Resources and Energy Quart Jan 2012

Resources and Energy Quarterly
December Quarter 2011
bree.gov.au
December quarter 2011

bree.gov.au
BREE 2011, Resources and Energy Quarterly. Commonwealth of Australia 2011
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Foreword
Resources and Energy Quarterly is an important publication of the Bureau of Resources and Energy Economics. It provides an overview of the global macroeconomic situation; the most up-to-date global production and consumption data; forecasts for Australian volumes and values for key resources and energy commodities for 201112; reviews of key topics and issues of relevance to the sector; and detailed statistical tables on world production, consumption, stocks and trade in key commodities as well as detailed information on Australian production and exports over several years. In the review section of Resources and Energy Quarterly there is an up-to-date analysis of the euro crisis and its economic implications; a historical review of global oil prices, production and reserves; the impact of gold on the Australian economy since the first gold rush in the 1850s; and an economic analysis of trends in energy productivity and intensity in the Australian grains industry. The good news for Australia is that there is continued year-on-year growth in the total value of Australian exports of resources and energy commodities. For 201112, BREE projects that the total value of Australian exports of energy minerals and metals will exceed A$200 billion, or a 15 per cent increase over 201011. Despite these projected record export earnings, spot prices of key bulk commoditiesiron ore and metallurgical coalhave weakened in the past quarter, and there are real downside risks to the global economy associated with the euro sovereign debt and liquidity crisis. For those interested in longer term forecasts, our next issue of Resources and Energy Quarterly that will be released in March 2012 will provide projections out for the next five years.
Quentin Grafton Executive Director/Chief Economist Bureau of Resources and Energy Economics
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December quarter 2011 3
Contents
Foreword Acronyms and abbreviations Macroeconomic outlook and energy and minerals overview Energy outlook
Oil and gas Thermal coal
3 5 6 19
19 28
Resources outlook
Steel and steel-making raw materials Gold Aluminium Copper Nickel Zinc
35
35 46 51 57 61 68
Reviews
Sovereign debt crises, the real economy and the euro zone crisis Global oil prices, reserves, production and intensity: An overview Gold and Australias economic development Energy Productivity Analysis of the Australian Grain Industry
76
76 82 94 100
Statistical Tables
111
4 Resources and Energy Quarterly
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Acronyms and abbreviations

ABARES ABS BREE FOB GDP IEA IMF LME LNG mb/d MBtu Mt OECD OPEC PPP RBA SAIL TWI UNCTAD WTI Australian Bureau of Agricultural and Resource Economics and Science Australian Bureau of Statistics Bureau of Resources and Energy Economics free on board gross domestic product International Energy Agency International Monetary Fund London Metal Exchange liquefied natural gas millions of barrels per day million British thermal units million tonnes Organisation for Economic Co-operation and Development Organisation of the Petroleum Exporting Countries purchasing-power parity Reserve Bank of Australia Steel Authority of India trade-weighted index United Nations Conference on Trade and Development West Texas Intermediate
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Macroeconomic outlook and energy and minerals overview

Nhu Che, Thuy Pham and Quentin Grafton
The global economy: slowing growth and rising risks

There are a number of downside risks to the global economy in the 2011. Despite an upward revision of economic growth in the US, unemployment remains high and the ongoing sovereign debt crisis in the euro zone could generate substantial negative spillovers to the real economy, and not just to those in Europe. The large volatility in financial markets in recent months is an indication of the uncertainty about near-term economic prospects. The global economy has recovered since the global financial crisis, although occurring at different speeds across regions. While the expectation is for growth in major advanced economies to be slow, the emerging economies of Asia are expected to continue to grow strongly. This is promising for Australias export prospects, as most of Australias major trading partners are in Asia. At the start of 2011, forecasts for economic growth were for a slight moderation in the speed of the global economic recovery relative to 2010. However, the March 2011 earthquakes and tsunami in Japan that affected global supply chains, high energy prices, and weakening consumer confidence in some developed economies has had a negative impact on short-term growth prospects. Growth in Western Europe has faltered in 2011 with confidence eroded by the escalating concerns about sovereign debt. Elsewhere, economic activity remained robust. Most of Asia and Latin America has had strong growth in 2011, with their primary concerns being about rising inflation and not lagging growth. The outlook for major developed economies in 2012 is for a continued positive, but weak and bumpy growth. Prospects for emerging market economies are much better, but are becoming less certain, especially for those countries that are highly reliant on export-led growth. Less certain future growth prospects associated with the sovereign debt crisis in Europe has generated very large fluctuations in financial markets in the second half of 2011. This volatility has led some analysts to expect further weakening in the global economy due to sharp falls in consumer and business confidence. For a more in-depth analysis of the euro zone crisis, please see the review article Sovereign debt crises, the real economy and the euro zone crisis.
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In Asia, recent economic data has been mixed, although broadly consistent with the modest slowdown that some authorities in the region have been trying to achieve in order to contain inflationary pressures. India and China, in particular, are trying to reduce inflation and their actions are expected to moderate slightly their very high growth rates. Figure 1: World economic growth, 1996 to 2012
6 5 4 3 2 1 % -1 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: ABARES, BREE
Economic prospects in Australias major export markets

Non-OECD economies
In the second half of 2011 Chinas economic growth has slowed in relation to the first half of 2011. The largely government-engineered moderation is expected to provide more stable and sustainable growth for the economy throughout 2012, although the economy is facing increasingly complex reform challenges. In 2012, Chinas GDP growth is projected to ease to around 9 per cent under the combined effect of monetary-tightening economic policies and continued weakness in advanced economies that has weighed negatively on exports growth. To help reduce inflation the Chinese Government increased interest rates five times in the past year and also raised the reserve ratio requirement for banks on several occasions. Industrial production growth is also projected to slow. Despite this slight contraction in growth, China is still expected to continue its major role in both the supply and demand side of the global economy. Indias economic outlook has improved in recent months, reflecting an increase in manufacturing output that has strengthened private consumption. However, economic growth is still expected to slow to 7.5 per cent in 2012. In part, this is because of an expected continuation of a monetary policy response to target relatively high rates of inflation. Near-term growth in the ASEAN countries (including Indonesia, Malaysia, Philippines, Thailand, and Vietnam) is assumed to be around 5.5 per cent in 2011 and 2012 due to robust domestic demand in particular, strong investmentwhich should offset any slowdown in export growth.
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In Asia overall, growth has moderated slightly, reflecting a general tightening of macroeconomic policy over the past year or so in response to increasing inflation in the region. After recovering strongly from the global recession, growth in the newly industrialised economies of South Korea, Singapore, Hong Kong and Taiwan is expected to slow due to weaker export demand and tighter fiscal positions.
OECD economies
Economic growth in OECD economies is assumed to increase by 1.7 per cent in 2012, up from 1.4 per cent in 2011. Recovering from the damage caused by the March 2011 earthquakes and tsunami, Japans industrial production is now growing rapidly, business sentiment has improved sharply, and household spending is rebounding. Japans gross domestic product (GDP) is assumed to grow by 2.3 per cent in 2012. In the euro area, the outlook remains weak. Growth is expected to moderate as an easing in world growth slows export trade. Fiscal consolidation across the region which started in 2011 is likely to weigh on the labour market and household consumption, and tight credit conditions are likely to continue to restrain investment. The recovery is expected to remain sluggish in 2012. The pace of growth in the 17 euro zone economies has slowed in the second half of 2011, and the near-term outlook for the European Union (EU) as a whole remains highly uncertain. In Greece, Ireland, Italy, Portugal, and Spain, fiscal tightening, banking system issues, reduced consumer and business confidence and high unemployment are weighing on domestic demand. Further, slowing economic growth in the core northern euro area economies, such as Germany, is likely to make economic conditions in the southern economies more difficult in 2012. The German economy, driven by export-led growth, is assumed to have the strongest economic growth rate in Western Europe, growing by 2.7 per cent in 2011. However, more recent data indicates that there has been a decline in business confidence. Retail sales in Germany fell by 2 per cent over the September quarter 2011, and forward-looking indicators of growth in exports and in machinery and equipment investment have moderated. This recent data highlights the downside risks of the forecasts for Europe, as they are highly dependent on German economic growth. In 2011, economic growth in the US is assumed to be modest at 1.5 per cent, before recovering to 1.8 per cent in 2012. However, modest consumer spending, weak jobs growth and continued strains in the housing market pose risks for the economy. Assumed very low nominal interest rates over the next two years are expected to provide a boost to investment over the short term. Despite the recent pick-up in growth, GDP has only just returned to its pre-crisis peak.
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Table 1:
Key macroeconomic assumptions

2009 2010 2011 a 2012 a
World Economic growth OECD United States Japan Western Europe Germany France United Kingdom Italy Korea, Rep. of New Zealand Developing countries non-OECD Asia South-East Asia b China c Chinese Taipei Singapore India Latin America Russian Federation Ukraine Eastern Europe World d Industrial production OECD Inflation United States Interest rates US prime rate e % 3.3 3.3 3.3 3.3 % 0.4 1.6 3.4 2.7 % 14.1 7.9 3.1 4.1 % % % % % % % % % % % % % % % % % % % % % % 3.4 3.5 6.3 4.1 5.1 2.7 4.9 5.2 0.3 2.1 4.2 6.9 1.7 9.2 1.9 0.8 7.0 1.7 7.8 14.8 3.6 0.5 3.0 3.0 4.0 1.8 3.7 1.5 1.4 1.3 6.2 1.7 7.8 9.6 6.9 10.3 10.9 14.5 9.0 6.1 4.0 4.2 4.2 5.0 1.4 1.5 0.5 1.5 2.7 1.7 1.1 0.6 3.9 2.0 6.8 8.3 5.3 9.5 5.2 5.3 7.8 4.5 4.3 4.7 4.3 3.8 1.7 1.8 2.3 1.0 1.3 1.4 1.6 0.3 4.4 3.8 6.5 8.1 5.6 9.0 5.0 4.3 7.5 4.0 4.1 4.8 2.7 3.8
a BREE assumption. b Indonesia, Malaysia, the Philippines, Thailand and Vietnam. c Excludes Hong Kong. d Weighted using 2010 purchasing-power-parity (PPP) valuation of country GDPs by the IMF. e Commercial bank prime lending rates in the US.
Sources: BREE; Australian Bureau of Statistics; IMF; OECD; RBA.
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Demand for mining commodities

Over 201112, demand for mineral and energy commodities is projected to grow strongly. Demand growth will be supported mainly from China, India and other non-OECD economies. Consumption of raw materials is forecast to be driven by increasing household incomes, coupled with industrial and housing construction growth, and strong demand for consumer durables and transport infrastructure. Demand in the OECD is expected to be led by Japan in response to the rebuilding of infrastructure following the March 2011 earthquakes and tsunami. Consumption demand in large export-oriented EU economies, such as Germany, will depend on efforts to remediate public debt and liquidity concerns in the region as a whole. Faster convergence to trend economic growth in the US is forecast to boost energy and minerals demand in that economy, but its positive impact on resource commodities will depend on the scale of the recovery in its housing and labour markets.
Supply for mining commodities

In 2012, world production of most minerals and energy commodities is forecast to increase, relative to 2011. Higher production across most commodities reflects relative high prices in 2011 that have provided an incentive for suppliers to increase output. Production increases have been forecast for uranium (up 12 per cent), aluminium (up 8 per cent), nickel (up 8 per cent), steel (up 6 per cent), zinc (up 5 per cent), and copper (up 4 per cent). In addition, world trade in 2012 is forecast to increase by 7 per cent for iron ore and 5 per cent for coal.
Australias economic prospects

The Australian economy is relatively strong compared with other developed economies. Real GDP in Australia grew by 1.8 per cent in 201011 and is assumed to grow by 4 per cent in 2011 12. The relatively moderate economic growth in 201011 stemmed from the negative affect of flooding in Queensland and Northern NSW, a moderate growth rate in the non-mining sectors, and below trend productivity growth. Offsetting the negative effects of these factors has been an upswing in household spending on some key items, such as motor vehicles. Recent economic data suggest that the mining-related sectors of the economy have continued to perform strongly in terms of both volumes of exports and capital investment relative to other sectors. Overall, domestic demand is expected to continue to grow at a robust pace, although a relatively high exchange rate, the winding back of government stimulus spending programs, and changes in household spending and borrowing behaviour continue to have a negative effect on some industries. As in many other countries, recent volatility in global financial markets has resulted in noticeable declines in measures of consumer and business confidence since July.
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Table 2:
Australia
Key macroeconomic assumptions for Australia

200809 200910 201011 201112 a
Economic growth Inflation Australian exchange rates US$/A$ TWI for A$ b
% 1.4 % 3.1
2.3 2.3
1.75 3.1
4.0 3.3
0.75 60.0
0.88 69.0
0.99 74.0
1.00 75.0
a BREE assumption. b Base: May 1970 = 100.

Sources: BREE; Australian Bureau of Statistics; IMF; OECD; RBA.
In November 2011 the Australian dollar depreciated against the US dollar, trading at US101c and TWI 75 compared with around US107c and TWI 77 in early June 2011. Over 201112, the Australian dollar is assumed to average around US100c and TWI 75. A key driver of the Australian exchange rate in 2012 is recent interest rates cuts by the Reserve Bank of Australia that will dampen demand for Australian dollars. Should the euro crisis worsen, this may also have negative impacts on the ability of Australian banks to borrow on overseas markets, and may reduce capital inflows that would tend to lead to a depreciation of the Australian dollar. Demand for Australias exports in Asia, and market expectations about minerals and energy commodity prices, are also factors that will influence the value of the Australian dollar in 20112012.
The Australian mining industry

In 201011, the gross value added produced by the mining industry was approximately $117.7 billion. Of this total, the mining sector (excluding services to mining) contributed $110.4 billion while the exploration and mining support services generated about $7.3 billion (see Figure 2).
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Figure 2:
100 95 90 85 80 75 2011-12 A$b
Australian mining industry gross value added, chain volume measures, 199091 to 201011
12 10 8 6 4 2 2011-12 A$b
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Mining (excludes services to mining) Exploration and mining support services (right axis)
Source: ABS.
Over the past decade, there has been a significant increase in the value of investment in the mining sector. In 201011, investment in new capital expenditure in the mining sector was valued at $47 billion. This compares with inflation-adjusted figures of $39 billion in 200910 and $7.6 billion a decade ago. In 201112, the Australian Bureau of Statistics estimates indicate new capital expenditure in the mining sector may reach $80 billion. Much of this investment is underpinned by liquefied natural gas (LNG), iron ore and coal projects. ABS data indicates that the mining industry employed a total of 205 300 people in 201011, which represents an increase of 19 per cent compared with 200910 and an increase of 173 per cent from 200001. By sub-industry, the metal ore industry employed the largest number of people (approximately 69 200 people), accounting for 34 per cent of employment in the mining industry (see Figure 3). The coal industry ranked second followed by the oil and gas extraction industry.
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2010-11
Figure 3:
Employment in the Australian mining industry, 199091 to 201011

200
150
100
50
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Coal
Oil and gas extraction
Metal ore
Other mining (including services)
Source: ABS.
Commodity prices
Commodity prices were lower in the September quarter compared with the previous quarter, but were still at higher levels than the first half of 2009. Lower bulk commodity prices largely reflected a slowing in the growth of global steel production and higher iron ore and metallurgical coal exports from Australia in the second half of 2011. Spot prices for the key steelmaking commoditiesiron ore and metallurgical coalhave fallen sharply since September 2011, as have steel prices. Demand for iron ore in Europe appears to have weakened, which has led to some diversion of Barillian supply towards Asia. Some base metals have also declined in price in response to weaker financial markets. Prices for energy-related commodities, such as thermal coal and oil, were little changed over the quarter. The resilience of the thermal coal spot price relative to other bulk commodities reflects different demand conditions. For instance, the shutdown of nuclear power generation capacity in several countries (especially Japan), and below average hydro-electricity production in China, are providing underlying support for thermal coal demand.
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2010-11
000 people
Figure 4:
Metal price index, quarterly

800 700 600 500 400 300 200 100
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11 Dec-11
Copper Lead
Aluminium Nickel
Gold Zinc
Source: BREE.
Figure 5:
Bulk commodity price index, quarterly

1200 1000 800 600 400 200
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Thermal coal
Metallurgical coal
Iron ore
Source: BREE.
Australian mine production and exports

In 201011, the index of Australian mine production remained relatively stable compared with 200910, reflecting a 12 per cent increase in metals and other minerals production which was offset by an 11 per cent decrease in the production of energy commodities (see Figure 6).
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Dec-12
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
index Mar-00=100
Dec-12
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
index Mar-00=100
Total Australian mine production is forecast to increase by 11 per cent in 201112, largely attributed to a 15 per cent increase in the output of energy commodities, particularly thermal coal, metallurgical coal and uranium. Also contributing to this growth will be a 6 per cent increase in the production of metals and other minerals, underpinned by rising nickel, zinc and copper production. Figure 6: Australian mine production index, 198990 to 201112
160 140 120 100 80 60 40 20 index 1997-98 =100
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
energy
minerals
Source: BREE.
In terms of exports, earnings from exports of energy and minerals commodities increased by 29 per cent between 200910 and 201011, reaching $179 billion in 201011 (see Figure 7). Of this total, export earnings from minerals commodities contributed $110 billion, accounting for about 61 per cent. Export earnings from energy commodities accounted for a smaller share, 39 per cent that contributed approximately $70 billion in real terms of the total value of Australian energy and minerals exports.
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2011-12
Figure 7:
Australian energy and mineral export earnings, 198990 to 201112

140 120 100 80 60 40 20 2011-12 A$b
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Energy
Minerals
Sources: BREE; ABS.
In 201112, total export earnings for energy and minerals commodities are forecast to increase by 15 per cent to $206 billion, reflecting increases in export values for both energy and minerals commodities. Energy commodity export earnings are forecast to grow by 19 per cent to $83 billion as a result of strong increases in export earnings from thermal coal (up 34 per cent to $18.8 billion), oil (up 21 per cent to $14.2 billion), LNG (up 15 per cent to $12 billion), and metallurgical coal (up 13 per cent to $33.6 billion). Mineral commodity export earnings are forecast to increase by 12 per cent to $123 billion as a result of increase in export values of gold (up 45 per cent to $18.9 billion), iron ore (up 12 per cent to $60.4 billion), alumina (up 18 per cent to $6.2 billion), and copper (up 3 per cent to $8.7 billion). Partially offsetting the increased export earnings for mineral commodities will be lower forecast export earnings for zinc (down 10 per cent to $2.1 billion), nickel (down 9 per cent to $3.7 billion), and aluminium (down 4 per cent to $4 billion). Table 3:
Commodity Oil LNG Thermal coal Uranium Iron ore Metallurgical coal Gold Alumina Aluminium Nickel Copper Zinc Sources: BREE; ABS. Unit ML Mt Mt t Mt Mt t kt kt t t t
Australia energy and minerals exports, by selected commodities

Volume 2010-11 2011-12 % change 19 636 20 806 6.0 20 20 -0.3 143 163 13.4 6 950 7 930 14.1 407 460 13.0 140 150 6.8 301 336 11.9 16 227 16 799 3.5 1 686 1 741 3.3 210 233 11.1 850 935 9.6 1 482 1 499 2.4 Unit $m $m $m $m $m $m $m $m $m $m $m $m Value 2010-11 2011-12 % change 11 772 14 180 20.5 10 437 11 978 14.8 13 956 18 760 34.4 610 791 29.7 54 197 60 412 11.5 29 796 33 595 12.8 13 014 18 874 45.0 5 218 6 156 18.0 4 178 4 029 -3.6 4 097 3 748 -8.5 8 416 8 654 2.8 2 375 2 144 -9.7
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2011-12
Table 4:
Major indicators of Australias minerals and energy sector

2006 07 2007 08 2008 09 2009 10 2010 11 2011 % Change from 12 f previous year 2010 2011 11 12 1.00 149.1 171.1 136.0 12.5 26.4 22.5 29.2 1.0 5.6 11.5 1.5
Commodity exports Exchange rate Unit returns b Mineral resources energy minerals metals and other minerals Value of exports Mineral resources energy minerals metals and other minerals Total commodities Minerals and energy sector Volume of mine production energy metals and other minerals Gross value of mine production New capital expenditure c
US$/A$ index index index
0.78 100.0 100.0 100.0
0.90 104.9 114.2 99.2
0.75 142.2 192.8 112.1
0.88 111.7 125.3 103.7
0.99 141.2 153.5 134.0
A$m A$m A$m A$m
107 515 117 362 161 796 139 468 179 233 205 830 39 427 45 591 77 892 57 478 69 673 83 056 68 088 71 771 83 903 81 990 109 560 122 774 139 263 148 702 197 701 171 551 215 312 243 842
28.5 21.2 33.6 25.5
14.8 19.2 12.1 13.3
index index index A$m A$m
121.3 118.9 124.3
120.7 116.6 124.8
121.4 122.8 119.6
125.0 126.2 123.5
125.1 111.9 138.8
138.3 129.1 147.7
0.1 11.3 12.4 28.5 34.3 9.1 1.1 27.3
10.6 15.4 6.4 14.8 na na na na
103 214 112 667 155 324 133 890 172 064 197 597 23 621 3 940 2 533 1 407 29 201 5 496 3 501 1 995 37 977 6 034 4 293 1 741 35 185 5 727 3 984 1 742 47 247 6 246 4 028 2 218 na na na na
Exploration expenditure A$m energy A$m metals and other A$m minerals Employment Mining Australia 000 000
136 10 388
146 10 708
170 10 892
173 11 027
205 11 355
na na
18.6 3.0
na na
b Base year: 200607=100. c Mining industry (ANZSIC subdivision B) only. f BREE forecast. na Not available. Note: The indexes for the different groups of commodities are calculated on a chain weight basis using Fishers ideal index with a reference year of 199798=100.
Sources: BREE; ABS.
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Major Australian commodity exports

LNG and alumina are export unit returns in $A. All other commodities are world indicator prices in $US. For export value, annual forecasts are the sum of quarterly forecasts. As a result, annual export values do not necessarily reflect variations in export volumes, world prices and exchange rates. Iron ore and metallurgical coal are average negotiated contract prices for calendar years (e.g. 201112 = 2011). Thermal coal is the annual negotiated contract price for the Japanese fiscal year running from April 2011 to March 2012.
2011-12 f 2010-11
201112 f volume world price value
Iron ore and pellets Metallurgical coal Gold
A$60.4ba A$54.2b A$33.6bb A$29.8b A$18.9b c A$13.0b A$18.8bd A$14.0b A$14.2b e A$11.8b A$12.0b f A$10.4b A$8.7bg A$8.4b A$6.2bh A$5.2b A$3.7b i A$4.1b A$4.0b j A$4.2b A$2.1bk A$2.4b A$1.8b l A$2.0b A$1.9bm A$2.1b A$1.5bn A$1.4b A$1.8bo A$1.5b A$1.2bp A$1.1b
Iron ore and pellets Metallurgical coal Gold Thermal coal Crude oil LNG Copper Alumina Nickel Aluminium Zinc Titanium and zircon
p
13%
p
36%
p
11%
p
7%
p
52%
p
13%
p
12%
p
28%
p
45%
Thermal coal
p
13%
p
33%
p
34%
Crude oil
p
6%
p
16%
p
21%
0%
p
15%
p
15%
LNG
p
10%
p
28%
p
3%
Copper
p
4%
p
14%
p
18%
Alumina
p
11%
q
-17%
q
-9%
Nickel
p
3%
q
-4%
q
-4%
Aluminium
p
2%
q
-9%
q
-10%
Zinc Titanium and zircon Lead Manganese ore Bunker fuel
q
-4%
q
-7%
q
-11%
Lead
p
3%
q
-11%
q
-10%
Manganese ore
p
15% na
p
4%
Bunker fuel
p
1%
p
17%
p
19%
LPG
LPG
$b 0
20 40 60 80
p
3%
p
13%
p
17%
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Energy outlook
Oil and gas
Nina Hitchins and Adrian Waring
In 2012, oil prices are forecast to remain high, relative to 2011, underpinned by consumption growth in emerging economies. Consumption growth in OECD economies is forecast to remain unchanged in 2012. Growth in oil production is forecast to be strongest in non-OPEC countries during 2012, while OPEC oil production growth is expected to be supported by increased production of natural gas liquids. In 201112, the value of Australian crude oil and condensate exports are forecast to increase 21 per cent to $14.2 billion.
Moderate oil price increases

In the first half of 2011, the West Texas Intermediate (WTI) oil price averaged $98 a barrel, an increase of 24 per cent relative to the annual average in 2010. The price increase reflected supply disruptions in Libya, increases in Japans oil-fired electricity generation following the March 2011 earthquakes and tsunami, and strong consumption growth in emerging economies. The oil price fell by 12 per cent in the September quarter of 2011, relative to the previous quarter, and is estimated to average US$92 a barrel in the second half of 2011. Lower prices reflect deteriorating market sentiment resulting from sovereign debt issues in the US and Europe, and increasing concerns of weaker economic growth and reduced global oil demand. For 2011 as a whole, oil prices are estimated to average US$95 a barrel. In 2012, prices are forecast to increase, supported by an assumed marginal improvement in OECD economic growth. The average WTI price in 2012 is forecast to rise by 5 per cent, relative to 2011, to US$100 a barrel. A significant risk to the outlook for oil prices is weakening world economic growth over the next 12 months (for further details on macroeconomic assumptions and associated risks, see the macroeconomic outlook and energy and minerals overview). OPEC spare capacity decreased during 2011 as a result of production shut-ins in Libya and increased production from other OPEC economies to counteract the Libyan shortfall. In October 2011, OPEC spare capacity was 4.6 million barrels a day, 25 per cent below the average in 2010. OPEC spare capacity is expected to increase in 2012 as Libyan production ramps-up and new oil fields come online in Iraq and Angola. However, OPEC spare capacity is likely to remain low, relative to 2010, supporting higher prices in 2012. OECD oil stocks fell in the September quarter of 2011 following a decision by the International Energy Agency (IEA) in June that member countries would collectively release 60 million barrels over 30 days. In September 2011, OECD stocks were 2 per cent below those recorded in the same month a year earlier.
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Box 1: The Brent-WTI price differential

Crude oils differ in quality across fields and regions. Generally crudes with low density (light) and low sulphur content (sweet) are of higher quality compared to high density (heavy), high sulphur content (sour) crudes. Light sweet crudes require less processing, produce more valuable products and, therefore, attract higher prices. West Texas Intermediate is light sweet crude oil that is typically produced in northern US and Canada, and is the traditional price benchmark for US crude oil. WTI is traded on the New York Mercantile Exchange and priced against delivery to Cushing, Oklahoma. Generally, WTI is refined in the Midwest of the US or transported to Cushing for distribution to other refineries. Brent North Sea crude, or Brent, originates from the North Sea, northeast of the United Kingdom. It is also a light sweet crude, although typically of lower quality than WTI. Consequently, WTI has historically attracted a higher price than Brent. However, since the start of 2011, the price relationship between WTI and Brent has not reflected their relative quality and in September 2011, the price of Brent averaged US$24 a barrel, or 28 per cent, higher than WTI. Figure 1:
30 25 20 15 10 5 US$/bbl -5 -10 Oct-05 Oct-06 Brent Oct-07 Oct-08 Oct-09 Oct-10 Oct-11
Price difference from WTI
World Trade Weighted Average (WTWA)
Sources: BREE; EIA.
Several factors have contributed to this price premium reversal. One factor is the effect of increase stocks of WTI crude in Cushing, which have put downward pressure on the WTI price. Increased production of unconventional oil in the US and Canada, combined with a recent lull in consumption in the US, and a bottleneck in pipeline capacity out of Cushing, has caused WTI stocks to climb.
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Meanwhile, other factors have placed upward pressure on the price of Brent. Firstly, production in the North Sea during 2011 has decreased relative to 2010. Secondly, production shut-ins in Libya during the 2011 civil war disproportionally affected the Brent market, as Libyan crude is a key source of oil for many European refineries. In October 2011, the price premium for Brent over WTI declined, reflecting the restart of Libyan production. As production in Libya continues to increase, this output will place further downward pressure on the price of Brent. In 2012, the price premium for Brent is likely to diminish. There are plans to reverse a pipeline that connects the Gulf of Mexico to Cushing, allowing 150 000 barrels a day of crude to flow to the Gulf coast from the second quarter of 2012, increasing up to 400 000 barrels a day by 2013. News of the pipeline reversal saw the Brent premium fall to as low as nine dollars in November. The pipeline reversal should relieve the bottleneck, reduce stocks in Cushing and put upward pressure on the WTI.
Weak world oil consumption growth

In the first 9 months of 2011, world oil consumption averaged 88.8 million barrels a day, a 1.2 per cent increase from the same period in 2010. The growth in oil consumption reflects greater demand in the emerging economies in Asia, particularly China and India, that was only partially offset by a decrease in consumption in the OECD economies. For 2011 as a whole, world oil consumption is estimated to increase by 1 per cent, relative to 2010, to average 89.2 million barrels a day. World oil consumption in 2012 is forecast to increase by 1.4 per cent, relative to 2011, to an average of around 90.5 million barrels a day. OECD oil consumption in 2012 is forecast to remain at similar levels to 2011, as the US and Europe continue to experience weak economic growth. Accordingly, all growth in world oil consumption in 2012 is forecast to be attributed to non-OECD economies.
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Figure 2:
90 80 70 60 50 40 30 20 10 mb/d
World oil consumption
1980
1984
1988
1992 OECD
1996
2000 Non-OECD
2004
2008
2012
Sources: BREE; IEA.
Emerging economies underpin demand growth

In 2011, oil consumption in emerging economies is estimated to increase by 3 per cent, relative to 2010, to average 43.4 million barrels a day. The continued consumption growth reflects resilient domestic demand and petroleum product price controls, which have mitigated the effect of higher crude oil prices. The expanding middle class in China and India continue to spur increases in personal vehicle ownership and underpin growth in oil consumption. In China, oil consumption is estimated to increase by 5 per cent to average 9.5 million barrels a day in 2011. Domestic price controls have helped to insulate consumers from high crude oil prices during the first half of 2011. In October 2011, the National Development and Reform Commission reduced retail prices for petrol and diesel by around 3 per cent, the first reduction in 16 months. Chinas oil consumption in 2012 is forecast to increase by a further 5 per cent and account for over a third of the increase in world oil consumption growth, underpinned by an assumed continuation of strong economic growth. In India, domestic price controls on diesel and robust economic growth have supported strong growth in oil consumption in 2011, which is estimated to increase by 3 per cent relative to 2010. Despite falls in international crude prices during the September quarter, a depreciation of the Rupee deterred officials from lowering domestic diesel prices further. In 2012, oil consumption in India is forecast to grow by a further 3 per cent to average 3.6 million barrels a day. An increase in consumption is expected to be supported by strong growth in motor vehicles sales. In the Middle East, Irans oil consumption is forecast to contract by 2 per cent in 2011, relative to 2010, following the removal of domestic petrol and diesel subsidies. Iran accounts for over a quarter of Middle Eastern oil consumption. Despite decreases in Iranian oil demand, consumption in the Middle East overall is forecast to increase by 3 per cent in both 2011 and 2012 to average 8.3 million barrels a day in 2012, reflecting an assumption of sustained strong economic growth in the region.
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OECD oil consumption to remain unchanged in 2012

Consumption of oil in OECD economies is estimated to contract by 0.9 per cent in 2011, relative to 2010, to average 45.8 million barrels a day. This primarily reflects a decline in US and European consumption. However, decreases in the US and Europe were partially offset by increased consumption in the Pacific region (Australia, Republic of Korea, Japan and New Zealand). In 2012, OECD oil consumption is forecast to remain steady at an average of 45.8 million barrels a day. Europes oil consumption is estimated to decline by 1.3 per cent in 2011, relative to 2010, and by a further 0.9 per cent in 2012 to average 14.3 million barrels a day. Assumed weak economic growth and falling intensity of oil use are both expected to contribute to lower oil consumption in Europe. In 2011, oil consumption in North America is estimated to contract by 1.1 per cent to average 23.5 million barrels a day. The decease in North American consumption is expected to be underpinned by weak economic growth in the US, where demand for refined products fell by 3 per cent year-on-year in the September quarter 2011. For 2011 as whole, oil consumption in the US is estimated to decrease by 1.3 per cent, relative to 2010, to average 18.9 million barrels a day. US economic growth in 2012 is assumed to increase modestly relative to 2011, and expected to support a 0.6 per cent increase in US oil consumption to average 19.0 million barrels a day. Accordingly, North American oil consumption is forecast to increase by 0.5 per cent in 2012 to average 23.6 million barrels a day. In the Pacific region, oil consumption is forecast to increase marginally to average 7.9 million barrels a day in 2012. The growth in oil consumption is likely to be led by Japan, where oil consumption is estimated to increase 0.7 per cent in 2011 and 2012 to average 4.5 million barrels a day in 2012. Increased consumption in Japan is expected to be associated with reconstruction activities and supported by greater capacity utilisation of oil-fired electricity generation plants following the March 2011 earthquakes and tsunami.
Modest growth in world oil production

World production of oil is estimated to increase by 2 per cent in 2011, relative to 2010, to average 88.8 million barrels a day. Increases in OPEC production are expected to account for the majority of the increase, with production outages constraining output growth in non-OPEC economies. In 2012, world oil production is forecast to increase by a further 2 per cent, with non-OPEC production accounting for around 60 per cent of total growth.
Moderate OPEC crude production, robust OPEC NGL production

OPEC oil production is estimated to increase by 3 per cent in 2011, and forecast to increase by an additional 2 per cent in 2012 to average 36.6 million barrels a day. The increase in OPEC oil production is forecast to be underpinned by moderate increases in crude oil production and robust growth in natural gas liquids.
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In the first nine months of 2011, crude oil production in OPEC countries increased 1.3 per cent year-on-year, despite production shut-ins throughout Libya during the civil war. During the same period, OPEC production growth was supported by increased output from Saudi Arabia and the United Arab Emirates. In the case of Saudi Arabia, oil production averaged 8.9 million barrels a day, a 12 per cent year-on-year increase. For 2011 as a whole, OPEC crude oil production is estimated to increase by 2 per cent to average 30.1 million barrels a day, reflecting greater Libyan production in the December quarter. Prior to the outbreak of civil war in Libya, its crude oil production was around 1.6 million barrels a day. However, once the conflict began, production declined to close to nil. Following the fall of the Gaddafi regime, oil production in Libya recommenced. In areas with minimal damage to production and export infrastructure, oil production has reportedly surpassed 750 000 barrels a day. The Libyan National Oil Corporation forecasts that Libyas oil production will reach 1 million barrels a day by April next year, and return to pre-civil war output by the end of 2012. In 2012, OPEC crude oil production is forecast to increase by 0.7 per cent, relative to 2011, supported by capacity expansions in Iraq. Increased output from the Rumalia, Zubair and West Qurna oil fields are expected to underpin growth Iraqs crude oil production. Production capacity in Iraq is expected to reach 3 million barrels a day by the end of 2011 and 3.3 million barrels a day by the end of 2012. However, production and exports may be constrained by bottlenecks in export capacity, including pipelines and single-point moorings. OPEC production of natural gas liquids and condensate is estimated to grow by 9 per cent in 2011, relative to 2010, and an additional 7 per cent in 2012 to average 6.3 million barrels a day. Production increases are likely to continue to be sourced from Qatar through the development of large gas fields.
Growth in non-OPEC production in 2012

Non-OPEC oil production is estimated to increase moderately in 2011, growing by 0.3 per cent relative to 2010, to average 52.8 million barrels a day. In 2012, oil production is forecast to increase by 2 per cent to average 53.9 million barrels a day, reflecting an expected return to production following maintenance, weather-related disruptions, and the start-up and ramp-up of new oil fields. North American oil production is estimated to increase by 2 per cent in 2011, relative to 2010, to average 14.4 million barrels a day. A further increase of 2 per cent is forecast for 2012. The increase will be supported by the development of unconventional oil sources including oil sands in Canada and oil shale in the US. Canadas oil production is estimated to increase by 3 per cent in 2011, relative to 2010, and forecast to increase by 5 per cent in 2012 to average 3.8 million barrels a day. Production growth will be supported by the start-up and ramp-up of oil sands projects including the Firebag project in Athabasca (62 500 barrels a day) and the Kearl oil sands project (345 000 barrels a day). Increases in production are also expected to be supported by the restart of the Horizon sands facility (110 000 barrels a day), which reopened in August 2011 following a fire earlier in the year.
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In the US, oil production is estimated to increase by 3 per cent in 2011, as continued growth in oil shale, particularly from the Bakken and Eagle Ford formations, offset weather-related declines in production in North Dakota and the Gulf of Mexico. In 2012, US oil production is forecast to grow by a further 1.9 per cent to average 8.1 million barrels a day. Oil production in the Russian Federation is estimated to increase by 1.1 per cent in 2011, relative to 2010, and forecast to increase by an additional 0.9 per cent in 2012 to average 10.7 million barrels a day. Increased production from the ramp-up of the Vankor oil field is forecast to offset production declines from maturing fields. Production from Russia is also expected to be supported by the 6066 Tax Regime, which came into effect in October 2011. The reform reduces the marginal tax for crude oil exports from 65 per cent to 60 per cent, enhancing the profitability of upstream projects. Oil production in Brazil is estimated to increase by 3 per cent in 2011, relative to 2010, to average 2.2 million barrels a day. Higher production will also be supported by a new well in the Jubarte field and a ramp-up of production in the Lula field. In 2012, Brazils oil production is forecast to increase by a 6 per cent to average around 2.3 barrels a day. Several new projects in Brazils Campos Basin including the Peregrino and Marlin Sul 3 operations are expected to contribute an additional 200 000 barrels a day once they reach peak capacity in early 2012.
Value of Australian oil exports to increase

Australian crude oil and condensate production is forecast to increase by 2 per cent in 201112, relative to 201011, to total 25.3 billion litres. Increased production from the North West Shelf (NWS) following the completion of the Cossack Wanaea Lambert Hermes redevelopment project in September 2011 and the start-up and ramp-up of new projects in the Timor Sea are expected to offset declining output from maturing oil fields. New projects include the Kitan project, completed in October 2011, and the Montara/Skua project, which is expected to commence in the first quarter of 2012. Each project is expected to contribute 35 000 to 40 000 barrels a day at peak capacity. Australian exports of crude oil and condensate are forecast to increase by 6 per cent in 201112 to total 20.8 billion litres, in line with greater production off the north-west coast of Australia. The value of Australias exports is forecast to increase by 21 per cent in 201112 to total $14.2 billion, supported by higher export volumes and prices.
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Figure 3:
25 20 15 10 5 GL
Australia's crude oil and condensate exports

15 12 9 6 3 2011 12 2011-12 A$b
2001-02
2003-04
2005-06 volume
2007-08 value
2009-10
Sources: BREE; ABS.
Table 1:
World
Oil outlook
2010 2011 s 88.8 89.2 108 95 201011 24 793 d 19 636 11 772 31 766 3 907 2 471 1 068 2012 f 90.5 90.5 109 100 201112 f 25 340 20 806 14 214 31 057 4 145 2 553 1 246 2.2 6.0 20.7 2.2 6.1 3.3 16.7 % change 1.9 1.4 1.5 4.5
Production b Consumption Trade weighted crude oil price West Texas Intermediate crude oil price Australia Crude oil and condensate Production b Exports value Imports LPG Production c Exports value
mbd mbd US$/bbl US$/bbl
87.5 88.3 78 79 200910
ML ML A$m ML ML ML A$m
25 583 d 18 064 9 534 27 284 4 097 2 776 1 105
b One megalitre a year equals about 17.2 barrels a day. c Primary products sold as LPG. d Energy Quest. f BREE forecast. s BREE estimate.
Sources: BREE; ABARES; Australian Bureau of Statistics; Energy Information Administration (US Department of Energy); Energy Quest; International Energy Agency.
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Australian gas exports

LNG export value to increase in 201112
In 201112, Australian liquefied natural gas (LNG) exports are forecast to decrease slightly to 19.9 million tonnes. The decreased production is due to planned maintenance at the NWS project taking place in September 2011. However, this decreased production is expected to be almost completely offset by initial production from the Pluto LNG project, which is scheduled to start in March 2012. LNG prices under long-term contracts are typically linked to oil prices. As a result in 201011, higher oil prices in the first half of 2011 and increased export volumes increased the value of Australias LNG exports by 34 per cent relative to 200910 to $10.4 billion. In 201112, forecast higher oil prices are expected to underpin a 15 per cent increase in the value of Australias LNG exports to $12 billion, despite the slight forecast decrease in export volumes. Figure 4:
25 20 15 10 5 Mt 2001-02 2003-04 2005-06 volume 2007-08 value 2009-10
Australias LNG exports

15 12 9 6 3 2011 12 2011-12 A$b
Sources: BREE; ABS.
Table 2:
Australia Production LNG exports value
Australian gas outlook

200910 Gm3 Mt A$m 49.0 17.87 7 789 201011 53.4 19.96 10 437 201112 f 56.5 19.90 11 978 % change 5.8 0.3 14.8
f BREE forecast.
Sources: BREE; ABARES; Department of Resources, Energy and Tourism.
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Thermal coal
Rubhen Jeya
In 2012, average thermal coal prices are forecast to be lower than in 2011. However, they will remain at historically high levels as import demand remains relatively robust. World thermal coal imports in 2012 are forecast to increase by 4 per cent, relative to 2011, underpinned by growth in India, China and Japan. Growth in world thermal coal exports is expected to be underpinned by increased supplies from Australia, Colombia and Indonesia. Australias thermal coal exports are forecast to increase in 201112 by 14 per cent, relative to 201011, reflecting significant additions to production and export infrastructure capacity over the course of 2011.
Thermal coal spot prices stay relatively steady

In 2011, thermal coal spot prices (on a Newcastle FOB basis) are estimated to average around US$122 a tonne, an increase of 23 per cent compared to 2010. The increase in prices has been supported by relatively strong demand from Asian economies and weather-related production disruptions in Australia, Indonesia and Colombia in the first half of 2011. In 2012, Newcastle spot prices are forecast to remain high, underpinned by growth in demand in Japan, China and India. While spot prices are forecast to remain historically high, they are forecast to average 6 per cent lower than in 2011, reflecting strong growth in exports from Australia and Indonesia. In line with lower spot prices, Australia-Japan thermal coal contract prices are assumed to settle at around US$110 a tonne for Japanese Fiscal Year 2012 (JFY, April 2012 to March 2013). If achieved, this would result in a JFY 2012 price that is 15 per cent lower than the JFY 2011 price, which was around US$130 a tonne.
Thermal coal imports to increase

In 2011, world thermal coal trade is estimated to total 817 million tonnes, an increase of 3 per cent from 2010. The increase in trade has been supported by strong import growth, particularly from India. The import growth in the Asian region has been underpinned by export growth from Australia, the US, Indonesia, the Russian Federation and Colombia. Import demand in the Atlantic market has remained subdued in 2011, reflecting weak demand in Europe and a growing shift towards alternative and renewable energy sources. World thermal coal trade in 2012 is forecast to increase by around 4 per cent to 852 million tonnes, supported by continued strong import demand from Asia combined with a moderate increase in European import demand. Indonesia and Australia are forecast to supply a significant proportion of the growth in seaborne thermal coal trade.
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Chinas imports to increase in 2012

In the first eight months of 2011, China imported around 78 million tonnes of thermal coal, which was largely unchanged from the corresponding period in 2010. The lack of import growth reflects high international coal prices that improved the competiveness of domestically produced coal and that reduced the incentive to import thermal coal in the first half of 2011. Additionally, high levels of stockpiles at ports and at power stations placed downward pressure on coal demand for much of the second half of 2011. For 2011 as a whole, China is estimated to import around 126 million tonnes of thermal coal, a 2 per cent decrease from 2010. In 2012, Chinas thermal coal imports are forecast to increase by 2 per cent, relative to 2011, to 128 million tonnes. The moderate increase in imports reflects a forecast reduction in international coal prices, which would enhance the competiveness of imports compared with domestically produced coal.
.while Indias import growth to continue to grow strongly in 2012

In 2011, Indias coal consumption has increased strongly, underpinned by the start-up of a number of coal-fired power stations. However, the growth in Indias coal production has not been enough to keep pace with growth in consumption and this has resulted in an increase in imports to make up the balance. Also supporting imports in 2011 has been the need to blend domestically produced coal with higher quality imported coal, which helps to increase the efficiency of electricity generators. Reflecting these developments, Indias imports of thermal coal in 2011 are estimated to increase by 30 per cent, relative to 2010, to 78 million tonnes. In 2012, Indias thermal coal imports are forecast to increase by 18 per cent, compared to 2011, to total 92 million tonnes. Growth in thermal coal imports is expected to be underpinned by continued expansion of coal-fired electricity generation capacity and production growth not sating additional demand.
Japan and the Republic of Koreas imports to increase

In 2011, Japans imports are estimated to have decreased by 3 per cent, relative to 2010, to 125 million tonnes. The decrease in imports reflects damage to a number of coal-fired power stations from the March 2011 earthquakes and tsunami. This was partially offset by an increase in capacity utilisation at unaffected coal-fired power stations. Japans thermal coal imports in 2012 are forecast to increase by 2 per cent to 128 million tonnes under the assumption that some of the damaged power stations will restart operation in 2012. Japans electricity demand is expected to rise in 2012 in response to increased economic activity associated with the reconstruction phase. In addition, nuclear power utilisation is assumed to remain at low rates for much of 2012. Reflecting these developments, coal-fired electricity generation is expected to operate at a high utilisation rate, underpinning thermal coal imports.
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Figure 1:
Japans electricity generation

60000 50000 40000 30000 20000 10000 GWH
Source: Ministry of Economy, Trade and Industry, Japan.
Europes thermal coal imports to rise moderately

In 2011, the European Union's (EUs) thermal coal imports are estimated to have increased by around 3 per cent, relative to 2010, to total 155 million tonnes. This increase has been underpinned by imports into the United Kingdom, where thermal coal imports are estimated to have increased by 54 per cent to 19 million tonnes in the first nine months of 2011. The increase in imports into the United Kingdom reflects disruptions to gas supplies from the North Sea which encouraged the use of coal for electricity generation. Imports into the EU in 2012 are forecast to increase by around 1 per cent, relative to 2011, to 157 million tonnes. Weak economic growth across the region is expected to limit growth in coal-fired electricity generation. In addition, gas supplies from the North Sea are assumed to return to normal levels, which could put downward pressure on the United Kingdom's demand for imported coal. However, the continued and gradual closure of Germany's coal mines is one factor that may support the EU's thermal coal import demand.
Exports from Indonesia and the Russian Federation increasing

In the first eight months of 2011, Indonesias exports of thermal coal increased by 4 per cent, compared with the corresponding period in 2010, to 206 million tonnes. The increase in exports was underpinned by higher production associated with favourable weather conditions in the first half of the year. Indonesias exports are estimated to increase by 5 per cent to 298 million tonnes in 2011.
09 Ap r-0 9 Ju n09 Au g09 Oc t-0 9 De c09 Fe b10 Ap r-1 0 Ju n10 Au g10 Oc t-1 0 De c10 Fe b11 Ap r-1 1 Ju n11 Au g11
Hydro Power Thermal Nuclear
Fe b-
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In 2012, Indonesias exports are forecast to increase by a further 3 per cent to 306 million tonnes, underpinned by import demand from China, India and emerging Asian economies. The increase in exports is expected to be supported by increased production from PT Bumis, PT Adaro Energys and PT Indika Energys coal mines along with output expansions from mines located in the East Kalimantan region.
while US exports decline in 2012

In the first eight months of 2011, thermal coal exports from the Unites States increased by 68 per cent year-on-year to total around 22 million tonnes. During this time, exports to Europe increased by more than 150 per cent to around 10 million tonnes, while exports to Asia doubled to around 7 million tonnes. The strong increase in exports reflected high international coal prices and relatively weak coal demand in the US associated with increased consumption of natural gas and renewables for electricity generation. For 2011 as a whole, US exports are forecast to increase by 35 per cent to 31 million tonnes. In 2012, US thermal coal exports are forecast to decrease by 11 per cent, relative to 2011, to total 28 million tonnes as import markets will continue to source coal from traditional producers, such as Australia, Indonesia and Columbia, thereby reducing demand for thermal coal exports from the US. Further increases in US thermal coal exports are expected to be limited by the availability of port and rail infrastructure. Figure 2: US exports to various regions
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Mt
l-0 6 No v06 M ar -0 7 Ju l-0 7 No v07 M ar -0 8 Ju l-0 8 No v08 M ar -0 9 Ju l-0 9 No v09 M ar -1 0 Ju l-1 0 No v10 M ar -1 1 Ju l-1 1
Exports to Americas Exports to EU Exports to Asia
Ju
ar -0 6
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Growth in exports from South Africa and Colombia in 2012

During the first nine months of 2011, South Africas exports of thermal coal declined by about 3 per cent year-on-year to 49 million tonnes. The decrease in production reflected weak import demand in the Atlantic market and weather related disruptions in the first half of 2011. For 2011 as a whole, South Africas exports of thermal coal are forecast to decline by 3 per cent, relative to 2010, to around 66 million tonnes. In 2012, thermal coal exports from South Africa are forecast to increase by 5 per cent to 69 million tonnes. This growth reflects the assumption that production will not be disrupted by industrial action or bad weather, as it was in 2011. However, further increases in South Africas thermal coal exports are expected to be limited by infrastructure bottlenecks, particularly within the rail system. In the first nine months of 2011, Colombias exports of thermal coal increased by 5 per cent from the previous corresponding period to 56 million tonnes. The increase in exports was underpinned by growth in production in the Cesar Basin, including Glencores Pordeco mine and the Cerrejon and Drummond coal operations. For 2011 as a whole, Colombias thermal coal exports are estimated to increase by 3 per cent to 71 million tonnes. In 2012, Colombias thermal coal exports are forecast to increase by 6 per cent, relative to 2011, to 76 million tonnes. The increase in exports is expected to be supported by higher production from mines which commenced operations in 2011.
Australias thermal coal exports to increase in 201112

In 201112, Australias thermal coal production is forecast to increase by 9 per cent, relative to 201011, to 225 million tonnes. Supporting Australias thermal coal production will be increases in production for a number of new coal mines that started up in 201011. New projects located in New South Wales include Mangoola (8 million tonnes a year) and Moolarben stage 1 (8 million tonnes a year), and the expansion of the Mount Arthur North open-cut mine (3.5 million tonne expansion). In Queensland, the start-up of the Ensham underground mine (1.5 million to 2.5 million tonnes a year) will also contribute to Australias thermal coal production.
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Figure 3:
180 150 120 90 60 Mt
Australias thermal coal exports

25 20 15 10 5 2011-12 A$b
2001-02
2003-04
2005-06 volume
2007-08 value
2009-10
2011-12
Sources: BREE; ABS.
In 201112, Australias thermal coal export volumes are forecast to increase by 14 per cent, relative to 201011, to total 163 million tonnes. The growth in export volumes will be supported by increased port capacity associated with the start-up of the Port Waratah Coal Services Kooragang Island Coal Terminal expansion (11 million tonnes a year), the X50 expansion at Abbot Point (25 million tonnes a year) and higher throughput at the Newcastle Coal Infrastructure Group Coal Terminal as it approaches capacity. In 201112, the value of Australias thermal coal exports is forecast to increase by 34 per cent, relative to 201011, to $18.8 billion, supported by higher export volumes.
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Table 1:
Thermal coal outlook

2010 2011 s 2012 f % change
World Contract prices b Thermal coal Coal trade Imports Asia China Chinese Taipei India Japan Korea, Rep. of Malaysia other Asia Europe European Union 27 c other Europe Other Exports Australia China Colombia Indonesia Russian Federation South Africa United States Other Mt Mt Mt Mt Mt Mt Mt Mt 141 20 69 285 95 68 23 94 200910 Australia Production Exports value Mt Mt A$m 198.3 135.0 11 886 206.1 143.3 13 956 224.7 162.6 18 760 9.0 13.5 34.4 148 15 71 298 97 66 31 85 201011 171 13 76 306 99 69 28 83 201112 f 15.5 12.0 6.4 2.7 1.5 4.5 10.6 2.4 Mt Mt Mt Mt Mt Mt Mt Mt Mt Mt Mt Mt 532 129 65 60 129 91 19 40 193 150 43 70 552 126 67 78 125 94 20 43 199 155 43 65 581 128 67 92 128 95 21 50 202 157 45 68 5.2 2.0 0.6 17.9 2.4 1.1 7.1 15.6 1.6 0.8 4.4 4.4 US$/t Mt 98 794 130 817 110 852 15.3 4.3
b Japanese Fiscal Year, starting April 1, fob Australia basis, BREE AustraliaJapan average contract price assessment. For steaming coal with a calorific value of 6700 kcal/kg (gross air dried. c Regarded as 27 countries for all years. f BREE forecast. s BREE estimate.
Sources: BREE; ABARES; International Energy Agency; Coal Services Pty Ltd; Queensland Department of Mines and Energy.
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Resources outlook
Steel and steel-making raw materials
Rubhen Jeya and Tom Shael
In 2012, iron ore contract prices for 62 per cent iron content shipped from Australia are forecast to average around US$139 a tonne, 9 per cent lower than the estimate for 2011. In the same period, contract prices for high-quality hard coking coal are forecast to average US$226 a tonne, a 22 per cent decrease from 2011. These decreases reflect an increase in supply of both of these commodities on the seaborne-traded market. Demand for steel and its raw material inputs, iron ore and metallurgical coal, are forecast to increase in 2012. However, this growth is expected to be relatively subdued due to slower world economic growth. In 201112, Australias metallurgical coal exports are forecast to increase by 7 per cent, relative to 201011, to total 150 million tonnes. Iron ore exports are forecast to increase by 13 per cent to total 460 million tonnes. For both steel-making materials, higher export volumes will more than offset lower contract prices for 201112, resulting in a 13 per cent increase in export earnings for metallurgical coal and a 12 per cent increase for iron ore.
Raw material prices

Iron ore spot prices have declined markedly since October 2011 due to expectations about slow growth in the world economy, continued debt issues in Europe and a slight reduction in growth in China. However, strong prices in the June and September quarters of 2011 bolstered the average 2011 contract price for 62 per cent iron content ore shipped from Australia to US$153 a tonne, a 36 per cent increase compared to 2010. In 2012, recently completed projects in Australia are expected to increase seaborne supply, which, in combination with relatively weaker growth in demand from steel producers in Asia and Europe, is forecast to place downward pressure on iron ore prices. As a result, the 2012 contract price is forecast to average around US$139 a tonne, a 9 per cent year-on-year decline. Contract prices for premium quality hard coking coal averaged US$289 a tonne in 2011, representing a 52 per cent increase on the average contract price in 2010. This increase partly reflects weather related production disruptions in Queensland in late 2010 and early 2011 that coincided with relatively strong steel production in China and in Japan, prior to the March 2011 earthquakes and tsunami.
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In 2012, contract prices are forecast to decrease by 22 per cent to average US$226 a tonne. This decrease reflects a combination of weaker import demand growth and increased exports from Queensland as mines recover from flood-related production disruptions. In addition, increased supply from a number of metallurgical coal expansions around the world that have recently been completed, or are scheduled for completion within the outlook period, are expected to place downward pressure on prices. Figure 1: Steel-making raw material contract prices (FOB Australia)
350 300 250 200 150 100 50 2011 US$/t Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Jun-12
iron ore (62% iron content)
hard coking
semi-soft coking
Source: BREE.
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Steel
Table 1: World steel outlook 2009
Crude steel consumption (Mt)
2010 160 90 30 42 600 68 55 21 66

1389
2011 s 166 94 31 44 624 69 56 24 76

1451
2012 f 171 97 33 46 662 76 57 25 84

1527
European Union 27 United States Brazil Russian Federation China Japan Korea, Rep. of Chinese Taipei India
World steel consumption Crude steel production (Mt)
129 62 21 28 571 57 47 14 61
1223
European Union 27 United States Brazil Russian Federation China Japan Korea, Rep. of Chinese Taipei India
World steel production f BREE forecast. s BREE estimate.
Sources: BREE; World Steel Association.
139 58 27 60 568 88 49 16 57
1220
173 81 33 67 627 110 58 20 67

1415
177 86 35 69 683 108 62 21 72

1502
181 90 38 72 734 122 64 22 78

1594
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In 2011, world steel consumption is estimated to increase by 4 per cent to 1.45 billion tonnes. The worlds three largest steel consumers, China, the European Union (EU) and the US, all recorded consumption growth. However, this growth has been moderate, and reflects weak economic activity in the second half of 2011 relative to the first half of 2011. World steel consumption in 2012 is forecast to increase by 5 per cent, relative to 2011, to 1.5 billion tonnes. China and Japan will be the main contributors to consumption growth, while growth in the EU and US will be subdued, reflecting assumed weak economic growth.
China to remain the largest producer and consumer of steel in 2012

In 2011, Chinas steel consumption is estimated to increase by around 4 per cent to a total of 624 million tonnes, which is equivalent to around 43 per cent of world steel consumption. This increase in consumption reflected the effect of growth in infrastructure development and other steel-intensive infrastructure, particularly in the first half of 2011. Also supporting steel consumption growth in China was the commencement of a social housing construction program that will consist of building 10 million units of affordable housing. In 2012, Chinas steel consumption is forecast to increase by 6 per cent, relative to 2011, to 662 million tonnes. Growth in steel consumption is expected to be underpinned by programs to expand infrastructure and social housing construction. In OECD economies, steel production has increased during 2011. However the rate of growth has been lower than the growth rate seen in 2010. In both the US and the EU, steel consumption is estimated to increase by 4 per cent year on year. In Japan, steel consumption in 2011 is estimated to increase by one per cent, relative to 2010, to 69 million tonnes. Lower consumption in the first half of 2011 following the March 2011 earthquakes and tsunami was offset by growth in the second half of 2011 from the commencement of rebuilding of damaged infrastructure. In 2012, reduced government spending and investment in infrastructure in a number of large European economies and in the US is expected to result in relatively slow growth in OECD steel consumption. Steel consumption in both the US and the EU is forecast to increase by 3 per cent, year-on-year, to 97 million tonnes and 171 million tonnes, respectively. In Japan, steel consumption in 2012 is forecast to increase by 10 per cent, relative to 2011, to 76 million tonnes as a result of a significant amount of rebuilding activity across earthquake- and tsunami-affected regions. World steel production in 2011 is estimated to have increased by 6 per cent, relative to 2010, to 1.5 billion tonnes, as steel producers responded to strong steel consumption in the first half of 2011. In 2012, world steel production is forecast to increase by a further 6 per cent to 1.6 billion tonnes. Chinas steel production in 2011 is estimated to increase by 9 per cent, compared with 2010, to 683 million tonnes. The 56 million tonne increase represents around two-thirds of the total estimated increase in world steel production. China maintained a high rate of steel production throughout most of the first three quarters of 2011 in response to increased steel demand.
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However, in the December quarter steel production is estimated to have declined as steel consumption weakened and steel prices fell. In 2012, Chinas steel production is forecast to increase by 7 per cent to 734 million tonnes. This relatively strong rate of production growth reflects robust steel consumption growth, albeit at a rate weaker than in 2011. In OECD economies in 2011, steel production increased by 6 per cent in the US and by 2 per cent in the EU, although growth was still significantly lower than the growth rate experienced between 2009 and 2010. In Japan, steel production is forecast to decline by 2 per cent in 2011, primarily as a result of production losses due to damage caused by the March 2011 earthquakes and tsunami, which more than offset production increases in the second half of 2011. In 2012, steel production in the OECD is forecast to increase, albeit at a moderate rate, reflecting weak consumption growth. In the US and the EU, steel production is forecast to increase by 5 per cent and 2 per cent respectively. By contrast, Japans steel production in 2012 is forecast to increase by 13 per cent, compared to the previous year, to a total of 122 million tonnes. The sharp increase in production will be required to meet a forecast increase in steel demand associated with reconstruction following the March 2011 earthquakes and tsunami.
Iron ore
Table 2: World iron ore trade
2009 Iron ore imports (Mt) European Union 27 Japan China Korea, Rep. of Chinese Taipei World imports Iron ore exports (Mt) Australia Brazil India Canada South Africa Sweden World exports f BREE forecast. s BREE estimate.
Sources: BREE; UNCTAD.
2010 133 134 619 56 19 1055
2011 s 142 132 645 58 20 1093
2012 f 149 147 692 60 21 1172
95 105 630 42 12 948
363 266 117 31 45 16 948
402 311 96 33 48 21 1055
431 330 85 34 53 21 1093
481 361 76 35 57 22 1172
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In the first half of 2011, demand for iron ore imports was buoyed by higher steel production particularly in China. However, lower steel production in China in the latter part of 2011 reduced demand for imported iron ore. For 2011 as whole, world trade of iron ore is estimated to increase by 4 per cent, relative to 2010, to 1.1 billion tonnes. In 2012, iron ore imports are forecast to increase further, reflecting steel production growth in China and Japan. World trade of iron ore in 2012 is forecast to increase by 7 per cent, relative to 2010, to 1.2 billion tonnes.
China remains a major importer of iron ore

China is estimated to import 645 million tonnes of iron ore in 2011, representing a 4 per cent increase over 2010 levels. While domestic iron ore production increased by an estimated 9 per cent in 2011, it was insufficient to meet growth in iron ore demand. Further increases in China's iron ore production were limited by high cost and relatively low quality ores. In 2012, Chinas imports of iron ore are forecast to increase by 7 per cent, relative to 2011, to total 692 million tonnes. The faster rate of growth reflects expected weaker domestic production. With iron ore prices forecast to decline, this will result in high cost Chinese mines closing down and their production being substituted for with imports, which can be produced at a lower cost.
Imports into developed economies to moderate

In OECD economies, iron ore imports in 2011 are estimated to have increased by 3 per cent, relative to 2010, to 332 million tonnes, largely underpinned by growth in imports into the EU. In 2011, EU imports are estimated to increase by 7 per cent to 142 million tonnes reflecting higher steel production. In Japan, iron ore imports in 2011 are estimated to decrease by 1 per cent, relative to 2010, to total 132 million tonnes. The decline in imports reflects the decrease in steel production in 2011 immediately following the earthquakes and tsunami. In 2012, OECD iron ore imports are forecast to increase by 7 per cent, relative to 2011, to 356 million tonnes. Japans iron ore imports are forecast to increase by 11 per cent, relative to 2012, to 147 million tonnes, underpinned by forecast growth in its steel production. Growth in EU imports in 2012 is forecast to moderate to 5 per cent, relative to 2011, as steel production growth slows.
Australia and Brazil to continue dominating world seaborne trade in 2012

While exports from the major iron ore exporting countries have increased in 2011, a ban on production from the Indian state of Karanataka and weather related supply disruptions in Western Australia have limited further growth of iron ore exports. In 2012, forecast growth in exports from Australia and Brazil, is expected to underpin the growth in world iron ore exports.
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Australias iron ore exports in 2011 are estimated to increase by around 7 per cent, relative to 2010, to 431 million tonnes as weather-related supply disruptions in Western Australia in the first half of the year limited growth. Nevertheless, the growth in exports was supported by the start-up of new projects including from Fortescues Chichester Hub expansion. In 2012, Australia's iron ore exports are forecast to increase by 12 per cent, relative to 2011, to total 481 million tonnes. Increased exports in 2012 are expected to be supported by increased production from a number of projects which started up in 2011 or are scheduled to start-up in 2012. These include Mt Gibson Irons Extension Hill Direct Shipping Ore (DSO) project, Rio Tintos Hamersley Iron Brockman 4 (Stage 2), BHP Billiton's Rapid Growth 5 project, and Fortescue Metals Groups expansion at Chichester Hub. Brazil's iron ore exports in 2011 are estimated to have increased by 6 per cent, relative to 2010, to total 330 million tonnes. This growth is underpinned by record production from Vales Carajas operation, following the completion of a 10 million tonne annual capacity expansion in 2010. In 2012, Brazils exports are forecast to increase by a further 9 per cent, relative to 2011, to total 361 million tonnes, underpinned by full capacity production across many operations, including those in the south-eastern, southern and northern systems. In July 2010, a ban on production from the state of Karnataka, which accounted for about one-quarter of Indias total iron ore production, was put in place by the Indian government in an attempt to stop illegal mining. While the ban was partially lifted in some regions in August 2011, losses in production in the first-half of 2011 negatively impacted Indias iron ore exports. As a result, Indias iron ore exports for 2011 are estimated to have declined by 11 per cent, relative to 2010, to total 85 million tonnes. Reflecting the assumption that legislative uncertainties and production losses will continue throughout 2012, Indian exports are forecast to decrease by a further 11 per cent to total 76 million tonnes.
Australian exports
In 201112, Australias exports of iron ore are forecast to increase by 13 per cent, relative to 201011, to total 460 million tonnes, largely as a result of higher production at projects in the Pilbara region of Western Australia. Australian export earnings from iron ore in 201112 are forecast to increase by 12 per cent, compared to 201011, to total $60.4 billion. Higher export volumes and contract prices in the second half of 2011 will more than outweigh the forecast lower contract prices for the first half of 2012.
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Figure 2:
500 400 300 200 100 Mt
Australia's iron ore exports

75 60 45 30 15 2011-12 A$b 2001-02 2003-04 2005-06 volume 2007-08 value 2009-10 2011-12
Source: BREE; ABS.
Metallurgical coal
Table 3: World metallurgical coal trade
2009 Metallurgical coal imports (Mt) European Union 27 Japan China Korea, Rep. of Chinese Taipei India Brazil World imports Metallurgical coal exports (Mt) Australia Canada United States Russian Federation World exports f BREE forecast. s BREE estimate. Sources: BREE; IEA. 135 22 34 13 220 159 28 51 14 273 134 30 55 17 272 160 33 51 18 295 36 53 34 21 4 25 9 220 45 58 48 28 5 30 12 273 47 55 51 30 6 32 14 272 49 61 53 31 7 38 15 295 2010 2011 s 2012 f
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India and China to continue to rely on imported metallurgical coal in 2012

World metallurgical coal trade in 2011 is estimated to have decreased by less than 1 per cent, relative to 2010, to 272 million tonnes. The decline reflects reduced supply from Queensland following flooding in early 2011, a reduction in demand immediately following the Japanese earthquakes and tsunami, and high prices that increased the competitiveness of Chinese domestic supply. In 2012, the world trade of metallurgical coal is forecast to increase by 8 per cent, compared to 2011, to total 295 million tonnes. This is expected to be underpinned by growth in imports to Japan and India. In 2011, imports into Japan are estimated to have fallen by 5 per cent to 55 million tonnes reflecting lower steel production, particularly in the first half of 2011. Japan's imports in 2012 are forecast to increase by 11 per cent to 61 million tonnes, underpinned by an increase in steel production. Indias metallurgical coal imports in 2011 are estimated to increase by 7 per cent, relative to 2010, to total 32 million tonnes in line with increased steel production. In 2012, Indias metallurgical coal imports are forecast to increase by 19 per cent compared to the previous year, to total 38 million tonnes. This largely reflects an expected expansion of the steel manufacturing sector, and limited domestic reserves of sufficiently high-quality metallurgical coal. In 2011 and 2012, China is expected to increase its reliance on imports relatively to domestically produced metallurgical coal. The level of imports is dependent on the ability of domestic coal producers to supply Chinese steel mills at a competitive price. Infrastructure bottlenecks, other logistical constraints and an increase in demand for higher quality, lower impurity metallurgical coal by steel mills will increase Chinas dependence on imported metallurgical coal. Reflecting an increase in steel production, Chinas imports of metallurgical coal in 2011 are forecast to increase by 6 per cent, relative to 2010, to total 51 million tonnes. Chinas imports of metallurgical coal in 2012 are forecast to increase by a further 4 per cent, relative to 2011, to total 53 million tonnes.
Australia remains the major exporter of metallurgical coal despite weather-related losses
Australia is expected to be a significant contributor to world seaborne-traded metallurgical coal supply, and is estimated to account for half of total world trade in 2011. This proportion is lower than the 58 per cent it was in 2010, and has been a result of adverse weather in Queensland and northern NSW in late 2010 and early 2011 that negatively impacted production. In 2012, Australias exports are forecast to increase by 19 per cent, relative to 2011, to 160 million tonnes under the assumption of a return to average seasonal conditions and planned expansions to production capacity. Additional capacity that is expected to contribute to higher production in 2012 include Wesfarmers Curragh mine and Xstratas Newland Northern underground mine.
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Canadas exports in 2011 are estimated to total 30 million tonnes, an increase of 7 per cent on the previous year. Strong demand and high prices have encouraged Canadian producers to maximise production at existing mines. In 2012, Canadas exports of metallurgical coal are forecast to increase by a further 10 per cent to total 33 million tonnes. This reflects continuing capacity expansions at Tecks operations, including an upgrade and expansion at its Elkview mine, and expected lower production losses associated with a lighter planned maintenance program.
Australian exports
In 201112, Australias metallurgical coal exports are forecast to increase by 7 per cent, relative to 201011, to total 150 million tonnes, reflecting increased production in Queensland. Higher export volumes and contract prices will more than offset a stronger Australian dollar to support a 13 per cent increase in Australias metallurgical coal export earnings to $34 billion. Figure 3:
170 140 110 80 50 Mt 2001-02 2003-04 2005-06 volume 2007-08 value 2009-10 2011-12
Australia's metallurgical coal exports

50 40 30 20 10 2011-12 A$b
Sources: BREE; ABS.
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Table 4:
Steel, iron ore and metallurgical coal outlook

2010 2011 s 2012 f % change
World Contract prices b Iron ore c Metallurgical coal d US$/t US$/t 112 191 200910 Australia Production Iron and steel Iron ore Metallurgical coal Exports Iron and steel es value Iron ore value Metallurgical coal value Mt A$m Mt A$m Mt A$m 1.55 1 120 390 34 515 157 24 526 1.78 1 303 407 54 197 140 29 796 1.18 879 460 60 412 150 33 595 33.7 32.5 13.0 11.5 7.1 12.8 Mt Mt Mt 6.89 423 163 7.31 450 146 s 5.70 489 156 22.0 8.7 6.6 153 289 201011 139 226 201112 f 9.1 21.6
b fob Australian basis, BREE AustraliaJapan average contract price assessment. c Fines contract, 62% iron content basis. d Highquality hard coking coal. For example, Goonyella export coal. e Includes all steel items in ABS, Australian Harmonized Export Commodity Classification, chapter 72, Iron and steel, excluding ferrous waste and scrap and ferroalloys. f BREE forecast. s BREE estimate.
Sources: BREE; ABARES; International Iron and Steel Institute; Coal Services Australia; Queensland Coal Board; United Nations Conference on Trade and Development.
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Gold
Adam Bialowas
In 2012, gold prices are forecast to increase by 17 per cent relative to 2011, to US$1850 a tonne, underpinned by investment demand. World gold mine production is forecast to increase in 2012 by 3 per cent compared with 2011, supported by increased production in Latin America and Africa. In 201112, the value of Australia's gold exports are forecast to increase by 45 per cent to $18.9 billion, driven by an increase in both export volumes and gold prices.
Gold prices have been volatile in second half 2011

In the September quarter 2011, the gold price averaged US$1701 an ounce, an increase of over 13 per cent relative to the June quarter 2011, and 39 per cent higher than the September quarter 2010. While the price of gold increased during the September quarter, it also displayed significant volatility, with the London AM fix prices registering as high as US$1897 an ounce and as low as US$1493 an ounce. Figure 1: Gold prices
2500 2000 1500 1000 500 2011 US$/oz Oct-76 Oct-81 Oct-86 Oct-91 Oct-96 Oct-01 Oct-06 Oct-11
Source: LBMA.
The increase in average gold prices and volatility throughout 2011 (see Figure 2) largely reflects the ongoing developments in global financial markets associated with sovereign debts in a number of European economies. This, in turn, has increased investment demand for gold for institutional investors and central banks because of its safe haven properties.
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In 2011, gold prices have also been supported by an increase in fabricated gold demand, such as jewellery and dental applications. Much of this additional demand has come from China and India, supported by rising incomes and consumers seeking a safe store of value for their wealth. Against a backdrop of strong demand, world gold supply growth has been limited. World mine production is estimated to have only increased by 3 per cent in 2011, relative to 2010, while central banks have become net buyers of gold, whereas for most of the last decade they were net sellers. For 2011 as a whole, the gold price is estimated to have averaged US$1577 an ounce, an increase of 29 per cent compared to the average price in 2010. Figure 2: Percentage change in daily gold price
6% 4% 2% 0% -2% -4% -6% -8%
4-J
an
-11
eb 4-F
-11
4-M
ar-
11
11 11 11 11 -11 -11 -11 -11 ctayprov ulug ep un 4-J 4-J 4-O 4-A 4-S 4-N 4-A 4-M
Source: LBMA.
Gold prices to remain high in 2012

The world gold price in 2012 is forecast to average $US1850 an ounce, 17 per cent higher than in 2011. Starting from a much higher base than in 2011, the price of gold is expected to be supported by a number of factors including low interest rates in the US and Europe; changes to the balance of some central bank portfolios; and continued investment and fabrication demand from consumers in developing economies. The duration and extent of the instability associated with global credit markets pose risks for the gold price over the outlook period. Extended periods of financial market instability could increase investment demand for gold and, in turn, could place further upward pressure on the gold price. In the US, the Federal Reserve's commitment to keep interest rates low into 2013 is expected to support the price of gold throughout 2012. It is also expected that the low rate of returns on US treasuries relative to the expected returns from gold over the period will result in increased investment demand for gold.
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The erosion in confidence in fiat currencies may also provide support for the gold price. Traditionally, central banks in many less developed countries have held a large proportion of their reserves in US dollars and/or euros. The poor performance of these reserve currencies against local currencies may lead central banks to rebalance their portfolios towards other assets, such as gold.
Fabrication demand to support consumption in 2012

Fabrication demand consists of gold used in jewellery, electronics, dental applications, medals, coins and other industrial uses. In 2011, fabrication demand is estimated to increase by 2 per cent, relative to 2010, to 2845 tonnes. The majority of this increase occurred in China and India where continued growth in household incomes has underpinned increased jewellery demand. Additionally, within these markets, some purchases of jewellery have a quasi-investment component. Consequently the rapid increase in the price of gold may have induced further demand for gold (in the form of jewellery) in the expectation that prices may increase further. In 2012, gold fabrication demand is forecast to increase by a further 4 per cent to 2971 tonnes, largely supported by continued strong jewellery demand from India and China. However, important to the growth in consumption will be the outlook for gold price volatility in 2012. If gold price volatility currently observed continues into 2012 then there may be a dampening effect on gold fabrication consumption as consumers wait for a clearer market signal before buying.
Emerging economies to support official Sector purchases

In 2011, the official sector (central banks) is estimated to have made net purchases of gold of around 400 tonnes. This is a five-fold increase on 2010 levels and compares to net sales of 34 tonnes in 2009. A major factor behind the transition of the official sector from a net seller to net purchaser of gold has been has been the escalating concern over the dependability of traditional reserve currencies. One of the major assets commonly held by central banks has been major currencies such as the US dollar, the euro and the Yen. The poor performance of many of these currencies against domestic currencies has led central banks to reconsider using gold as a strategic asset. Evidence of this transition is given by the net purchases made by many emerging economies that have traditionally held a low percentage of their overall foreign reserves in the form of gold. For instance, in the September quarter 2011, the Russian Federation added 15 tonnes to its gold holdings; Thailand purchased 25 tonnes and Bolivia 14 tonnes. In 2012, total net purchases by the official sector are expected to remain strong, increasing by 13 per cent to 450 tonnes. Evidence of the intent of some countries to continue increasing their gold holdings can be seen by Venezuelas nationalisation of its gold industry and Kazakhstans commitment to purchase the nations entire bullion output until at least 2014/15. However, purchases depend on the individual policies of gold-holding countries, which can change depending on perceptions of the global economic outlook.
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World mine production to increase in 2012

Global gold mine production is estimated to increase by 3 percent in 2011, relative to 2010, to total 2763 tonnes. A number of large gold producing economies increased production in 2011; however the strongest growth occurred in Africa and the Russian Federation. African production was boosted through a number of projects that either commenced or ramped up production throughout 2011. Projects included Randgold Resources Tongon mine in Cte dIvoire (9 tonnes a year), Iamgolds Essakane mine in Burkina Faso (10 tonnes a year) and Newmonts Ahafo mine in Ghana (18 tonnes in 2011) which was able to increase production by targeting higher ore grades. Additionally, South Africa's gold production in 2011 is estimated to increase by 1 per cent to 205 tonnes. This represents a reversal of a long term trend which has seen a steady decline in output as a result of high production costs and lower ore grades. Sustained high gold prices however, have lead to redevelopment of a number of sites where mining has once again become economically viable. In the Russian Federation, gold production in 2011 is estimated to increase by 5 per cent, relative to 2010, to 213 tonnes. This growth has been underpinned by increases in production at Polyus Golds Blagodatnoye and Petropavlovsks Malomir operations. In 2012, world gold mine production is forecast to increase by a further 3 per cent to 2850 tonnes. Increased production is expected to come from Indonesia and Latin America, where operations were disrupted by a series of industrial disputes in 2011. In addition, African production is forecast to increase, underpinned by higher production from mines which started operation in 2011.
Australian gold production

In 201112, Australian gold production is forecast to grow for a fourth consecutive year, increasing by 3 per cent to 274 tonnes. In the second half of 2011, production has commenced at a number of expanded or new operations, including Castlemaine Goldfields Ballarat project (1.5 tonnes a year); Ramelius Resources Mt Magnet (2.5 tonnes a year); and a redevelopment of Navigator Resources Bronzewing operations (3 tonnes a year). Additionally, a number of operations are scheduled to start-up in the first half of 2011 including Crocodile Golds Cosmo Deeps (3 tonnes a year) in the Northern Territory and St Barbaras King of the Hills expansion (additional 1.5 tonnes a year) in Western Australia.
Exports to rise in 201112

Australian gold exports consist of refined gold from Australian mine production and imports of gold dore (impure gold) and scrap gold, which are shipped in from overseas and then refined into gold bullion and re-exported. In 201112 the volume of Australian gold exports are forecast to increase by 12 per cent, relative to 201011, to 336 tonnes. The forecast increase in exports is expected to be supported by an increase in domestic mine production and an assumed increased availability of scrap and gold dore from international sources as a result of continued high prices for gold.
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In 201112, forecast higher export volumes and higher gold prices are expected to result in export earnings increasing by 45 per cent, relative to 201011, to a record $18.9 billion. Figure 3:
500 400 300 200 100 tonnes 2001-02 2003-04 volume 2005-06 2007-08 value 2009-10 2011-12
Australia's gold exports

25 20 15 10 5 2011 12 A$b
Sources: BREE; ABS.
Table 1:
Gold outlook
2010 2011 s 2 845 2 763 1 689 (1 607) ( 400) (1 175) ( 32) 1 577 201011 265 301 13 014 1 389 2012 f 2 971 2 850 1 690 (1 569) ( 450) (1 109) ( 10) 1 850 201112 f 274 336 18 874 1 755 3.4 11.6 45.0 26.4 % change 4.4 3.1 0.1 2.4 12.5 5.6 68.8 17.3
World Fabrication consumption Mine production Scrap sales Net stock sales official sector private sector producer hedging Price b Australia Mine production Exports value Price
t t t t t t t US$/oz
2 779 2 689 1 645 (1 555) ( 73) (1 374) ( 108) 1 225 200910
t t A$m A$/oz
240 335 12 996 1 236
b London Bullion Market Association AM price. f BREE forecast. s BREE estimate. Note: Net purchasing and dehedging shown in brackets.
Sources: BREE; ABARES; Gold Fields Mineral Services; Australian Bureau of Statistics; London Bullion Market Association.
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Aluminium
George Stanwix
Aluminium prices are estimated to average around US$2440 a tonne in 2011, 12per cent higher than in 2010. In 2012, aluminium prices are expected to decrease to 9 per cent below 2011 average levels, averaging around US$2200 a tonne. Alumina spot prices have averaged around US$390 a tonne in the year to November 2011 and are forecast to decline in 2012. World aluminium consumption growth is forecast to increase by 4 per cent in 2012, relative to 2011, to 43 million tonnes. The increase in world aluminium consumption is expected to be underpinned by growth in demand in emerging Asian economies. In 2012, world aluminium production is forecast to increase by 8 per cent to 46 million tonnes, supported by the start-up of new capacity in key producing regions. Australian aluminium export earnings in 201112 are forecast to total around $4 billion, 4 per cent lower than in 201011, due to forecast lower aluminium prices. The value of alumina exports is forecast to increase by 18 per cent in 201112 to $6.2 billion, underpinned by higher export volumes.
Aluminium prices to decrease in 2012

In the first 11 months of 2011, aluminium prices averaged US$2432 a tonne, 13 per cent higher than the average price of US$2160 a tonne in the corresponding period in 2010. In 2011, higher aluminium prices have been supported by strong demand for semi-fabricated aluminium products, particularly in developing economies. Aluminium prices in 2011 have also been buoyed by strong aluminium consumption growth in China, in particular for use in its electricity transmission network and automobile production. However, strong world production growth and relatively high aluminium inventories so far in 2011 have limited further increases in the aluminium price. Aluminium stocks at the end of 2011 are estimated to have increased by 28 per cent, relative to 2010, to 10.5 weeks of consumption. For 2011 as a whole, Aluminium prices are estimated to average around US$2440 a tonne. In 2012, aluminium prices are forecast to average around US$2200 a tonne, a decrease of 9 per cent compared with 2011. The decrease in prices reflects weaker consumption growth associated with slower economic growth in most large aluminium consuming economies. World aluminium production is forecast to exceed consumption resulting in an increase of stocks in 2012. At the end of 2012, world stocks are forecast to increase year-on-year by 37 per cent to 14.4 weeks of consumption. While stocks levels above 10 weeks of consumption are historically high, a large proportion of LME stocks are covered by financing transactions and are not readily available to the market.
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Figure 1:
4000 3500 3000 2500 2000 1500 1000 500 2011 US$/t
LME aluminium stocks and prices

16 14 12 10 8 6 4 2 2002 2003 2004 2005 2006 2007 2008 2009 price 2010 2011 2012 Weeks of consumption
stocks
Sources: BREE; LME.
Moderate outlook for aluminium consumption

In 2011, world aluminium consumption is forecast to increase by around 4 per cent, compared to 2010, to total 41 million tonnes. Over the outlook period, changes in the rates of economic and industrial production growth are expected to be the main influences on aluminium consumption. Based on assumed economic growth in the various aluminium markets over the outlook period, consumption is likely to expand the most in Asia. Aluminium demand will be underpinned by growth in transport and housing construction activity and demand for packaging applications in emerging Asian economies. In 2011, aluminium consumption is estimated to increase only modestly in OECD economies, in line with assumed moderate economic growth. World consumption of aluminium is forecast to increase by a further 4 per cent in 2012 to total 43 million tonnes.
Continuing strong aluminium consumption growth in China

Chinas consumption is forecast to make up around 44 per cent of world consumption in 2011. Particularly important for Chinese aluminium consumption is motor vehicle production and investment in fixed assets. In China, production of cars has grown by 4 per cent in the first ten months of 2011, relative to the corresponding period in 2010 (see Figure 2). Investment in fixed assets, of which construction is a major component, was also up 29 per cent through the first ten months of 2011 compared to the same period in 2010. Chinas aluminium consumption is forecast to increase by 9 per cent in 2011 relative to 2010 to total 17 million tonnes. In 2012, Chinas aluminium consumption is again expected to grow, associated with increases in industrial production and further expansion in aluminium consuming industries, including construction, packaging, transport, and large-scale upgrading of power networks in urban areas. However, China's aluminium consumption in 2012 is forecast to grow at a slower rate compared with 2011, reflecting relatively weaker economic growth and a lower rate of growth in manufacturing exports. Reflecting these developments, China's aluminium consumption in 2012 is forecast to increase by 5 per cent to 18 million tonnes.
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Figure 2:
China's monthly motor vehicle production

2.5 2.0 1.5 1.0 0.5
millions 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Motor Vehicle Assemblies, monthly total 12 month moving average
Source: NBS China.
Moderate aluminium consumption growth in the OECD

In 2011, the US is expected to be the main contributor to aluminium demand in the OECD, more than offsetting lower consumption in the European Union (EU) and Japan. Aluminium consumption in OECD economies in 2011 is forecast to increase by around 1 per cent relative to 2010, to 16 million tonnes. Growth in aluminium consumption in the EU in 2011 is expected to be moderate compared to other regions because of weak economic growth in the euro zone. However, a weaker euro/US Dollar exchange rate in 2012 may assist EU exports and, in particular, car producers in Germany, France and Italy to increase export sales that would increase EU aluminium consumption. In the US, increased aluminium consumption in 2011 is expected to be supported by increased production in the transport sector, as it rebounds following very low production levels in 2008 and 2009. In the first nine months of 2011 US motor vehicle production increased by 8.3 per cent, relative to 2010, to 8.8 million units (see Figure 3). Figure 3: Annualised US monthly motor vehicle production
16
12
millions 1987
1990
1993
1996
1999
2002
2005
2008
2011
Motor Vehicle Assemblies, annualised
12 month moving average
Sources: BREE; US Federal Reserve.
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In Japan, industrial production is assumed to decline by 4 per cent in 2011, compared to 2010, largely as a result of the devastating impacts of the March 2011 earthquakes and tsunami. Consequently, aluminium consumption in Japan is forecast to decrease by 2 per cent in 2011, compared with 2010. In 2012, however, aluminium consumption growth in Japan is forecast to increase by 9 per cent, relative to 2011, in line with assumed stronger economic growth associated with rebuilding efforts following the 2011 natural disaster.
Aluminium production to expand in key producing regions

World aluminium production in 2011 is forecast to increase by 5 per cent, relative to 2010, to total 43 million tonnes, and increase by a further 8 per cent to 46 million tonnes in 2012. Aluminium production growth is expected to be supported by the start-up of new capacity in India and the Middle East. In 2011, China's aluminium production is estimated to increase by 6 per cent, compared with 2010, to around 17 million tonnes. The increase in production in China is related to the restart of idled smelter capacity in the Henan and Guangxi provinces and increased output from newly commissioned projects in the Gansu, Shandong and Henan provinces. In 2012, China's aluminium production is forecast to increase by 4 per cent relative to 2011, to around 18 million tonnes. Higher production will be supported by increased output from smelters that have started up in 2011 and those scheduled to start-up in 2012. However, this will be partially offset by lower production from some existing smelters, reflecting increases in domestic electricity tariffs, higher raw material costs, and wage inflation. In 2011, Indias aluminium production is estimated to increase by 12 per cent to 1.8 million tonnes in 2011, and by a further 67 per cent to 3 million tonnes in 2012. In India, a number of new projects to be commissioned during 2012 will contribute to higher production. Key projects include Vedanta Resources Jharsuguda II smelter (capacity of 1.25 million tonnes a year); Hindalcos and Adityas Orissa smelter (359 000 tonnes a year); Hindalcos Mahan MP smelter (359 000 tonnes a year); and BALCOs Korba smelter (325 000 tonnes a year). Aluminium production growth in the Middle East will be supported by the expansion in production from recently commissioned smelters, including Norsk Hydros and Qatar Aluminums Qatalum smelter (585 000 tonnes a year) and DUBAL and Mubadalas EMAL smelter (750 000 tonnes a year). Aluminium production in the Middle East is forecast to increase by 15 per cent to 3.8 million tonnes in 2011, and by a further 10 per cent to 4.2 million tonnes in 2012.
Australian aluminium exports: quantity up, value down

In 201112, Australia's aluminium production is forecast to increase by 2 per cent, relative to 201011, to 2 million tonnes. Increases in Australian aluminium production have been associated with gradual increases in efficiency at aluminium smelters. Australia's aluminium exports are forecast to increase by 3 per cent in 201112, relative to 201011, to total 1.7 million tonnes. This increase in exports reflects the moderate growth in aluminium production. In 201112, export earnings from aluminium are forecast to decline by 4 per cent to $4 billion as higher export volumes will be more than offset by forecast lower world prices.
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Figure 4:
2.0
Australia's aluminium exports

8
1.5
1.0
0.5
Mt 2001-02 2003-04 2005-06 volume 2007-08 value 2009-10 2011-12
2011-12 A$b
Sources: BREE; ABS.
Alumina
Alumina prices are expected to ease in 2012
In the year to end-November 2011, the alumina spot price averaged around US$390 a tonne. Alumina prices have been supported by strong alumina demand associated with an increase in aluminium production. For 2011 as a whole, alumina spot prices are forecast to average US$384 a tonne, an increase of 15 per cent from the average price in 2010. In 2012, alumina prices are forecast to decrease by 7 per cent to US$359 a tonne as world alumina production increases. Lower aluminium prices will limit the willingness of aluminium producers to pay higher prices for alumina.
Alumina production to remain strong

In 2011, world alumina production is estimated to increase by 8 per cent, relative to 2010, to 87 million tonnes, and by a further 7 per cent, compared to 2011, to 94 million tonnes in 2012. The increase in production in 2011 and 2012 reflects the start-up of new and expanded refineries in India and the Middle East.
Australias alumina export earnings and production to increase in 2012

In 201112, Australias alumina production is forecast to increase by 4 per cent to around 20 million tonnes, as production at Rio Tintos Queensland Alumina refinery is assumed to return to capacity following flood related impacts in the first half of 2011. In addition, production at BHP Billitons Worsley refinery is expected to increase with the completion of a 1.5 million tonne a year expansion.
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Underpinned by higher production, Australian export volumes of alumina in 201112 are forecast to increase by 4 per cent, relative to 201011, to 16.8 million tonnes. In 201112, higher export volumes are forecast to offset lower prices, resulting in export earnings from alumina increasing by 18 per cent, relative to 201011, to $6.2 billion. Figure 5:
20 16 12 8 4 Mt 2001-02 2003-04 2005-06 volume 2007-08 value 2009-10 2011-12
Australia's alumina exports

10 8 6 4 2 2011-12 A$b
Sources: BREE; ABS.
Table 1:
Aluminium and alumina outlook

2010 2011 s 43 049 41 217 8 334 10.5 2 437 111 384 201011 2012 f 46 391 42 827 11 897 14.4 2 211 100 359 201112 f % change 7.8 3.9 42.8 37.1 9.3 9.3 6.5
World aluminium Production Consumption Closing stocks b weeks consumption Price c World alumina Spot price Australia Production Bauxite Alumina Aluminium Exports Alumina value Aluminium value
kt kt kt US$/t USc/lb US$/t
41 093 39 661 6 501 8.5 2 170 98 333 200910
Mt kt kt kt A$m kt A$m
68 20 057 1 920 16 653 4 969 1 624 3 838
69 19 544 1 937 16 227 5 218 1 686 4 178
69 20 361 1 979 16 799 6 156 1 741 4 029
1.3 4.2 2.2 3.5 18.0 3.3 3.6
b Producer and LME stocks. c LME cash prices for primary aluminium. f BREE forecast. s BREE estimate.
Sources: BREE; ABARES; London Metal Exchange; World Bureau of Metal Statistics.
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Copper
Adam Bialowas In 2012, the world copper price is forecast to average around US$8538 a tonne, a decrease of 4 per cent compared with 2011. World copper consumption in 2012 is forecast to increase year-on-year by 4 per cent, underpinned by growth in developing economies. World copper mine production in 2012 is forecast to increase by 8 per cent, relative to 2011 reflecting increased production in Africa and Latin America. In 201112, the volume of Australias copper exports are forecast to increase by 10 per cent, relative to 201011, underpinned by the start-up of new copper mines.
Copper prices
Over the first three quarters of 2011, the copper price averaged around US$9300 a tonne, a 30 per cent increase from the corresponding period in 2010. The higher prices reflected strong growth in consumption, particularly in the first half of 2011, coupled with a series of disruptions at some of the worlds largest copper mines that significantly impacted production. Throughout October, however, copper prices repeatedly traded below US$7000 a tonne as a result of uncertainty surrounding the global economic outlook and possible implications for commodity demand. By early December, copper prices were trading around US$7700 a tonne. For 2011 as a whole, world copper prices are estimated to average US$8868 a tonne, an 18 per cent increase relative to 2010. World production of refined copper is estimated to be 19.5 million tonnes in 2011, a 1 per cent increase relative to 2010. Reflecting a surplus in production, world copper stocks at the end of 2011 are expected to increase on 2010 levels from an equivalent of 2.8 weeks of consumption to around 3.3 weeks of consumption. Figure 1: LME copper prices
12000 10000 8000 6000 4000 2000 2011 US$/t Nov-01
Nov-03
Nov-05
Nov-07
Nov-09
Nov-11
Source: LME.
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In 2012, world copper prices are forecast to average US$8538 a tonne, a decrease of 4 per cent from 2011. The decrease in the average 2012 price reflects the significant decrease in copper prices in the December quarter of 2011 being sustained into the first half of 2012. This downturn in price is expected to continue into the first quarter of 2012, which is forecast to average significantly lower than the corresponding quarter in 2011. However, copper prices are forecast to increase throughout the remainder of 2012. The pace of world economic recovery in 2012, especially in OECD economies, is a key risk factor associated with the copper price forecast. If economic growth increases at a quicker pace than is currently assumed, world copper demand, and therefore prices, could be higher than are currently forecast. Alternatively, if economic growth in the key copper consuming nations of China, Germany and the US proves to be weaker than currently assumed, copper prices could average lower than forecast.
Consumption to be supported by Chinese demand in 2012

In 2011, world copper consumption is forecast to increase marginally relative to 2010, to 19.3 million tonnes. This growth has been primarily supported by demand in the Russian Federation, while consumption in the OECD and China has remained relatively flat. World copper consumption in 2012 is forecast to increase by 4 per cent to 20 million tonnes. Almost all of the growth in 2012 is forecast to come from emerging economies, particularly China. In 2011, China's copper consumption is estimated to have remained unchanged at around 7.5 million tonnes, as lower consumption in the first half of the year was matched by an increase in consumption in the second half of the year. Lower consumption (as measured by production plus imports less exports) in the first half of 2011, reflected tighter lending conditions and high prices that encouraged consumers to draw down stocks given a tight world supply. China's copper consumption in 2012 is forecast to increase by 6 per cent, relative to 2011, to total 7.9 million tonnes. The increase in consumption reflects continuing GDP growth that will support the expansion of housing, infrastructure and electricity grid construction, all of which are copper-intensive activities. In 2011, refined copper consumption by OECD economies is expected to decline by 1 per cent to 7.9 million tonnes. OECD copper consumption increased 3 per cent in the first half of 2011, relative to the corresponding period in 2010, as manufacturing activity was relatively strong in both the US and Germany. However, copper consumption in the OECD in the second half of 2011 is estimated to have decreased, compared with the second half of 2010, due to weaker economic growth and concerns over the euro zone sovereign debt crisis affecting the real economy. In 2012, OECD copper consumption is forecast to increase by 2 per cent to total 8.1 million tonnes. Japan is the only OECD economy where significant copper consumption growth is forecast in 2012, where growth will be underpinned by the reconstruction of infrastructure damaged by the March 2011 earthquakes and tsunami.
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Mine production to be supported by Latin American output

In 2011, world copper production is forecast to increase by less than 1 per cent, relative to 2010, to 16.3 million tonnes. The weak growth in copper production reflects higher output in Africa being partially offset by lower output in Indonesia and Latin America. In 2012, world copper production is forecast to increase by 8 per cent to 17.5 million tonnes, supported by production from new projects and an assumption that industrial action will ease Latin America. In Latin America, copper production in 2011 is estimated to decrease by 1 per cent, relative to 2010, to around 7 million tonnes. Production, particularly in Chile and Peru, was affected by lower ore grades and industrial action at a number of key mines. With industrial action assumed to ease in 2012, copper production is forecast to increase by 11 per cent, relative to 2011, to 7.7 million tonnes. Higher production in Latin America in 2012 will also be supported by increasing production from the Antamina mine in Peru, where production started in 2011. In 2011, Africas copper production is forecast to increase by 3 per cent to 1.4 million tonnes supported by the start-up of production at Tiger Resources Kipoi project (35 000 tonnes annual capacity) and the expansion of Anvil Minings Kinsevere operation (60 000 tonnes annual capacity). Both of these projects are located in the Democratic Republic of Congo. African copper production in 2012 is forecast to increase by 20 per cent, relative to 2011, to 1.6 million tonnes as the above mentioned mines increase production towards capacity. Indonesias copper production in 2011 is forecast to decrease by 28 per cent, relative to 2010, to 626 000 tonnes. The lower production reflects a combination of lower ore grades and significant industrial action at the countrys largest mine, Grasberg. In 2012, Indonesias production is forecast to decrease by a further 11 per cent to 555 000 tonnes reflecting lower ore grades and the possibility of industrial action continuing into the early part of 2012. World refined copper production in 2011 is estimated to increase by 1 per cent, relative to 2010, to 19.5 million tonnes and by a further 3 per cent to 20.1 million tonnes in 2012. The majority of the increase in production in 2012 is expected to come from projects based on solvent extraction-electrowinning (SX-EW) technology.
Australian story
Australias copper mine production in 201112 is forecast to increase by 11 percent, relative to 2010-11, to around 1.1 million tonnes (in copper content terms). New production is expected to come from Oz Minerals Ankata expansion at its Prominent Hill operation (25 000 tonnes a year), Sandfire Resources DeGrussa operation (77 000 tonnes a year) and Hillgrove Resources Kanmantoo project (20 000 tonnes a year). Relative to 201011, Australias refined copper production is forecast to increase by 3 percent in 201112 to 498 000 tonnes. The increase in production reflects the restart of CST Minings Lady Annie SX-EW operation. Consistent with increases in mine production, Australias copper exports in 201112 are forecast to increase by 10 percent, compared with 2010-11, to total 935 000 tonnes in metal content terms. In 201112 the value of Australias copper exports are forecast to increase by 3 per cent, relative to 201011, to $8.7 billion. The increase in export values reflects higher export volumes, combined with steady prices.
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Figure 2:
1000 800 600 400 200 kt
Australias copper exports

10 8 6 4 2 2011-12 A$b
2001-02
2003-04
2005-06 volume
2007-08 value
2009-10
2011-12
Sources: BREE; ABS.
Table 1:
Copper outlook
2010 2011 s 2012 f % change
World Production mine refined Consumption Closing stocks weeks consumption Price
kt kt kt kt US$/t USc/lb
16 147 19 222 19 204 1 017 2.8 7 529 341.5 200910
16 263 19 475 19 270 1 222 3.3 8 868 402.3 201011 952 485 1 751 375 8 416
17 501 20 136 20 041 1 317 3.4 8 538 387.3 201112 f 1 053 498 2 052 381 8 653
7.6 3.4 4.0 7.8 3.0 3.7 3.7
Australia Mine output Refined output Exports ores and concentrates b refined total value
kt kt kt kt A$m
819 395 1 928 271 6 506
10.6 2.7 17.2 1.6 2.8
b Quantities refer to gross weight of all ores and concentrates. f BREE forecast. s BREE estimate.
Sources: BREE; ABARES; Australian Bureau of Statistics; International Copper Study Group; World Bureau of Metal Statistics
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Nickel
Tom Shael
In 2012, nickel prices are forecast to average US$19 900 a tonne, a decrease of 13 per cent compared with 2011. Over the course of 2012, weaker nickel consumption growth relative to growth in new supply from the start-up of new nickel mines is expected to place downward pressure on prices. World nickel consumption is forecast to increase by 5 per cent, relative to 2011, to total over 1.6 million tonnes, whereas world refined nickel production is forecast to increase by 8 per cent to just over 1.7 million tonnes. In 201112, Australias nickel export volumes are forecast to increase by 11 per cent, relative to 201011, to total 233 000 tonnes. The increase in export volumes will be more than offset by forecast lower prices, resulting in an overall decrease of 9 per cent, relative to 201011, in the value of nickel exports to around $3.7 billion.
Prices to remain buoyant in 2012

In 2011, nickel prices peaked at US$29 030 a tonne in late February before trading as low as US$16 935 a tonne in late November. The fall in prices between February and November reflected increasing uncertainty regarding the global economic outlook and deteriorating prospects for stainless steel consumption growth and expectations for future nickel demand. For 2011 as a whole, nickel prices are estimated to average around US$22 800 a tonne. In 2012, nickel prices are forecast to decrease by 13 per cent, relative to 2011, averaging slightly below US$19 900 a tonne. The decrease in price reflects nickel production growth increasing at a faster rate than consumption growth. The role of nickel pig iron in supplying Chinas domestic market (see Box 1 below) combined with high marginal costs of new projects (mostly high-pressure acid leaching (HPAL) laterite projects) is expected to limit the likelihood of nickel prices trading below US$18 000 a tonne for a sustained period. Stocks on the London Metals Exchange (LME) have been declining steadily since October 2010, and were around 91 000 tonnes (or 3 weeks of consumption) in early December 2011. Similar to what occurred when nickel prices fell heavily in late 2008 and early 2009; the drawdown on LME stocks is associated with a significant increase in Chinese imports of refined nickel, as Chinese producers and traders re-stock and/or increase stockpiles of the metal while prices are relatively low. However, this is not expected to continue as port stocks of nickel ore, which is primarily suited for making nickel pig iron, have been reported to be as high as 12 million tonnes.
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Figure 1:
70000 60000 50000 40000 30000 20000 10000 2011 US$/t
LME nickel prices and stocks

7 6 5 4 3 2 1 Weeks of consumption
10 cDe
00
01
02
03
04
05
06
07
08
09
c-
c-
c-
c-
c-
c-
c-
c-
c-
c-
De
De
De
De
De
De
De
De
De
stocks
price
Sources BREE; LME.
Box 1: Nickel Pig Iron and its impact on the nickel market
Nickel pig iron (NPI) is a ferronickel pig iron produced by smelting low grade nickel ores (often nickel laterite). It has been increasingly used by Chinese stainless steel producers as a substitute for conventional refined ferronickel (2540 per cent nickel). NPI is produced in two forms, a low nickel variety containing 46 per cent nickel and a high nickel variety containing 813 per cent nickel. The low and high nickel varieties have, respectively, been recently trading between 7782 per cent and 8590 per cent of the LME nickel price. In terms of costs, NPI is estimated to have a marginal cost of production of around US$15 000 a tonne of refined nickel equivalent when it is produced in an electric arc furnace (EAF), and around US$21 000 a tonne in a blast furnace. Given capacity constraints faced by each type of smelting, average marginal costs for the industry as a whole are estimated to be around US$18 000 a tonne. In 2011, around 260 000 tonnes, or 40 per cent of Chinas nickel consumptionequal to 16 per cent of world consumptionis estimated to be met with NPI. In a stable world nickel market (i.e. no large increases in supply and/or large reductions in demand), the effect of Chinas dependence on NPI combined with their large share of world demand can have two impacts, depending on the nickel price. When nickel prices are around or below US$18 000 a tonne, marginal NPI producers will reduce output or shut down, forcing Chinese stainless steel producers to source conventional refined nickel from the international market to sate their demand. This will drive up the international nickel price.
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De
De
c-
11
Conversely, when prices are high (i.e. greater than US$21 000 a tonne), NPI producers will increase production, and new capacity may even be commissioned if the price remains high for long enough. This will in turn reduce Chinas demand for conventional refined nickel imports and effectively increase its supply outside of China, placing downward pressure on international prices. Therefore, in the presence of steady demand and supply from outside of China, NPI places to some degree a minimum and maximum price on nickel and, thus, is expected to limit the occurrence of large and sustained price swings in the short-run.
Consumption to moderate with weaker economic growth

In 2011, world nickel consumption is estimated to increase by 6 per cent, relative to 2010, to total 1.6 million tonnes. The growth in world consumption has been almost entirely supported by China. In the European Union (EU), consumption in 2011 has plateaued or decreased (in the case of Italy and Finland) relative to 2010, as weak economic growth has limited demand for nickel-intensive products such as stainless steel. Table 1: World nickel consumption
Country 2008 China Chinese Taipei European Union 27 India Japan Korea, Rep. of United States World nickel consumption
f BREE forecast s BREE estimate. Sources: BREE; INSG.
Yearly consumption (kt) 2009 442 71 295 32 121 67 90 1241 2010 575 70 326 34 149 74 120 1464 2011 s 675 43 334 34 151 75 124 1557 2012 f 740 45 337 37 154 75 127 1642 360 55 374 32 158 56 127 1278
Chinas consumption of nickel in 2011 is estimated to increase by 17 per cent, relative to 2010, to total 675 000 tonnes. In 2012, Chinas consumption is forecast to grow by a further 10 per cent to total 740 000 tonnes and account for 45 per cent of world consumption. The slower forecast growth rate for 2012 reflects assumed moderately weaker economic growth and slowing growth in industrial production that will affect demand for stainless steel and nickel.
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Figure 2:
Chinese and world nickel consumption

1800 1600 1400 1200 1000 800 600 400 200 kt 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Rest of World China
Sources: BREE; INSG.
In 2012, world nickel consumption is forecast to increase by 5 per cent, relative to 2011, to total over 1.6 million tonnes. Growth in 2012 will largely be underpinned by China, with only small increases in consumption forecast to occur in other traditional markets such as the EU, the US and Japan. In 2012, nickel consumption in developed economies is forecast to increase, albeit modestly. In the EU, the US and Japan, nickel consumption is forecast to grow by 1 per cent, 2 per cent and 2 per cent, respectively. Growth in the EU will be supported by small increases in several smaller countries, which will more than offset a forecast 2 per cent decrease in consumption in Germany, the largest consumer of nickel in Europe. The increase in consumption in Japan will be supported by post-tsunami reconstruction continuing from the second half of 2011 into 2012.
World mine production to moderate in 2012 after strong growth in 2011

In 2011, world nickel mine production is estimated to increase by 20 per cent, relative to 2010, to total 1.9 million tonnes. The major contributors to this increase have been Brazil and Canada and nickel laterite producers Indonesia and the Philippines.
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Table 2:
Country
World nickel mine production

Yearly production (kt) 2008 2009 166 38 137 203 119 262 1347 2010 171 59 158 236 190 270 1578 2011 s 213 140 210 285 230 270 1887 2012 f 218 150 220 295 230 280 1986 199 38 260 219 79 268 1549
Australia Brazil Canada Indonesia Philippines Russian Federation World mine production
In 2011, Brazils nickel mine production is estimated to surge by 137 per cent, relative to 2010, to total 140 000 tonnes. The increase in production has been underpinned by the start-up of Vales Ona Puma mine (48 000 tonnes a year) in March 2011 and an increase to production capacity at Anglo Americans Barro Alto (41 000 tonnes a year). Brazils nickel mine production in 2012 is forecast to increase by a further 7 per cent to a total of 150 000 tonnes, largely reflecting increased production at Ona Puma and Barro Alto. Canadas nickel mine production is estimated to increase by 33 per cent in 2011, relative to 2010, to total 210 000 tonnes, and by a further 5 per cent to 220 000 tonnes in 2012. The majority of Canadas growth in 2011 and 2012 is expected to come from production increases at Vales Sudbury and Voisey Bay operations after production restarted in mid-2010, following two years of labour-related supply disruptions. World nickel mine production in 2012 is forecast to increase by 5 per cent, relative to 2011, to total just below 2 million tonnes. This will be largely underpinned by nickel laterite production from new projects in South-East Asia and Africa. In Madagascar, Sherritt International, in a joint venture with Sumitomo and Korea Resources, continued commissioning its 60 000 tonne a year Ambatovy nickel-cobalt laterite project in 2011, with first production expected in 2012. MCCs joint venture Ramu project (31 150 tonnes a year) in Papua New Guinea and Vales Goro nickel project (60 000 tonnes a year) in New Caledonia are also expected to add to world mine production in 2012.
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World refined production to grow steadily over 2011 and 2012

World production of refined nickel is estimated to increase by 9 per cent, relative to 2010, to total 1.6 million tonnes in 2011. Around half of this increase is expected to originate in Asia, where production increased by an estimated 65 000 tonnes to total 603 000 tonnes. A large 73 000 tonne increase in Chinas production was partially offset by an 8 000 tonne decline in Japans production associated with earthquake damage to Pacific Metals Hachinohe refinery. Growth in the Americas, which will contribute one third of world growth in 2011, will be supported by increases in production in Canada (37 000 tonnes) and Brazil (11 000 tonnes). In 2012, world production of refined nickel is forecast to increase by a further 8 per cent to total 1.7 million tonnes. The largest contributors to this increase are expected to be in Brazil (30 000 tonnes), Australia (28 000 tonnes) and Japan (12 000 tonnes). Production in China is expected to grow at a modest 1 per cent as forecast low nickel prices put pressure on higher-cost NPI producers (see Box 1 above). Table 3:
Country 2008 Australia Canada China Japan Norway Russian Federation World refined production
World nickel refined production

Yearly production (kt) 2009 131 117 254 144 89 245 1322 2010 102 105 332 166 92 262 1446 2011 s 113 142 405 158 92 262 1580 2012 f 141 150 410 170 92 267 1709 109 168 200 158 89 258 1382
Australias mine and refined production to increase in 201112

In 201112, Australias nickel mine production is forecast to increase by 14 per cent, relative to 201011, to total 221 000 tonnes. Underpinning this growth will be new production from First Quantums recently redeveloped 39 000 tonne a year Ravensthorpe mine. In 201112, refined production is forecast to increase by 29 per cent to a total of 130 000 tonnes. This reflects higher forecast production from the three existing refineriesBHP Billitons Kwinana, Queensland Nickels Yabulu and Minara Resources Murrin Murrin associated with increased availability of feedstock.
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Australian export earnings to suffer from lower prices

In 201112, the volume of nickel exported is forecast to increase by 11 per cent, relative to 201011, to total 233 000 tonnes, supported by strong growth in mine and refined production. Australias nickel export earnings in 201112 are forecast to decrease by 9 per cent, relative to 201011, to around $3.7 billion. Higher export volumes will be more than offset by lower prices compared with 201011 and an assumed strong Australian dollar. Figure 3:
240 230 220 210 200 190 180 170 160 kt 2001-02 2003-04 2005-06 volume 2007-08 value 2009-10 2011-12
Australia's nickel exports

9 8 7 6 5 4 3 2 1 2011-12 A$b
Sources: BREE; ABS.
Table 4:
Nickel outlook
2010 2011 s 1 887 1 580 1 557 236 7.9 22 831 1 036 201011 2012 f 1 986 1 709 1 642 304 9.6 19 875 902 201112 f % change 5.2 8.2 5.5 28.8 21.5 12.9 12.9
World Mine production Refined production Consumption Closing stocks weeks consumption Price
kt kt kt kt US$/t USc/lb
1 578 1 446 1 464 213 7.6 21 800 989 200910
Australia Production Mine bs Refined Intermediate Exports cs value
kt kt kt kt A$m
160 120 43 221 3 875
194 101 60 210 4 097
221 130 55 233 3 748
13.9 28.7 8.3 11.0 8.5
b Nickel content of domestic mine production. c Includes metal content of ores and concentrates, intermediate products and nickel metal. f BREE forecast. s BREE estimate.
Sources: BREE; ABARES; Australian Bureau of Statistics; International Nickel Study Group; London Metal Exchange; World Bureau of Metal Statistics.
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Zinc
Clare Stark
In 2012, zinc prices are forecast to average around US$2050 a tonne, 6 per cent lower than in 2011. World refined zinc production is forecast to exceed world zinc consumption resulting in an increase in stocks. Relatively strong zinc consumption in developing economies, particularly China and India, is expected to offset weaker demand in OECD economies. In 201112, Australian zinc export volumes (metallic content) are forecast to increase by 2 per cent to around 1.54 million tonnes, while export earnings are forecast to decrease 10 per cent reflecting forecast lower world prices and an assumed stronger Australian dollar in 201112 compared to 201011.
Prices to moderate
In 2011, world zinc prices peaked in February at US$2546 a tonne, before falling to around US$1750 a tonne in October, the lowest level since July 2010. In the first half of 2011, zinc prices averaged US$2320 a tonne. World zinc prices declined steadily in the second half of 2011, and are estimated to average around US$2060 a tonne. The lower prices reflect uncertainty surrounding the outlook for world economic growth associated with large public sector debt in a number of European economies. For 2011 as a whole, zinc spot prices are estimated to average US$2190 a tonne, 2 per cent higher than the average price in 2010. In 2012, world zinc prices are forecast to decrease by 6 per cent, compared to 2011, to average around US$2050 a tonne. The lower zinc prices in 2012, compared with 2011, reflect relatively weak consumption growth in OECD economies and relatively high zinc stocks.
Stocks to remain high

London Metal Exchange (LME) stocks at the end of October 2011 are estimated to be around 775 000 tonnes, having fallen from a 15-year high of around 895 000 tonnes in early July 2011. However, stocks remain well above the average of around 426 000 tonnes over the past 15 years. The high stocks reflect production growing at a faster rate than consumption in 2011 and the emergence of a carry trade where large volumes of metals, including zinc, are used as security for bank lending. The world zinc market is forecast to remain in surplus in 2012, although the supply-demand balance will tighten, with production exceeding consumption by around 1 per cent or 135 000 tonnes. Total zinc stocks at the end of 2012 are forecast to increase compared with the end of 2011, both in terms of volume and relative to weeks of world consumption. In 2012, zinc stocks are forecast to increase 7 per cent relative to 2011 to total 2 million tonnes, or around 7.8 weeks of consumption.
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A significant risk to the outlook for world zinc trade is world and regional economic growth over the next 12 months. If economic growth in 2012 is lower than assumed, particularly in large zinc consuming economies, it could lead to lower zinc consumption and place downward pressure on zinc demand. This, in turn, could result in zinc prices being lower than forecast. For further details on macroeconomic assumptions and associated risks see the energy and minerals overview. Figure 1:
4000
LME zinc prices and stocks

16
3000
12
2000
1000 2011 US$/t 1992 1996 2000 stocks 2004 prices 2008 2012
4 Weeks of consumption
Sources: BREE; LME.
Consumption underpinned by emerging economies

World zinc consumption in 2011 is estimated to increase by 2 per cent, relative to 2010, to total 12.8 million tonnes. Growth has been underpinned by strong consumption in emerging economies associated with continuing investment in zinc intensive infrastructure and housing construction. The International Zinc Association estimates that construction activity accounts for almost half of world zinc consumption, with vehicle manufacturing accounting for a further 25 per cent. Increasing per capita incomes in these economies has supported demand for consumer durables such as household appliances, which are also zinc intensive to manufacture.
particularly China
China continued to underpin world refined zinc demand in 2011, consuming an estimated 5.5 million tonnes of zinc, or around two fifths of world zinc consumption. Chinas consumption of zinc was supported by strong growth in the construction industry where galvanised (zinc coated) steel is extensively employed. Figure 2 illustrates the substantial growth in floor space of all buildings under construction, excluding rural households, in China between 2010 and 2011.
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Figure 2:
Floor space under construction, China

9000
6000
3000
km2 March April May 2010 June July 2011 August September
Source: NBS China.
In 2011, zinc consumption in the OECD is estimated to increase by around 3 per cent, relative to 2010, to total around 5 million tonnes, despite an estimated 1 per cent decline in zinc consumption in Japan. Zinc consumption in Japan in the first half of the year was impacted by the March 2011 earthquakes and tsunami which affected manufacturing activity. In the US, refined zinc consumption in 2011 is estimated to have increased by 3 per cent, relative to 2010, to 920 000 tonnes. This growth in zinc consumption has been supported by growth in the volume of motor vehicle assemblies (see Figure 3), where zinc is used to galvanise steel sheets for use in the bodies of cars and trucks. Figure 3: Total motor vehicle assemblies, US
10 8 6 4 2 millions Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
Source: US Federal Reserve.
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China continues to drive zinc consumption in 2012

In 2012, world zinc consumption is forecast to increase by a further 4 per cent to total 13.3 million tonnes. Growth in refined zinc consumption will continue to be supported by emerging economies, particularly by China which is forecast to contribute around 60 per cent of the growth in world zinc consumption in 2012. In China and other developing economies zinc consumption growth will be supported by zinc-intensive investment in housing construction, telecommunications, and transport infrastructure.
supported by moderate growth in OECD

In the OECD, zinc consumption in 2012 is forecast to increase by 3 per cent to around 5.2 million tonnes. The relatively moderate rate of growth reflects assumed weak economic growth, particularly in the European Union. In Japan, zinc consumption in 2012 is forecast to increase by 5 per cent, relative to 2011, to total 540 000 tonnes. Underpinning this growth will be a recovery in manufacturing activity as well as the acceleration of rebuilding activity associated with significant damage to utilities, buildings, and infrastructure following the March 2011 earthquakes and tsunami accelerates.
Global production increasing steadily

In 2011, world zinc mine production is estimated to increase by 4 per cent relative to 2010, to total 12.8 million tonnes. New production capacity was commissioned at a number of mines during the year, including Hindustan Zincs Rampura Agucha mine expansion in India (100 000 tonnes a year), Lundin Mining recommissioning the Neves-Corvo mine in Portugal (50 000 tonnes a year), and Xstrata, BHP Billiton, Teck and Mitsubishis joint venture Antamina mine in Peru (300 000 tonnes a year). World zinc mine production is forecast to increase by a further 5 per cent in 2012 to total 13.4 million tonnes. Forecast major additions to new world zinc mine capacity in 2012 include Blackthorn Resources and Glencore Internationals Perkoa mine in Burkina Faso (capacity of 90 000 to 100 000 tonnes a year), Hudbay Minerals Lalor mine in Canada (35 000 tonnes a year) and Tohos Rasp mine in Australia (70 000 to 90 000 tonnes a year). However, not all of this additional capacity is expected to be operating at full capacity by the end of 2012. In 2011, world refined zinc production is estimated to total 13.2 million tonnes, an increase of 3 per cent relative to 2010. The majority of world refined zinc production has occurred in China where around 460 000 tonnes of additional refining capacity has been added in the Shaanxi, Hunan, Sichuan, Jiangxi, and Yunan provinces during 2011. World production of refined zinc is forecast to increase by a further 2 per cent in 2012, to total 13.5 million tonnes, supported by further increases in Chinese refined capacity.
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Australian production to increase in 201112

Australian zinc mine production in 201112 is forecast to increase by 7 per cent relative to 201011 to total 1.6 million tonnes. Higher production will be supported by the commencement of operations at Xstratas Black Star Open Cut Deeps expansion (120 000 tonnes a year at capacity) and Handlebar Hill Open Cut expansion (88 000 tonnes a year at capacity) in Mount Isa, Queensland. The expansion of output at Bass Metals Hellyer mine in Tasmania (55 000 tonnes a year) and Kagaras Vomacka mine in north Queensland (20 000 tonnes a year) which commenced production in 201011 will also contribute to increased production. In 201112, Australian refined zinc production is forecast to increase by around 5 per cent relative to 201011 to total 523 000 tonnes, reflecting greater availability of feedstock associated with increased production of ores and concentrates
Australian exports volumes to remain steady while values fall

Australian exports of zinc (total metallic content) in 201112 are forecast to increase by 2 per cent from 201011 to around 1.54 million tonnes. However, earnings from zinc exports are forecast to decline by 10 per cent relative to 201011 to $2.1 billion, reflecting forecast lower world prices and an assumed stronger dollar. Figure 4: Australia's Zinc exports
1600 4
1200
800
400
1 2011-12 A$b 2001-02 2003-04 2005-06 volume 2007-08 value 2009-10 2011-12
kt
Sources: BREE; ABS.
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Table 1:
Zinc outlook
2010 2011 s 12 766 13 163 12 846 1 879 7.6 2 192 99 201011 1 479 499 2 327 410 1 499 2 375 2012 f 13 374 13 480 13 345 2 014 7.8 2 053 93 201112 f 1 584 523 2 325 451 1 535 2 144 7.1 4.8 0.1 10.0 2.4 9.7 % change 4.8 2.4 3.9 7.2 2.6 6.3 6.3
World Mine production Refined production Consumption Closing stocks weeks consumption Price US$/t USc/lb kt kt kt kt 12 273 12 825 12 543 1 562 6.5 2 158 98 200910 Australia Mine output Refined output Exports ores and concentrates b refined total metallic content total value kt kt kt A$m 2 271 425 1 482 2 214 kt kt 1 362 515
b Quantities refer to gross weight of all ores and concentrates. f BREE forecast. s BREE estimate
Sources: BREE; ABARES; Australian Bureau of Statistics; International Lead and Zinc Study group
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Reviews
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Reviews
Sovereign debt crises, the real economy and the euro zone crisis
Quentin Grafton*
Sovereign debt crises

Sovereign debt crises are surprisingly common. The current euro () crisis is just the latest of many that have hit various countries over the past century, including the 1982 Mexican peso crisis and the 1998 Russian Federation default crisis that led to huge devaluations in their respective currencies. Sovereign debt crises have different origins and, sometimes, involve contagion whereby a crisis in one country spills over to other nations with similar economies, or to neighbouring countries (Kaminsky, Reinhart and Vgh 2003). For example, the Asian financial crisis began on 2 July 1997 in Thailand, but quickly spread to the Philippines, Indonesia and South Korea, among other countries. Similarly, in 1994/95 the so-called Tequila Crisis, precipitated by a devaluation of the Mexican peso, triggered a sell-off of Mexican assets and then affected other Latin American countries. A number of countries are also serial defaulters such Brazil and Greece. For example, until the current euro crisis, Greece had already experienced previous debt crises with its first in 1826 and an episode in 1932 that was not fully resolved until 1964 (Reinhart and Rogoff 2011). Sovereign debt crises typically occur for two reasons: one, a lack of liquidity when there are insufficient short-term or liquid assets to pay liabilities as they come duethat is, a cash-flow problemand, two, a solvency crisis or a debt overhang (Krugman 1988) that arises when the value of a countrys assets is insufficient to cover its liabilities. A solvency crisis poses particular challenges because the debt discourages additional investment as it raises the private sectors expected future tax burden. In some circumstances debt relief can benefit both borrowers and debtors if by reducing the nominal or face value of the debt, the market value of the debt increases. Debt relief, however, cannot occur without coordination among the debtor countrys principal creditors. While many sovereign debt crises have been liquidity crises, the current euro crisis combines both. For instance, Greece is insolvent such that with its current debt loads (about 350 billion) and interest rates (Greek 10-year bond yield is currently around 30 per cent) it is impossible for it to sustainably service its existing debt. Greek insolvency has resulted in a liquidity crisis in some of its euro partners, especially Italy, which has a debt approaching 2 billion and a yield on its 10-year bonds of about 7 per cent. By contrast, the 10-year bond yield for Germany is currently around 2 per cent.
* The views expressed in this review are those of the author alone and are not necessarily those of the Bureau of Resources and Energy Economics nor the Department of Resources, Energy and Tourism.
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While Italy is not insolvent at current bond yields, its large debt requires a regular rollover. Concerns over the size of its debt, its ability to rein in public spending, and its future in the euro zone should it fail to impose fiscal austerity measures, has resulted in a substantial interest premium for its bonds relative to countries with stronger economies and lower debt loads, such as Germany and the Netherlands. Overlaying these difficulties in the current euro crisis are concerns that some countries currently in the euro zone1, such as Greece, may be forced to leave the euro zone to re-establish their own national currencies. There is no precedent for any country leaving the euro, and there is a question of whether this can be done legally. Nevertheless, some economists argue that without a devaluation of Greek exportswhich is only possible if Greece left the euro zonesustainable economic growth will not be possible unless there is a real depreciation that would involve very large declines in both prices and wages. Such a sharp real depreciation, however, would be very difficult to sustain in a democracy, and will have the paradoxical effect of increasing its real debtthe nominal value of debt relative to depreciated tax receipts. If Greece were to re-establish its own currency, it would be worth much less than the euro. Consequently, if repayments of its bonds were in the new and devalued currency (relative to the euro) it would cause a large capital loss for Greek bond holders.
The impact of crises on the real economy

The ability of a sovereign debt crisis to be transmitted to the real economy is illustrated in Figure 1. A shock occurs, either external to the economy or internally generated, which is then transmitted into both domestic and foreign liabilities. Whether there is a quick recovery or protracted downturnor possibly even collapseis determined by the magnitude of the affect of the shock and the underlying banking structure, political stability and credibility of the nations economic policies. The ability of a country to ultimately recover from a shock and the speed of the recovery depends on both its economic polices and the resilience of its financial structure. The aftermath of sovereign debt crises typically include a reduction in asset pricesespecially in the housing sector and in equities, a rise in unemployment and a sharp decline, but of short duration, in gross domestic product (GDP) (Reinhart and Rogoff 2009). Although the current euro crisis at first only appeared to be a financial crisis, there are genuine concerns that it is already affecting the real economy, as happened with the global financial crisis. Should there be a default on sovereign debt within the euro zone, European banks are especially vulnerable as they own the bulk of the government bonds issued by highly indebted euro zone countries. As with the Global Financial Crisis in 200809, there is likely to be contagion to banks in other countries and, in particular, to banks and other borrowers outside of Europe that rely on international wholesale markets as a source of funds for their own lending or for financing of their capital investments.
The euro zone is the economic and monetary union of the 17 member countries of the European Union (EU) that use the euro as their national currency. The euro zone is comprised of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.
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As a direct result of the crisis, and its political fall out, the Italian and Greek Prime Ministers have both resigned. The new Prime Ministers in Italy (Mario Monti) and Greece (Lucas Papademos) are technocrats with mandates to implement fiscal austerity packages to reduce their countries budget deficits. The passage of an austerity amendment to Italys 2012 budget that includes a freeze on public sector salaries until 2014, new measures to fight tax evasion and an eventual increase in the retirement age to 67 years, marked the end of Prime Minister Berlusconis premiership. Together with the appointment of Lucas Papademos as head of a multi-party Greek government, these developments initially eased some concerns in financial markets such that bond yields fell marginally for Italy immediately following Berlusconis resignation. Nevertheless, bond yields for Greece and Italy, and other highly indebted euro zone countries, such as Spain, remain at high levels. Largely due to the euro crisis, the forecast for economic growth in the euro zone for 2012 has been revised downwards by the European Commission, dropping from 1.8 per cent in May 2011 to its current estimate of 0.5 per cent. Growth projections for Greece are highly dependent on whether it receives external financing, when and how its fiscal austerity package occurs and whether it remains in the euro zone. The expectation, however, is for a sharp contraction in its GDP in 2012. Figure 1: Transmission of financial shocks to real economy
FINANCIAL SECTOR
EXOGENOUS CHANGES Shifts in global liquidity Change in commodity prices FOREIGN LIABILITIES Capital structure Liability management
REAL ECONOMY
Volatility
Shocks
MAGNITUDE OF EFFECT
RECOVERY OR COLLAPSE
Volatility
Ability to withstand crisis
EXOGENOUS CHANGES Political changes Economic reforms Banking system
DOMESTIC LIABILITIES Capital structure Liability management
Strength of banking system Integrity of economic policies Political stability
Source: Pettis 2001, p. 20.
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The markets overall judgement of the affect of a shock can be represented by the value of the currency and/or the cost of borrowing by the country in the form of prevailing bond yields. So far, the value of the euro has remained remarkably robust. By contrast, bond yields in the vulnerable and highly indebted countries within the euro zone have risen dramatically over the past few months. For instance, the spread for two year bonds relative to yields on German bonds for Greece, Italy and Spain from January 2010 to August 2011 is provided in Figure 2. The increase in these spreads reflects the markets increasing concern about the risks associated with the purchase of government bonds from high-debt euro zone countries. The spread in ten-year yields on sovereign debt, relative to German yields, at the end of November 2011 was around 5 per cent for Italy, about 4.5 per cent for Spain, about 9 per cent for Portugal and over 25 per cent for Greece. By contrast, in 2007 the spread in sovereign bond yields among euro zone countries was close to zero. Figure 2: Two-year government bond spreads over German bonds in Greece, Italy and Spain
9000 8000 7000 6000 5000 4000 3000 2000 1000 basis points
450 400 350 300 250 200 150 100 50 basis points
Source: IMF World Economic Outlook, September 2011.
The experience of past sovereign debt crises suggest that there are some key steps that should be followed to reduce the severity and longevity of a financial shock on the real economy. These include: a rapid acceptance that a crisis exists; a policy response that provides a once-and-for-all remedy to the sovereign debt crisis, rather than a series of half-hearted measures. If the problem is a solvency crisis then borrowers must accept a haircut such that the debt is reduced to an affordable level, and there must be a credible plan to ensure long-term fiscal stability; and aligning the capital structure and economic policies within the country, and also with those of the country of its lenders. For instance, lenders could be offered equity-like investments in exchange for debt forgiveness which may provide lenders with higher returns when the economy recovers.
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The current euro zone crisis

The agreement to expand the European Financial Stability Facility (EFSF) on 27 October 2011 by European leaders is the third comprehensive package implemented in 2011 to attempt to resolve the crisis. It aims to address both the solvency crisis in Greece and the liquidity crisis in other heavily indebted euro zone countries. The plan includes a voluntary write down of Greek debt held by the private sector. This avoids the need for a default that would have triggered credit-default swaps and weakened already fragile financial markets. The 27 October rescue package provides additional financing to Greece to enable it to service its debt. This is, however, conditional on the implementation of fiscal austerity measures by the Greek government. Another feature of the 27 October package are two schemes designed to expand the size of the EFSF to 1 trillion, possibly more, by leveraging existing funds already provided by wealthier euro zone members. These leveraged funds are intended to provide an additional buffer should the crisis worsen into a solvency crisis in other euro zone countries. The progress to date indicates that the leveraging of external funds into the EFSF will be insufficient to achieve the 1 trillion target. In response, EU leaders agreed on 9 December to provide up to 200 billion that can be used by the International Monetary Fund (IMF) to help indebted euro zone countries. These additional funds will be provided on the basis that euro zone members agree to stricter fiscal rules and oversight. In its present form, the EFSF has been unable to provide financial markets with confidence that it could overcome the liquidity crises in Italy and Spain that, together, owe 2.5 trillion. Without an effective intervention, however, it is possible that highly indebted euro zone countries may no longer be able to affordably borrow to service their current deficits or to rollover their existing debt. Should the EFSF prove inadequate, the only party that has the resources to resolve the current liquidity crisis is the European Central Bank (ECB). The ECB could, in principle, buy bonds on the secondary market from highly indebted euro zone countries to prevent yields rising to levels that their debts become unsustainable. The ECB has already undertaken such purchases, but so far these purchases have been sterilised to avoid monetary financing of sovereign debts. By contrast, monetary financing such that the ECB acts as lender of last resort would transgress EU treatiesa point reiterated in November 2011 by Jens Weidmann, Head of Germanys Central Bank. Another option to manage the liquidity crisis is for the ECB to issue joint Eurobonds for all or a share of the sovereign debt of affected countries that would be guaranteed by all members of the euro zone. However, a Eurobonds solution would require the full support of Germany as it would effectively be the sole guarantor for such bonds. A Eurobonds solution to the liquidity crisis has, so far, been publicly ruled out by Germanys Chancellor Angela Merkel who is concerned it would raise Germanys own borrowing costs and that providing such a safety net would also reduce the incentives of highly-indebted countries in the euro zone to undertake fiscal reforms.
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An ECB financed rescue package, or even a joint funding formulation with the ECB and IMF, could resolve the present euro zone crisis. A key question is whether such a package can be implemented before the current crisis results in a default and/or a change in the membership of the euro zone. Even if an ECB and IMF package remedies the current crisis, it would raise several long-term questions for the euro zone, namely: Who ultimately pays for this intervention? What incentives might this create in terms of fiscal policy for highly-indebted countries within the euro zone? And, should transfers from surplus to deficit countries be undertaken by a monetary authority, or by made more explicit by government-to-government transfers?
References
Kaminsky G.L., Reinhart, C.M. and Vgh, C.A., 2003, The Unholy Trinity of Financial Contagion, Journal of Economic Perspectives 17(4): 5174. Krugman, P., 1988, Financing versus Forgiving a Debt Overhang, Journal of Development Economics 29(3): 253268. Pettis, M., 2001, The Volatility Machine: Emerging Economies and the Threat of Financial Collapse, Oxford University Press: Oxford. Reinhart, C.M. and Rogoff K.S., 2009, The Aftermath of Financial Crises, American Economic Review 99: 466472. 2011, From Financial Crisis to Debt Crisis, American Economic Review 101: 16761706.
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Global oil prices, reserves, production and intensity: An overview

Jin Liu and Quentin Grafton*
This review article provides a historical perspective and prospective of oil prices (both nominal and real) along with trends in global oil reserves, production and intensity.
Oil price trends

Figure 1 shows historical trends of both nominal price (a) and real price (b) for one barrel2 of crude oil, based on domestic oil prices in the Unite States. From World War II through to the first oil price shock in 1973, nominal crude oil prices averaged around US$2 a barrel. While the nominal oil price in 1974 was almost five times higher than the oil price in 1972, the oil price in 1980, after the second oil shock in 1979, was almost fifteen times higher than it was in 1972, and more than three times higher than in 1974. The high nominal oil prices after the first and second oil shock were due to disruptions in oil supply. Although oil prices dropped substantially during most of the 1980s and in the 1990s, by 2004 the nominal oil price (US$38 a barrel) had surpassed its previous high in 1980 (US$37 a barrel), and reached US$97 a barrel in 2008.3 Real oil prices in 2010 are provided in Figure 1 (b). Over the period 2004 to 2008, the real oil price more than doubled from US$44 a barrel in 2004 to around US$100 a barrel in 2008, the highest real price since 1870. Since 2008, the real oil price has been highly volatile falling to US$63 a barrel in 2009 as a result of the Global Financial Crisis before recovering to US$80 a barrel in 2010.
2 3 *
One barrel contains 42 US gallons and is equal to around 159 litres. However, the spot oil price (based only on West Texas Intermediate) reached just over US$100 a barrel in 2008. The views expressed in this review are those of the authors alone and are not necessarily those of the Bureau of Resources and Energy Economics nor the Department of Resources, Energy and Tourism.
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Figure 1:
US oil prices, 1870 to 2010 (b) Real price

100
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80
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60
60
40
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20
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US$/bbl 1870 1890 1910 1930 1950 Nominal price 1970 1990 2010
2010 US$/bbl 1870 1890 1910 1930 1950 Real price 1970 1990 2010
Sources: BREE; BP 2011.
Figure 2 illustrates a trend of monthly average spot oil export prices (nominal) published by the International Monetary Fund (IMF). During the 197374 and 197980 oil price shocks, prices increased about fourfold and threefold, respectively, from early 1973 and 1979 to their respective peaks in early 1974 and late 1980. While these oil price shocks were primarily caused by one-off disruptions to supply, the price run-up to 200708 was due to strong oil demand combined with lagged growth in world oil production (Hamilton 2009). Due to this positive demand shock, the nominal oil price averaged US$133 a barrel in July 2008, around sixfold greater than the average monthly oil price over the period of July 1959 to July 2011. Figure 2: Average monthly nominal spot oil price, July 1959 to July 2011
140 120 100 80 60 40 20 US$/bbl
Average monthly oil price = US$23 a barrel
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Note: The average petroleum spot price denotes an equally weighted average of crude oil spot prices for West Texas Intermediate, Dated Brent, and Dubai Fateh. Source: BREE; IMF 2011.
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Since the early 2000s, almost all of the net increase in oil demand has come from the transport sector in emerging economies. The upward oil price movement in the 2000s reflected strong oil demand from industrialisation and urbanisation in emerging economies; while the contraction of oil demand from industrialised nations is due to efficiency gains in maturing markets (IEA 2011b). There were also increased costs of oil production due to rapidly rising prices of steel pipe, drilling rigs, engineering services and cement that occurred from 2004 onwards (Smith 2009). An examination of historical patterns shows that, contrary to popular belief, oil prices have not been more volatile in recent times than in the past (see Figure 3). Interestingly, the volatility observed during 200809 is actually lower than the highest volatility, which occurred in 1990 91. High annual volatilities in the oil price are due to inelastic demand and supply. Demand is inelastic due to long lead times for altering the stock of fuel-consuming equipment; supply is inelastic in the short-run because it takes time to augment the productive capacity of oil fields (Smith 2009). Figure 3: Volatility in crude oil prices, July 1975 to July 2011
25 20 15 10 5 volatility
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Note: Volatility is measured as the standard deviation of month-on-month percentage changes over rolling 12-month windows. This measures dispersion from a central tendency or dispersion from the mean. Sources: BREE; IMF 2011.
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Global oil reserves

The total estimated amount of oil in an oil reservoir, including both producible and non-producible oil, is called oil in place. Reservoir characteristics and limitations in petroleum extraction technologies mean not all of the oil in place can be brought to the surface. Reserves are defined as this producible fraction. Proven reserves are those reserves claimed to have a reasonable certainty of being recoverable under existing economic and political conditions, with existing technology, and are referred to as P90 (that is, reserves that have a 90 per cent chance of being produced). Proven reserves are linked to commercial viability. Thus, proven reserves can increase in response to both oil price rises and technological advances that allow the extraction of new sources and increase the proportion of oil within a deposit that can be extracted profitably. A corollary of this is that proven reserves can decrease with a decline in the oil price. While new oil reservoirs are continually being discovered, they tend on average to be smaller or more expensive to develop than previously identified oil fields. These new reservoirs are also increasingly offshore compared to oil discovered in previous decades, which were primarily found on shore within member state of OPEC (see Table 1). Table 1: OPEC member countries
Joined OPEC 1969 2007 rejoined in 2007 1960 1960 1960 1962 1971 1961 1960 1967 1960 Location Africa Africa South America Middle East Middle East Middle East Africa Africa Middle East Middle East Middle East South America
Country Algeria Angola Ecuador ** Islamic Republic of Iran * Iraq * Kuwait * Libya Nigeria Qatar Saudi Arabia * United Arab Emirates Venezuela *
Notes: * founding Member. ** Ecuador joined OPEC in 1973 then suspended its own membership from December 1992 to October 2007.
At the end of 2010, global proven oil reserves were estimated to be around 1.4 trillion barrels. This represents an increase of 278 billion barrels, or 25 per cent, over the 2000 figure of 1.1 trillion barrels. About 80 per cent of the net addition occurred in OPEC member countries (see Figure 4).
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Figure 4: Proven oil reserves by key regions and markets: 1980, 1990, 2000 and 2010
1400 1200 1000 800 600 400 200 billion barrels World 1980 OPEC 1990 North America 2000 2010 Asia Paci c
The top 30 countries by proven reserves accounted for around 98 per cent of global proven oil reserves in 2010. Among these countries, the top 5 nations were OPEC membersSaudi Arabia (19 per cent), Venezuela (15 per cent), Iran (10 per cent), Iraq (8 per cent) and Kuwait (7 per cent). These five nations together accounted for around 60 per cent of global oil reserves in 2010 (see Figure 5). Figure 5: Ranking of top 30 countries by proven oil reserves in 2010
Saudi Arabia Venezuela Iran Iraq Kuwait United Arab Emirates Russian Federation Libya Kazakhstan Nigeria Canada US Qatar China Brazil Angola Algeria Mexico India Azerbaijan Sudan Norway Ecuador Malaysia Oman Egypt Vietnam Indonesia Australia Gabon
billion barrels
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Box 1: Unconventional oil

Unconventional oil is petroleum produced or extracted using techniques other than the conventional oil well method. Oil companies and governments have been investing in unconventional oil sources due to the increasing scarcity of conventional oil reserves. Most significantly, unconventional oil production is a less efficient process and has greater environmental impacts than that of conventional oil production. Unconventional oil sources include shale oil, oil sands (also called bitumen sands), synthetic crudes and derivative products, coal-based liquid supplies, biomass based liquid supplies and liquids arising from chemical processing of natural gas. Oil sands, for example, can be found in several locations around the globe, including in Venezuela, the US and the Russian Federation. Moreover, the Athabasca deposit in Alberta, Canada is the largest and most developed. As with all forms of mining, there are potentially hazardous tailings and waste generated from the varied processes of oil extraction and production. Environmental concerns relating to greenhouse gas emissions (GHG) with unconventional oil are similar to those with conventional oil. For example, extraction and production of oil sands can lead to significant contamination of water, sediment, soil, air and associated flora and fauna, as well as landscape degradation (Timoney 2011). Unconventional oil will be increasingly relied upon when some conventional oil deposits become economically non-viable due to depletion. Conventional oil sources are currently preferred sources of supply because they provide much higher yields. However, new technologies, such as steam injection for oil sands deposits, are continually being developed to increase extraction efficiency and yields from unconventional oil production.
Global oil production

Over the past 50 years, global oil production has been dominated by the US, OPEC members and the Former Soviet Union. Figure 6 shows that the US was the largest oil producer in the world prior to 1974 and throughout most of the 1990s. The Former Soviet Union4 was the largest producer in the intervening years and since 1999. By comparison, OPEC oil production in 2010 was almost five times greater than oil production in the United States and twice OPECs output in 1965. In 2008, OPEC oil production reached a historical high of more than 1.7 billion tonnes. Oil production in non-OPEC countries has been increasingly steadily since 1965 and almost doubled between 1980 and 2010.
The Former Soviet Union includes Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, the Russian Federation, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.
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Figure 6:
Global oil production in key markets, 1965 to 2010

1800 1600 1400 1200 1000 800 600 400 200 Mt 1965 1970 US 1975 1980 OPEC 1985 1990 1995 2000 2005 2010
Non-OPEC*
Former Soviet Union
Notes: 1 tonne is equal to 7.33 barrels, or 1 barrel is equal to 0.1364 tonnes based on worldwide average gravity. * Non-OPEC excludes the United States and Former Soviet Union. Oil production includes crude oil, shale oil, oil sands and NGLs (the liquid content of natural gas where this is recovered separately). Sources: BREE; BP 2011.
While total global oil production5 was 3.9 billion tonnes in 2010; oil production in the top 30 producing nations accounted for around 94 per cent of global oil production. Among these nations, the top 5 nations were the Russian Federation (13 per cent), Saudi Arabia (12 per cent), the US (9 per cent), Iran (5 per cent) and China (5 per cent). The total for these five countries accounted for 44 per cent of global oil production in 2010 (see Figure 7).
Oil production includes crude oil, shale oil, oil sands and NGLs (the liquid content of natural gas where this is recovered separately), but does not include biofuels.
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Figure 7: Ranking of top 30 countries by oil production in 2010

Russian Federation Saudi Arabia US Iran China Canada Mexico United Arab Emirates Venezuela Kuwait Iraq Nigeria Brazil Norway Angola Kazakhstan Algeria Libya Qatar United Kingdom Azerbaijan Indonesia Oman Colombia India Egypt Argentina Malaysia Ecuador Sudan
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Note: Australia is ranked 31 on this list. Source: BREE; BP 2011.
While the total volume of global oil production more than doubled from 1966 to 2010, the growth rate in global oil production has declined. Although the growth rate across these years remains positive overall, it has been negative in some years (see Figure 8). The declining trend in the rate of output growth indicates that oil production is approaching its peak level. Peak oil, however, does not mean the world is about to run out of oil and is determined as much by economics as geology (Smith 2009). For instance, there remains around 1.4 trillion barrels of proven oil reserves, which have increased over the past decade (1.1 trillion in 2000). The issue, rather, is about the impacts of peaking production on the oil price and the cost and availability of substitutes, such as biofuels.
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Figure 8:
4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5
Total global oil production and growth in production, 1966 to 2010

12 10 8 6 4 2 0 -2 -4 -6 % 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 production growth
Bt 1966
Source: BREE; BP 2011.
According to the IEAs forecasts in its World Energy Outlook 2011 publication, oil production trends can vary markedly across assumed scenarios6. Oil production was forecast to rise to 104 million barrels a day (mb/d) in 2035 from 83 mb/d in 2010 in the Current Policies Scenario; increase to 96 mb/d in the New Policies Scenario (peaking before 2020); and fall to 76 mb/d in the 450 ppm Scenario. Thus, peak oil production is not solely determined by remaining economic oil reserves, but also by energy and environment policies.
Oil intensity
The US is both a large oil producer and the worlds largest oil consumer. In 2010, total US oil consumption was 850 million tonnes, or about two times greater than Chinas total oil consumption. China, however, had the greatest growth in oil consumption over the past decade. In 2010, Chinas oil consumption was about 40 times greater than its oil consumption in 1965, while US oil consumption rose by about half over the same period (see Figure 9 (a)). As a result of this growth, the US share of global oil consumption declined from 36 per cent in 1965 to 21 per cent in 2010, and the share of global oil consumption by China increased from less 1 per cent in 1965 to around 11 per cent in 2010 (see Figure 9 (b)).
These scenarios are the: Current Policies Scenario, which assumes no new policies are added to those in place as of mid-2011; New Policies Scenario, where recent government policy commitments are assumed to be implemented in a cautious mannereven if they are not yet backed by firm measures; 450 ppm scenario, which works back from the international goal of limiting the long-term increase in the global mean temperature to two degrees Celsius (2C) above pre-industrial levels, in order to trace a plausible pathway to that goal.
The wide difference in outcomes between these scenarios underlines the critical role of governments to define the objectives and implement the policies necessary to shape the energy requirements of the future (IEA 2011a).
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Figure 9: (a) Volume

1000 900 800
Global oil consumption in key markets, 1965 to 2010 (b) Share

40 35 30
700 600 500 400 300 10 200 100 Mt 1965 1974 US 1983 EU 1992 China 2001 2010 India 5 % 1965 1974 US 1983 EU 1992 China 2001 2010 India 25 20 15
Notes: Oil consumption includes inland demand plus international aviation and marine bunkers and refinery fuel and loss. Consumption of fuel ethanol and biodiesel is included. The European Union (EU) includes Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. Sources: BREE; BP 2011.
Figure 10 shows that for industrialised countries, such as the US and Japan, oil use per capita initially increased with growth in their GDP per capita, but stayed unchanged when their income levels reached around US$20 000 (measured at purchase power parity or PPP) per capita in Japan, and US$30 000 (PPP) per capita in the US. As per capita incomes have increased beyond these levels, there has been a decline in oil use per capita. By contrast, China and India are still showing a positive relationship between per capita income and per capita oil use, reflecting their convergence with industrialised countries in terms of industrialisation and urbanisation. Despite their rapid growth over the past two decades, per capita income in China and India still remain well below that of industrialised nations. For example, based on IMFs World Economic Outlook September 2011, per capita income measured at PPP in China was 17 per cent and 24 per cent of per capita income in the US and Japan, respectively; while per capita income in India was 8 per cent and 11 per cent.
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Figure 10: Oil use per capita versus GDP per capita, 1965 to 2010
4.5 4.0 oil use (tonnes) per capita 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 10 20 30 40 50 60
000 GDP per capita in 2005 US$ (PPP) US Japan China India
Sources: BREE; BP 2011; The Groningen Growth and Development Centre 2011.
Figure 11 shows trends of oil intensity from 1980 to 2010. The downward trend is primarily due to improving oil efficiency as a result of ongoing fuel-saving technological change, fuel switching, increasing use of alternative energy sources in power generation, and structural changes in the global economy away from oil-intensive sectors. Oil intensity since 1980 has fallen fastest in China, compared with in the US and the EU. Figure 11: Oil intensity* in key markets, 1980 to 2010
000 tonnes of oil used per billion GDP US$ (PPP)
350 300 250 200 150 100 50 0 1980
1985 EU
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1995 US
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Note: * Oil intensity is measured as thousand of tonnes of oil consumed per US$ billion of GDP measured at purchasing power parity (PPP). Sources: BREE; BP 2011; IMF 2011.
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In summary, since the first oil price shock in 1973, nominal oil prices have been highly volatile. Prices rose rapidly due to negative supply shocks in 197374 and 197980, but declined throughout much of the 1980s and 1990s. By contrast, the price increases in 200708 were primarily due to strong oil demand from emerging economies. Although both global proven oil reserves and production have increased over the past decade, the growth rate in global oil production has declined. This declining trend suggests that conventional oil production is approaching its peak level, despite the fact that proven oil reserves have increased over the past decade. When, and at what level, conventional oil production peaks depends greatly upon global energy and environmental policies. Under a strict policy scenario, oil consumption may even peak within the current decade as a result of policies to limit GHG emissions.
References
Hamilton, J., 2011, Historical oil shocks, Department of Economics, University of California, San Diego. International Energy Agency (IEA) 2011a, World Energy Outlook 2011. 2011b, Medium-term oil & gas market. Smith, J., 2009, World oil: market or mayhem, Journal of Economic Perspectives, Vol. 23, No. 3: 145164. Timoney, K., 2011, Water issues in Canadas tar sands, in Water Resources Planning and Management, edited by Q. Grafton and K. Hussey, Cambridge University Press.
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Gold and Australias economic development

Adam Bialowas*
The discovery of gold in Australia in 1851 was a defining event in both the economic and social development of Australia. Within 50 years of the discovery of gold the Australian colonies had obtained the right to self governance (within imperial limits) and Australian per capita income was one of the highest in the world. Today, gold remains an important component of Australias export portfolio, contributing over $13 billion in export earnings for the 201011 financial year.
Eureka! Gold discovered in Australia

Gold was officially first discovered in Australia in Bathurst, NSW in April 1851, but it is widely accepted that it had been found a number of times prior to this date. However, these discoveries were either very small or suppressed by the Colonial Governments of the time to avoid penal labour leaving their current areas of employment in order to seek their fortune on the gold fields (Goodwin 1970). The significance of the discovery in 1851 was that the Californian gold rush was already underway, and the colonies were already facing competition for migrants from California. By declaring the discovery of gold, and allowing for prospecting, the governments of the colonies saw a way to maintain or grow their population and economic growth.
Impacts of the gold rush on Australia

The decade subsequent to the discovery of gold was a tumultuous time in Australias economic and social development. Initially, the discovery of gold caused a large degree of dislocation in other sectors and industries of the economy. For instance, it is estimated that between 1851 and 1852 the average annual wage of a miner in Victoria increased from 70 to 357 (Maddock and McLean 1984). Even before this five-fold increase, the wage level of miners already enjoyed a significant premium to other professions. Given the large disparities in mining and other sectors there was a rush to seek employment in mining. This created a problem to employers in non-mining sectors that wished to retain their labour force. It was an issue which was not unnoticed by the governments of the time, particularly as police and other officials were documented to have abandoned their posts to seek their fortunes gold mining (La Croix 1991). The primary way for employers to compete for labour was to increase wages in other sectors (see Figure 1). These wage costs contributed to inflation within the fledgling colonies.
* The views expressed in this review are those of the author alone and are not necessarily those of the Bureau of Resources and Energy Economics nor the Department of Resources, Energy and Tourism.
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Figure 1:
Index of Victorian wages

600 500 400 300 200 100
index 1850=100
1850
1851
1852
1853
1854
1855
1856
1857
1858
1859
1860 Carpenters
Farm Labourers Female Servants
Shepherds General Labourers
Composite Wage Blacksmiths
Gold Miners
Source: Maddock & McClean 1984.
To combat the dramatic increase in wages, Colonial governments pursued a policy of mass migration to increase the labour supply to help reduce wages back to their original levels. While some migrants were unassisted, and able to pay their own way to Australia, the Colonial governments were able to use the revenues associated with the gold rush to encourage assisted migration and target people with particular skills that were in short supply. Over the ten-year period following the announcement of the discovery of gold the Australian population expanded rapidly, growing from 430 000 people in 1851 to over 1.1 million in 1860 (ABS 2008). The growth was even more pronounced in the colonies in which gold had been discovered. For instance, in Victoria, the population grew five-fold from an initial population of approximately 97 000 people to over 530 000 in 1860 (ABS 2008). While these policies did eventually lead to a reduction in the level of wages in the colonies, they never returned to their pre-gold rush levels (see Figure 1). One of the characteristics of the population boom initiated by the gold rush was that that many of those who came were induced to stay. In part, this was because colonial governments actively pursued a policy of increasing the demand for labour in the agricultural sector. This was achieved through a combination of policies, such as granting access to Crown land, which led to a rapid development of the Australian agricultural sector, and the wool industry in particular. Hence, at a time when many other countries experienced a reduction in their agricultural sector as their economies were transitioning to industrial and manufacturingbased economies, Australia expanded its agricultural labour. As a result of this transition Australia found itself well placed to take advantage of the increase in demand for food and fibres from other countries that were pursuing a manufacturing based approach to their economic development (Schedvin 1987).
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End of the gold rush

Subsequent to the initial discovery of gold in the NSW and Victorian colonies, a succession of discoveries were also made in the colonies of Queensland, Western Australia and Tasmania. As a result, gold production in Australia was not a transitory phenomenon at a national level and the gold industry continued to make a significant contribution to Australias economy throughout the nineteenth century. While production peaked in 1853 and 1856, when 3 million ounces were produced, production remained above 1 million ounces until the 1890s (Maddock and McLean 1984). An expansion of the gold mining industry occurred with the discoveries of gold in Queensland and Western Australia. However, practical considerations associated with mining in arid regions, and the costs associated with overcoming them, acted as a barrier to independent and small-scale miners in a way distinct from earlier discovers of gold in NSW and Victoria.
Deregulation of the world gold market

For the majority of the twentieth century gold played a more indirect role in the Australian economy than the previous century. In January 1925, Australia returned to the gold standard as a means of restricting the money supply and reigning in inflation (Tsokhas 1994). Given that many other countries were also operating on a gold standard, the market for gold was, at that time, tightly controlled by the worlds central banks with a number of restrictions placed on the ability of individuals to buy and sell gold. This in turn reduced the incentives for the exploration and mining of new gold deposits. It was not until 1971, with the collapse of the Bretton-Woods gold-US dollar exchange system that gold entered a new growth phase. The move to a floating exchange rate meant there was no longer a need for the worlds governments to control private gold holdings. Consequently, in the US restrictions that had been placed on an individuals ability to buy gold were relaxed. Similar restrictions were removed in other countries and the modern gold market came into existence (Allen et al 1999).
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Figure 2:
800 700 600 500 400 300 200 100 $US/oz
Nominal Gold Price, January 1971 to December 1980
Jan-71
Jan-72
Jan-73
Jan-74
Jan-75
Jan-76
Jan-77
Jan-78
Jan-79
Jan-80
Source: LBMA.
The deregulation of the worlds gold market corresponded with a period of great instability in the worlds economy. High levels of inflation sparked by the oil price shocks of the 1970s resulted in a huge increase in private investment demand for gold as individuals sought to protect their wealth. This, in turn, led to a massive increase in the value of gold between the late 1970s and early 1980s. In the decade after the collapse of the Bretton-Woods system, the price of gold increased from $US35 an ounce to over $US600 an ounce in nominal terms.
Resurgence of the Australian gold industry

The spectacular increase in the price of gold over the 1970s and early 1980s served as the impetus for a resurgence in the Australian gold industry. The dramatic rise in the price of gold resulted in substantial returns being obtained from investing in the Australian gold industry. Adding to these returns were technological advancements in both the exploration for, and mining of gold, that made the mining of lower grade ores economically viable. The combination of these factors led to a second boom in the Australian gold industry (Hogan et al 2002; Hogan 2004). Over the decade between 1981 and 1990 Australian gold mine production grew from 18 tonnes in 1981 to over 244 tonnes in 1990. The majority of this gold was exported as bullion, and gold, once again became an important component of Australias export portfolio. In nominal terms, the value of Australias gold exports grew from $56 million in 1981 to over $3.4 billion in 1990. Over the 1980s and 1990s, the price of gold trended downwards, in line with the prices of many commodities. As a consequence of this price trend, although Australias gold production continued to grow over the early to mid 1990s, it did so at a progressively slower pace. The gold industry was only able to remain profitable via the continual reduction of costs associated with the use of improved exploration technologies and mining techniques.
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The Australian gold industry today

In 2010, Australia was the second largest gold producer in the world with China being the largest (GFMS 2011). In this year Australian mine production totalled 261 tonnes, representing almost 10 per cent of total world mine production. While gold is no longer Australias major export earner, it remains an important component of Australias export earnings, contributing over $13 billion to Australias export earnings in 201011. In addition to the direct contribution to the economy via the national accounts, gold also provides a number of flow-on benefits. For instance, the majority of Australian gold mines are located in regional or remote areas, and thus, provide an important source of income and employment in these regions. In summary, the discovery of gold in Australia was a turning point in its history and economic development. The revenue obtained from the gold discoveries of the 1850s enabled the colonial governments of the time to embark on a path of rapid population growth via assisted migration. This population growth, in turn, contributed to the rapid development of the Australian agricultural sector and, in particular, the wool industry. In a remarkably short period of time after the discovery of gold in Australia, Australia was transformed from a series of semi-independent colonies of the British Empire founded on penal labour, into a newly born federation with one of the highest per capita incomes in the world. Today, gold still comprises a major component of Australias export earnings, contributing billions of dollars each year.
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References
Australian Bureau of Statistics (ABS), 2008, Australian Historical Population Statistics 1998, Cat. No. 3105.0.65.001. Allen, C., Brearley, T., Clarke, A., Harman, J. and Berry, P., 1999, Australia in the World Gold Market, ABARE Research Report 99.8. Gold Fields Mineral Survey (GFMS), 2011, Gold Survey 2011, Hedges House, London. Goodwin, C. D., 1970, British Economists and Australian Gold, The Journal of Economic History, vol 30 No2, pp.405426. Hogan, L., Harman, J., Maritz, A., Thorpe, S., Simms, A., Berry, P., and Copeland, A., 2002, Mineral exploration in Australia: trends, economic impacts and policy issues, ABARE eReport 02.1. Hogan, L., 2004, Research and development of Exploration and Mining, implications for Australias gold industry, ABARE eReport 04.3. La Croix, S. J., 1992, Property Rights and Institutional Change During Australias Gold Rush, Explorations in Economic History, Vol 29 No. 2: 204277. Maddok, R. and McLean I., 1984, Supply-Side Shocks: The Case of Australian Gold, The Journal of Economic History, Vol. 44 No. 4: 10471067. Schedvin, C. B., 1987, The Australian Economy on the Hinge of History, The Australian Economic Review, Vol. 20, No.1: 2030. Tsokhas, K., 1994, The Australian role in Britain's return to the gold standard, The Economic History Review, Vol. 47, No. 1: 129146.
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Energy Productivity Analysis of the Australian Grain Industry

Nhu Che, Quentin Grafton, David Feldman7 and Thuy Pham*
Energy productivity measures the output of goods and services generated with a given amount of energy inputs. Rising energy productivity means increasing energy efficiency such that more goods and services can be produced with the same amount of energy, or the same quantity of goods and services can be made with fewer energy inputs. Thus, measuring and understanding trends in energy productivity provides a basis for improving economic efficiency and reducing the possible negative impacts of energy use. Energy productivity can be measured at an economy-wide scale for particular industries, or at an individual firm level. In this review, we analyse energy productivity in the Australian grain industry. While the results are specific to this industry, the method can be applied to other industries and can provide insights about how we can increase Australian energy productivity over time and across sectors.
The Australian wheat industry

The Australian grains industry accounted for almost $7 billion of gross value of production in 200910. The industry is dominated by wheat, which contributes about 70 per cent of total value, and in 200910 the gross value of wheat production was $4.8 billion. The largest grain producing states are Western Australia, New South Wales and South Australia, accounting for 38, 24 and 18 per cent respectively of the total harvested grains and 36, 29 and 15 per cent respectively of total grain cropped land (ABS 2011) (see Figure 1).
7 *
Department of Agriculture and Food of Western Australia (DAFWA). The views expressed in this review are those of the authors alone and are not necessarily those of the Bureau of Resources and Energy Economics nor the Department of Resources, Energy and Tourism.
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Figure 1:
Australian wheat production and area by state, 199596 to 200910 (b) Wheat area
16000 14000 12000
(a) Wheat production

30000
25000
20000
10000 8000 6000
15000
10000
4000
5000
2000 000 ha
1998 NSW 2000 VIC 2002 2004 QLD 2006 WA 2008 SA 2010 AU
kt 1996
1996
1998 NSW
2000 VIC
2002
2004 QLD
2006 WA
2008 SA
2010 AU
Sources: ABS Cat. no. 7503.0 and 7121.0, 2011.
Australian wheat production has fluctuated significantly over the past decade due to weather related events, especially drought. In particular, wheat production in 2003 was 35 per cent lower than in 2004, and 2007 production fell by 40 per cent compared to the more favourable weather in 2006 (ABS 2005 & 2007).
Total Factor Productivity of the Australian grain industry

An indicator of overall productivity is Total Factor Productivity (TFP) which measures the change in outputs that are not directly attributable to changes in individual inputs, such as labour. In industries that are highly dependent on external factors, such as weather related events, TFP must be adjusted to account for variations in rainfall or other weather factors. An index of TFP growth (1980 = 1) in grain production (not adjusted for weather effects) by state is provided in Figure 2. All states exhibit a great deal of variation in the calculated TFP measure. Western Australia is the only state that has shown an increasing trend in TFP, with an annual average growth rate of 1.15 per cent.
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Figure 2: Index of TFP fFP for grain production in Australia state Figure 2: Index of T or grain production in Australia by by state
Figure 2:
Total Factor Productivity for grain production in Australia

2.5 2.0 1.5 1.0
0.5 Source: Department of Aof Agriculture oestern Australia 2011 Source: Department griculture of W f Western Australia 2011
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Measuring energy consumption and nd energy productivity Measuring energy consumption a energy productivity
AU NSW SA
index 1980=1
WA
Productivity is commonly measured by an ian index. roductivity is bieing measured over ver time, Productivity is commonly measured by ndex. If p If productivity s being measured o time, the index is typically set set equal tither 1 or 100 i00 he base year and subsequent measures the index is typically equal to e o either 1 or 1 n tin the base year and subsequent measures of pMeasuring are cre cconsumption andto this base. If tihe index reater than the base year roductivity energy alculated relative energy productivity of productivity a alculated relative to this base. If the ndex is gis greater than the base year in ain articular year, then productivity iby anhigher Ifor that year compared to tbase year. Productivity is commonly measured s hiigher for f hat year compared to the he bover year. p a particular year, then productivity s index. t productivity is being measured ase time, the index is typically set equal to either 1 or 100 in the base year and subsequent measures of productivity are calculated relative to this base. If the index is greater than the base year in a There are vre various methods available tonstruct indexes. A commonly used method is the he methods available to c o onstruct indexes. A c There a arious then productivity is highercfor that year comparedommonly used method is t particular year, to the base year. Trnqvist index that is eis explained ietail in the Appendix to tto this review. Applying this xplained in d n detail in the Appendix his review. Applying this Trnqvist index that There are various methods available to construct indexes. A commonly used method is the approach to energy production, energy productivity (EP) at this treview.cbe defined by by approach to energy pexplained inenergy pthe AppendixEP) at ime t Applying this approach Trnqvist index that is roduction, detail in roductivity ( to time t can an be defined to energy production, energy productivity (EP) at time t can be defined by Equation (1): equation (1): 1): equation (
Source: Department of Agriculture and Food of Western Australia 2011
(1) (1) (1)
QtY EPt = E Q t
where is the Trnqvist index of rain quantity and is the Trnqvist indexindex of energy where where is t he Trnqvist index of gograin output and and is t he Trnqvist index of energy is the Trnqvist index f grain quantity is the Trnqvist of energy consumption. consumption. consumption. The average values for the energy consumption, the grain quantity indices and the EP for an average grain farm across Australia and in the major grain growing states, were calculated The average values for for tenergy consumption, the grain quantity indices and the EP for for an an The average values the (2011). Usingc1980 as a basetyear rain q= 1) a time seriesaof the energy using data from DAFWA he energy onsumption, he g (1980 uantity indices nd the EP consumption index across Australia farm (the denominator g equation (1)) for ere calculated average grain farm across average grainaind he major grain growing states, were calculated average grain farm per Australia and n tin the major grain inrowing states, wthe Australian grain industry is presented in Figure 3. using data ata from DAFWA (2011). Using 1980 abase year (1980 = 1) a1time series of tof the using d from DAFWA (2011). Using 1980 as a s a base year (1980 = ) a time series he
energy consumption index per average grain farm (the denominator in eiquation (1)) 1)) for the energy consumption index per average grain farm (the denominator n equation (for the Australian grain industry is piresented in Fiigure 3. 3. Australian grain industry s presented n Figure
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Figure 3:
Index of energy consumption in grain production in Australia

1.3 1.2 1.1 1.0 0.9 0.8
1979-80
1981-82
1983-84
1985-86
1987-88
1989-90
1991-92
1993-94
1995-96
1997-98
1999-00
2001-02
2003-04
2005-06
2007-08
AU
NSW
SA
Source: Che et al 2011.
The quantity index of energy consumption has trended upwards for all states over the period 19802010, with some fluctuations. In 200910, the energy consumption index for Australia was 1.15; indicating energy consumption per grain farm had increased by 15 per cent compared with 30 years ago. In 2010, New South Wales had the highest levels of average energy consumption in grain production in Australia. The index of energy productivity of the Australian grain industry is presented in Figure 4. Using 1980 as a base year (1980 = 1), energy productivity has increased in all the key grain growing states and for Australia. The largest increase in productivity occurred in Western Australia, where energy productivity has more than tripled. For Australia as a whole, energy productivity has almost doubled over the period 19802010. This means that an average Australian grain farm in 2010 used half as much energy to produce the same amount of grain as the average Australian grain farm did in 1980.
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2009-10 WA
index 1979-80=1
Figure 4: Energy productivity in grain production in Australia Figure Energy productivity i grain p production i A Australia Figure 4: Energy productivity in n in grain production ustralia Figure 4: 4: Energy productivity grain roduction in n in Australia
Figure 4:
Energy productivity in grain production in Australia

4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 1979-80 1981-82 1983-84 1985-86 1987-88 1989-90 1991-92 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 2005-06 2007-08 2009-10
index 1979-80=1
Source: Che et al 2011. Source: C et 2011. Source: Che et al al 2011. Source: Che he et al 2011.
AU
NSW
SA
WA
Energy intensity relative to other inputs in the Australian grain industry Energy intensity relative other inputs i the the Australian grain industry Energy intensity relative to o ther inputs in n itn Australian grain industry Energy intensity relative t o to other inputs he Australian grain industry Another way to analyse trends in energy use is by calculating energy intensity relative to Another way to analyse trends inin energy s b by calculating energy intensity relative to t Another wway ay nalyse trends in n eenergyse iuse bs alculating energy intensity relative to o to Another ay wo o tonalyse trends i energy u use iisy c by calculating energy intensity relative Another t t a a analyse trends nergy use s i y calculating energy intensity relative other other input factors. EEnergyintensity per unit of gdefined by Equation (2):by Equation (2): input factors. nergy intensity in period t is rain output is defined other input factors. Energy intensity p unit of grain output s i efined by Equation (2): other input factors. Energy intensity per unit unit rain rain output ds defined quation (2): (2): other input factors. Energy intensity per er of g of g output is idefined by Eby Equation
Energy intensity relative to other inputs in the Australian grain industry
(2) (2) (2) (2) (2)
where is the energy intensity relative to all other input factors; is the Trnqvist where is the energy intensity relative to o other input factors; the Trnqvist energy where the t nergy intensity relative to o tall all other input factors; is is tis The Trnqvist where where is is tis ehe energy intensity relative ll other input factors; he energy intensity relative t a all other input factors; is the t rnqvist he Trnqvist consumption iindex and is the aggregated Trnqvist quantity index of of all other the aggregated Trnqvist quantity index all other inputs energy consumption ndex and is (such as land, capital and and energy consumption index energy consumption index and and is is tlabouraggregated Tand otherquantity index ll f ther the t ggregated Trnqvist quantity index of all other energy consumption index equipment, is ahe and fertilizer rnqvist materials). of a ooall other he aggregated Trnqvist quantity index inputs (such as land, capital and equipment, labour and fertilizer and other materials). inputs (such l s land, capital equipment, labour and f nd fertilizer o other aterials). inputs (such as ls aand, capital and equipment, labour and fertilizer and ther mmaterials). inputs (such a and, capital and and equipment, labour aertilizer and and other materials). A decline in the energy intensity index indicates that less energy is being used in the A decline i he energy intensity index indicates that less energy s i eing used i the A A ecline in n tn ehe energy intensity index indicates tlhat lenergy is ibeing used ised tn the d decline i the t nergy intensity index indicates that ess ess energy bs being u n n i he production process compared with the previous year. Figure 5 presents energy intensity production process compared with t previous year. Figure p presents energy intensity production process compared wwith the revious year. ear. Figure 5 presents energy intensity production process compared ith the phe previous y Figure 5 5 resents energy intensity relative to other inputs in terms of grain production over the period 19802010. Using 1980 relative other inputs i terms o of grain production over the period 19802010. Using 1980 relative to o ther inputs in n tn terms rain rain production otver phe period 19802010. Using 1980 relative t o to other inputs i erms f g of g production over he t eriod 19802010. Using 1980 as a base year (1980 = 1), Figure 5 shows that over the past thirty years energy intensity has as a as a byear (ear (1980 =F1), Figure 5 shows tover tver phe past thirty years energy intensity has as b ase ase y 1980 = = 1), Figure 5hows that hat o he t ast thirty years energy intensity has a base year (1980 1), igure 5 s shows that over the past thirty years energy intensity has decreased in the key grain growing states and across Australia. Thus, energy inputs relative decreased i he key grain growing states and across Australia. Thus, energy inputs relative decreased in n tn khe grain rain growing states and across Australia. Thus, energy inputs relative decreased i the tey key g growing states and cross Australia. Thus, energy inputs relative to all other farm inputs into grain production have become comparatively less important. to all other farm arm inputs igrain rain production hbecome comparatively less liess important. to to all other f inputs into nto g production have ave become comparatively mportant. all other farm inputs into grain production have become comparatively less important. This can in part help to explain why energy productivity increased over the same period. For This This ican art help telp xplain wwhy energy roductivity increased over tver same period. For For can n p in part h o e explain hy energy p productivity increased over the same period. For This can in part help to to explain why energy productivity increased o he the same period. example, energy productivity increased by the largest amount in Western Australia and this example, energy productivity increased b he largest amount i W n Western Australia t nd example, energy productivity increased by the lthe largest amount Western ustralia and ahis this example, energy productivity increased by ty argest amount in n iestern A Australia and this was associated with the greatest decline in energy intensity by state. was was associated whe ghe greatest decline energy intensity y state. associated with t ith t reatest d decline i energy intensity b by state. was associated with the greatest ecline in n in energy intensity by state. 104 Resources and Energy Quarterly vol 1 no 2 December quarter 2011
A decline in the energy intensity index indicates that less energy is being used in the production process compared with the previous year. Figure 5 presents energy intensity relative to other inputs over the period 19802010. Using 1980 as a base year (1980 = 1), Figure 5 shows that over the past thirty years energy intensity has decreased in the key grain growing states and across Australia. Thus, energy inputs relative to all other farm inputs into grain production have become comparatively less important. This can in part help to explain why energy productivity increased over the same period. For example, energy productivity increased by the largest amount in Western Australia and this was associated with the greatest decline in energy intensity by state. Figure 5: Energy intensity relative to other inputs in grain production in Australia
1.4 1.2 1.0 0.8 0.6 0.4 0.2 index 1979-80=1
1979-80
1981-82
1983-84
1985-86
1987-88
1989-90
1991-92
1993-94
1995-96
1997-98
1999-00
2001-02
2003-04
2005-06
2007-08
AU
NSW
SA
WA
Impact of rainfall during the growing season on energy productivity

Given the importance of climate conditions on grain yields and production (DAFWA 2009), the energy productivity index should be adjusted for variations in precipitation during the grain growing period (see Appendix). Following DAFWA (2011) and Che et al (2011), rainfall during the crop growing season is used as a proxy for the prevailing climatic conditions. The unadjusted energy productivity index (PEP) and the adjusted energy productivity index (APEP) for Western Australia are given in Figure 6. This graph shows that adjusting for climatic conditions, energy productivity was around 0.2 index points higher across the 30 years to 2010.
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2009-10
Figure 6:
Energy productivity and adjusted energy productivity of grain production, Western Australia
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 1979-80 1981-82 1983-84 1985-86 1987-88 1989-90 1991-92 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 2005-06 2007-08 2009-10
index 1979-80=1
APEP
PEP
In summary, analysis of energy productivity and energy intensity measures (by inputs) can provide insights into why energy use has been changing across a sector. An application of the index approach, using the Trnqvist index, shows that in the Australian grain growing industry energy productivity has almost doubled, with energy productivity at the average grain growing farm in Western Australia more than tripling, over the period 19802010. This improvement can in part be explained by reduced energy intensity relative to other inputs.
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Appendix
Measuring Total Factor Productivity
The Trnqvist index can be used to measure TFP. This index represents the log-change index number based on a natural logarithm of a ratio of prices to quantities. Formally, the value share of the ith commodity (input or output) relative to the value of all commodities for a given time period t is defined as follows: (A1)
Source: Che et al 2011. for n goods, prices p and quantities q of commodity i in period t. The Trnqvist quantity index ( ) in log-change form for periods t1 to t is given by the log of the ratios of the quantity index calculated in thentensity relative to other inputs in the Australian grain industry Energy i two time periods, that is,
Another way to analyse trends in energy use is by calculating energy intensity relative to where the relative weighting or importance betweener unit of grain the ith commodity by Equation (2): other input factors. Energy intensity p two periods of output is defined is given by:
(A3)
(A2)
(2) Combining these terms the Trnqvist quantity index in period t is defined by:
(A4)
where
is the energy intensity relative to all other input factors;
Thus, the input quantity index of grain farms ( ) can be constructed using equations (A1) energy consumption index and is the aggregated Trnqvist quantity index of all other to (A4) with five key input factors: land, capital and equipment, labour, materials (including inputs (such as land, capital and equipment, labour chemicals, fertiliser, other material inputs and seed) and energy use. and fertilizer and other materials).
is the Trnqvist
index of grain output for any given time period ( ) can be adjusted for ann vY to elative t farm inputs i the rainfall-adjusted output quantity index p rain t t Thus, at time period t rall other o period t1, nto grain roduction have become comparatively less important. QtY = QtY t relative (A5) Thus, at time period rain to period t1, the rainfall-adjusted output quan This can in part help to explain why energy productivity increased over the same period. Fo t 1 is given by: is given by: where rain t and rain t1 energy productivity increased by the largest periods t iand t1, example, represent the rainfall during the grain growing amount n Western Australia and thi Y respectively, and v t is the share coefficient of rainfall conditions on grains production. (A5) was associated with the greatest decline in energy intensity by state. (A5)
The output quantity index of grain farms includes the following field grains grown by farmers: A decline in the energy intensity index indicates that less energy is being used in the wheat, barley, buckwheat, oats, triticale, and maize. For tractability, and as developed by DAFWA (2011), the outputpof graincompared with the previous wheatFequivalent, equal tonergy intensity production rocess farms is measured in terms of year. igure 5 presents e the total revenue of each grain divided by the wheat price. Given the essential rrelative teather conditions in grain prain production over the period 19802010. Using 198 ole of w o other inputs in terms of g roduction, the Trnqvist quantity Given the essentialase yof weatherhe essential 5ole of wteather conditions tihirty years energy intensity ha Given t conditions in shows hat over the past n grain production, as a b role ear (1980 = 1), Figure r grain production, the Trnqvist quantity index the Trnq ofrain output for aanygiven time period (( grain output for ny given time period ) can be adjusted for annual rainfall. index of g ) can be adjusted for annual rainfall. Thus, at time period tdecreased period key grain growing states and across Australia. Thus, energy inputs relative relative to in the t1, the rainfall-adjusted output quantity index is given by:
where raint and raint1 represent the rainfall during the grain growing periods t and t1, where raint and raint1 represent the rainfall during the grain growing periods Resources and Energy Quarterly vol 1 108 December quarter 2011 107 no 2 respectively, and is the share coefficient of rainfall conditions on grains production. respectively, and is the share coefficient of rainfall conditions on grains pr
Using equations (A1) to (A5), a Trnqvist index can be calculated for both inputs and outputs. The ratio of the Trnqvist output index to inputs index, adjusted for rainfall, provides a measure of Total Factor Productivity (TFP), and is defined by: (A6)
An increase in TFP over time indicates that more output can be produced using the same quantity of inputs.
Measuring energy productivity

The value share of energy relative ( ) to all input factors, or the relative importance of energy in the production process, is defined as where pt represents prices, qti quantities and and are, respectively, the price and quantity of energy inputs used in the production process. The non-energy inputs in the production process are land, capital and equipment, labour, and materials (including chemicals, fertilizer, other material inputs and seed). (A7)
i
The Trnqvist energy input index at time t is given by:

(A8)
where the relative weighting or importance in each period of the energy input in terms of all other inputs is given by: (A9) Energy productivity (EP) at time t relative to period t1 is defined as the ratio of the output quantity index (A5) to the energy input index (A8), that is: (A10)
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References
Australian Bureau of Statistics (ABS), 2011, Statistics of Australian grain industry, Cat. no. 7503.0 and 7121.0. Che N., Feldman D., Xayavong V and Cook D, 2011, Economic Analysis of the Western Australian Grains Industry, Upcoming Research Report, Department of Agriculture and Food, Western Australia, Perth. Department of Agriculture and Food of Western Australia (DAFWA), 2009, Plan to Support 2009 2012 Grains Industry Development, Department of Agriculture and Food, Western Australia, Perth. (2011). Profitability, Productivity and Efficiency Analysis for Western Australian Grain Farms, Report to the Executive Board, Perth.
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Statistical tables
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Contribution to GDP
Australia
2000-01 $975.5b
Services Building and construction Manufacturing Mining Agriculture, forestry and shing 74% 5% 10% 8% 3%
2010-11 $1318.6b
Services Building and construction Manufacturing Mining Agriculture, forestry and shing 75% 8% 8% 7% 2%
Principal Markets for Australian Imports in 2010-11 dollars 2000-01 2010-11
Total
$157.2b
United States Japan China Germany Malaysia Singapore New Zealand Other
19% 13% 8% 5% 4% 3% 4% 44%
$214.2b
United States Japan China Germany Malaysia Singapore New Zealand Other
11% 8% 19% 5% 4% 5% 3% 44%
Resources & Energy
$19.0b
Indonesia Malaysia Singapore Vietnam Other Asia Middle East New Zealand Other
12% 6% 7% 15% 14% 20% 5% 22%
$44.3b
Indonesia Malaysia Singapore Vietnam Other Asia Middle East New Zealand Other
8% 9% 17% 4% 15% 8% 5% 34%
112
vol 1 no 2
Principal Markets for Australian Exports in 2010-11 dollars 2000-01 2010-11
Total
$158.8b
Japan China Korea, Rep. of United States New Zealand India European Union 27 Other
20% 6% 8% 10% 6% 2% 12% 38%
$245.7b
Japan China Korea, Rep. of United States New Zealand India European Union 27 Other
19% 26% 9% 4% 3% 6% 7% 25%
Resources
$43.9b
Japan China Korea, Rep. of Other Asia Thailand India European Union 27 Other
16% 7% 9% 20% 2% 1% 9% 36%
$109.2b
Japan China Korea, Rep. of Other Asia Thailand India European Union 27 Other
13% 39% 9% 8% 3% 6% 5% 16%
Energy
$34.1b
Japan Korea, Rep. of China India Other Asia European Union 27 Other 38% 11% 2% 3% 19% 7% 18%
$69.7b
Japan Korea, Rep. of China India Other Asia European Union 27 Other 35% 13% 13% 12% 13% 6% 7%
vol 1 no 2
Principal markets for Australian resources and energy exports

in 2010-11 dollars, $m
2000-01
2010-11
Thermal Coal
Mexico Malaysia China Chinese Taipei Korea, Rep. of Japan 0 1400 2800 4200 5600 7000
40 63 35
Metallurgical Coal
Brazil Netherlands Chinese Taipei China Korea, Rep. of India Japan 0 1800 3600 5400 7200 9000
58
Oil and Gas

New Zealand Thailand Singapore Korea, Rep. of China Japan 0 1900 3800 5700 7600 9500
15 188
Gold
Hong Kong China Singapore Thailand India United Kingdom 0 900 1800 2700 3600 4500
0
Iron Ore
United Kingdom France Chinese Taipei Korea, Rep. of Japan China 0 8000 16000 24000 32000 40000
87 80 466
Aluminium
Malaysia Indonesia Thailand Chinese Taipei Korea, Rep. of Japan 0 600 1200 1800 2400 3000
Copper
Chinese Taipei Malaysia Korea, Rep. of India Japan China 0 500 1000 1500 2000 2500
114
vol 1 no 2
Annual Export Summary, Balance of Payments Basis

Australia
200607 $m At current prices Mineral resources Coal, coke and briquettes Other mineral fuels Metalliferous ores and other minerals as Gold Other metals bs Total s Total commodities sector s Other merchandise s Total merchandise s Services Total goods and services Chain volume measures c Mineral resources Coal, coke and briquettes Other mineral fuels Metalliferous ores and other minerals as Gold Other metals bs Total s Total commodities sector s Other merchandise s Total merchandise s Services Total goods and services
200708 $m
200809 $m
200910 $m
201011 s 201112 f $m $m
21 928 15 641 36 137 10 740 21 773 106 220 136 619 33 001 169 620 47 175 216 795
24 603 18 889 41 930 12 272 18 211 115 904 145 875 37 047 182 922 50 891 233 813
54 954 20 706 52 733 17 508 14 358 160 259 194 176 37 447 231 623 52 948 284 571
36 777 18 964 54 082 14 300 14 031 138 154 168 630 33 121 201 751 52 011 253 762
44 102 23 619 79 766 14 271 15 966 177 725 211 815 35 160 246 975 50 570 297 545
52 864 28 073 86 988 20 768 15 344 204 036 240 257 na na na na
27 855 16 680 43 588 16 001 14 107 118 231 149 918 28 256 178 174 51 135 228 443
29 585 16 568 47 508 16 500 13 907 124 068 153 296 30 947 184 243 53 651 236 965
30 951 17 523 47 129 18 348 14 358 128 309 159 939 28 037 187 976 54 023 241 051
36 777 18 964 54 082 14 300 13 668 137 791 169 561 32 189 201 750 52 011 253 761
35 277 20 047 55 683 12 767 14 356 138 130 170 944 33 898 204 842 49 564 254 405
37 505 21 814 61 121 14 483 15 480 150 402 190 364 na na na na
a Includes diamonds, which are not included in the balance of payments item by the ABS. b Includes BREE estimates for steel and nickel, which are retained as confidential by the ABS. c For a description of chain volume measures, see ABS, Introduction of chain volume measures, in the Australian National Accounts, cat. no. 5248.0, Canberra. Reference year is 200910. s BREE estimate. f BREE forecast. na Not available. Sources: BREE; ABARES; Australian Bureau of Statistics, Balance of Payments and International Investment Position, Australia, cat. no. 5302.0, Canberra.
vol 1 no 2
Exports
Unit export returns

Australia
Annual indexes a Energy minerals Metals and other minerals Total mineral resources
200506 226.0 161.9 186.7
200607 206.6 201.5 204.3
200708 235.8 199.8 214.3
200809 398.3 225.8 290.6
200910 258.9 208.9 228.3
201011 s 201112 f 317.1 270.1 288.5 353.5 274.1 304.6
a In Australian dollars. Base: 198990 = 100. s BREE estimate. f BREE forecast. Sources: BREE; ABARES.
116
vol 1 no 2
Exports Exports
3 5
Contribution to exports by sector, balance of payments basis Contribution to exports by sector, balance of payments basis
Australia Australia
Proportion of merchandise exports 201011

other merchandise 14.2% rural a 13.8%
Proportion of exports of goods and services

services 17.0% other merchandise 11.8% rural a 11.5% mineral resources 59.7%
mineral resources 72.0%
200910
other merchandise 16.4%
rural a 15.1%
services 20.5% other merchandise 13.1%
rural a 12% mineral resources 54.4%
mineral resources 68.5%
200809
other merchandise 16.2% mineral resources 69.2% rural a 14.6%
rural a 11.9% mineral resources 56.3%
200708
other merchandise 20.2% mineral resources 63.4%
rural a 16.4%
200607
other merchandise 19.5% mineral resources 62.6%
a Includes farm, forest and sheries products. Sources: Australian Bureau of Statistics; BREE.
rural a 17.9%
vol 1 no 2
Industry gross value
Industry gross value added a, b

Australia
unit 200607 23 139 78 935 7 783 86 446 23 160 9 262 8 400 5 048 18 652 5 673 20 408 19 257 108 703 86 469 26 798 89 888 1 1 201 562 200708 24 743 79 923 8 632 88 193 23 127 9 695 8 071 5 174 19 114 5 926 22 719 19 884 113 062 92 517 26 866 91 668 0 1 246 899 200809 29 109 82 209 8 656 90 507 22 404 8 688 7 457 4 268 17 200 5 890 21 993 18 760 106 363 95 291 27 894 90 826 0 1 263 935 200910 28 764 87 796 8 309 96 104 23 953 7 150 7 736 4 088 17 807 5 783 21 310 19 881 107 707 95 804 28 623 90 334 0 1 293 379 201011 31 443 86 379 9 171 95 548 23 576 6 647 7 567 4 101 17 907 5 608 22 673 19 552 107 633 101 480 28 893 90 986 3 658 1 318 554
Agriculture, forestry and fishing Mining mining (excludes services to mining) exploration and mining support services total Manufacturing food, beverage and tobacco product textile, clothing and other manufacturing wood and paper products printing and recorded media petroleum, coal, chemical, etc, product non-metallic mineral products metal products machinery and equipment total Construction Electricity, gas, water and waste services Taxes less subsidies on products Statistical discrepancy Gross domestic product
$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m
a Chain volume measures, reference year is 200910. b ANZSIC 2006. Source: Australian Bureau of Statistics, Australian National Accounts: National Income, Expenditure and Product, cat. no. 5206.0, Canberra.
118
vol 1 no 2
Production, employment
Volume of production indexes

Australia
200607 Mine a Energy minerals Metals and other minerals Total minerals 118.9 124.3 121.3
200708 116.6 124.8 120.7
200809 122.8 119.6 121.4
200910 126.2 123.5 125.0
201011 s 201112 f 111.9 138.8 125.1 129.1 147.7 138.3
a Uranium is included with energy. s BREE estimate. f BREE forecast. Note: The indexes for the different groups of commodities are calculated on a chained weight basis using Fishers ideal index with a reference year of 199798 = 100. Sources: BREE; ABARES; Australian Bureau of Statistics.
Employment a, b
Australia
200506 000 200607 000 352 27 10 46 53 136 215 51 77 51 92 36 161 342 1 025 8 876 10 388 200708 000 355 26 11 47 62 146 230 50 70 54 98 42 159 360 1 063 9 144 10 708 200809 000 362 35 15 49 72 170 226 48 67 51 90 40 157 348 1 028 9 332 10 892 200910 000 369 41 15 52 66 173 228 46 64 52 88 37 147 343 1 006 9 479 11 027 201011 000 351 48 13 69 75 205 229 45 57 56 85 37 147 336 992 9 806 11 355
Agriculture, forestry and fishing Mining coal oil and gas extraction metal ore other mining (including services) total Manufacturing food, beverages and tobacco textiles, clothing, footwear and leather wood and paper product printing, publishing and recorded media petroleum, coal and chemical product non-metallic mineral product metal product other manufacturing total Other industries Total
348 29 9 42 49 129 205 56 77 52 88 38 161 347 1 025 8 587 10 089
a Average employment over four quarters. b ANZSIC 2006. Caution should be used when using employment statistics at the ANZSIC subdivision and group levels due to estimates that may be subject to sampling variability and standard errors too high for most practical purposes. Source: Australian Bureau of Statistics, Labour Force, Australia, cat. no. 6291.0, Canberra.
vol 1 no 2
Business, banks
Business income
Australia
200607 $m Company profits in selected industries a Mining Manufacturing food, beverages and tobacco textiles, clothing, footwear and leather wood and paper product printing, publishing and recorded media petroleum, coal and chemical product non-metallic mineral product metal product machinery and equipment other manufacturing total Other industries (including services) Total (including services) 40 311 4 532 548 1 085 578 3 859 1 108 10 004 1 640 762 24 116 88 856 153 283
200708 $m 40 184 5 757 501 1 184 620 6 192 1 359 7 924 1 937 851 26 325 99 836 166 345
200809 $m 67 402 6 166 245 667 170 2 159 978 3 781 2 695 637 17 498 73 102 158 002
200910 $m 49 889 8 168 409 615 439 3 676 1 155 2 662 3 383 712 21 219 98 834 169 942
201011 $m 76 563 na na na na na na na na na 20 344 103 016 199 923
a Company profits before income tax, based on ANZSIC 2006. Sources: BREE; Australian Bureau of Statistics, Australian National Accounts: National Income, Expenditure and Product, cat. no. 5206.0, Canberra; Australian Bureau of Statistics, Company Profits, Australia, cat. no. 5651.0, Canberra; Australian Bureau of Statistics, Business Indicators, Australia, cat. no. 5676.0, Canberra; Australian Bureau of Statistics, Australian Industry, cat. no. 8155.0, Canberra.
All banks lending to business a

Australia
200910 Sep $b Agriculture, fishing and forestry Mining Manufacturing Construction Wholesale, retail trade, transport and storage Finance and insurance Other Total 57.9 10.7 41.5 29.9 92.0 131.4 316.3 679.6 Dec $b 58.4 13.9 40.6 29.7 91.9 134.5 311.3 680.4 Mar $b 57.8 14.1 40.8 29.4 91.9 128.7 310.4 673.0 Jun $b 59.1 12.1 39.2 28.2 90.5 133.0 307.3 669.3 Sep $b 58.7 11.3 38.6 28.3 89.3 132.0 306.6 664.7
201011 Dec $b 58.8 11.2 38.2 28.2 92.0 125.0 303.9 657.2 Mar $b 58.6 11.0 40.1 28.7 92.6 121.2 309.0 661.2 Jun $b 60.4 12.1 39.9 28.4 92.5 114.8 307.1 655.2
a Includes variable and fixed interest rate loans outstanding plus bank bills outstanding. Source: Reserve Bank of Australia, Bank Lending to Business Selected Statistics, Bulletin Statistical Table D8.
120
vol 1 no 2
Capital expenditure
Capital expenditure of private enterprises

Australia
200607 $m At current prices Gross fixed capital formation a All sectors New capital expenditure Mining b Manufacturing food, beverages and tobacco textiles, clothing, footwear and leather wood and paper product printing, publishing and recorded media petroleum, coal and chemical product non-metallic mineral product metal product machinery and equipment other manufacturing total Total surveyed industries Chain volume measures c Gross fixed capital formation a All sectors New capital expenditure Mining Manufacturing Other selected industries Total surveyed industries 313 195 25 472 12 657 49 767 88 014
200708 $m
200809 $m
200910 $m
201011 $m
299 101 23 621 2 256 139 759 353 1 767 467 4 761 1 436 58 12 106 87 475
336 357 29 201 2 596 112 928 396 2 126 474 4 137 1 110 164 12 340 96 833
351 112 37 977 2 492 118 897 450 2 239 609 4 608 1 160 108 12 682 113 201
356 034 35 185 2 566 140 719 452 2 207 731 3 689 1 112 126 11 743 107 104
369 879 47 247 2 882 70 610 187 2 320 806 4 017 1 340 111 12 343 119 741
343 308 30 559 13 031 54 907 98 501
348 082 37 648 12 625 60 454 110 682
356 036 35 184 11 744 60 177 107 105
369 298 47 265 12 704 61 983 121 955
a Estimates taken from ABS national accounts, which include taxation-based statistics. b ANZSIC 2006 Division B. c Reference year is 200910. Sources: BREE; ABARES; Australian Bureau of Statistics, Australian National Accounts: National Income, Expenditure and Product, cat. no. 5206.0, Canberra; Australian Bureau of Statistics, Private New Capital Expenditure and Expected Expenditure, Australia, cat. no. 5625.0, Canberra.
vol 1 no 2
Mineral exploration
10
Private mineral exploration expenditure

Australia
200506 $m At current prices Energy Petroleum onshore offshore total Coal Uranium Total Metals and other minerals a Gold Iron ore Base metals, silver and cobalt b Mineral sands Diamonds Other Total expenditure
200607 $m
200708 $m
200809 $m
200910 $m
201011 $m
355.8 906.1 1 261.9 166.4 56.1 1 484.4 399.6 161.3 356.7 29.2 22.6 48.8 2 502.6
498.2 1727.3 2 225.5 193.2 114.1 2 532.8 455.9 285.4 555.0 37.3 26.9 46.8 1 407.3 3 940.1
493.8 2 541.1 3 034.9 234.8 231.5 3 501.2 592.6 449.8 783.2 37.0 21.7 110.8 1 995.1 5 496.3
492.3 3 318.4 3 810.7 297.3 185.2 4 293.2 438.0 588.7 519.1 30.6 10.0 154.3 1 740.7 6 033.9
748.6 2 745.5 3 494.1 321.2 169.1 3 984.4 575.4 524.1 457.2 na na 147.2 1 742.3 5 726.7
756.5 2 558.9 3 315.4 498.6 213.9 4 027.9 652.2 665.0 669.5 na na 196.2 2 217.7 6 245.6
Total metals and other minerals a 1 018.2
a Uranium is included with energy. b Base metals include copper, lead, nickel and zinc. Source: Australian Bureau of Statistics, Mineral and Petroleum Exploration, Australia, cat. no. 8412.0, Canberra.
122
vol 1 no 2
World prices
11
Annual world indicator prices of selected commodities

unit 200607 200708 200809 200910 201011 201112 f
Energy Crude oil Dubai West Texas Intermediate brent world trade weighted average a Uranium (U3O8) b Minerals and metals c Aluminium Copper Gold d Iron ore (negotiated) e Lead Manganese (negotiated) g Nickel Silver Tin Zinc
US$/bbl US$/bbl US$/bbl US$/bbl US$/lb
61.2 63.4 64.0 60.0 81.15 2 692 7 087 639 73 1 693 258.2 37 909 1 274 11 455 3 723
90.4 96.8 95.2 92.2 80.75 2 665 7 791 823 80 2 904 540.9 28 564 1 544 18 529 2 606
68.5 70.3 68.8 67.4 51.25 1 781 4 936 874 145 1 459 1 340.1 13 322 1 289 13 576 1 403
74.2 75.2 74.5 73.4 43.81 2 017 6 634 1 092 97 2 093 544.9 19 390 1 688 16 202 2 066
92.2 89.3 96.0 93.0 57.13 2 379 8 665 1 372 178 2 392 768.0 23 963 2 880 23 960 2 243
106.3 95.4 108.9 108.2 55.98 2 274 8 293 1 761 229 2 133 na 19 940 3 522 20 011 2 031
US$/t US$/t US$/oz USc/dmtu US$/t US$/mtu US$/t USc/oz US$/t US$/t
a World trade weighted average price compiled by the US Department of Energy. Official sales prices or estimated contract terms for major internationally traded crude oils. b Average of weekly restricted spot prices over the period, published by Ux Consulting. c Average LME spot price unless otherwise stated. d London gold fix, London Bullion Market Association. e Australian hematite fines to Japan (fob) for Japanese Fiscal Year commencing 1 April. BREE Australia Japan average contract price assessment. g Japanese Fiscal Year commencing 1 April. f BREE forecast. na Not available. Sources: BREE; Australian Bureau of Statistics; International Energy Agency; ISTA Mielke and Co.; London Bullion Market Association; The London Metal Exchange Ltd; Reuters Ltd; Ux Consulting Company; Platts Oilgram; US Department of Energy; World Bureau of Metal Statistics.
vol 1 no 2
World
12
World production, consumption, stocks and trade for selected commodities a

unit 2007 2008 2009 2010 2011 f 2012 f
Energy Crude oil Production world b OPEC c Consumption b Coal Production hard coal d brown coal Exports metallurgical coal thermal coal Uranium (U3O8) Production es Consumption Metals Bauxite production Alumina production Aluminium production consumption closing stocks g Iron and steel Production iron ore h pig iron crude steel Iron ore trade Gold Mine production Supply Fabrication consumption i
mbd mbd mbd
85.7 34.9 86.5
86.5 35.8 86.2
85.6 34.1 85.6
87.5 34.8 88.3
88.8 36.0 89.2
90.5 36.6 90.5
Mt Mt Mt Mt
5 306 954 227 696
5 653 965 234 704
5 842 913 220 721
6 020 930 273 794
6 225 935 272 817
6 443 954 295 852
kt kt
48.6 77.7
53.5 76.2
53.3 77.2
55.7 82.0
58.3 84.6
65.1 79.4
kt kt kt kt kt
209 014 74 120 38 186 37 409 2 961
217 469 77 564 39 669 36 904 4 709
193 038 73 667 37 198 34 764 6 485
203 460 81 023 41 093 39 661 6 501
257 978 87 450 43 049 41 217 8 334
275 825 93 500 46 391 42 827 11 897
Mt Mt Mt Mt t t t
1 699 946 1 344 830 2 476 3 942 3 102
1 693 927 1 330 897 2 408 3 959 3 023
1 588 900 1 220 948 2 589 4 318 2 511
1 815 1 020 1 415 1 055 2 689 4 261 2 779
2 131 1 132 1 502 1 093 2 763 4 052 2 845
2 231 1 206 1 594 1 172 2 850 4 101 2 971

Continued
124
vol 1 no 2
World
12
World production, consumption, stocks and trade for selected commodities a

continued
unit Base metals Copper production j consumption closing stocks Lead production j consumption closing stocks Nickel production j consumption closing stocks Tin production j consumption closing stocks Zinc production j consumption closing stocks Mineral sands Production ilmenite k titaniferous slag rutile concentrate zircon concentrate
2007
2008
2009
2010
2011 f
2012 f
kt kt kt kt kt kt kt kt kt kt kt kt kt kt kt
18 040 18 141 682 8 331 8 383 268 1 419 1 326 125 349 357 35 11 345 11 272 638
18 497 18 138 845 9 055 9 045 307 1 382 1 278 155 332 337 32 11 768 11 570 820
18 605 18 153 1 125 9 024 8 966 390 1 322 1 241 234 333 322 46 11 286 10 874 1 217
19 222 19 204 1 017 9 627 9 586 447 1 446 1 464 213 352 368 16 12 825 12 543 1 562
19 475 19 270 1 222 10 335 10 147 635 1 580 1 557 236 369 375 5 13 163 12 846 1 879
20 136 20 041 1 317 10 653 10 556 732 1 709 1 642 304 369 375 45 13 480 13 345 2 014
kt kt kt kt
12 117 2 670 610 1 367
11 422 2 695 615 1 282
9 881 2 247 572 1 067
11 470 2 749 708 1 338
11 310 2 545 679 1 442
11 614 2 610 639 1 376
a Some figures are not based on precise or complete analyses. b 1 million litres (1 megalitre) a year equals about 17.2 barrels a day. c Includes OPEC natural gas liquids. d Includes anthracite and bituminous coal, and for the United States, Australia and New Zealand, sub-bituminous coal. e World production data have been revised to exclude reprocessed uranium. g LME and producer stocks. h Chinas iron ore production adjusted to world average. i Includes jewellery consumption. j Primary refined metal. k Excludes some small producers and large tonnages produced from ilmenitemagnetite ore in the Commonwealth of Independent States. s BREE estimate. f BREE forecast. na Not available. Sources: BREE; ABARES; Australian Bureau of Statistics; Consolidated Gold Fields; Economic Commission for Europe; Gold Fields Mineral Services; International Atomic Energy Agency; International Energy Agency; International Iron and Steel Institute; International LeadZinc Study Group; International Nickel Study Group; ISTA Mielke and Co.; Metallgesellschaft A.G.; UNCTAD Trust Fund on Iron Ore; United Nations; World Bureau of Metal Statistics.
vol 1 no 2
Australia production
13
Commodity production
Australia
unit 200607 200708 200809 200910 201011 201112 f
Energy Coal black, saleable black, raw brown Petroleum crude oil and condensate petroleum products a Gas b LPG (naturally occurring) Uranium (U3O8) Metalliferous minerals and metals Aluminium bauxite alumina aluminium (ingot metal) Copper mine production d refined, primary Gold mine production d Iron and steel ore and concentrate e iron and steel Lead mine production d refined g bullion Manganese ore, metallurgical grade metal content of ore Nickel h mine production d refined, class I s refined, class II i total ore processed j
Mt Mt Mt ML ML Gm3 ML t
325.4 417.0 65.6 27 651 k 43 652 40.8 4 550 9 589
326.2 422.8 66.0 25 610 k 44 086 41.7 3 971 10 123
339.6 446.2 68.3 26 407 k 44 111 44.5 3 930 10 311
365.9 471.1 68.8 25 583 k 41 892 49.0 4 097 7 109
327.5 s 406.0 s na 24 793 k 43 141 53.4 3 907 7 069
376.9 483.9 na 25 340 43 129 56.5 4 145 7 930
Mt kt kt kt kt t Mt Mt kt kt kt kt kt kt kt kt kt
62.7 18 506 1 954 859 435 250.8 287.7 8.0 642 191 114 5 046 2 037 191 104 15 225
63.5 19 359 1 964 847 444 229.7 324.7 8.2 641 203 152 5 428 2 188 190 105 15 222
64.1 19 597 1 974 890 499 217.9 353.2 5.6 596 213 155 3 730 1 504 185 95 15 213
67.8 20 057 1 920 819 395 239.7 423.4 6.9 617 189 148 5 795 2 365 160 114 6 200
68.5 19 544 1 937 952 485 265.1 450.0 7.3 697 190 133 6 784 2 756 194 90 10 234
69.4 20 361 1 979 1 053 498 273.5 489.2 5.7 714 201 161 7 075 2 882 221 115 15 261
Continued
126
vol 1 no 2
Australia production
13
Commodity production
Australia
unit
continued
200607
200708
200809
200910
201011
201112 f
Metalliferous minerals and metals (continued) Silver mine production d t refined t Tin mine production d t refined t Titanium ilmenite concentrate s kt kt leucoxene concentrate s kt rutile concentrate s synthetic rutile s kt titanium dioxide pigment s kt Zinc mine production d kt refined kt kt Zircon concentrate s Other minerals Diamonds Salt 000 ct kt
1 674 618 2 061 321 2 383 169 279 729 207 1 375 496 564 24 632 11 229
1 867 605 1 767 na 2 205 153 332 672 201 1 571 507 563 16 528 9 826
1 764 751 4 045 na 1 932 117 285 732 214 1 411 506 485 15 169 11 314
1 809 701 19 829 na 1 394 123 361 553 222 1 362 515 408 11 138 11 772
1 792 712 18 410 s na 1 202 200 458 542 204 1 479 499 674 8 027 12 025 s
1 913 883 9 202 na 1 233 228 315 568 204 1 584 523 589 10 855 11 862
a Includes production from petrochemical plants. b Includes ethane, methane and coal seam gas. c Uranium is included with energy. d Primary production, metal content. e Excludes iron oxide not intended for metal extraction. g Includes lead content of lead alloys from primary sources. h Products with a nickel content of 99 per cent or more. Includes electrolytic nickel, pellets, briquettes and powder. i Products with a nickel content of less than 99 per cent. Includes ferronickel, nickel oxides and oxide sinter. j Includes imported ore for further processing. k Energy Quest. s BREE estimate. f BREE forecast. Sources: BREE; ABARES; Australian Bureau of Statistics; Consolidated Gold Fields; Coal Services Pty Limited; Department of Resources, Energy and Tourism; Energy Quest; International Nickel Study Group; Queensland Government, Department of Natural Resources and Mines.
vol 1 no 2
Export volumes
14
Volume of commodity exports

Australia
unit 200607 200708 200809 200910 201011 201112 f
Mineral resources Energy Crude oil a LPG LNG bs Bunker fuel c Petroleum products Metallurgical coal Thermal coal Uranium (U3O8)
ML ML Mt ML ML Mt Mt t
15 965 2 824 14 2 156 1 752 132 112 9 519
15 975 2 589 14 2 169 1 807 137 115 10 139
16 588 2 500 15 2 217 1 164 125 136 10 114
18 064 2 776 18 2 285 850 157 135 7 555 s
19 636 2 471 20 2 282 760 140 143 6 950 s
20 806 2 553 20 2 313 914 150 163 7 930
Metalliferous minerals and metals d Aluminium alumina kt aluminium (ingot metal) kt Copper kt ore and concentrate e refined kt t Gold g Iron and steel iron ore and pellets Mt kt iron and steel h Lead ores and concentrates kt refined kt bullion kt Manganese e kt kt Nickel gs Titanium kt ilmenite concentrate i leucoxene concentrate kt rutile concentrate kt synthetic rutile s kt titanium dioxide pigment kt Refined silver t t Tin g Zinc kt ores and concentrates e refined kt Zircon concentrate j kt Other minerals Diamonds Salt 000 ct kt
15 056 1 638 1 493 290 400 257 2 648 422 215 112 4 667 207 999 123 307 508 171 431 1 867 1 948 374 555 24 632 10 749
15 739 1 650 1 694 296 382 294 2 131 308 193 169 5 105 211 894 56 399 513 175 335 3 079 2 323 411 637 16 528 10 686
16 395 1 748 1 797 361 437 324 1 741 381 261 147 3 226 194 1 538 20 550 512 141 423 4 159 2 101 451 685 16 279 10 978
16 653 1 624 1 928 271 335 390 1 549 491 186 151 5 648 221 1 763 18 575 513 181 420 6 031 2 271 425 748 10 355 11 185
16 227 1 686 1 751 375 301 407 1 785 493 213 93 6 190 210 1 804 27 491 517 195 198 5 431 2 327 410 963 9 900 11 162
16 799 1 741 2 052 381 336 460 1 179 440 226 159 7 095 233 1 833 31 323 545 204 600 5 696 2 325 451 887 10 855 11 243
a Includes condensate and other refinery feedstock. b 1 million tonnes of LNG equals aprroximately1.31 billion cubic metres of gas. c International ships and aircraft stores. d Uranium is included with energy. e Quantities refer to gross weight of all ores and concentrates. g Quantities refer to total metallic content of all ores, concentrates, intermediate products and refined metal. h Includes all steel items in ABS, Australian Harmonized Export Commodity Classification, ch. 72, Iron and steel, excluding ferrous waste and scrap and ferroalloys. i Excludes leucoxene and synthetic rutile. j Data from 199192 refer to standard grade zircon only. s BREE estimate. f BREE forecast. Sources: BREE; ABARES; Australian Bureau of Statistics, International Trade, Australia, cat. no. 5465.0, Canberra; Australian Mining Industry Council; Department of Foreign Affairs and Trade; Department of Resources, Energy and Tourism; International Nickel Study Group.
128
vol 1 no 2
Export values
15
Value of commodity exports (fob)

Australia
200607 $m Mineral resources Energy Crude oil a LPG LNG Bunker fuel b Other petroleum products Metallurgical coal Thermal coal Uranium (U3O8) Total derived as sum of above on balance of payments basis (excl. bunker fuel) Metalliferous minerals and metals Aluminium bauxite s alumina aluminium (ingot metal) Copper c ore and concentrate refined Gold c Iron and steel iron ore and pellets iron and steel Lead c ores and concentrates refined bullion Manganese ore s Titanium ilmenite concentrate d leucoxene concentrate rutile concentrate synthetic rutile s titanium dioxide pigment Nickel s
200708 $m
200809 $m
200910 $m
201011 $m
201112 f $m
8 317 1 038 5 222 1 295 1 098 15 039 6 758 660 39 427 37 569
10 484 1 182 5 854 1 457 1 323 16 038 8 365 887 45 591 43 492
8 757 1 044 10 079 1 537 788 36 813 17 885 990 77 892 75 660
9 534 1 105 7 789 1 315 566 24 526 11 886 757 s 57 478 55 741
11 772 1 068 10 437 1 508 526 29 796 13 956 610 s 69 673 67 721
14 214 1 246 11 978 1 794 679 33 595 18 760 791 83 056 80 936
108 6 243 5 650 3 914 2 612 10 320 15 512 1 743 855 457 268 482 113 35 259 361 408 7 912
206 5 809 4 967 4 151 2 579 10 903 20 511 1 562 757 674 595 1 532 104 15 277 305 375 5 412
192 6 015 4 724 3 618 2 245 16 146 34 239 1 363 645 560 432 1 406 171 12 335 258 396 2 717
178 4 969 3 838 4 526 1 980 12 996 34 515 1 120 998 425 409 1 395 197 11 382 269 448 3 875
229 5 218 4 178 5 124 3 292 13 014 54 197 1 303 1 300 511 248 1 407 198 17 390 315 527 4 097
244 6 156 4 029 5 487 3 166 18 874 60 412 879 981 489 384 1 466 202 22 217 299 607 3 748
Continued
vol 1 no 2
Export values
15
Value of commodity exports (fob)

Australia
continued
200607 $m Mineral resources (continued) Metalliferous minerals and metals (continued) Refined silver 221 25 Tin c Zinc c ores and concentrates 2 590 refined 1 707 478 Zircon concentrate e Total Other minerals Diamonds s Salt Other Total mineral resources exports Total commodity exports Derived as sum of above On balance of payments g 62 273 726 239 4 850 107 515 139 263 136 619
200708 $m
200809 $m
200910 $m
201011 $m
201112 f $m
187 42 2 031 1 319 421 64 737 625 232 6 177 117 362 148 702 145 875
245 70 935 923 540 78 188 676 237 4 803 161 796 197 701 194 176
254 101 1 237 977 370 75 472 471 247 5 800 139 468 171 551 168 630
164 126 1 482 893 532 98 760 366 251 10 183 179 233 215 312 211 815
534 117 1 239 905 408 110 862 410 253 11 249 205 830 243 842 240 257
a Includes condensate and other refinery feedstock. b International ships and aircraft stores. c Value of metals contained in host mine and smelter products are not available separately and are included in the value of the mineral product or metal in which they are exported. d Excludes leucoxene and synthetic rutile; data from 199192 refer to bulk ilmenite only. e Data refer to standard grade zircon only. g As derived in table 1. s BREE estimate. f BREE forecast. Sources: BREE; ABARES; Australian Bureau of Statistics, International Trade, Australia, cat. no. 5465.0, Canberra; Department of Resources, Energy and Tourism.
130
vol 1 no 2
Import values
16
Value of selected commodity imports

Australia
200607 $m Mineral and energy resources aluminium (ingot metal) diamonds ferroalloys gold (refined and unrefined) ingot steel iron ore petroleum crude oil a natural gas petroleum products b phosphate rock phosphates silver other Total mineral and energy resources 11 397 116 5 309 2 479 338 13 360 800 7 784 32 267 98 707 31 698
200708 $m 10 444 154 7 311 2 225 311 17 149 724 12 730 80 778 80 483 42 479
200809 $m 10 417 181 11 250 3 191 269 14 727 2 166 13 129 193 549 223 794 47 098
200910 $m 27 442 118 7 739 1 889 259 15 031 1 219 11 296 10 347 107 1 183 39 666
201011 $m 18 397 127 5 426 2 121 417 19 572 1 929 12 058 57 628 490 859 44 099
a Includes condensate and other refinery feedstock. b Includes LPG. Sources: BREE; Australian Bureau of Statistics, International Trade, Australia, cat. no. 5465.0, Canberra.
vol 1 no 2
BREE contacts
Executive Director / Chief Economist BREE Quentin Grafton General Manager Jane Melanie Micro & Industry Performance Analysis Theme Leader Macro & Markets Analysis Theme Leader Resources Program Program Leader Alan Copeland alan.copeland@bree.gov.au (02) 6243 7501 Jin Liu jin.liu@bree.gov.au (02) 6243 7513 Arif Syed arif.syed@bree.gov.au (02) 6243 7504 jane.melanie@bree.gov.au (02) 6243 7502 quentin.grafton@bree.gov.au (02) 6243 7483
Quantitative Economic Analysis Theme Leader Energy Program Program Leader Data & Statistics Program Program Leader Geoff Armitage geoff.armitage@bree.gov.au (02) 6243 7510 Allison Ball allison.ball@bree.gov.au (02) 6243 7500 Nhu Che nhu.che@bree.gov.au (02) 6243 7539
Resources and Energy Quarterly, December Quarter 2011

was designed and produced by the staff of BREE Data & Statistics Program and the Department of Resources, Energy and Tourism.
132
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Resources and Energy Quarterly

December Quarter 2011

December quarter 2011

Resources and Energy Quarterly

BREE 2011, Resources and Energy Quarterly. Commonwealth of Australia 2011

Resources and Energy Quarterly

December quarter 2011 3

4 Resources and Energy Quarterly

December quarter 2011

Acronyms and abbreviations

Resources and Energy Quarterly

December quarter 2011 5

Macroeconomic outlook and energy and minerals overview

The global economy: slowing growth and rising risks

6 Resources and Energy Quarterly

December quarter 2011

Source: ABARES, BREE

Economic prospects in Australias major export markets

Resources and Energy Quarterly

December quarter 2011 7

8 Resources and Energy Quarterly

December quarter 2011

Key macroeconomic assumptions

Resources and Energy Quarterly

December quarter 2011 9

Demand for mining commodities

Supply for mining commodities

Australias economic prospects

10 Resources and Energy Quarterly

December quarter 2011

Key macroeconomic assumptions for Australia

Economic growth Inflation Australian exchange rates US$/A$ TWI for A$ b

a BREE assumption. b Base: May 1970 = 100.

The Australian mining industry

Resources and Energy Quarterly

December quarter 2011 11

12 Resources and Energy Quarterly

December quarter 2011

Employment in the Australian mining industry, 199091 to 201011

Oil and gas extraction

Other mining (including services)

Resources and Energy Quarterly

December quarter 2011 13

Metal price index, quarterly

Bulk commodity price index, quarterly

Australian mine production and exports

14 Resources and Energy Quarterly

December quarter 2011

Resources and Energy Quarterly

December quarter 2011 15

Australian energy and mineral export earnings, 198990 to 201112

Sources: BREE; ABS.

Australia energy and minerals exports, by selected commodities

16 Resources and Energy Quarterly

December quarter 2011

Major indicators of Australias minerals and energy sector

US$/A$ index index index

0.78 100.0 100.0 100.0

0.90 104.9 114.2 99.2

0.75 142.2 192.8 112.1

0.88 111.7 125.3 103.7

0.99 141.2 153.5 134.0

A$m A$m A$m A$m