Australia's earnings from resources and energy exports are expected to rise 25 per cent in 2016-17, with rising demand for LNG and lithium forecast to boost WA's mining and energy sectors.
The Resources and Energy Quarterly – June Quarter 2017 report released on Friday by the federal Department of Industry, Innovation and Science takes a comprehensive look at Australia's mining and energy output and forecasts earnings of $205 billion, up a quarter compared to the previous year.
This rise in earnings is being largely driven by increased output by steel mills in China, sucking in more iron ore and metallurgical coal, driving steel making commodity prices higher in the period.
The report also said partially-reversed restrictions placed on coal mining operations in China have also boosted metallurgical coal prices.
But the Department's Chief Economist Mark Cully warned the higher prices are not expected to last over the next two years.
"Global resource and energy commodity demand growth — particularly for steel making commodities — is expected to slow in the next two years, driven largely by a slowdown in infrastructure spending and construction activity in China," he said.
"Lower demand growth is expected to adversely affect iron ore and metallurgical coal prices."
The report said moderating global demand growth and growing low-cost supply is pushing down resource and energy commodity prices, with iron ore prices declining noticeably.
There are some bright spots for Western Australia's resources sector, with the volume of exports forecast to continue to grow robustly, with LNG as the biggest driver of growth as major projects like Chevron's Wheatstone LNG project come online in the state's north.
Over the next two years, LNG is forecast to add $14 billion to Australia's resources and energy exports, while declining coal and iron ore prices are expected to detract $11 billion and $9.8 billion from export earnings, respectively.
Overall resource and energy export earnings are forecast to decline marginally in 2017–18 and 2018–19.
The quarterly report also focused on battery component commodities, with that sector identified as a key growth area for Australia's resources sector.
WA has the world's biggest lithium deposit at Greenbushes in the South West, and the report said the industry is well positioned to capitalise on growth in demand.
Beyond the 2016-17 period, the report forecasts that overall Australia's resources earnings could decline marginally in 2017–18 to $202 billion, and decline to $200 billion in 2018–19.