Australia Forecasts Record Commodity Sales on China (Update2)

Australia Forecasts Record Commodity Sales on China (Update2)

By Madelene Pearson

March 4 (Bloomberg) -- Commodity exports from Australia, the world's biggest shipper of coal, iron ore and wool, are forecast to gain to a record for a fifth straight year driven by demand for steelmaking raw materials led by China.

Sales may reach A$189.1 billion ($178 billion) in the year ending June 30, 2009, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a statement. That compares with a revised A$145.6 billion this fiscal year.

Prices for the nation's top five commodity exports, iron ore, coking and thermal coals, gold and crude oil have risen to records this year, benefiting producers including BHP Billiton Ltd. Robust economic growth is expected in China this year along with strong demand for Australia's resources, the bureau said in a report.

``China is far and away the biggest underlying force'' driving sales, Peter Arden, an analyst at Ord Minnett Ltd., an affiliate of JPMorgan Chase & Co., said by phone from Melbourne. ``The outlook is very, very rosy.''

China's economy expanded 11.4 percent in 2007, the fastest in 13 years, and consumer prices gained 4.8 percent, outstripping the government's 3 percent target. China's demand is driving Australia's 17th year of economic growth as companies spend a record A$57.9 billion developing mines and oil fields.

``Continued strong economic growth, industrialization and urbanization in China are putting pressure on domestic resources,'' the forecaster said in its March quarter report. ``This has the potential to make China a strategically important player in global markets and to provide increased export opportunities for Australia's commodity industries.''

Wheat Rebound

Commodity export earnings are projected to be little changed in real terms at A$187.2 billion in 2009-10, before easing to around A$176 billion by 2012-13, it said.

Wheat production in Australia may almost double to 26 million metric tons in fiscal 2009, the bureau said, as the nation recovers from its worst drought in history. This would be second only to the record 26.1 million tons crop of 2003-2004. Total farm exports will rise 18 percent to A$31.4 billion, it said.

``There is a very good chance of a bumper winter grains crop'' should there be improved rains, bureau executive director Phillip Glyde said in the statement. A record dry spell slashed output of wheat, the top agricultural export, the past two years.

Sales of iron ore, the nation's number one earner, may rise 61 percent in fiscal 2009 to A$32.5 billion. Earnings from coking coal, used in steelmaking, and thermal coal, used in power stations, are tipped to gain 97 percent and 80 percent respectively. Global steel production is projected to grow on average by 4.8 percent a year, the bureau said.

China Steel

``Steel consumption is expected to continue growing most rapidly in China,'' the forecaster said. ``The positive outlook for world steel production will support increased demand for steel inputs, principally iron ore and metallurgical coal, over the medium term.''

Contract prices for iron ore in the year starting April 1 have so far increased by as much as 71 percent, the bureau said. Prices for hard-coking coal in the year starting April 1 may surge to a record $200 a metric ton from $98 a ton this contract year, a Bloomberg survey last month showed. Spot prices for thermal coal and coking coal have also climbed to records this year after flooding at mines in Australia and snowstorms in China.

Key Drivers

``China's construction and infrastructure projects are really the key drivers of demand,'' said Gerard Burg, a minerals and energy economist at National Australia Bank Ltd. ``If China remains firm that means positive conditions for commodities.''

Exports of minerals and energy are forecast to jump 33 percent to A$153.4 billion in fiscal 2009, the bureau said. Earnings from energy commodities are forecast to gain 54 percent to A$66.8 billion on increased volumes and higher prices for coal and oil. The bureau expects the price of West Texas Intermediate crude oil to average $86 a barrel in 2008, 20 percent higher than a year earlier.

Australia's earnings from minerals and metals are forecast to gain 21 percent to A$86.7 billion, the bureau said. Gold prices, which rose to a record yesterday, may average $870 an ounce in 2008, 25 percent higher than the year earlier.

The value of wheat exports may more than double to A$4.7 billion as farmers sow a record area, the bureau said. Earnings from cotton, sugar, wine, beef and most dairy products are also tipped to gain, it said.