overview prices The index of export prices of Australian minerals resources (export unit returns) declined by 5 per cent in the September quarter 2007 from that in the June quarter. Prices for energy minerals increased by less than 1 per cent, while metals and related minerals prices declined by 7 per cent as global supply increased and uncertainty surrounding the outlook for the US economy persisted. A 37 per cent decline in nickel prices and a 2 per cent appreciation of the Australian dollar were significant contributors to the overall fall in the index of export prices. The September quarter 2007 index of export prices also was 5 per cent lower than it was in the September quarter 2006, with higher world prices for mineral commodities (up 1 per cent year on year) more than offset by a decline in energy commodity prices (down 13 per cent). The main contributor to lower energy commodity prices was lower metallurgical coal contract prices. exports Earnings from mineral resources exports fell to $26.4 billion in the September quarter 2007, a decrease of $0.9 billion or 3.4 per cent compared with the previous quarter. Contributing to the fall in export earnings were the negative effects of a stronger Australian dollar and weaker metals and related minerals prices. The commodities that recorded significant increases in export earnings were: crude oil, up $188 million (9 per cent) to $2197 million; lead, up $100 million (24 per cent) to $525 million; uranium oxide, up $87 million (44 per cent) to $285 million; manganese ore, up $70 million (51 per cent) to $206 million; thermal coal, up 48 million (3 per cent) to $1687 million; andiron ore and pellets, up $65 million (2 per cent) to $4157 million. The higher earnings for these commodities reflect higher export volumes for crude oil, lead and iron ore and pellets and higher prices for uranium oxide, manganese and thermal coal. The commodities that recorded significant declines in export earnings in the September quarter 2007 were: nickel, down $1214 million (49 per cent) to $1260 million; refined gold, down $307 million (10 per cent) to $2723 million; LNG, down $59 million (5 per cent) to $1130 million; and metallurgical coal, down $159 million (4 per cent) to $3362 million. The large decline in the value of nickel exports reflected a 37 per cent fall in prices and lower production. The value of gold exports declined in line with lower export volumes and lower Australian denominated gold prices. The lower earnings from metallurgical coal exports reflected the full effects of lower contract prices and the negative effect on earnings of the appreciation of the Australian dollar. production Production results were mixed in the September quarter, with around half of Australia’s major minerals and energy commodities recording production increases. Production increases were observed for refined silver (12 per cent); diamonds (10 per cent); rutile concentrate (8 per cent) and natural gas (5 per cent). Higher refined silver production was the result of improved performance at Nyrstar’s Port Pirie smelter in South Australia. Rutile concentrate production increased as Iluka Resources’ Douglas mine in Victoria continued to approach full production capacity after being commissioned in early 2007. The increase in diamond production reflected higher output during the quarter at Rio Tinto’s Argyle mine in Western Australia. Production from the Argyle mine has fluctuated as the company makes the transition from opencut mining to underground mining. Significant declines in production occurred in refined nickel class 2 (25 per cent); refined nickel class 1 (24 per cent); refined copper (20 per cent); silver mine (17 per cent); and refined gold (15 per cent). Lower production of refined nickel class 1 and class 2 was the result of planned maintenance at BHP Billiton’s Yabulu refinery in Queensland. Refined copper declined because of lower production from BHP Billiton’s Olympic Dam. Refined gold production fell because of lower secondary production using gold scrap sourced from overseas. Energy and mineral projects commissioned in the September quarter included: the North Wambo longwall in New South Wales; Frances Creek iron ore mine in the Northern Territory; Lady Annie copper mine in Queensland; Jaguar base metals mine in Western Australia, Otway gas project in Victoria; Puffin North East oil field in the Northern Territory; Koolan Island iron ore project in Western Australia; Bronzewing gold mine in Western Australia; and Project Magnet (iron ore) in South Australia. These projects are expected to begin to approach full production capacity during the December quarter (see December issue of ABARE’s quarterly journal, Australian Commodities, for further details and information on major minerals and energy projects). commodity highlights energy oil In the September quarter, Australia’s oil production totalled 4.8 gigalitres, a 9 per cent decrease from the June quarter and 17 per cent lower than in the September quarter 2006. The lower oil production reflects a combination of equipment failure, maintenance and natural field decline. At the Santos operated Mutineer–Exeter field, September quarter production was down as a result of equipment failure and planned maintenance. It is anticipated that full production at the field will resume in the December quarter. Production at the Cooper Basin oil field in South Australia and at Cossack Pioneer field was lower as a result of natural field decline. Some of these production losses were partly offset by increased production from the Enfield and Laminara–Corallina fields located off the coast of north west Australia. coal The value of Australia’s exports of black coal declined by 2 per cent in the September quarter as lower metallurgical coal exports more than offset a rise in thermal coal exports. The lower value from metallurgical coal exports reflected the full effects of lower contract prices, while higher thermal coal exports reflected the full effect of higher thermal coal contract prices. uranium Earnings from uranium oxide exports increased by 44 per cent in the September quarter compared with the June quarter, as higher received prices more than offset lower export volumes. minerals iron ore Iron ore production was lower in the September quarter 2007 than in the June quarter owing to train derailments and maintenance. Derailments adversely affected Rio Tinto’s Hamersley operations and Portman Mining’s Koolyanobbing operations, both in Western Australia. Rio Tinto’s Robe River operations, also in Western Australia, were negatively affected by maintenance at the Cape Lambert port during the quarter. Export earnings from iron ore and pellets declined in the September quarter primarily because of lower export volumes. gold Gold mine production declined slightly in the September quarter compared with the June quarter owing to the recent mothballing of a number of gold operations and declining production at operations that are scheduled to cease mining over the next several years as their resources are depleted. Refined gold production declined in the September quarter from June quarter production because of lower secondary production using gold scrap sourced from overseas. Export earnings from gold declined in the September quarter as a result of lower export volumes and a stronger Australian dollar. copper Copper mine production was lower in the September quarter 2007 than in the June quarter because of lower production from a number of Australia’s largest copper mines. Production from Rio Tinto’s Northparkes mine in New South Wales was lower owing to declining ore grades in the E46 block cave as the resource approaches the end of its life ahead of the commissioning of the E48 block cave. Lower production from BHP Billiton’s Olympic Dam in South Australia mine was attributable to the mining of lower grade ores. Refined copper production was lower as a result of reduced production from Olympic Dam and Xstrata’s Townsville Copper Refinery. Production at Olympic Dam was adversely affected by lower grade ores from the mine and unplanned maintenance. Despite lower production in the September quarter, export earnings from copper increased, reflecting higher export volumes and export prices. nickel Nickel mine production remained relatively unchanged in the September quarter 2007 compared with the June quarter. However, production of refined nickel class 1 and class 2 declined by 24 per cent and 25 per cent respectively because of planned maintenance at BHP Billiton’s Yabulu refinery. The value of nickel exports declined significantly in the September quarter, reflecting a 37 per cent fall in prices and a 13 per cent fall in export volumes. zinc/lead/silver Zinc, lead and silver mine production declined in the September quarter compared with the June quarter as production declined at a number of mines. A fire at Xstrata’s Mount Isa lead/zinc concentrator in Queensland in late September is not expected to affect concentrates production until the December quarter. In the September quarter, Jabiru Metals commissioned its Jaguar zinc/copper/silver mine in Western Australia. However, higher production from the mine is not expected until subsequent quarters. Export earnings from zinc and lead increased during the September quarter reflecting higher export volumes and higher export prices for lead. Silver export earnings declined in the quarter because of lower export volumes and prices. mineral sands Production of ilmenite concentrate, rutile concentrate and titanium dioxide pigment increased in the September quarter compared with the June quarter as a number of recently commissioned mines continued to ramp up to production capacity. These operations include Iluka Resource’s Douglas operations in Victoria [rutile and zircon]; Matilda Minerals’ Tiwi Island operations in the Northern Territory [rutile and zircon]; and Bemax’s Murray Basin operations in New South Wales [leucoxene, ilmenite and rutile]. Titanium dioxide production was higher, supported by improved performance at Tiwest’s Kwinana pigment plant in Western Australia. Export earnings from ilmenite concentrate and leucoxene concentrate were higher in the September quarter as higher export volumes more than offset lower export prices. Earnings from rutile concentrate, synthetic rutile and titanium dioxide pigment were lower because of lower export volumes and prices. contribution of the minerals sector to Australian output The minerals sector — including mining and processing — is a substantial contributor to the Australian economy, accounting for 8.9 per cent of gross domestic product in 2006-07. In particular, the sector provides employment and significant infrastructure development in remote and regional areas. The contribution of the minerals sector to the economies of Australia’s states and territories is varied, reflecting differences in mineral endowment and the development of these resources. For example, the minerals sector makes a significant contribution to the economies of Western Australia and Queensland, which are well endowed with mineral resources. Western Australia is the largest producer of iron ore, gold and nickel — commodities that have all recorded significant increases in price over the past year. Queensland is the largest producer of coal and base metals (copper and zinc) and New South Wales is the second largest producer of coal, gold and copper. ABARE’s most recent forecasts of minerals production, exports and prices for 2007- 08, and analysis of key factors affecting the outlook for minerals and energy commodities, were published in the December issue of ABARE’s quarterly journal, Australian Commodities, released on 6 December 2007. contribution of the minerals sector to Australian output industry gross value added a 2006-07 value share A$m % mining b 48 751 5.1 mineral processing petroleum, coal and chemical product 11 973 1.3 nonmetallic mineral product 5 303 0.6 metal product 18 840 2 total mineral processing 36 116 3.8 total mining and mineral processing 84 867 8.9 Australian total, all sectors 952 723 100 a Chain volume measures, reference year 2004-05. b Includes services to mining and energy minerals.