Material Matters: Critical Minerals, Met Coal & Oil

Commodities | Aug 05 2020

A look at critical minerals and how they can help diversify Australian exports; met coal prices expected to fall below US$100/t in the short term; Oil prices may recover sooner than expected

-Demand for critical minerals expected to shoot up
-Coking coal demand outside China remains sluggish
-Oil markets: Time to Tango?

By Angelique Thakur

Critical Minerals: How to diversify Australia’s export basket

According to Geoscience Australia, critical minerals are metals and non-metals deemed vital for the well-being of economies. They include lithium, cobalt, manganese, rare earths, magnesium, vanadium, tantalum and titanium.

Supply of these minerals may be at risk due to factors like scarcity, geopolitical trouble and trade policies.

A lot of these minerals are used to make components for the renewable energy sector and in new technologies and with the world turning towards these two areas, ANZ Bank expects demand for these minerals will rise in coming years.

Some examples include lithium and cobalt which are used in ion batteries (for laptops, smartphones and electric vehicles). Rare earths are used in wind turbines and electric vehicles, while rutile and ilmenite are titanium minerals used in paints, paper and textiles.

High-end and new technologies like 5G are mineral-intensive, needing not only major metals like copper, aluminium and nickel, but also critical minerals.

ANZ Bank highlights the importance of these elements for Australia.

Australia is a leading producer and exporter of resources, which accounted for around 60% of the country's total exports in 2018-19. Its export basket was heavily skewed towards three commodities; iron ore, coal and natural gas, representing around 70% of total resource exports.

Such heavy reliance on a select few commodities leaves export revenue exposed to price volatility. The global shift to lower-carbon fuel sources also implies the share of coal will fall in the future.

Australia equally needs to diversify its export markets. Almost 80% of Australia’s iron ore exports are destined for China, along with about a third of LNG and more than 20% of coal. Japan is the largest importer of Australian coal and LNG.

This over-reliance on Chinese and Japanese markets makes Australia vulnerable to any changes in trade policy or geopolitical tensions.

Critical minerals can certainly help here, states the report. They will also allow the country to penetrate into different markets, diversifying its customer base and reducing vulnerability to export shocks.

Australia is the largest producer of lithium and rutile in the world. It is also one of the top-three producers of manganese, ilmenite and rare earths. Australia has considerable shares of global reserves of tantalum, vanadium and antimony.

ANZ Bank suggests investing in critical minerals – including exploration, extraction and processing – could help diversify Australia’s export markets.

While prices for commodities like lithium, cobalt and manganese have fallen materially over the last few years, ANZ Bank expects them to improve due to demand recovery in electric vehicles, renewable energy and high-end technologies.

Some covid-19 stimulus measure in China and Europe target the electric vehicles sector and renewables and will boost demand, while supply disruptions for some minerals could lead to a tighter market.

A number of concerns arising from the mining of these minerals need to be taken into account. These include environmental impact, plus social impact including indigenous Australians’ rights.

Coking Coal: Chinese demand expected to fall

Australia's hard coking coal prices have held steady since late May, ranging between US$106-116/t. Opposing forces at play are responsible for the range-bound price, according to a report by Morgan Stanley.

China’s coal buying spree, given the US$60/t arbitrage opportunity with domestic coking coal, offset subdued import demand outside of China (due to falling steel output).

The country's coal imports are up 57% year on year in the first half, a large proportion of which was hard coking coal. This has had the effect of keeping the price well above the 2015 low of US$80/t.


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