Australia’s Mineral Commodity Exports

Australia’s mineral and energy exports provide the backbone of Australia’s export earnings. The value of Australia’s mineral and energy exports—some $98.4 billion in 2006–07—comprise about 64 per cent of the total value of Australia’s commodities exports and 36 per cent of Australia’s total exports. Additionally, the minerals and energy sector has a large physical presence—operating throughout Australia—and as such provides important support for rural and regional Australia.

The volume of some key mineral and energy commodities has increased (particularly coal, iron ore, LNG, and gold) in recent years. There has also been a dramatic improvement in mineral and energy commodity prices in the last two to three years, including for oil and gas (LNG), coal, iron ore, alumina, copper, gold and nickel. The price increases have been associated with what is commonly referred to as a ‘once in a lifetime commodity boom’.

The major driving force of this boom has been the rapid industrialisation of emerging economies, such as China and India, which have rapidly increased demand for primary commodities. This phenomenon is not expected to end in the near future as continued high rates of economic activity in China are expected to provide support for continuing economic growth in neighbouring countries, including South Korea, Chinese Taipei and many south-east Asian countries.

Reflecting strong world demand for mineral commodities, the Australian economy is expected to continue to benefit from higher export commodity earnings. However, despite record export earnings, Australia continues to run a substantial current account deficit. Australia’s performance declined marginally in 2007, with a seasonally adjusted deficit of $16 billion in the June quarter 2007, compared with $15.5 billion in the March quarter 2007.

An issue for consideration is whether the continuation of current account deficits for Australia—while commodity prices continue at record levels—presents a significant economic risk for the future. Australia’s floating dollar provides for automatic adjustments reflected in exchange-rate movements. This lessens the impact of differences in the value of exports and imports. Further, as long as overseas lenders continue to believe that the Australian economy has the capacity to service the required loans for the current account deficit, the economic risk will be minimal. However, Australia’s dependence on exports of resources—mainly mineral and energy resources—is both a blessing and a curse. It contributes to economic prosperity, but at the same time has reduced the need to develop other major industries (see related briefs in the Economic—Industry Policy, and Social Policy—Education sections). In this context, diversification of the Australian economy will be an important issue for the new Parliament.

Documentation
Australian Bureau of Agricultural and Resource Economics (ABARE), Australian Commodities, selected issues, Canberra.