Australian resources sector, economy contracts in 2020

Australia's resources industry contracted last year for the first time since 2003 despite a further expansion in iron ore, as the impact of the Covid-19 pandemic affected coal mining and the oil and gas sector. This contributed to the first annual contraction in the Australian economy since 1991.

The Australian resources sector shrank by 0.9pc in 2020 compared with an expansion of 5.7pc in 2019, The 3.25pc contraction in the combined thermal and coking coal sector last year was the main contributor, according to the Australian national accounts, including gross domestic product (GDP), for the October-December quarter published by the Australian Bureau of Statistics (ABS).

The contraction ended 16 years on economic expansion of Australia's resources sector, which has expanded with demand for energy and mineral bulk commodities from China.

But its share of the Australian economy increased to 10.36pc last year from an average of 10.11pc in 2019. It represented the highest economic share since the ABS started compiling sub-resource sector data since 1974.

The total Australian economy shrank by 0.2pc in 2020 from a rise of 2.2pc in 2019. This was the first decline since 1991 when it contracted by 0.9pc. But Australia's economy has risen above 3pc in July-September and October-December, underlining a firm economy recovery from the widespread Covid-19 lockdowns during April-June.

The resources sector has now gone five quarters without expansion, largely because of four consecutive fall in the economic value of the combined coal sector.

The economic contribution of the Australian coal mining sector fell last year as bad weather caused the temporary closure of mines and disrupted coal production. Global industrial shutdowns in response to the Covid-19 pandemic led to an overall reduced demand for coal, the ABS said.

Australian thermal coal exports dropped to a four-year low in 2020, partly because of Beijing's restrictions on coal imports from Australia. Combined exports of hard, pulverised coal injection grade and semi-soft coking coal from Australia in 2020 dropped to a seven-year low.

But Australian iron ore exports rose to another record high last year, fuelled by firm demand for steel production from China and supply disruptions in Brazil.

The iron ore sector also underpinned a rise to a three-year high in capital expenditure in Australia's resources sector last year.

By Kevin Morrison