Resources lead export prices higher

Recent data from the Australian Bureau of Statistics has revealed the significant role the state’s resources sector plays in supporting Australia’s economic activity.

On a national level, there was a sizable 6.6 per cent increase in non-rural exports during the December quarter, making it the first quarter in 18 months to have experienced a lift in export prices.

Export prices for iron ore and coal rose by 9.7 per cent and 11.6 per cent, respectively, during the past quarter, while the gas sector experienced a 3.2 per cent price boost and gold recorded a 2.9 per cent increase.

The growth in export prices has been driven by a combination of factors and emphasises the complexity of economic forces in our interconnected world.

The surge in iron ore prices stemmed from heightened industrial demand from China, prompting increased steel production and restocking, with supply disruptions in Australia placing further upward pressure on prices.

The increase in gas prices over the December quarter was driven by rising oil prices during the previous September 2023 quarter, which flowed into oil-lagged contracts and drove up the overall export price index.

The price hikes in gold are linked to central banks anticipating some reductions in cash rates in response to prospects of easing price inflation over the next year, with investors turning to gold amid decreasing interest in other interest-bearing investments.

And Australia’s resources sector – especially here in WA – has again leveraged its capabilities in mining and mineral resources to capitalise on this demand.

Mining turnover, a key indicator of industry performance, rose 4.9 per cent in November, maintaining its upward trajectory for the fourth consecutive month.

The experience of the agricultural sector has been far more challenging, with rural export prices down 18.4 per cent over the past year.

Prices for live animal exports have dropped by 7.8 per cent in the past quarter, with dairy products and eggs also down 14.8 per cent.

The lower value of agriculture exports stems from elevated global milk production, particularly from the US and China, along with weakening global demand for these products.

The decline in meat and dairy exports raises concerns about the profitability of the industry and creates concerns for local businesses and regional communities that rely on agriculture.

Australian states and territories need to adopt a strategic approach to navigating this economic landscape.

We know that a high concentration of economic activity in a small number of industry sectors heightens our vulnerability to fluctuations in commodity prices, global demand, market disruptions, and external shocks specific to those sectors.

Diversification offers a strategic shield against such risks.

By spreading economic activities across multiple sectors, WA can mitigate the impact of downturns in any particular industry and be less vulnerable to such price volatilities.

While the resources sector continues to power Australia’s economic engine, local businesses face divergent trajectories.

Navigating these complexities requires a nuanced and adaptable approach to diversify the economy, leverage opportunities and mitigate risks, ensuring a more sustainable and equitable economic future.

• Dr Panos Sotirakopoulos is a research fellow with Bankwest Curtin Economics Centre