Australia's bulk commodity explosion

Australia's transition from mining infrastructure investment boom to export boom is already happening given the big increase in bulk commodity exports in Q4.

While infrastructure expansion should continue to pay dividends in iron ore in particular, in some ways the current growth is reflective of an era now gone, with miners now much more focussed on prudent spending regardless on the path of commodity prices.

January's exports of iron ore will inevitably be weaker given a dip in port hedland shipments of 15%MoM.  This would but exports back on par with levels seen in November, which is much higher than January 2011.

Coal exports have picked up too, with thermal coal in particularly being shipped at a blistering pace.  A sharp fall in prices have done nothing to stunt growth yet, with met coal shipments also finally picking up towards 2010 levels.

A major part of the supply increase is going to China, which for producers is not ideal.  For both thermal and met coal, you would much rather be sending your product elsewhere as you are likely to get a premium for quality.  Prices for both coals were at their strongest when supply to China was weakest, and vise versa.

The level of shipments to China of met coal in particular is very high. Its interesting that the level of Australian exports is not far off 2010 levels and  crude steel production in major met coal importers ex-China is about the same as 2010 too.  This highlights not only how supply from elsewhere has filled the gap, but given the difference in quality of supply from other countries also highlights the increased willingness of steelmakers to sacrifice efficiency of premium met coals in the blend.

The trade off of efficiency vs. security of supply should shift at prices at these levels. But perhaps steel makers are conscious of how quickly availability could swing the other way, which would be unwelcome given steel demand is pretty slow.

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