Australia — Metal ores a bright spot amid broad export decline

Exports fell almost 17% in Q3 2020 compared to Q3 2019, driven by a broad-based decline in the rural, resources, manufacturing and services sectors. The notable exception is metal ores—predominately iron ore—which rose 4% on a year-ago basis in Q3 (Chart). Iron ore shipments and prices (US$121 per tonne on November 12, up 32% year-to-date in 2020) benefit from strong Chinese demand linked to rising infrastructure investment, a trend that is likely to continue in 2021. Further, under Beijing’s latest five-year plan announced recently, China is aiming to have new electric vehicles account for about 20% of total car sales by 2025, which will support copper demand in the near, and longer term.

On the negative side, LNG export volumes are likely to face pressure from extended maintenance at some facilities, while thermal coal exports will face weak global demand. Manufacturing exports will be challenged by a resilient Australian dollar (futures markets pricing points to the AUD remaining above US72 cents in 2021). On the services front, given a resurgence of the COVID-19 virus in Europe, the US and many other countries and notwithstanding the potential for an effective vaccine, international tourism will likely suffer throughout most of 2021. Education exports will also face challenges due to travel restrictions plus economic downturn in some target markets, although the take-up of online study by international students and, to a lesser extent, pilot programs that allow some international students to enter Australia may provide some support. Agricultural exports are projected to decline.