Australia Mining Trends 2021: Green Energy Transition Gains Attention

Australia mining trends 2021: The year in perspective

The COVID-19 pandemic was well underway when 2021 kicked off, but optimism around vaccine rollouts supported the lifting of restrictions around the globe. Most commodities rebounded, with stocks also gaining and investments in certain sectors increasing on this overall positivity.

Speaking with INN about the main trends seen in 2021, Argonaut’s David Franklyn said the Australian mining sector has done incredibly well in terms of managing COVID-19.

“The key trend that we saw in 2021 was really the energy transition,” he said. “So we're expecting growing demand and awareness for the commodities that are aligned with that, in particular lithium, copper and nickel.”

In 2021, lithium prices hit record highs, with nickel and copper also having outstanding years in part due to momentum in the green energy transition. ASX-listed companies focussing on battery metals saw their share prices jump, with lithium stocks, nickel stocks and copper stocks all seeing gains.

At the beginning of the year, Franklyn, who is executive director and head of funds management at Argonaut, was expecting iron ore prices to peak and then fall, and this materialized in 2021 — iron ore prices were much higher than expected for the first nine months of the year before falling significantly.

The base metal touched a record high in May at over US$220 per tonne, but declined to an 18 month low of US$84.50 in November. Sluggish demand in China paired with rising supply boosted volatility in prices.

In other commodities, gold’s underperformance was a bit “unexpected,” considering the geopolitical risks globally. The precious metal's price fell from US$1,898 per ounce in January to the US$1,775 range by December.

Commenting on how the Australian resource sector performed in 2021, Jessica Amir, Saxo’s Australian market strategist, said 2021 was unprecedented for two reasons.

“On one hand, China announced it would plan to be emission free by 2060 and cut back on iron ore orders — which caused the iron ore price and iron ore stocks to plummet,” she told INN. “Inversely, energy (oil, gas and coal) had a record year of prices — from tighter supply from a lack of investment, as well as regulation.”

As the global economy began to recover from COVID-19, demand rose; this ultimately resulted in the current energy crisis — a supply/demand imbalance that is pushing up prices, Amir added.

Australia mining trends 2021: Quarterly highlights

Here’s a look at some of the trends seen in Australian mining in 2021, according to the country's Office of the Chief Economist (OCE), quarter by quarter.

January to March: Recovery expected

As 2021 kicked off, Australia's resource and energy exports were forecast to hit a record AU$296 billion in 2020 to 2021, which the OCE said was a strong result in the context of the COVID-19 pandemic.

“Australian miners have found their product in high demand, helped by the impact of government and central bank measures abroad,” the OCE said back in March.

As economies rebounded after strict lockdown restrictions due to COVID-19, the outlook for exports improved, with Australia set to capture the growth in demand for resources from new and low-emission technologies.

“Our projections suggest that by the end of the outlook period (2025-2026), a surge in exports earnings of metals used in technologies central to the world energy transition — copper, lithium and nickel — will replace the fall in thermal coal earnings arising from that transition,” the March report reads.

April to June: Outlook continues to improve

With the rollout of vaccines taking place in many countries around the world, the forecast for Australia’s mineral exports continued to improve during the April to June quarter.

“Ongoing success in managing COVID-19 and reduced supply disruptions are expected to restore global demand for resources and energy commodities over the five years,” the OCE explained back in June. “As prices moderate, Australia’s resource and energy exports are forecast to ease slightly to $288 billion in 2021 to 2022, and remain stable over the outlook period to 2025-26.”

Record iron ore prices supported export earnings during the period, while at the same time an increase in world steel production helped metallurgical coal companies.

“The extent of any further disruption to Australian resource and energy commodity trade with China poses a downside risk to these forecasts,” the June report reads. “A spike in global inflation and a sharper than expected tightening of monetary policy by the major central banks also pose a downside risk.”

July to September: Iron ore price retreats

The second half of the calendar year started with a retreat in iron ore prices as China’s weaker demand put a stop to the price rally. Further pressure was expected due to a recovery in Brazilian supply.

“Australian iron ore prices look to have peaked, but coal prices have recovered all of their 2020 losses and more, as global shortages emerge,” the OCE said back in September.

The OCE expected that COVID-19 variants and delays in hitting vaccination goals would threaten a full global economic recovery, but was still optimistic about economic growth.

“Nevertheless, the outlook is for robust growth in the world economy over the 2021-2022 and 2022-2023 outlook period, as vaccination rates peak,” the report reads.

September to December: Price declines ahead

With eyes set on what might be ahead next year, the OCE said in its last report of 2021 that high prices, good volume growth and a weak Australian dollar were driving a surge in export earnings. However, some decline in prices was expected in 2022 on the back of supply increases and a moderation in demand growth.

“Iron ore prices have continued to decline, but remain at very profitable levels for most Australian miners,” the December report reads. “Coal and LNG prices have spiked, driven by ongoing shortages and strong demand.”

Projections by the OCE suggest that resource and energy export earnings will reach AU$381 billion in 2021 to 2022, but then fall back to around AU$310 billion in 2022 to 2023.

“In the coming two years, it is likely that the resources and energy sectors will make a significant contribution to real GDP growth, as producers lift output and exports in response to high prices and margins,” the report states.