2018 CCF Victorian Infrastructure Outlook Report 1 | Page 12

2018 Victoria Infrastructure Report
Outlook for Commodity Prices
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Commodity prices have generally strengthened
over the past 12 months, however medium term
uncertainties still linger.
Bulk commodity (coking coal and iron ore) prices
rebounded in 2016/17 but are likely to fall over the next
two years as demand for steel making raw materials
from China slows due to deceleration in the pace of
urbanisation. A sustained recovery is forecast from early
next decade as global growth builds momentum against
constrained supply, and as the path of development in
emerging economies becomes more steel intensive.
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Prices are set to consolidate in the near term
for most commodities, but rise in the medium to longer
term.
In the past year, commodity prices have risen on the
back of supply side disruptions (particularly in the case
of metallurgical coal) and rising demand. The unwinding
of disruptions has seen bulk commodity prices ease back
more recently, which may yet dilute the positive impact of
higher prices on exploration and investment.
Overall, however, prices for most commodities are
forecast to move higher through the forecast period, with
the sustainability of increases providing signals for new
investment.
In US dollar terms, the prices for several key commodities
edged higher driven by supply side concerns and policy
changes in China and we anticipate further minor
contractions in these prices in the short term. After
recording strong gains from supply side concerns, coking
coal prices are forecast to fall over the next two years
driven by both increased coking coal production in China
and a return to average (normal) production levels in
Australia. Within iron ore, supply growth from the three
main Australian producers (Rio Tinto, BHP and Fortescue,
and other smaller producers such as Roy Hill) – plus large
additions to capacity by Brazil’s Vale, will weigh down on
prices around or below US$50/tonne over the next three
years, before rising demand sees a recovery in prices.
Figure 1.2 Commodity Prices (A$)
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