PERTH (miningweekly.com) – Iron-ore and metallurgical price increases, which gave Australia’s resource and energy export earnings a 25% lift in 2016/17, are unlikely to last, resulting in the Office of the Chief Economist forecasting lower export earnings for the next two years.

Resource and energy export earnings are estimated to have reached A$205-billion in 2016/17, but will decline to A$202-billion in 2017/18, and to A$200-billion in 2018/19.

The latest Resources and Energy Quarterly released by the Department of Industry, Innovation and Science estimates that a 25% increase in earnings in 2016/17 was driven by price increases in iron-ore and metallurgical coal – Australia’s top two resources – and energy commodity exports.

Price spikes in metallurgical coal and iron-ore in 2016/17 were aided by capacity cuts in coal, a resurgence of China’s steel sector, as well as by temporary supply disruptions.

Chief Economist Mark Cully said the price gains were not expected to last over the next two years.

“Global resource and energy commodity demand growth, particularly for steelmaking commodities, is expected to slow in the next two years, driven largely by a slowdown in infrastructure spending and construction activity in China. Lower demand growth is expected to adversely affect iron-ore and metallurgical coal prices,” Cully said.

As prices decline beyond 2016/17, the value of Australia’s resources and energy exports is projected to remain above pre-mining boom levels thanks to the continuation of the production phase of the mining boom, which is not expected to peak until late 2019.

The report forecasts that growing liquefied natural gas (LNG) export volumes are expected to offset declining prices in other commodities, constraining declines in export values over the next two years.

LNG export is forecast to jump from A$23-billion to A$37-billion in the next two years as new projects in Western Australia and the Northern Territory enter production, with the sector on track to overtake metallurgical coal as Australia’s second-largest export commodity in 2018/19.

“In the next two years, LNG is forecast to add A$14-billion to Australia’s resources and energy exports,” Cully said.

The Australian Petroleum Production & Exploration Association (Appea) said on Friday that LNG exports delivered jobs and revenue for Australia, as well as energy and reduced emissions for the country’s Asian trading partners.

“The Resources and Energy Quarterly rightly recognises the growing value to Australia of our successful LNG industry but it also points to emerging threats on the horizon,” Appea director Matthew Doman said.

“While global supply capacity is set to increase from 285-million tonnes to 382-million tonnes by 2019, almost half of this increase will come from the five new export projects under construction in the US.

“Qatar, the world’s largest LNG producer, has also signalled its intention to massively increase its own export capacity. So, Australia may soon find itself caught between an established LNG giant determined to regain its market share and an emerging challenger, hungry for success.”

Doman said that a supportive policy and regulatory framework in Australia is vital to the industry meeting these competitive challenges. He added that the risk to Australia’s export industry was exacerbated by threats to export contracts under the commonwealth government’s new Australian Domestic Gas Supply Mechanism and possible tax increases on new gas projects.

“As a nation, we cannot take the industry’s ongoing success for granted. We are facing intense competition from low-cost producers in an already oversupplied global LNG market,” he said.

“Australia can succeed as a high-cost, low-risk country but we cannot succeed as a high-cost, high-risk country. Policies that undermine our competitiveness or tarnish our investment reputation risk doing significant damage to our LNG industry and, ultimately, our economy.”