Wednesday 26 February 2020 by Thomas Jacquot outlook-main General

2020 Credit Outlook: Resources

Australia has reaped record earnings from resource and energy exports in recent years, a trend which we expect to continue in the short term before earnings moderate in 2021. 


We have reproduced below the executive summary of our recently published 2020 Credit Outlook report on Resources. To access the full version, please click here.

• Exports for many of Australia’s resources and energy commodities are forecast to surge in value in 2019-20 before falling back in line with or below current levels. Notwithstanding weaker prices, both higher export volumes and a relatively low Australian dollar (compared to recent years) are likely to see Australia’s resource and energy exports grow over the coming years. We anticipate iron ore, liquefied natural gas (LNG) and coal exports will remain the primary sources of export earnings in the short to mid-term.

Graph Credit outlook resource

  • Australia’s iron ore export earnings are expected to reach a new record of AUD84bn in 2019-20, up AUD5bn from the prior record with growth to stem from increases in export volumes over the coming year. However, we believe the unwinding of the 2019 iron ore price spike will likely offset any further increases in iron ore production and exports over the medium term.
  • LNG trade has grown rapidly in recent years, driven by a ramp up of new projects in the US and Australia, and surging demand in Asia. Global supply growth has swiftly outpaced increases in demand and this trend is expected to continue in 2020. Saying that we see minimal growth prospects for Australia’s LNG exports over the short term given no new capacity additions are forecast through 2021.
  • We believe Australia’s coal production and earnings will show modest growth through 2021, continuing current trends. However, we note that the outlook for coal as a whole is heavily dependent on the speed of transition to renewable energy sources, the adoption of new technologies and the rate of global growth. 
  • In the coming years, Australia is expected to maintain its position as the largest player in the global seaborne metallurgical (met) coal market. This outlook is supported by Australia’s proximity to key export markets, particularly key growth areas such as India. While we see it likely that steel production (and consequently met coal demand) will dampen in China, we believe growth in India’s steel sector should support Australia’s met coal export growth over the next two years.

Coal Imports

Source: The Office of the Chief Economist: Resources and Energy Quarterly December 2019 e denotes OCE estimates , f denotes OCE forecasts 
  • While increased switching to renewable energy sources is expected to exacerbate the erosion of thermal coal’s share in the electricity mix, we believe the absolute volume of coal being consumed will remain relatively stable in the coming years. We anticipate declines across Europe to be offset as some countries (namely China and India) increase consumption. Australia’s export volumes are forecast to grow incrementally in 2020 and 2021, the impact of lower prices is expected to offset the increase in volume which will result in a decline in thermal coal export earnings.
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