| Performance of agriculture and resource industries in northern pastoral Australia |
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| Daniel Mackinnon, Peter Martin, Trish Gleeson and commodity analysts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| This paper presents the current outlook for agricultural and resource commodities in northern pastoral Australia, along with recent financial performance information for key agricultural industries, particularly in the Northern Territory. Employment data for the Northern Territory is also reported and discussed. Northern Pastoral Australia as defined in this paper is outlined in map 1. The region extends from Exmouth in the Pilbara region of Western Australia in the west, to around Barcauldine (east of Longreach) in central Queensland in the east, and from the South Australian border in the south, to Darwin in the north. |
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| Agricultural sector profile | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Northern pastoral Australia is characterised by extensive cattle stations. In value terms, beef cattle production is the most significant agricultural product in the region, accounting for 83 per cent, or more than $948 million of the $1.14 billion total value of agricultural production in the region in 2005-06 (figure a). Production of vegetables and fruit also occurs in more closely settled and irrigated areas around Darwin, Katherine and Kununurra in Western Australia. Vegetables accounted for 5 per cent ($61 million) of the total value of agricultural production in the region in 2005-06, with rockmelons accounting for 38 per cent, pumpkins 25 per cent, and watermelons 17 per cent of the total value of vegetable production. Mangoes, which are mostly produced in the Northern Territory, accounted for 3 per cent ($31 million) and other (tropical) fruit 2 per cent ($18 million) of the total value of agricultural production in the region in 2005-06. Sheep and wool production, in central western Queensland, accounted for a further 3 per cent ($38 million) of the total value of agricultural production in 2005-06. |
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| Number and type of farms | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Australian Bureau of Statistics (ABS) data indicate that in 2005-06 there were 2657 farms in northern pastoral Australia with an estimated value of agricultural operations of at least $5000 (table 1). Farms are classified in table 1 according to activities that generate most of their value of production. In northern pastoral Australia, 56 per cent of farms were classified as beef cattle farms in 2005-06. Fruit farms were the second most common farm type in 2005-06, accounting for 11 per cent of farms, followed by mixed sheep-beef farms which accounted for around 9 per cent of farms. Beef farms were the most prevalent farm type in the Northern Territory in 2005-06, accounting for 37 per cent of all farms and a further 33 per cent of farms were fruit producers. As in most parts of Australia, the share of farms with a low value of agricultural production is relatively high. Around 38 per cent of farms had a total value of agricultural production less than $100 000 and these farms accounted for only 2 per cent of the total value of agricultural production in northern pastoral Australia in 2005-06. The majority of production is from large farms. Two-thirds of the total value of production was from the 14 per cent of farms that had a turnover of more than $1 million, in 2005-06 (figure b). |
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| Employment in the Northern Territory | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ABS employment data for the three months ended August 2008 indicate 111 800 people were employed in the Northern Territory. The retail trade sector employed the largest number of people, accounting for 16 per cent (17 500 people) of total employment in the territory, followed by the government administration and defense sector, which employed 13 per cent (14 400 people). The construction industry accounted for a further 10 per cent (10 900 people) and the property and business services industry another 9 per cent (10 400 people). Mining was the 10th largest employer, accounting for 4 per cent (5000 people) while agriculture, forestry and fishing was only the 13th largest employer in the Territory, accounting for just 3 per cent, or 2900 people, of the total labour force (figure c). Total employment in agriculture, forestry and fishing averaged 2419 persons for the whole of 2007-08 in the Northern Territory, according to the ABS. Employment in the agriculture, forestry and fishing sector fell sharply in 2002-03 from an average of 3800 persons for the two years to 2001-02, as the value of agriculture, forestry and fishing production declined by around 14 per cent. Total employment in the agriculture, forestry and fishing sector then increased in 2006-07 and 2007-08 as the value of production recovered strongly. |
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| Indigenous employment in the Northern Territory | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Only 8 per cent of people employed in the agriculture, fisheries and forestry industries in the Northern Territory in 2005-06 were indigenous (167 people) according to ABS employment data. This represents 4.6 per cent of Australia’s total indigenous workforce in the agriculture, fisheries and forestry industries. Most indigenous people working in the agriculture, fisheries and forestry sector work on beef cattle farms. Beef cattle farms accounted for 63 per cent (105 people) of the indigenous workforce, while forestry support services accounted for a further 10 per cent of the territory’s indigenous employment in the industry in 2005-06 (figure d). Only 1.4 per cent of all employed indigenous people in the Northern Territory worked in the agriculture, fisheries and forestry industries in 2005-06. This proportion was relatively higher in the Aboriginal and Torres Strait Islander Commission (ATSIC) regions of Katherine and Tennant Creek, where agriculture, fisheries and forestry industries accounted for around 3 per cent of total employment. Similarly, mining accounted for 1.5 per cent of indigenous employment in the Territory with Alice Springs having the largest proportion of indigenous people employed in mining of all ATSIC regions (figure e). Almost 37 per cent of indigenous people working in agriculture, fisheries and forestry industries in the Northern Territory work in the Katherine region (figure f). Jabiru has the second largest proportion of these workers in the territory, accounting for 18 per cent. The distribution of non-indigenous workers in the agriculture, fisheries and forestry industries in the Northern Territory is markedly different, with the largest proportion of non-indigenous workers in the Darwin region and the second largest proportion in Katherine. |
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| Agricultural sector performance | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Live cattle industry | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Northern Australia accounts for the majority of Australia’s exports of live cattle. In recent years, more than 80 per cent of total live cattle exports, including most slaughter and feeder cattle, have been sourced from northern Australia. In 2007-08, northern Australia exported just fewer than 703 000 live cattle for slaughter, valued at $438 million (figure g). South East Asian and Middle Eastern markets remain the main destinations for northern Australian live cattle exports. Indonesia is the most important market, while Israel, Malaysia and the Philippines are also significant. Exports to Israel have risen steadily, while exports to the Philippines have fallen in recent years. In the five year period to 2007-08, 87 per cent of the total value of live cattle exports from northern Australia was to these four countries (figure h). In 2003-04, the higher value of the Australian dollar, strong domestic competition for cattle for slaughter, competition from Brazilian and Indian beef and buffalo meat, together with slowing economic growth in Indonesia, the Philippines and Egypt, resulted in a sharp reduction in the number of live cattle exported. However, particularly since 2006-07, the number and value of live cattle exports has increased, largely because of renewed demand from Indonesia. In 2007-08, exports of live cattle are estimated to have increased by 12 per cent to around 713 000 head nationally, as the supply of suitable cattle from Australia increased and demand from Indonesia continued to grow. |
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| Broadacre farm performance | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Australia | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The broadacre sector of agriculture is defined to include five industry types: wheat and other crops, mixed livestock–crops, sheep, beef and sheep–beef. In simple terms, broadacre farms are those which run beef cattle or sheep, or grow grains, pulses or oilseeds or some combination of these activities. Farm cash income for Australian broadacre farms strengthened in 2007-08, from the low income recorded in 2006-07 (figure i). This was because of the combination of improved seasonal conditions in some states which enabled producers in these states to reduce expenditure on fodder and increase grain and livestock production, and because of higher commodity prices – particularly for grains. Farm cash income for Australian broadacre farms rose from an average of $42 500 per farm in 2006-07 to an estimated $88 000 per farm in 2007-08. Average farm business profit for Australian broadacre farms also increased in 2007-08. Farm business profit is estimated to have increased by more than the increase in farm cash income. Higher cash flow was augmented by a buildup in the value of farm trading stocks as producers, particularly in northern Australia, increased livestock numbers and on-farm reserves of fodder and grain. |
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| Northern pastoral Australia | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In 2006-07, improved seasonal conditions in northern pastoral Australia encouraged beef producers to rebuild cattle herds. Cattle turn-off was reduced (lowering farm receipts) and purchases of beef cattle increased (raising farm costs). As a result, farm cash incomes fell (figure I), but the increase in cattle numbers on farms led to a substantial buildup in the value of farm trading stocks and to much higher farm business profit for northern pastoral broadacre farms in 2006-07. In 2007-08, drier seasonal conditions led to increased turn-off of beef cattle and increased beef cattle receipts in the northern pastoral region, despite a small reduction in prices received for beef cattle. Expenditure on beef cattle purchases was reduced from the high level in 2006-07, but overall, costs are estimated to have increased. Expenditure on fuel and interest payments increased along with higher costs of freighting and marketing the increased turn-off of beef cattle. In addition, agistment expenditure remained relatively high. Farm cash income for northern pastoral region broadacre farms is estimated to have risen from around $103 000 per farm in 2006-07 to around $124 000 per farm in 2007-08 (table 2). Average farm business profit is also estimated to have remained relatively high in 2007-08, but to have been well below that of 2006-07, with the increase in cattle numbers and, therefore, the buildup in trading stocks in 2007-08, having been much less than in 2006-07 (table 2). |
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| Northern Territory | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Historically, the financial performance of broadacre properties in northern pastoral Australia and the Northern Territory, on average, has exceeded that of Australian broadacre farms, as exemplified by higher farm cash incomes (figure j). This largely reflects the predominance of larger scale farms in northern Australia. Between the mid-1980s and 2001-02, the financial performance of northern pastoral and Northern Territory properties steadily increased (figure j). On-farm productivity improvements have played an important role in lifting farm cash incomes of broadacre farms in northern Australia during the past two decades. Productivity growth is a measure of the gains from technological change and the adoption of better farming methods to improve on-farm efficiency. The key measure of improvement is ‘total factor productivity’, which expresses productivity as the growth in the value of outputs per dollar of expenditure on inputs. Strong productivity growth coincided with major developments in the northern beef industry, including the growth of the live cattle export trade. |
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| Since 2002-03, there has been a pronounced increase in the variability of average annual farm cash income of Northern Territory broadacre properties resulting in a strong “saw tooth” pattern of farm cash incomes (figure j). Over this period, the average farm cash income, rates of return and other measures of financial performance have been strong. However, the development of this pattern of farm cash incomes has been because of a combination of circumstances: drought in the southern Northern Territory, particularly in 2002-03, 2004-05 and 2007-08; a downturn in live cattle exports from 2002-03, resulting in producers targeting slaughter markets; and increased transfers of cattle between corporate group properties in the Northern Territory and other states, particularly Queensland. In 2007-08, dry seasonal conditions in areas to the south around Alice Springs and increased numbers of cattle from northern regions directed to live export markets resulted in higher beef cattle turn-off. Consequently, despite lower average prices received, total cash receipts increased (table 2). Fewer beef cattle were purchased because of the drier conditions in the south, but other farm costs, particularly fuel and freight, increased. Overall, higher cash receipts outweighed increased expenditure and farm cash incomes rose. But with little increase in cattle numbers and, therefore, lower trading stock values compared with the previous two years, farm business profit declined. |
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| Beef industry | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nationally, farm cash incomes for beef industry farms fell in 2006-07 because of severe drought. Incomes fell further in 2007-08, partly because of a reduction in beef cattle turn-off as farms rebuilt herds, and partly because of increases in farm cash costs. Cattle purchases increased and fuel, fertiliser and interest costs rose while fodder expenditure remained high across southern states. More than 85 per cent of broadacre farms in northern pastoral Australia and 98 per cent of broadacre farms in the Northern Territory are classified as beef farms. As a consequence, the incomes of beef industry farms in these areas are the same as for broadacre farms (figure k). |
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| Land values | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nationally, and particularly in northern pastoral Australia, strong demand for rural land in recent years has increased the value of farms’ capital bases. According to ABARE’s farm surveys, land values for northern pastoral Australia have increased more than three-fold since 1999-2000 (figure l). Rising land values have increased farm equity and have enabled producers to borrow more, both for working capital and for farm expansion and investment.Rising farm capital values in recent years have resulted in high rates of return including capital appreciation (table 2). | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Resource sector performance | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Australia’s export earnings from mineral and energy resources were a record $117.4 billion in 2007-08, 11 per cent or $11.5 billion higher than in 2006-07, buoyed by strong demand, particularly from China. The recent financial market turmoil is likely to affect economic growth in the United States, Western Europe and some other OECD countries. The impact on economic growth in Asian and other emerging market economies is expected to be less significant. However, there is a risk economic growth in Asian and other emerging economies could slow more significantly if the downturn in the OECD countries is more severe or prolonged than currently anticipated. In the second half of 2008, prices for a number of energy and mineral commodities have declined reflecting weaker demand growth associated with a slowdown in global economic growth. Partially offsetting these downward pressures, commodity prices were supported by an increase in investment demand for commodities in the first half of 2008. Investors purchased commodities such as gold, oil and copper to hedge against a falling US dollar. However, the US dollar has recently appreciated against major currencies and investment demand for commodities has since weakened. This has contributed to a significant decline in prices for a number of commodities, including oil, over the past few months. In contrast, contract prices for bulk commodities, including coal and iron ore, have reached record levels. Contract negotiations for the Japanese fiscal year 2008-09 (April 2008 to March 2009) resulted in prices for iron ore, and metallurgical and thermal coal increasing by 85 per cent, 200 per cent and 125 per cent, respectively. A sharply lower Australian dollar will also provide support for export earnings as most energy and mineral commodities are traded in US dollar terms. As such, Australian dollar denominated commodity prices are higher when the Australian dollar is weaker, all else being equal. The Australian dollar in mid-October was trading below US70c, compared with a high of US98c in mid-July. Demand for energy and mineral commodities will continue to be underpinned by economic growth in emerging economies. However, the duration and extent of the global economic slowdown and the period of instability associated with global credit markets present risks to energy and mineral demand over the next year or so. Growth in emerging market economies, particularly China, is expected to moderate. However, while export demand will soften, rising domestic demand as a result of industrialisation and urbanisation is contributing to a significant proportion of minerals demand in these economies, reducing the importance of export markets to their economic growth. |
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| Major resources sector projects | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exploration expenditure in Australia’s minerals and energy sector in 2007-08 was estimated to be a record $6.1 billion, or two and a half times the average annual expenditure on mineral exploration over the previous 25 years. No major mineral resource developments were completed in the Northern Territory in the six months October–April 2008 but several gas, infrastructure and metal mining projects were completed in northern Western Australia, including the Stybarrow oil field, the Dampier to Bunbury gas pipeline expansion (Stage 5A), the Hope Downs Stage 1 iron ore project and the Western Australian Iron Ore Rapid Growth Project 3 development. In Queensland, several coal mining and infrastructure projects— the Blackwater coal handling and processing facility; the Dawson project; the Sonoma coal project; the Blackwater to Burngrove rail duplication; the Callemondah to RG Tanna 3rd spur; the Dalrymple Bay coal terminal 3rd rail loop; the Dalrymple Bay coal terminal 7X expansion project phase 1; and the RG Tanna coal terminal expansion — and the Yabulu extension project (nickel) were completed. In the Northern Territory, there were nine energy projects — the Montara/Skua oilfield phase 1 project and phase 2 expansion; the Bonaparte gas pipeline; the Ranger laterite processing plant; and the Ranger pit extension — and four mining projects — Browns Oxide (copper) project; McArthur River concentrator expansion (lead/zinc); McArthur River conversion to open cut (lead/zinc) — at advanced stages of development at the end of April 2008, worth a total of $1.4 billion in capital expenditure. Since April 2008, the Browns Oxide project in the Northern Territory has been completed and production commenced in the September quarter. The mine, which had a capital cost of $140 million, has an annual production capacity of 10 000 tonnes of copper, 900 tonnes of cobalt and 800 tonnes of nickel. Copper, zinc, lead, uranium and iron ore, oil and gas, diamond, gold, coal and infrastructure projects in northern Australia are expected to be completed by the end of 2012 (map 2), ensuring that minerals and energy production continues to increase. Table 3 lists the major development projects for northern Australia as at April 2008. In May and November of each year, ABARE produces a listing of major mining and mineral development projects in Australia. The next list, representing development projects in the six months from May to October 2008, will be released on 19 November on ABARE’s website (abare.gov.au). |
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| presented by | |
in partnership with |
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Northern Territory |
Northern Pastoral Australia |
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2005-06 |
2006-07 p |
2007-08 s |
2005-06 |
2006-07 p |
2007-08 s |
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| Receipts | |||||||||||
| Beef cattle sales | $ |
918 000 |
838 000 |
(18) |
1 149 000 |
417 000 |
384 000 |
(8) |
470 000 |
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| Total cash receipts | $ |
1 731 000 |
1 552 000 |
(19) |
2 190 000 |
708 000 |
625 000 |
(7) |
677 000 |
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| Costs | |||||||||||
| Beef cattle purchases | $ |
121 000 |
209 000 |
(28) |
110 000 |
39 000 |
93 000 |
(23) |
55 000 |
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| Fodder | $ |
91 000 |
71 000 |
(27) |
89 000 |
40 000 |
32 000 |
(12) |
30 000 |
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| Fuel, oil and lubricants | $ |
137 000 |
145 000 |
(9) |
171 100 |
40 000 |
38 000 |
(7) |
48 640 |
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| Repairs and maintenance | $ |
135 000 |
127 000 |
(12) |
114 000 |
58 000 |
52 000 |
(8) |
56 000 |
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| Interest payments | $ |
47 000 |
82 000 |
(27) |
73 000 |
41 000 |
48 000 |
(21) |
58 000 |
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| Hired labour | $ |
164 000 |
168 000 |
(19) |
156 000 |
44 000 |
38 000 |
(13) |
38 000 |
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| Total cash costs | $ |
1 168 000 |
1 536 000 |
(21) |
1 704 960 |
492 000 |
522 000 |
(9) |
553 320 |
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| Financial performance | |||||||||||
| Total cash receipts | $ |
1 731 000 |
1 552 000 |
(19) |
2 190 000 |
708 000 |
625 000 |
(7) |
677 000 |
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| less total cash costs | $ |
1 168 000 |
1 536 000 |
(21) |
1 704 960 |
492 000 |
522 000 |
(9) |
553 320 |
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| Farm cash income | $ |
563 000 |
16 000 |
(999) |
485 000 |
216 000 |
103 000 |
(33) |
124 000 |
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| plus Buildup in trading stocks | $ |
88 000 |
841 000 |
(26) |
3 000 |
- 44 000 |
216 000 |
(18) |
80 000 |
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| less Depreciation | $ |
91 000 |
98 000 |
(10) |
86 000 |
49 000 |
46 000 |
(6) |
46 000 |
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| less Operator / Manager and | |||||||||||
| family labour | $ |
55 000 |
60 000 |
(8) |
57 000 |
61 000 |
60 000 |
(5) |
63 000 |
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| Farm business profit | $ |
505 000 |
699 000 |
(27) |
345 000 |
62 000 |
213 000 |
(17) |
95 000 |
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| Profit at full equity | $ |
578 000 |
786 000 |
(24) |
447 000 |
115 000 |
255 000 |
(15) |
174 000 |
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| Farm capital, debt and equity | |||||||||||
| Farm capital at 30 June b | $ |
14 237 000 |
15 718 000 |
(13) |
15 390 000 |
6 902 000 |
7 513 000 |
(7) |
7 970 000 |
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| Farm debt at 30 June c d | $ |
607 000 |
1 010 000 |
(30) |
796 000 |
572 000 |
634 000 |
(21) |
732 000 |
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| Equity ratio at 30 June c e | % |
96 |
94 |
(3) |
95 |
92 |
92 |
(2) |
91 |
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| Rate of return f | |||||||||||
| – excl. capital appreciation | % |
4.7 |
6.2 |
(22) |
3.1 |
1.9 |
4.1 |
(13) |
2.3 |
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| – incl. capital appreciation | % |
14 |
19.9 |
(20) |
na |
9.6 |
17.8 |
(14) |
na |
||
| a Farms with an estimated value of agricultural output of greater than $40 000. b Excludes leased plant and equipment. c Average per responding farm. d Harvest loans are not included in farm debt. e Equity expressed as a percentage of farm capital. f Rate of return to farm capital at 1 July calculated as farm business profit plus interest and rent paid expressed as a percentage of total farm capital. p Preliminary estimates. s Provisional estimates. na Not Available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided. |
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|
||||||
| project | status |
expected startup |
capacity |
capital expenditure |
||
|
||||||
| Energy projects | ||||||
| Black coal — mining projects | ||||||
| Carborough Downs longwall Company: CVRD |
expansion, under construction |
2009 |
3 Mt coking |
$400m |
||
| Clermont opencut Company: Rio Tinto |
new project, under construction |
2010 |
12.2 Mt thermal (replacing Blair Athol capacity) |
US$750m (A$860m) |
||
| Kestrel Company: Rio Tinto |
expansion, under construction |
2012 |
1.7 Mt coking |
US$991m (A$1.14b) |
||
| Lake Lindsay opencut Companies: Anglo Coal Australia/Mitsui |
new project, under construction |
late 2008 |
1.9 Mt hard coking, 1.8 Mt PCI, 0.3 Mt thermal |
US$516m (A$690m) |
||
| Vermont Coal Project Company: QCMM |
new project, under construction |
2009 |
4 Mt coking |
$176m |
||
|
||||||
| Black coal — infrastructure projects | ||||||
| Abbot Point Coal Terminal X25 expansion Company: Ports Corporation of Queensland |
expansion, committed |
2009 |
Terminal capacity increase from 21 Mtpa to 25 Mtpa |
$95m |
||
| Abbot Point Coal Terminal yard refurbishment Company: Ports Corporation of Queensland |
refurbishment, committed |
late 2008 |
na |
$68m |
||
| Broadlea to Wotonga rail duplication Company: Queensland Rail |
expansion, committed |
late 2008 |
na |
$74m |
||
| Dalrymple Bay Coal terminal 7X expansion project phases 2/3 Company: Babcock & Brown Infrastructure |
expansion, under construction |
late 2009 |
port capacity increase from 68 to 85 Mtpa |
$770m |
||
| Jilalan Rail Yard upgrade Company: Queensland Rail |
expansion, under construction |
late 2009 |
system capacity increase of 38 Mtpa |
$400m |
||
| Vermont Rail Spur and Balloon Loop Company: Queensland Rail |
new project, committed |
2009 |
4 Mtpa increase |
$46m |
||
|
||||||
| Petroleum — oil and natural gas projects | ||||||
| Angel gas and condensate field Companies: Woodside/BHP Billiton/BP/Chevron Texaco/Shell/Japan Australia LNG |
new project, under construction |
late 2008 |
310 PJ pa gas, 50 kbpd condensate |
$US$1.2b (A$1.38b) |
||
| Blacktip gas discovery Company: ENI Australia |
new project, under construction |
2009 |
650 million cubic metres initially; 1.1 billion cubic metres ultimately |
$500m |
||
| Montara/Skua oilfield (phase 1) includes phase 2 Company: Coogee Resources |
new project, under construction |
late 2008 |
na |
$805m |
||
| Montara/Skua oilfield (phase 2) Company: Coogee Resources |
expansion, committed |
late 2009 |
na |
|||
| North West Shelf project extension (fifth train) Companies: Woodside/BHP Billiton/BP/Chevron Texaco/Shell/Japan Australia LNG |
new project, under construction |
late 2008 |
4.2 Mt LNG |
$2.6b |
||
| NWS North Rankin B Companies: Woodside/BHP Billiton/BP/Chevron Texaco/Shell/Japan Australia LNG |
new project, committed |
2013 (A$5.86b) |
na |
US$5.1b |
||
| Perseus-over-Goodwyn project Company: Woodside Energy |
new project, under construction |
late 2008 |
na |
$800m |
||
| Pluto (train 1) Company: Woodside Energy |
new project, under construction |
late 2010 |
4.3 Mt LNG |
$12b |
||
| Pyrenees Companies: BHP Billiton/Apache Energy |
new project, committed |
early 2010 |
96 kbpd |
US$1.7b (A$1.93b) |
||
| Reindeer gas field/Devil Creek Gas processing plant (phase 1) Companies: Apache Energy/Santos |
new project, committed |
late 2010 |
40 PJ pa gas |
$842m |
||
| Van Gogh Companies: Apache Energy/Inpex Alpha |
new project, committed |
early 2009 |
63 kbpd |
$700m |
||
| Vincent oil field (stage 1) Companies: Woodside Energy/Mitsui |
new project, under construction |
late 2008 |
100 kbpd |
$1b |
||
| Woolybutt Oil Field South Lobe Companies: ENI Australia/Mobil Australia/Tap Oil |
expansion, under construction |
mid-2008 |
6-8 kbpd |
$143m |
||
|
||||||
| Petroleum — gas pipeline projects | ||||||
| Bonaparte gas pipeline Company: Australian Pipeline Trust |
new project, committed |
2009 |
30 PJ pa |
$150m |
||
| Queensland Gas Pipeline Company: SP AusNet |
expansion, committed |
2010 |
25 PJ pa |
$112m |
||
| Uranium | ||||||
| Ranger laterite processing plant Company: Energy Resources of Australia |
new project, under construction |
mid-2009 |
0.40 kt U3O8 |
$28m |
||
| Ranger pit extension Company: Energy Resources of Australia |
expansion, committed |
2011 |
na |
$57m |
||
|
||||||
| Minerals projects — mining | ||||||
| Copper | ||||||
| Browns Oxide project Companies: Compass Resources/Guardian Resources |
new project, under construction |
mid-2008 |
10kt Cu cathode, 0.9 kt Co cathode, 0.80 kt Ni |
$140m |
||
| Ernest Henry underground (stage 1) Company: Xstrata |
expansion, committed |
2009 |
na |
$26m |
||
| Iron ore | ||||||
| Hammersley Iron Brockman 4 project Company: Rio Tinto |
expansion, committed subject to government approval |
2010 |
22 Mt (36 Mt potentially) |
US$1.5b (A$1.72b) |
||
| Hope Downs South Companies: Hancock Prospecting/Rio Tinto |
expansion, under construction |
early 2009 |
8 Mt |
US$250m (A$400m) |
||
| Mesa A Companies: Rio Tinto/ Robe River |
new project, committed subject to government approval |
2010 |
25 Mt |
US$901m (A$1036m) |
||
| Pilbara Iron Ore project (stage 1) Company: Fortescue Metals Group |
new project, under construction |
mid-2009 |
55 Mt |
$3.1b (incl port, rail, mine and handling facility) |
||
| Sino Iron Project Company: CITIC Pacific Mining |
new project, committed subject to government approval |
2009 |
27 Mt (concentrates and pellets in total) |
$5.2b |
||
| Western Australian Iron Ore Rapid Growth Project 4 Company: BHP Billiton |
expansion, under construction |
2010 |
26 Mt |
US$2.15b (A$2.47b) |
||
| Lead-zinc-silver | ||||||
| Handlebar Hill Company: Xstrata |
new project, under construction |
mid-2008 |
na |
US$61m (A$79m) |
||
| McArthur River concentrator expansion Company: Xstrata |
expansion, under construction |
late 2009 |
110 kt of Zn/Pb concentrates |
US$37m (A$50m) |
||
| McArthur River conversion to open cut Company: Xstrata |
new project, under construction |
late 2008 |
nil |
$129m |
||
| Mt Isa zinc-lead concentrator expansion (stages 1 and 2) Company: Xstrata |
expansion, under construction |
late 2008 |
250 kt of Zn, 165 kt Pb, 7.9 Moz Ag |
$160m |
||
| Mungana Company: Kagara Zinc |
new project, under construction |
early 2009 |
50 kt Zn, 8 kt Cu, 6 kt Pb, 50 t Ag, 9000 oz Au |
$80m |
||
| Nickel | ||||||
| Lucky Break Company: Metallica Minerals |
new project, committed |
late 2008 |
1.6 kt Ni |
$20m |
||
| Other commodities | ||||||
| Argyle underground development (diamonds) Company: Rio Tinto |
new project, under construction |
2009 |
nil |
US$1.5b (A$1.7b) |
||
| Liquid helium plant Company: BOC |
new project, committed |
mid-2009 |
896 t He |
$40m |
||
|
||||||
| Minerals infrastructure projects | ||||||
| Iron ore | ||||||
| Cape Lambert port expansion Companies: Rio Tinto/Robe River |
expansion, under construction |
late 2008 |
25 Mt |
US$952m (A$1.09b) |
||
| East Intercourse Island Company: Rio Tinto |
expansion, under construction |
mid-2009 |
nil (wharf upgrade and shiploader replacement) |
US$65m (A$75m) |
||
| Western Australian Iron Ore Infrastructure Company: BHP Billiton |
expansion, committed subject to government approval |
2011 |
increase rail capacity to 300 Mt |
US$1.1b (A$1.3b) |
||
|
||||||
| Minerals Processing Facilities | ||||||
| Copper | ||||||
| Mount Isa Smelter expansion project Company: Xstrata |
expansion, under construction |
mid-2008 |
na |
$60m |
||
| Alumina | ||||||
| Worsley refinery efficiency and growth project Companies: BHP Billiton/Japan Alumina/Sojitz Alumina |
expansion, committed |
2011 |
1100 kt |
US$2.2b (A$2.54b) |
||
| Yarwin alumina refinery expansion (CAR stage 2) Company: Rio Tinto Aluminium |
expansion, under construction |
2011 |
2000 kt |
US$1.8b (A$2.07b) |
||
| Aluminium | ||||||
| Boyne Island Smelter Company: Rio Tinto |
upgrade, committed |
2010 |
nil (replacement of cranes and runways lines 1 and 2) |
US$270m (A$310m) |
||
| Boyne Island Smelter Company: Rio Tinto |
upgrade, committed |
2011 |
nil (replacement of carbon bake furnace lines 1 and 2) |
US$347m (A$400m) |
||
| Outlook for selected commodities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ABARE’s assessment of the outlook for world economic growth is provided in its quarterly publication, Australian Commodities, which also includes market forecasts and detailed discussions of major Australian agricultural, mineral and energy commodities. The forecast summaries presented here for a number of the commodities important in this region are based on information in the September 2008 issue of Australian Commodities. Since its release in late September, there have been significant developments in global financial and commodity markets. These developments will be taken into account in the next issue of Australian Commodities, scheduled for release on December 15, 2008. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beef and veal | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Australian weighted average saleyard price of cattle is forecast to increase by 3 per cent in 2008-09 to 295 cents a kilogram (dressed weight). The forecast increase in prices reflects a decline in slaughterings, particularly of cows and heifers, and an increase in restocker demand as producers begin to rebuild herds, assuming average seasonal conditions for the rest of the financial year. There are a number of factors which could influence cattle prices in 2008-09. A decline in cattle turn-off, an assumed depreciation of the Australian dollar, weaker competition from South American beef and strong demand for Australian beef in emerging markets are all expected to provide support for saleyard prices. However, any increase in prices is likely to be partially offset by the effects on prices of increased competition from the United States in the Korean and Japanese markets. Given the uncertainty surrounding these factors, there is both upside and downside risk to the price forecasts. In 2008-09, total Australian cattle slaughterings are forecast to fall to around 8.7 million head, as producers retain cows and heifers to begin rebuilding herds. However, lower female cattle slaughter is expected to be partially offset by an increase in steer slaughter as a larger number of finished grass fed steers, particularly in Queensland, are turned off. Reflecting the forecast decline in slaughterings, beef production is forecast to fall by 1 per cent to 2.1 million tonnes. Australian beef and veal exports are forecast to fall by 2 per cent in 2008-09, to around 910 000 tonnes (shipped weight), reflecting lower supply and a decline in exports to north Asia as competition from the United States increases. However, demand for Australian beef in emerging markets, such as the Russian Federation and Indonesia, is expected to remain strong, partially offsetting expected lower demand in other markets. Exports of live cattle are also an important segment of the Australian cattle market and add significantly to the total value of Australian exports. More than 80 per cent of total live cattle exports in recent years, including most slaughter and feeder cattle, have been sourced from northern Australia. As such, the economic impacts of changes to livestock export standards or fluctuations in relative prices are concentrated on particular producers and regions. Feeder and slaughter cattle are principally shipped from ports in western and northern Australia. Shipments destined for South East Asia, which make up the majority of live cattle shipments, are loaded mainly in Darwin, followed by Wyndham and Broome. Live cattle exports increased by 12 per cent in 2007-08, largely reflecting strong demand in Indonesia and an increased supply of suitable cattle from Australia. Live exports are forecast to fall by 2 per cent to around 700 000 in 2008-09, but to remain relatively high. This forecast decline reflects higher cattle prices and lower availability of cattle suitable for live export. Demand from Indonesia, however, is expected to remain strong. |
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| Oil | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In July 2008, West Texas Intermediate (WTI) prices peaked at $145 a barrel, a record high in real terms. The world oil price subsequently fell and in late October was trading below US$70 a barrel. The fall in world oil prices since mid July reflects increased production from OPEC members and the expectation of growth in oil demand continuing to slow in the second half of 2008 and during 2009. In 2008-09, Australia’s crude oil and condensate production is forecast to total 26.7 gigalitres (average 460 000 barrels a day), an increase of 5 per cent from 2007-08. This forecast production increase is expected to be supported by the commencement of operations at the Angel, Skua/Swift and Vincent oil fields in late 2008. Increased production from the Stybarrow field is also expected in 2008-09, following its ramp up during the first half of 2008. In addition, the Apache Energy operated Van Gogh project is scheduled to be completed in early 2009, with production increasing toward capacity during the first half of 2009. Reflecting increased production in 2008-09, Australia’s crude oil and condensate exports are forecast to increase by 2 per cent to 16.3 gigalitres. It is assumed a significant proportion of production from fields in the Bonaparte and Carnarvon Basins will be exported given their proximity to Asian refining markets. In 2008-09, the value of Australia’s crude oil exports is forecast to increase by 18 per cent to $12.4 billion. The forecast increase in export values reflects higher volume and the effects of an assumed lower Australian dollar against the US dollar. |
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| LNG | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In September, INPEX Browse Ltd. announced Darwin was its preferred location for its LNG processing facility. The proposed project will initially comprise of two LNG trains with a total capacity of 8 million tonnes a year. A 900 kilometre pipeline will connect the Ichthys gas field to the Darwin LNG plant. The total capital expenditure is estimated to be more than US$20 billion (A$24 billion). A final investment decision on the project is expected to be made by early 2010, subject to environmental approvals and engineering design study completion. During the four year construction, the project is estimated to require 2000 workers and will employ 300 people when fully operational. Australia’s exports of LNG in 2008-09 are forecast to increase by 15 per cent to 16.9 million tonnes. The growth reflects increased capacity of 4.2 million tonnes from the addition of a fifth processing train at the North West Shelf. In addition, the Darwin LNG plant is expected to operate at full capacity in 2008-09, following a scheduled shutdown for maintenance in 2007-08. Reflecting increased LNG prices and higher export volumes, the value of Australia’s LNG exports in 2008-09 is forecast to increase by 50 per cent to $8.8 billion. |
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| Zinc | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Australian zinc mine production is forecast to decline by 5 per cent to 1.49 million tonnes in 2008-09. A falling zinc price has led to several mines closing or reducing output. In Australia, Teck Cominco closed the Lennard Shelf zinc mine in Western Australia (capacity of 80 000 tonnes a year) in early August because falling prices, rising costs and lower than planned production made the mine uneconomic. A number of other producers have downsized their operations. In addition, the falling zinc price provides an incentive for polymetallic operations to target production of other metals. For example, OZ Minerals are targeting ores with higher copper content at its Golden Grove mine at the expense of zinc. These mine closures are expected to more than offset higher production from Terramin’s Angas zinc mine (capacity of 60 000 tonnes a year) which was commissioned in July 2008 and the startup of stage 2 of Xstrata’s Mt Isa zinc concentrator upgrade (additional 75 000 tonnes) scheduled for late 2008. In 2007-08, the impact on export returns of lower zinc prices and the stronger Australian dollar more than offset higher volumes shipped, causing the value of Australian zinc exports to decline by 22 per cent to $3.4 billion. In 2008-09, a decline in production is expected to lead to a fall in export volumes. Lower export volumes, combined with lower zinc prices, are forecast to result in export earnings declining by a further 35 per cent to $2.2 billion. |
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| Iron Ore | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Iron ore contract price negotiations between Australian iron ore miners and Asian steel mills resulted in prices rising by 80 per cent for iron ore fines and 96.5 per cent for lump ore for Japanese fiscal year 2008-09, an average increase of 85 per cent. This was the largest price increase for both iron ore fines and lump, eclipsing a price rise of 71.5 per cent for fines and lump in 2005. The sharp decline in the Australian dollar since these prices were settled means that iron ore prices in Australian dollar terms have increased even further. Iron ore spot prices in China have declined by around 50 per cent since July. This decline is the result of increased iron ore supply, particularly from producers in Australia, China and Brazil, combined with weakening global demand associated with financial market turmoil. As the majority of Australia’s iron ore is sold at contract prices, the declines in spot market prices are not expected to have a large impact on Australia’s iron ore export earnings in the short term. The volume of Australian iron ore exports grew by 14 per cent in 2007-08 to 294 million tonnes and is forecast to increase by a further 21 per cent to 355 million tonnes in 2008-09, reflecting the start up of several iron ore projects. The largest is Fortescue Metals’ Pilbara iron ore project (55 million tonne a year capacity) which commenced exports in May and has quickly ramped up production. Rio Tinto commissioned two projects in the second half of 2007, which will contribute to higher exports in 2008-09. These are the 22 million tonne a year Hope Downs iron ore mine and the expansion of the Yandicoogina mine (additional 16 million tonnes a year). BHP Billiton’s Rapid Growth 3 iron ore project (additional 20 million tonnes a year) was completed in late 2007 and will also add to production and export volumes as it increases output. Significant rises in iron ore prices and forecast increases in volumes shipped are expected to lead to substantial increases in Australia’s export earnings. In 2007-08, a 9.5 per cent increase in iron ore contract prices and a 14 per cent increase in volumes shipped are estimated to have led to iron ore export earnings totalling $20.3 billion, 31 per cent higher than 2006-07. For 2008-09, an average 85 per cent rise in iron ore contract prices and a forecast 20 per cent rise in export volumes are forecast to lift export earnings by around 90 per cent to $39 billion. |
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| Copper | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Australian copper mine production in 2008-09 is forecast to increase by 19 per cent to around 1 million tonnes as a number of new projects start operations and recently commissioned projects approach full capacity. Refined production is also forecast to increase by 19 per cent to 526 000 tonnes in 2008-09. Projects in northern Australia that will support increased mine and refined production in 2008-09 include the recently commissioned Browns Oxide solvent extraction electrowinning (SX-EW) plant (Northern Territory) as well as increased production from Xstrata’s Townsville copper refinery and CopperCo’s Lady Annie SX-EW project (both in Queensland). In 2008-09, the export volume of Australian copper ores and concentrates is forecast to increase by 2 per cent to around 1.7 million tonnes. However, the volume of refined copper exports is forecast to grow by 28 per cent to 378 000 tonnes, reflecting the increasing proportion of copper ores being refined in Australia. The export value of Australian copper is forecast to increase by 12 per cent to $7.5 billion in 2008-09. Downward revisions to this value are likely following declines in all base metals as a result of recent financial market instability. Despite this, the recent depreciation of the Australian dollar is expected to provide support for export earnings. |
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| Gold | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Australian gold production is forecast to rise by 4 per cent to 236 tonnes as a number of new medium to large-scale projects are expected to begin commercial production. The largest of these is the Boddington joint venture redevelopment in Western Australia (averaging 26.4 tonnes per year) which is expected to begin production in early 2009. However, a downside risk to this production forecast is heightened global financial instability and tighter credit markets in the second half of 2008 which have affected the ability of some gold project developers to obtain suitable financing. In 2008-09, Australian export earnings from gold are forecast to grow by around 12 per cent to $12.2 billion both as export volumes rise in response to increased Australian mine production and as a result of an assumed lower value of the Australian dollar. |
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| Uranium | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Australian uranium mine production in 2008-09 is forecast to increase by 2 per cent to around 10 380 tonnes of U3O8. The majority of the production increase is expected to stem from ERA’s Ranger Mine in the Northern Territory. ERA is targeting higher grade ore at the bottom of the Ranger pit and this is expected to enable increased production. Access to the bottom of the pit was restricted in 2007 following heavy rainfall. The Ranger laterite plant is also scheduled to commence operation in 2008 enabling the mine to produce an additional 400 tonnes of U3O8 a year. Australian export earnings from uranium are forecast to decline by 8 per cent to $820 million in 2008-09. Lower export values in 2008-09 reflect forecast lower spot prices. Despite this, lower spot prices are not expected to affect ERA’s Ranger mine or BHP Billiton’s Olympic Dam earnings as their output is sold under long-term contracts with fixed prices. |
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| Aluminium and alumina | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Aluminium production in Australia is forecast to remain largely unchanged at 2.0 million tonnes in 2008-09. However, export volumes are expected to increase by around 3 per cent, to 1.7 million tonnes, as less aluminium is consumed domestically. Export earnings are forecast to increase as lower financial year prices are more than offset by the falling exchange rate and higher volumes shipped. In 2008-09, world alumina production is forecast to increase by more than requirements for aluminium production, resulting in declining alumina prices. In Australia, alumina exports are forecast to reflect increased domestic production, rising by 5 per cent to 16.5 million tonnes in 2008-09. Lower world prices are expected to be more than offset by higher volumes shipped and the falling exchange rate. |
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