a single energy source can
increase a countrys energy security risk. Accordingly, future
electricity demand will continue to be met through a combination of
energy sources.
Russia
Thailand
Brazil
South Africa
Mexico
%
10
Source: World Bank.
Figure 14.11:
Chinas GDP and electricity use
20
15
10
-5
1972
1977
1982
1987
1992
1997
2002
2007
2012
GDP
bree.gov.au
117
In focus: challenges in selected economies
Figure 14.12:
Chinas electricity generation, by source
10000
China
Chinas 12th Five-Year Plan on Energy Development released in
January 2013 aims to limit growth in energy consumption and
increase the use of non-fossil energy. Further, President Xi Jinping
has called on the Chinese public to improve their efforts to
revolutionise energy production and use. Although he
acknowledges the challenges of rising energy demand amidst
constrained supply and environmental considerations. Some of
these measures include diversification of the energy system through
supply reform; encouraging technical innovation; and encouraging
increased market competition through pricing reform.
Over the past eighteen months the Chinese Government has

announced a series of measures aimed at improving air quality.
These have largely been aimed at coal-fired facilities, steel plants
and vehicle standards in Beijing and neighbouring provinces. In
particular, these areas are being encouraged to substitute coal and
oil-fired boilers for electricity, with the electricity to be imported from
other provinces. However, this electricity is likely to be imported from
regions where new co-located coal mines, power plants, coal
chemical plants and high voltage transmission systems are being
developed.
As observed in OECD economies, China has also exhibited a strong
relationship between its economic growth and electricity
consumption. Over the past decade, Chinas economic growth
averaged 10.5 per cent and growth in electricity consumption 12.2
per cent (figure 14.11). Growth is expected to remain robust over the
medium term, albeit at slower rates than the past decade.
Chinas electricity generation is overwhelmingly based around coal,
accounting for 76 per cent of total generation in 2012. Hydropower is
the second largest source of generation at 17 per cent, with gas,
nuclear and renewables accounting for minor shares (figure 14.12).
Growth in generation from renewable sources excluding hydro has
been high, but it has been from a low base and absolute generation
is low.
bree.gov.au
8000
Potential generation growth
6000
4000
2000
TWh
1995
2001
coal
nuclear
total
2007
2013
hydro
other renewable
2019
2025
gas
oil
Sources: IEA; BREE.
Over the past decade, Chinas electricity generation has grown at an

average rate of 12 per cent, commensurate with its growth in use.
Allowing for a slowing in Chinas economy, if electricity generation
increased at a rate of 5 per cent a year over the next decade China
would generate almost 9400 terawatt hours of electricity by 2025 or
almost twice the volume of generation in 2012.
If the extra generation was to be sourced from new facilities, this
would require at least 500 gigawatts of new capacity. China has
around 200 facilities with a combined 165 gigawatts of new capacity
currently under construction or approved (almost three times
Australias total installed capacity; potential coal plans alone exceed
Australias total capacity). Around 44 per cent of this capacity is coalfired, 23 per cent hydro and 20 per cent nuclear (figure 14.13).
In meeting their future electricity demand, each of the generation
technologies in China come with their own strengths and
weaknesses that must be considered by the Chinese Government.
118
Coal
Coal is an important component of Chinas electricity system,
providing access to low-cost, large-scale, reliable electricity. The
development of coal-fired capacity over the past decade has
assisted China in increasing its electrification rate with a
commensurate improvement in living standards. Moreover, China is
a large coal producer and the sector is a major employer, particularly
in regional provinces.
However, the use of coal in its current form has been contributing to
reduced air-quality in highly populated cities which has prompted
Premier Le Keqiang to declare a war on pollution. To address smog
pollution, China will need to install and use scrubbers in existing
plants; upgrade existing facilities to improve efficiency and reduce
coal requirements; ensure new builds use the most efficient
technology; and use coal with lower sulphur content, which may
require importing higher-quality coal.
The National Development and Reform Commission has proposed a
set of standards that restrict the consumption of thermal coal with
high ash and sulphur content. The standards are scheduled to apply
from 1 January 2015. The proposed coal standard restrictions are
not expected to reduce Chinas coal consumption, particularly given
its electricity needs and plans for new coal-fired capacity.
Gas
Gas has featured prominently in Chinas announced plans to expand
electricity generation using lower carbon fuels. Like coal, gas-fired
power provides access to low-cost, large-scale, reliable electricity
with fewer implications for air quality. However, plans for new
capacity are relatively small (figure 14.13) and China is struggling to
secure sufficient gas supplies to enable the planned expansion in
gas-fired electricity.
China has large unconventional gas resources and has been eager
to replicate the success of the US in extracting unconventional gas.
Despite large-scale investment in the sector, China has not been
able to increase domestic production at a rapid pace forcing the
National Energy Administration to significantly reduce its targets.
bree.gov.au
Figure 4.13:
Chinas electricity capacity under

construction or approved
80
70
60
50
40
30
20
10
GW
coal
hydro
gas
Source: Enerdata, www.enerdata.net; WNA.
nuclear
other
renewable
oil
Within two years, Chinas gas production targets have been revised
down from 60100 billion cubic metres of shale gas in 2020 to 30
billion cubic metres each of shale gas and coal seam gas.
In an effort to secure gas supplies, China has been increasing
investment in new pipeline and LNG import capacity, while
simultaneously encouraging provinces to scale back investment in
gas-fired technology.
Nuclear
Nuclear power has high upfront capital costs and takes time to
develop but provides low-cost, reliable electricity supply with low
emissions. While development decisions on nuclear have slowed
post-Fukushima, China is investing heavily in expanding its nuclear
power capacity. China is expected to more than triple its nuclear
capacity over the next five years, with 29 reactors under
construction.
119
Nuclear power also faces some challenges that are not as prominent
in other energy sources such as community acceptance, site location
and waste management. Future growth in nuclear power will be
influenced by the Governments policy on inland reactor
development, which has not been finalised.
Hydro
China has large installed hydro capacity and has further plans for
developing new capacity. Hydropower provides low-cost, large scale
electricity generation. However, the utilisation of hydropower is
highly dependent on water availability. For example, during the first
eight months of 2014, Three Gorges Dam recorded record output
because of increased water availability. This displaced some of the
demand for coal-fired electricity generation.
Further development of hydropower will assist the Chinese

Government in meeting its environmental objectives but also faces
issues relating to the environmental impact of developing dams and
the displacement of large populations.
Other renewables
Electricity generation from other renewable sources such as solar
and wind have expanded rapidly in China. The Central Government
has announced plans to accelerate the development of solar power
to have 70 gigawatts of installed capacity by 2017. There are also
plans to expand wind power capacity to 150 gigawatts and biomassfired capacity to 11 gigawatts by 2017 (Bloomberg, 2014). The
development of other renewables will be major contributors to
improving air quality in China.
The development of other renewable sources face some limitations.
The capacity of plants are typically far lower than thermal sources;
storage/intermittency issues require back up capacity which are
likely to be thermal plants; and they are less suited to the needs of
heavy industry.
Although technology improvements may increase the efficiency of

electricity use, Chinas electricity requirements are likely to increase
substantially as the economy continues to grow. Government
policies have indicated an intention to improve air quality in heavily
populated areas, but there has been little detail on how reducing coal
use to improve air quality will be achieved in the context of increased
electricity use. Accordingly, Chinas electricity generation is expected
to draw on all sources of energy, confirming a continued, albeit
potentially smaller, role for coal.
India
Indias electricity consumption has been increasing rapidly,
supported by strong economic growth, increased household income
and an expanding middle class. Indias economic growth averaged
7.8 per cent over the past decade and its electricity consumption 7.9
per cent (figure 14.14).
Generators have been unable to keep pace with electricity demand,
resulting in regular blackouts. The most notable shortage occurred in
August 2012 where an estimated 700 million people were left without
electricity. Aside from periodic shortages, India had an estimated
306 million people that did not have access to electricity in 2011. In
mid-August, Prime Minister Modi announced the Governments
intention to ensure that all Indian villages have 24 hour access to
electricity by 2022.
Indias electricity demand is expected to rise substantially over the
projection period as household income increases, the middle class
grows and the government improves electrification. Assuming that
electricity generation grows at a more subdued pace of 5 per cent
over the next decade India would generate around 2200 terawatt
hours of electricity by 2025, almost twice the volume of generation in
2012 (figure 14.15). If the extra generation was to be sourced from
new facilities, this would require at least 113 gigawatts of new
capacity.
While the planned growth in other renewable energy sources is

expected to be large, it is from a low base. Even if plans to expand
solar, wind and biomass are achieved their use will be insufficient to
meet the potential increase in demand on their own, let alone
displace the use of coal.
bree.gov.au
120
Coal-fired generation is a major component of Indias plans for new

electricity generating capacity being developed under the twelfth
Five-Year Plan (201217). India has more than 130 gigawatts of new
coal-fired capacity under construction or approved. There are a
further 25 gigawatts of nuclear and 23 gigawatts of hydro currently
under development (figure 14.16). Accordingly, the majority of Indias
increased electricity consumption is likely to be met using coal.
While India has large coal deposits, growth in domestic production
has been unable to match pace with domestic demand because of
difficulties in obtaining relevant land access and environmental
approvals for developing mines as well as transport infrastructure
bottlenecks. The inability to produce sufficient domestic coal has
contributed to a rapid expansion of Indias coal imports and declining
stocks at utilities which may result in future blackouts.
In response Coal and Power Minister Piyush Goyal has pushed for
new production capacity to be fast tracked to reach a production
target of 1 billion tonnes by 2019. However, the development of new
coal deposits may be hampered by a Supreme Court ruling that
more than 200 coal blocks awarded since 1993 were allocated
illegally. The court has yet to make a decision on whether to revoke
these licences.
Indias GDP and electricity use
Figure 14.14:
15
10
-5
-10
1972
1977
1982
1987
1992
1997
2002
2007
2012
GDP
Indias electricity generation, by source
Figure 14.15:
2500
Given the expected uptake of coal-fired electricity generation and a

slow domestic supply response, India will continue to rely on coal
imports for electricity generation. While many state-owned
generators cannot afford to import coal given regulated electricity
prices, private companies are looking to develop foreign assets to
ensure supply security. This has been one of the driving factors in
the development of coal assets in the Galilee Basin in Australia. The
ability to ensure a stable coal supply without exposure to fluctuating
market prices is likely to justify the large capital outlay.
Although most analyses of future energy and coal demand focus
purely on China such as the stranded assets argument1, India is a
large market that will have a considerable effect on world energy
developments and their future appears heavily entrenched in coal.
1. Caldecott
et al. 2013.
bree.gov.au
2000
1500
1000
500
TWh
1995
2001
coal
nuclear
total
2007
2013
hydro
other renewable
2019
2025
gas
oil
Sources: IEA; BREE.
121
Other developing Asia
Figure 14.16:
As noted previously, there are many countries in southeast Asia with

strong economic growth prospects (table 14.2) that currently have
low electricity consumption per person and large populations. This
includes Indonesia, Bangladesh, Pakistan and Vietnam.
140
For these economies to meet electricity requirements and

industrialise, they will need access to low-cost electricity to ensure
their competitiveness in global manufacturing. Most of these
countries rely heavily on either oil or gas for their electricity
generation, which given their relatively high cost and price volatility
potentially acts as a barrier to a rapid expansion of manufacturing
sectors.
Indonesias economy has expanded at an average rate of 5.7 per
cent over the past decade and their energy use at 7.2 per cent
(figure 14.17). If electricity generation were to continue to grow at 6
per cent a year for the next decade, Indonesia would generate
almost 420 terawatt hours by 2025, more than twice that generated
in 2012 (figure 14.18). Indonesia has 12 gigawatts of coal-fired
generation capacity and 4 gigawatts of geothermal capacity under
construction or approved (figure 25).
Newly-elected President Joko Widodo has indicated an intention to
provide Indonesians with access to low-cost energy. Indonesia is a
major coal producer and is currently the worlds largest exporter of
thermal coal. Given the expansion of coal-fired capacity and
increased Domestic Market Obligation (DSO)the proportion of
output that needs to be reserved for the domestic marketIndonesia
will increase the use of its coal, potentially reducing the volume
available for export.
Bangladeshs economy has grown by an average 6.1 per cent a year
over the past decade, while electricity consumption has increased by
10.5 per cent (figure 14.19). The IMF projects economic growth in
Bangladesh to increase to around 7.0 per cent by 2019. Assuming a
modest increase in electricity generation of 6 per cent a year,
Bangladesh will generate around 105 terawatt hours of electricity in
2025 (figure 14.20).
bree.gov.au
Indias electricity capacity under construction or

approved
120
100
80
60
40
20
GW
coal
hydro
gas
nuclear
other
renewable
oil
Table 14.2: IMF economic growth forecasts

2014
2015
2019
5.4
5.8
6.0
6.5
7.0
Pakistan
3.1
3.7
5.0
Vietnam
5.6
5.7
6.0
Indonesia
Bangladesh
Source: IMF.
122
Bangladeshs electricity supply is currently based around gas. Gas

will continue to play a prominent role in the electricity supply, with a
further 6 gigawatts of capacity under construction or approved.
However, coal will begin to play a more important role in the mix with
around 7 gigawatts of capacity under development.
Pakistans economy expanded by 4.4 per cent a year over the past
ten years and its electricity consumption grew at a relatively slower
3.9 per cent (figure 14.21). If its electricity generation grows at 3 per
cent, Pakistan will generate 141 terawatt hours of electricity in 2025
(figure 14.22).
Pakistans electricity generation is dominated by oil, gas and
hydropower generation. Hydropower is expected to remain a
dominant energy source with around 23 gigawatts of new capacity
under development. Given the relatively high cost of oil and gas
facilities, Pakistan has limited plans for new oil and gas-fired
capacity. This is likely to be replaced by coal, with around 8
gigawatts of capacity under construction or approved.
Vietnams economy has grown at an average annual rate of 6.5 per
cent over the past decade, but its electricity consumption has grown
at a far more rapid pace of 13.8 per cent (figure 14.23). If electricity
generation increases at an average annual rate of 8 per cent,
Vietnam will generate almost 335 terawatt hours of electricity by
2025 (figure 14.24).
Vietnams electricity generation is largely sourced from hydropower.
While around 3 gigawatts of new hydropower capacity is being
developed, almost 27 gigawatts of coal-fired capacity is under
construction or approved, indicating that the share of hydropower in
electricity generation is set to decline (figure 14.25).
Vietnam is currently a coal exporter. While there are plans to expand
its coal production, domestic coal consumption will likely increase at
a more rapid pace. Vietnam imported coal for the first time in 2013,
and it is likely that its coal import requirements will continue to
expand over the medium to longer term.
Indonesias GDP and electricity use
Figure 14.17:
50
40
30
20
10
%
-10
-20
1972
1977
1982
1987
1992
1997
2002
2007
2012
GDP
Figure 14.18:
Indonesias electricity generation, by source
500
400
300
200
100
TWh
1995
2001
coal
nuclear
total
2007
2013
2019
hydro
other renewables
gas
oil
2025
Sources: IEA; BREE.
bree.gov.au
123
While the absolute values of electricity generation in non-OECD

countries are lower than that likely to be observed in China and
India, rapid increases in generation across all these countries at the
same time will combine to contribute to a large increase in world
generation. Indonesia, Bangladesh, Pakistan and Vietnam alone
could potentially generate 1000 terawatt hours by 2025, almost half
of the potential total for India.
Reflecting the likely increased electricity needs across non-OECD
countries over the medium term, the bulk of new electricity
generation capacity is being developed in these countries (figure 26).
More than 810 gigawatts of new capacity is being developed in nonOECD countries, compared with around 350 gigawatts in the OECD.
Aside from hydropower, the development of renewable energy
sources in these countries are in their infancy, suggesting that fossil
fuels will be the engines of growth for the foreseeable future.
Figure 14.19:
60
50
40
30
20
10
%
-10
-20
1972
Conclusion
World electricity consumption has increased at a rapid pace over the
past twenty years, driven by rising consumption in developing
economies. If non-OECD countries catch-up to the living standards
of the OECD, their electricity requirements will increase, contributing
to rapid growth in world electricity consumption over the medium to
longer term.
Bangladeshs GDP and electricity use
1977
1982
1987
1992
1997
2002
2007
2012
GDP
Figure 14.20:
Bangladeshs electricity generation, by source
120
100
Growth in electricity use will be accompanied by a rapid increase in

electricity generation. For the six economies considered in this
review, electricity generation in 2025 could reach around 12 500
terawatt hours, from almost 6600 terawatt hours in 2012. While
China and India will be key drivers of this increase, the contribution
from other non-OECD economies should not be underestimated.
80
Further investment in new electricity generation capacity will be

required to meet growing electricity consumption. Based on new
capacity under construction and approved across the world, new
generation will rely on a range of technologies, although it appears
that coal will remain a primary source of generation.
20
60
40
TWh
1995
2001
coal
nuclear
total
2007
2013
2019
hydro
other renewables
gas
oil
2025
Sources: IEA; BREE.
bree.gov.au
124
While there have been indications that China intends to improve its
air quality, they have not provided a clear indication of how this will
be achieved in the context of increasing electricity demand.
Meanwhile, other developing economies are focused on providing
reliable, low-cost electricity to their citizens.
The challenge of meeting the potential growth in electricity
consumption and selecting the optimal energy mix will likely be one
of the key issues that governments face in the 21st century. The way
in which they respond will attract considerable attention from their
own citizens and the rest of the world.
References
Bryce, R. 2014, Energy Innovation: Proving the Catastrophists
Wrong, remarks for the Sydney Institute, Gallipoli Club, 8
September.
Bloomberg 2014, China Targets 70 Gigawatts of Solar Power to Cut
Coal Reliance, 16 May, http://www.bloomberg.com/news/2014-0516/china-targets-70-gigawatts-of-solar-power-to-cut-coalreliance.html.
Caldecott, B, Tilbury, J, Ma, Y 2013, Stranded Down Under?
Environment-related Factors Changing China's Demand for Coal
and What this Means for Australian Coal Assets,
http://www.smithschool.ox.ac.uk/research/strandedassets/Stranded%20Down%20Under%20Report.pdf
IEA, 2012, WEO-2012: Measuring progress towards Energy for All:

Poler to the people?,
http://www.worldenergyoutlook.org/media/weowebsite/energydevelo
pment/2012updates/Measuringprogresstowardsenergyforall_WEO20
12.pdf
2010, WEO-2010: Energy Poverty How to make modern
energy access universal,
http://www.worldenergyoutlook.org/media/weowebsite/energydevelo
pment/weo2010_poverty.pdf
Pakistans GDP and electricity use
Figure 14.21:
25
20
15
10
5
%
-5
-10
1972
1977
1982
1987
1992
1997
2002
2007
2012
GDP
Figure 14.22:
Pakistans electricity generation, by source
160
140
120
100
80
60
40
20
TWh
1995
2001
coal
nuclear
total
2007
2013
2019
hydro
other renewables
gas
oil
2025
Sources: IEA; BREE.
bree.gov.au
125
Vietnams GDP and electricity use
Figure 14.23:
Figure 14.24:
Vietnams electricity generation, by source
400
25
350
20
300
250
15

200
150
10
100
50
TWh
1995
%
1985
1990
1995
2000
2005
2001
GDP
Sources: IEA; BREE.
Figure 14.25:
Figure 14.26:
Developing country electricity capacity under

construction or approved
28
350
24
300
20
250
16
200
12
150
100
2007
coal
nuclear
total
2010
2013
2019
hydro
other renewables
gas
oil
2025
World electricity capacity under construction or

approved
50
GW
Indonesia
coal
Bangladesh
hydro
gas
nuclear
Pakistan
other renewable
Vietnam
GW
coal
hydro
gas
OECD
bree.gov.au
nuclear
oil
other
renewables
oil
Non-OECD
126
The Mining Boom

- the story so far
John Barber
The mining boom has been the foundation of Australias

economic success over the past decade. Now, some ten years
after it started, the dynamics of the underlying economics of
the boom are changing. The period where high commodity
prices supported revenue growth and investment underpinned
the Australian economy are over. The surge in global
commodities production has made supplies abundant and
competition will intensify for key markets. For the resources
sector, the future will be focused on production and
productivity improvements.
The mining boom has had broad, positive effects on the Australian
economy. The growth in exports and investment over the past ten
years have supported increased employment, regional development
and increased revenues for both federal and state governments. The
mining sector accounted for around 11 per cent of Australias GDP in
2013-14, up from 7.8 per cent in 2003-04. Over the past decade the
mining industry has grown, in aggregate terms, more than any other
industry in Australia with its industry gross value added increasing by
$72 billion in that time more than 50 per cent higher than the
second largest contributor to growth. While the debate over how
widespread the positives of this increase have been shared through
the nation continues, it is substantial growth nonetheless and came
during a time of considerable uncertainty in the world economy.
The mining boom is now transitioning from a period of substantial

investment to one of increased output. This note will review the key
economic statistics that have defined the first two phases of the
mining boom with consideration given as to what comes next as the
industry moves from being a growth engine to being a foundation of
the economy.
bree.gov.au
Figure 15.1:
Real GDP growth, FY2004 FY2014
Mining
Finance
Construction
Health
Prof services
Public admin
Transport
Retail
Wholesale
Education
ICT & media
Rental & hiring
Admin
Agriculture
Hospitality
Arts & Rec
Utilities
Other services
Manufacturing
-20
20
40
60
80
A$b
Source: ABS
127
The high price phase

Australia has long been a reliable exporter of mineral and energy
commodities and has built many valued trading partnerships over the
past 50 years. While these trade relationships have continued, the
story of the mining boom that started circa 2003-04 is centred on the
increase in trade with China. While reforms in China had supported
robust economic growth and development through the 1990s, its
accession to the World Trade Organisation in 2001 underpinned the
growth in its exports and fixed asset investment of the past decade.
In the first decade of the 21st century commodity producers could not
keep up with the rapid growth in demand emanating from China and
tight supply conditions led to many commodity prices doubling by
2006. Most commodity prices then doubled again between 2006 and
the start of the GFC in 2008. Nickel prices rose from around
US$6000 a tonne in 2001 to over $51 000 a tonne in 2007.
Figure 15.2:
While the GFC provided a market shock to prices, this proved short
lived as the fiscal stimulus packages that followed resulted in
commodity prices rebounding. Iron ore prices increased from around
US$70 in 2009 to over US$190 in 2011 in response to Chinas steelintensive infrastructure spending and housing market boom.
Today, most commodity prices have moderated and declined from
their record high peaks. Increased availability of supply and lower
demand growth has pushed many commodity prices down; yet most
still remain elevated relative to historical levels. Nickel, for example,
has traded at around US$18,000 through 2014; while far below its
2007 peaks it is still 200 per cent higher than 2001.
Market demand-supply balances can determine short term pricing, in
the medium and long term mine economics are a major factor. The
large increase in consumption of mineral and energy commodities
has required mines with lower ore grades and higher operating costs
to be developed. In the long-term, without demand shocks or new
technologies that reduce production costs, commodity prices are
likely to remain at elevated levels.
Commodity price indexes
700
Supply response and

price moderation
600
GFC
High price phase
500
400
300
China joins the WTO

200
100
Mar 00
= 100
Mar-00 Dec-00 Sep-01 Jun-02 Mar-03 Dec-03 Sep-04 Jun-05 Mar-06 Dec-06 Sep-07 Jun-08 Mar-09 Dec-09 Sep-10 Jun-11 Mar-12 Dec-12 Sep-13 Jun-14
Iron ore
bree.gov.au
Thermal Coal
Copper
Aluminium
128
In Australia, one of the initial responses to the high price phase was
increased exploration activity. From 2001-02 to 2007-08, minerals
and petroleum exploration increased by 284 per cent and 244 per
cent, respectively. In the post-GFC environment of sustained high
prices and growing commodity demand, exploration grew even
further. Minerals exploration peaked at nearly $4 billion in 2011-12,
up another 60 per cent from pre-GFC levels. Against a backdrop of
lower prices since then, minerals exploration has subsequently
decreased nearly 50 per cent to around $2.1 billion in 2013-14.
Petroleum exploration in Australia has followed a different trajectory;
after some post-GFC declines it has since rebounded in the past two
years and totalled $4.9 billion in 2013-14.
To the resources sectors, exploration is akin to research and
development. Todays exploration sites are the mines of the future.
The ramp up in exploration turned in to investment in mining and
petroleum projects on a scale never seen before in Australia.
The investment phase

In Australia, the investment phase of the mining boom has been
perhaps the most noticed due to its sheer size. In the past decade
over $400 billion of resources, energy and related infrastructure
projects have been undertaken in Australia with around $220 billion
of projects still under development.
Annual mining capital expenditure has increased in Australia in line
with this growth in project undertakings. In 2003-04 annual mining
capital expenditure totalled around $10 billion and increased ninefold to $90 billion in 2013-14. Importantly, much of this growth came
after the GFC and offset declining business investment in other
industries. Subsequently, the mining industrys share of total capital
expenditure has increased from 33 per cent in 2008-09 to nearly 60
per cent in 2013-14.
The investment phase in Australia has seen two distinct periods,
separated by the GFC. Resources sector investment prior to the
GFC was characterised by a higher number of lower value projects
that were spread across most commodities. By comparison, the
post-GFC period has been characterised by a smaller number of
very high value projects that have focused on gas, iron ore and coal.
bree.gov.au
Figure 15.3:
Exploration - expenditure
9
8
7
6
5
4
3
2
1
A$b
199798
200102
200506
Petroleum
200910
201314
Minerals
Source: ABS.
Figure 15.4:
Minerals exploration metres drilled
12000
10000
8000
6000
4000
2000
metres
199798
200102
Total
200506
Existing Deposits
200910
201314
New Deposits
Source: ABS.
129
LNG investment has been particularly large in Australia and the six
projects being built in Queensland, Western Australia and the
Northern Territory are some of the largest energy investments in the
world in the past ten years. These LNG projects are expected to
make Australia the worlds largest exporter of LNG by 2018.
New project investment in Australia has undoubtedly slowed from
the lofty peaks of the investment phase. The number of projects
under construction has declined from over 100 in 2011 to less than
50 in April 2014. The total value of projects under construction has
moderated from a high of $268 billion in October 2012 to $229
billion, but is likely to fall rapidly as high value LNG projects are
completed over the next 2 years and lower commodity prices are
unlikely to support similar project investment in the short term.
Figure 15.5:
Mining capital expenditure
100
75
80
60
60
45
40
30
20
15
%
share
A$b
1998-99
Buildings
2003-04
2008-09
Equipment
2013-14
Mining share of capex
Source: ABS
Figure 15.6:
Number and value of committed resources projects
120
300
100
250
80
200
60
150
40
100
20
50
No. of
projects
A$b
Apr04
Apr06
Apr08
number (left axis)
bree.gov.au
Apr10
Apr12
Apr14
value (right axis)
130
The production phase

There have already been large increases in Australias mineral and
energy exports. Australias export earnings have increased 260 per
cent since 2003-04 and totalled $195 billion in 2013-14. Higher
commodity prices have been a key factor underpinning this rise, but
there has also been substantial growth in export volumes in this
time. Before the largest years of the investment boom, Australian
resources companies delivered substantial increases in production.
Between 2003-04 and 2008-09 export volumes increased 66 per
cent for iron ore, 28 per cent for thermal coal and 95 per cent for
LNG. Since 2008-09 export volumes have increased a further 101
per cent for iron ore, 43 per cent for thermal coal and 57 per cent for
LNG.
Project completions in just the past twelve months have delivered

over 200 million tonnes of iron ore, 40 million tonnes of coal and
1100 petajoules of gas production capacity. As these projects ramp
up to full operating capacity and produce a full year of production
they will continue to support production levels that are substantially
higher than the early years of the boom. While the investment phase
has lasted around 5 years, the production phase of the boom is
going to endure for a considerably longer period as many of the
large projects undertaken have very long operating life spans.
Contribution to the Australian economy

Through the past decade the debate over the benefits of the mining
boom, particularly the distribution of benefits, has increased. The
terms Dutch disease and resources curse have been used to
describe a structural adjustment in the Australian economy that has
seen an increase in the mining industrys relative share of economic
activity. These views of the mining boom emphasize the loss of
competitiveness in trade exposed industries due to the appreciation
in exchange rates that accompanies growth in commodity exports.
Subsequently, traditional industries, like manufacturing, experience
a downturn due to increased competition from cheaper imports and,
in relative terms, start to account for a declining share of the
economy and factors of production. The alternative view of the
Figure 15.7:
Resources and energy export earnings
200
175
150
125
100
75
50
25
2014-15
A$b
199798
200102
200506
minerals
200910
201314
energy
Sources: ABS.
Figure 15.8:
Resources and energy export volumes (indexed)
500
400
300
200
100
199798
200102
200506
200910
Iron ore
thermal coal
met coal
oil
gold
copper
201314
Sources: ABS.
bree.gov.au
131
mining boom, is that the structural change that has occurred in the
Australian economy reflected the reallocation of resources to
industries that have a competitive advantage and generate higher
returns.
In terms of contribution to the economy, measured by industry gross
value added (GVA), mining has been the principal driver of economic
growth over the past ten years. From 2003-04 to 2013-14 mining
GVA increased 79 per cent, or $72 billion, to total $164 billion. This
was both the largest and highest rate of increase of all industries in
the Australian economy.
However, the analysis of real, or inflation adjusted, data gives the
impression that the past ten years have been uninterrupted growth
for the mining industry. Looking at nominal data it is clear that the
mining boom has been anything but plain sailing. In both 2009-10
and 2012-13, mining industry nominal GVA decreased. While this is
only two out of ten years, the drop in industry nominal GVA in 200910 was about $20 billion dollars. The mining industry has certainly
grown in the past decade, but is not immune from price-related risks.
Figure 15.10:
Mining industry real GVA
Figure 15.9:
Professional services
Financial services
The transition away

from mining led growth
is yet to begin.
Transport
Construction
Mining
-0.5
% points
0.5
1.5
Source: ABS.
Figure 15.11:
180
160
160
140
140
Contribution to GDP growth FY2014
Mining industry nominal GVA
120
120
100
100
80
80
60
60
40
40
20
20
1992-93
Source: ABS.
bree.gov.au
1996-97
2000-01
2004-05
2008-09
2012-13
1992-93
1996-97
2000-01
2004-05
2008-09
2012-13
Source: ABS.
132
The mining boom has resulted in a rapid expansion in the size of the
mining industry workforce. As at May 2014 the mining industry
employed around 264 000 people which has increased 150 per cent
relative to June 2004. In the same period, the Australian workforce
grew by 2 million people, yet minings share of the labour force still
increased from 1 per cent to 2.3 per cent in the period.
Closely related to workforce numbers is the growth in mining
industry wages. The rapid growth in the workforce, particularly
skilled workers, has resulted in rapidly rising wages in the mining
industry. In each year since 2003-04 wage growth in the mining
industry (measured by the ABS wage price index) has been above
the national average.
The argument that is often presented is that the benefits of the boom
accrue more to capital holders, which tend to be large companies,
rather than workers. Analysis of total factor income provides one way
of assessing the distribution of the benefits of the mining boom
between labour and capital holders.
Figure 15.12:
300
40%
250
30%
200
20%
150
10%
100
0%
50
-10%
000
-20%
May-99
Source: ABS
Figure 15.13:
Mining as % of total employment
Figure 51.14:
2.5
Mining industry employment
May-02
May-05
May-08
Employment
May-11
May-14
%yr (rhs)
Wage price index
7
6
2
5
1.5
4
3
0.5
1
%
share
1993-94
%yr
1997-98
2001-02
2005-06
2009-10
2013-14
1998-99
2003-04
Mining
2008-09
2013-14
All industries
Source: ABS
Source: ABS
bree.gov.au
133
In aggregate, total factor income has increased 250 per cent since
2003-04 and totalled $119 billion in 2012-13. Over this period there
was no significant difference between the growth in factor income
going to capital and to labour which increased 250 per cent and 255
per cent, respectively.
The share of total factor income going to labour fluctuated in the
period, but has continued a long-term decline that commenced prior
to the start of the mining boom. After all, the mining industry is
becoming more capital intensive - while employment has increased
150 per cent in the past decade, annual capital expenditure has
increased by over 800 per cent in the same period.
Figure 15.15:
Total factor income - mining
140
120
100
80
60
40
Asymmetric risks to capital and labour are also reflected in factor

income. While labours factor income has grown each year since
2003-04. By comparison, capital factor income declined three times
in the same period and growth rates have been more volatile than
labour factor income. Capital in the mining industry may receive a
greater share of factor income, but capital holders have been more
exposed to industry downturns in the past decade.
Figure 15.16:
Annual factor income growth
20
1997-98
2007-08
Capital
2012-13
Labour
Source: ABS
Figure 15.17:
60
2002-03
Labour share of total factor income
35
50
30
40
25
30
20
20
10
15
%yr
10
-10
-20
-30
1997-98
2000-01
2003-04
Labour
Source: ABS
bree.gov.au
2006-07
2009-10
2012-13
1991-92
1994-95
Capital
1997-98
2000-01
2003-04
Labour Share
2006-07
2009-10
2012-13
Trend
Source: ABS
134
Looking forward
The transition to the output phase brings a new set of challenges for
the Australian resources industry. While commodity consumption is
projected to increase, lower commodity prices and increased global
competition for key markets means producers will need a greater
focus on reducing their costs. Reductions in exploration expenditure
and staff numbers, as well as greater capital expenditure discipline,
are already evident, but there will be a need to address the slide in
industry productivity.
Mining will be an important industry for Australia as the boom
transitions to the production phase. In 2013-14 the mining industry
generated 11 per cent of Australias GDP from 2.3 per cent of its
workforce. As the Treasurer, Joe Hockey, pointed out on budget
night (2014), the mining industry produces more GVA per unit of
labour than any industry in Australia. As an increasing proportion of
the Australian population move to retirement age, industries, like
mining, that can produce the best returns on labour will be key
contributors to the Australian economy.
Figure 15.18:
Figure 15.17:
Mining industry productivity
250
200
150
100
50
11-12
=100
1997-98
2000-01
2003-04
Labour
2006-07
2009-10
2012-13
Capital
Source: ABS
Real gross value added per worker
700
600
500
400
300
200
100
A$
000
Source: ABS
bree.gov.au
135
Trade Summary Charts and Tables
bree.gov.au
136
Figure 1:
Contribution to GDP, 2013-14 dollars

200304
201314
$1516.9b
$1569.5b
2%
6%
9%
Services
6%
2%
Services
8%
Mining
9%
Building and construction
Mining
10%
Building and construction
Manufacturing
73%
Manufacturing
73%
Agriculture, forestry and fishing
Agriculture, forestry and fishing
Principal markets for Australias total imports

2013-14 dollars
Figure 2:
2003-04
2013-14
$172.1b
$252.1b
12%
China
China
United States
United States
15%
43%
Singapore
Singapore
Germany
Germany
44%
10%
South Korea
12%
4%
4% 4%
bree.gov.au
6%
Japan
20%
Japan
South Korea
Malaysia
Malaysia
7%
Other
Other
4% 4% 5%
5%
137
Principal markets for Australias resources and

energy imports, 2013-14 dollars
Figure 3:
2003-04
2013-14
$20.3b
$52.9b
Singapore
Singapore
Malaysia
15%
25%
Malaysia
17%
Other Asia
8%
South Korea
Other Asia
35%
South Korea
11%
Japan
Middle East
13%
24%
9%
Indonesia
Japan
Middle East
10%
5%
Other
6%
3%2%
8%
Indonesia
Other
7%
Principal markets for Australias total exports

2013-14 dollars
Figure 4:
2003-04
2013-14
$143.2b
$273.2b
China
9%
China
Japan
32%
18%
South Korea
India
New Zealand
7%
12%
4%
bree.gov.au
9%
South Korea
European Union 28
United States
8%
Japan
24%
Other
36%
3%
4%
3%
4%
7%
European Union 28
United States
India
New Zealand
18%
Other
138
Principal markets for Australias resources exports,

2013-14 dollars
Figure 5:
2003-04
2013-14
$43.8b
$123.7b
China
China
Japan
10%
1%
1%
2%
Other Asia
14%
36%
Korea, Rep. of
European Union 28
11%
3%
8%
9%
8%
9%
Other Asia
7%
Korea, Rep. of
European Union 28
8%
60%
India
Thailand
Japan
11%
India
Thailand
Other
Other
Principal markets for Australias energy exports,

2013-14 dollars
Figure 6:
2003-04
2013-14
$27.2b
$71.5b
Japan
Japan
5%
China
12%
7%
China
9%
Other
38%
Other
12%
41%
Other Asia
13%
South Korea
Other Asia
13%
South Korea
17%
6%
bree.gov.au
India
14%
India
139
Figure 7:
Contribution to exports by sector, 2010-11
Proportion of merchandise exports
14.1%
Proportion of exports of goods and services
13.9%
16.9%
11.6%
Rural
Rural
Mineral resources
Mineral resources
11.7%
Other merchandise
Other merchandise
59.8%
72.0%
Figure 8:
Services
13.9%
14.1%
16.0%
11.8%
Rural
Rural
11.7%
Mineral resources
Mineral resources
Other merchandise
Other merchandise
72.0%
bree.gov.au
60.5%
Services
140
Figure 9:
14.3%
15.7%
18%
13%
Rural
Rural
Mineral resources
Mineral resources
12%
Other merchandise
Other merchandise
58%
70.1%
Figure 10:
Services
10.8%
15.2%
17.4%
12.5%
Rural
Rural
8.9%
Mineral resources
Mineral resources
Other merchandise
Other merchandise
74.1%
bree.gov.au
61.2%
Services
141
Principal markets for Australias thermal coal exports, 2013-14 dollars

2009-10
2010-11
2011-12
2012-13
2013-14
Japan
A$m
6 703
7 405
8 619
7 934
7 667
China
A$m
1 185
1 702
2 851
2 932
3 455
South Korea
A$m
2 399
2 746
3 064
2 774
2 756
Chinese Taipei
A$m
1 867
1 963
1 907
1 707
1 652
Malaysia
A$m
159
338
373
278
344
Thailand
A$m
163
202
179
243
288
Total
A$m
13 155
14 979
17 960
16 587
16 699
Principal markets for Australias metallurgical coal exports, 2013-14 dollars

2009-10
2010-11
2011-12
2012-13
2013-14
China
A$m
4 386
3 021
3 759
4 724
5 862
Japan
A$m
7 624
9 175
9 255
6 110
5 499
India
A$m
6 052
7 597
6 779
4 706
4 820
South Korea
A$m
2 754
4 010
4 019
2 492
2 458
Chinese Taipei
A$m
1 007
1 812
1 928
1 184
1 165
Netherlands
A$m
722
1 021
1 330
997
1 004
Total
A$m
27 143
31 977
32 210
23 014
23 268
bree.gov.au
142
Principal markets for Australias oil and gas exports, 2013-14 dollars
2009-10
2010-11
2011-12
2012-13
2013-14
Japan
A$m
9 609
11 311
13 531
14 803
16 355
China
A$m
1 963
3 202
3 809
2 781
2 259
South Korea
A$m
2 650
2 815
1 828
2 224
1 705
Singapore
A$m
2 402
2 017
2 862
2 760
2 297
Thailand
A$m
1 290
1 883
1 025
844
1 641
India
A$m
554
987
310
181
127
Total
A$m
21 021
25 386
27 018
27 144
29 321
2009-10
2010-11
2011-12
2012-13
2013-14
Principal markets for Australias gold exports, 2013-14 dollars
China
A$m
679
4 472
6 140
8 110
Singapore
A$m
191
1 197
1 177
969
2 273
United Kingdom
A$m
4 607
3 758
4 745
2 684
640
Turkey
A$m
67
479
537
Thailand
A$m
1 454
2 540
1 686
1 304
445
Switzerland
A$m
13
35
294
345
Total
A$m
14 383
13 970
16 222
15 445
13 009
bree.gov.au
143
Principal markets for Australias iron ore exports, 2013-14 dollars

2009-10
2010-11
2011-12
2012-13
2013-14
China
A$m
27 856
42 887
45 602
43 021
57 185
Japan
A$m
6 640
11 098
11 410
8 838
9 666
South Korea
A$m
3 181
6 495
6 785
5 055
6 096
Chinese Taipei
A$m
1 002
2 079
1 883
1 535
1 710
Indonesia
A$m
110
India
A$m
16
49
36
Total
A$m
38 818
62 667
65 778
58 549
74 824
2009-10
2010-11
2011-12
2012-13
2013-14
Principal markets for Australias aluminium exports, 2013-14 dollars
Japan
A$m
1 442
1 506
1 387
1 030
1 118
South Korea
A$m
860
933
614
695
678
Chinese Taipei
A$m
501
558
390
468
441
Thailand
A$m
428
348
344
374
304
China
A$m
133
147
199
153
233
Indonesia
A$m
265
279
317
255
195
Total
A$m
4 247
4 484
3 984
3 361
3 482
bree.gov.au
144
Principal markets for Australias copper exports, 2013-14 dollars

2009-10
2010-11
2011-12
2012-13
2013-14
China
A$m
2 269
2 637
2 619
3 115
3 941
Japan
A$m
1 309
1 467
1 559
1 657
1 608
India
A$m
1 306
1 446
1 523
1 138
948
Malaysia
A$m
321
696
736
694
613
South Korea
A$m
893
1 083
903
450
580
Philippines
A$m
185
197
20
144
285
Total
A$m
7 200
9 039
8 919
8 251
8 691
2009-10
2010-11
2011-12
2012-13
2013-14
Principal markets for Australias iron and steel exports, 2013-14 dollars
United States
A$m
299
288
172
132
105
New Zealand
A$m
107
95
89
81
94
Thailand
A$m
119
153
116
103
36
Indonesia
A$m
44
56
52
45
36
Philippines
A$m
19
Brazil
A$m
73
39
87
16
18
Total
A$m
1 240
1 399
1 032
842
724
bree.gov.au
145
BREE Contacts
Deputy Executive Director
Wayne Calder
wayne.calder@bree.gov.au
(02) 6243 7901
Resources Program
John Barber
john.barber@bree.gov.au
(02) 6243 7988
Gas Market Program
Ross Lambie
ross.lambie@bree.gov.au
(02) 6243 7548
Energy Program
Allison Ball
allison.ball@bree.gov.au
(02) 6243 7500
Data and Statistics Program
Geoff Armitage
geoff.armitage@bree.gov.au
(02) 6243 7510
Research and Analysis

Program
Arif Syed
arif.syed@bree.gov.au
(02) 6243 7504
bree.gov.au
146
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Resources and Energy Quarterly

September Quarter 2014

Resources and Energy Quarterly, September 2014

BREE projects Australias earnings from resources and energy

However, Australia is not alone in increasing production of resources

Resources and Energy Quarterly, September 2014

14. Fuelling the Future

15. The mining boom the story so far

16. Trade summary charts and tables

Resources and Energy Quarterly, September 2014

The global economy

The global economy is forecast to grow by 3.5 per cent in 2014,

Over the medium term, world economic growth is assumed to rise to

While the outlook is generally positive, there are a number of risks to

World economic growth

Sources: IMF; BREE.

Economic growth in selected economies

Sources: IMF; BREE.

Resources and Energy Quarterly, September 2014

Table 1.1: Key world macroeconomic assumptions

Resources and Energy Quarterly, September 2014

The outlook for key economies

US unemployment and participation, monthly

The US economic recovery has continued to gain momentum in

Over the remainder of 2014, the US is forecast to continue its

The United States

In response to positive economic indicators, consumer and

Labor force participation rate (lhs)

Unemployment rate (rhs)

Source: US Bureau of Labour Statistics.

Sources: IMF; BREE.

Resources and Energy Quarterly, September 2014

Chinas quarterly contribution to GDP

Credit growth dropped sharply in July reflecting concerns about

gross capital formation

Growth in Chinas fixed asset investment

final consumption expenditure

Resources and Energy Quarterly, September 2014

The cyclical downturn in the real estate sector is expected to

Chinas residential sales and starts

Chinas manufacturing PMI

Apr-10 Jan-11 Oct-11

Data is three month moving average of monthly growth rate.

China National Bureau of Statistics

Source: CEIC; Bloomberg.

Resources and Energy Quarterly, September 2014

Indias quarterly contributions to GDP

However there remain considerable challenges in achieving

Fixed capital formation

Indias current account

Resources and Energy Quarterly, September 2014

Japans economy contracted at an annualised rate of 7.1 per cent in

The performance of Japans economy over the coming months will

Japans longer term growth strategy hinges around raising

Japans quarterly GDP, annualised

South Korea is heavily export dependent, with exports accounting for

South Koreas quarterly GDP

Resources and Energy Quarterly, September 2014

Europes unemployment (seasonally adjusted)

Europes industrial production, retail sales and inflation

Euro area industrial production

Resources and Energy Quarterly, September 2014

Economic outlook for Australia