India will account for a significantly larger share of world commodity demand by 2029, though Chinese demand will likely continue to shape commodity markets over the next 5 years, the Australian Office of the Chief Economist (AOCE) has said.

“... Indian economic growth is currently the strongest in the world, and its growing manufacturing base, strong infrastructure spending and demographics, all suggest rising per capita consumption of resource and energy commodities,” it said in ‘Resources and Energy Quarterly’ released on Thursday.

In China, strong investment in infrastructure and manufacturing capacity has helped resource and energy commodity demand in the face of weak demand from the residential property sector, the AOCE said. 

Global economic growth soft

“World economic growth remains soft, weighed down by relatively tight financial conditions. However, key markets have continued to support commodity demand. US economic growth has been robust despite interest rate hikes in the past 2 years,” the quarterly said.  

Global energy transition will be a key factor in resource and energy commodities over the outlook period to 2029. “While the transition will see increased demand for commodities used in low emission technologies (for example, iron ore, aluminium, copper, nickel and lithium), it will reduce demand for other commodities (such as some fossil fuels),” it said. 

The continuing evolution of technologies during the energy transition increases the challenge of forecasting future demand, supply and prices. “The decarbonisation of steel/aluminium production and supply chains will affect growth and trade patterns over the outlook period to 2029,” the AOCE said. 

Weak outlook for nickel, lithium

Overcoming the substantial technological, energy and feedstock challenges required to achieve this transformation will take both time and substantial capital investment. There are already many pilot steel plants under construction around the world, especially hydrogen-based DRI operations, most of which are expected to begin over the next two years, it said. 

Aluminium producers are increasingly resorting to renewable power to reduce their emissions, and this trend will accelerate over the outlook period. “This will include the use of green hydrogen,” the ‘Resources and Energy Quarterly’ (REQ) said. 

The AOCE said a relatively weak price outlook has contributed to announced closures and production cuts by a number of key nickel and lithium producing nations (including Australia). It has added to existing supply chain uncertainties associated with Western nations’ policy measures to secure future supply. 

Prices of lithium and nickel reached high levels in 2022 and H1 2023. “Combined with strong supply growth since 2020, softer-than-expected (cyclical and structural) demand for both metals has since seen market surpluses develop. Since the last REQ, rising inventories have seen the prices of lithium and nickel hit 5-year lows,” it said.  

Aus export earnings to fall

Some high-cost nickel producers may exit the market permanently. “However, nickel’s use in a widening array of materials and technologies means a tightening global balance and improved prices in the latter half of the outlook period,” said the AOCE. 

Lithium remains a central component of batteries used in numerous technologies. Australian lithium exports are likely to remain substantial, with most lithium producers in Australia likely to remain globally competitive, the REQ said. 

For the 2024-25 financial year (July-June), Australian resource and energy export earnings are forecast to fall further to around $369 billion, reflecting further bulk commodity price declines and a rise in the AUD/USD.

Through the rest of the outlook period (to 2029), export values are expected to level out as commodity price declines slow and the AUD/USD lifts modestly, it said.

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