Australia, the world’s largest exporter of commodities including iron ore and coking coal, painted a bullish picture for energy commodities next year on the back of strong demand from emerging economies such as India and China.

“Demand for all commodities is forecast to increase in 2011, albeit at a slower pace than in 2010,” said the Australian Bureau of Agricultural and Resource Economics and Sciences in its closely watched quarterly report published on Tuesday.

For iron ore, a crucial input for the production of daily-use goods from cars to buildings to bicycles, Abares predicted a modest 7 per cent drop in prices year-on-year in the 12 months beginning April 2011. It forecasts contract prices to average around US$123 a tonne – a more bullish view than many analysts’ expectations, which bodes well for large iron ore miners including Rio Tinto, BHP Billiton and Vale of Brazil.

“Recently completed projects in Australia are expected to increase seaborne supply, which, in combination with weaker growth in demand from steel producers in Asia, is forecast to place downward pressure on iron ore prices,” said Abares.

Slowing steel consumption is a key factor behind falling iron ore prices. “Growth in demand is forecast to be slower in 2011 than in 2010, as the effects of government stimulus are reduced,” the report warned.

The pace of expansion in global steel consumption will slow to 6 per cent in 2011 from 11 per cent this year, according to Abares. The cooling down will be led by China, where steel consumption is expected to grow by just 5 per cent next year after 9 per cent growth in the current year.

Thermal coal prices will rise on the back of strong demand from China and India, the report concluded.

Abares projects that China’s thermal coal imports will reach 120m tonnes in calendar 2010 and 125m tonnes next year, while India’s coal imports will leap to 77m tonnes in 2011 – a 28 per cent rise from this year.

“Increased demand for thermal coal, combined with forecast higher oil and gas prices in 2011, is expected to result in Newcastle spot prices averaging marginally higher at around US$100 a tonne in 2011,” the report predicted. Spot prices of coal in the Australian port of Newcastle recently crossed the US$110 per tonne threshold, after languishing below $100 for most of the last two years.

Demand for oil will also remain strong, with prices averaging $82 a barrel next year, according to Abares.

Since Abares’ last report in September, the bureau has lowered the expected value of Australia’s commodity exports by A$3.8bn to A$211bn for the 12-month period to the end of June.

However, the reduced figure would still represent a record year for Australian exports and is 23 per cent above the 2009-10 amount.

The downgrade is partly the result of flooding in Australia’s eastern states, which has hit farmers during harvest season.

Export earnings for farm commodities are forecast to be A$30.2bn in 2010–11, down A$1.2bn from the previous quarterly report, but still ahead of 2009-10’s A$28.5bn.

The forecast for mineral resources exports has been cut by A$2.5bn, due to a reduction in forecast growth in iron ore, gold and metallurgical coal exports, partly offset by a higher estimate for copper.

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