Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 453

Australia’s bounty: is it just diversified luck?

Aside from fuelling global inflation, rising commodities prices are particularly good for commodities exporters like Australia. Last week’s Federal Budget was little more than a vote-buying cash splash, funded by unexpected windfall mining royalties and taxes.

The rise in commodities prices over the past two years has been a combination of increasing global demand as the world recovers from Covid lockdown recessions, and also favourable supply restrictions, especially in the case of our two largest export earners – iron ore and coal, and now gas with the Russia-Ukraine war. China has been extending its restrictions on its imports from Australia since the trade war began in 2018 and especially over the past year, but these have mostly been picked up by other buyers across Asia.

Post-settlement Australia has always relied on raw commodities exports to raise the foreign exchange needed to import everything we need for our daily lives. Unlike most ‘banana republics’, Australia has been blessed with a host of different types of commodities – from the land, the earth beneath the land, and the sea. Here is our updated chart of Australia’s export mix over the past two centuries. It is a remarkable story of dramatic shifts in our export mix over time – starting with oil (from whales and seals!), to crops, wool, then gold and base metals in the 19th century, back to pastoral, wool and crops for most of the 20th century, then the rise of East Asia built with our coal, iron ore and base metals after WW2, and back to oil and gas. This illustrates not only our vast diversity of resources, but also the ability to adapt and prosper from changing global economic and political conditions.

The second chart shows the changing mix between rural and mining exports. Rural has dominated for most of the whole period, with the notable exception being the 1850s gold rush. The turning point was 1960. At the time, wool made up 50% of total export revenues, but the lifting of the iron export embargo in 1960 diversified the export base and dramatically reduced Australia’s vulnerability to the vagaries of the weather. Mining finally overtook rural in the mid-1980s and has dominated ever since. Australia may have got rich riding the sheep’s back, but it is a far more diversified and robust export mix now.

Australia’s commodities export revenues

The next chart shows monthly export revenues from the three ‘big ones’ (iron ore, coal and oil/gas) since 2000. Iron ore prices and revenues had an extraordinary spike after the Vale mine closures at the start of 2019. The Covid restrictions catapulted Australia to overtake Brazil as the world’s largest iron ore exporter, and also overtake South Africa as the world’s largest exporter of coal. While China’s restrictions have hit coal and agricultural exports, and now iron ore, it has not all been bad news. Despite rising Canberra-Beijing tensions, China has now overtaken Japan as our largest LNG buyer.

How long will the commodities boom last?

In the case of most commodities, the current price spikes are probably temporary. Most of the spikes are due mainly to supply constraints with a range of causes, from Covid lockdowns, unrelated disasters (like mine tailings dam collapses), trade war restrictions, a host of unrelated weather events, and now the Russia-Ukraine war. In time these supply constraints will ease.

The global shift to renewables has also led to elevated prices of old fossil fuels for probably longer than anticipated.

The bigger picture is that price rises always trigger increased investment in new sources of supply and in alternatives. New developments always take time, stretching from a few months to many years in some cases. The history of commodities prices is riddled with price rises (for whatever reason) followed by surplus supply causing price collapses when new supply and/or alternatives catch up to, and then overtake demand. The price collapse leads to bankruptcy of some producers (which reduces supply), and a hiatus in new development. Meanwhile rising demand (from rising populations and rising living standards) slowly but surely catches up to, and over-takes supply, causing prices to rise once again. This kicks off the whole cycle in an endless cycle of booms and busts fuelled by these supply time lags.

The key to success with investing in commodities markets (and producers) is understanding these commodities prices cycles and getting the timing right.


Ashley Owen is Chief Investment Officer at advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities. This article is for general information purposes only and does not consider the circumstances of any individual.


Brian Thornton
April 10, 2022

Great commentary Ashley supported by your wonderful graphic illustrations .
It never ceases to amaze me that we retain our lucky country mantle, this time by being ahead of the curve yet again . In the latest cycle, ie post iron ore and LNG ,its the new ‘future facing’ minerals ie lithium , high grade magnetite to replace hematite ,rare earths ,SOP and perhaps green hydrogen if Mr Forrest works his magic that will deliver in spades. We tick the box with
extensive deposits of all this stuff and with a little help from the sun ,which will enrich us yet again despite our mediocre , near sighted governments and still no Sovereign Wealth Fund ( Albo ??) . Whilst its rosy looking ahead near term ,the truth of the matter is that most of our resources are finite whereas our ability to reinvent ourselves seems to have no bounds.
Keep up the thought provoking ideas Ashley and hope our diversified luck holds.

Alan Mooney
April 08, 2022

I sometimes wonder just how much of that iron ore & coal has been used in establishing the new frontier in the South China Sea - which seems to concern our politicians?

I wonder just how much of that iron ore & coal will come floating back via the Solomon Islands navel base - which seems to concern our politicians?

I also wonder if our politicians care?

April 09, 2022

History repeating its self unfortunately. However this time there appear to be a few politicians who are aware of the consequences and are actively encouraging moves to alternate markets . In any event it will not stop the growing dangers to our north which are so underestimated by a population obsessed with self interest and woke issues.

ashley owen
April 07, 2022

hi warren
thanks for the feedback. On the Japan issue, there was great fear at the time that the economic collapse in Japan would be disastrous for Australia's exports. But it wasn't. Although Japanese economic growth has basically flat-lined since the early 1990s, exports to Japan have kept on rising in almost a straight line upward at only a slightly lower growth rate. 30 years later, Japanese growth is still zero and population is declining, but commodities imports from Australia are booming - still!
Also the US-China war from 2018 was also a timely wake-up call for exporters to do the hard yards to diversify away from China, which they did remarkably well. So if, and when exports to China are embargoed (remember Pig-Iron Bob?), exports will have well and truly diversified away from China already.
You are also right in Australia's reasonably good track record in using profits from 'dumb' commodities exports into innovative secondary and tertiary industries. Australia avoided 'Dutch disease' (mostly) because the commodities booms were mainly high value (gold, wool) and led to increases in imports of people and capital, creating demand - for housing, towns, transport, food, manufacturing, technology, etc.

April 07, 2022

A great commentry
I have seen the wool,comodities and the tech booms come and go Australia is and will always be one of the most adaptable countries in the world

Martin Lenard
April 06, 2022

What was "Other Exports" in 2000? Looks to be almost 50% of revenues.

Warren Bird
April 06, 2022

Thanks Ashley, this is very helpful.
I remember being in the office of a senior Treasury official in the early 1980's when I worked for the Department. Japan had become a key export market and a lot of people were worried that a recession up there would really hurt Australia. The senior officer was alert, but not alarmed about this situation. He said then that our economy wasn't as dependent upon a couple of commodities going to one market as a lot of analysts seemed to believe.
He was right, and it was made even more the case a couple of years later when we floated the AUD, which allows us to hold price competitiveness a lot more than was the case when the exchange rate was subjugated to domestic monetary policy goals.
Ever since then I've been alert to market economists arguing that Australia is a "one trick pony" or phrases like that, with the connotation that there wasn't a single intelligent person operating in our economy who might be able to target a new market when an existing one had a downturn! Or that we had simply wasted all that foreign investment that was coming in all the time, not using any of it to develop new products, to search for new commodities, etc.
But as your charts and discussion show, we have been much more successful at dealing with threats and opportunities than proponents of a narrow-minded "lucky country" thesis have believed. EG, who'd have thought Australian wines would be sold in the markets that the French traditionally dominated!!!
The latest situation with China is just another case in point. Losing a market, for reason of their economic downturn or something more politically motivated by a childish leadership unable to behave as an adult in the world economy, is not pleasant. But Australia doesn't just roll over and play dead when those things happen. Thank you for reminding us of that.

April 06, 2022

Totally underestimates the effect of the "Russian Pariah Status" - Sovereign Risk is back with a vengeance, alternative energy is accelerating, gas is critically short, food supplies are threatened, countries are re arming. In that world, a stable and reliable country like Australia will bask in the sunshine, led by our commodity producers.

Of course, in time, new Supply will come on stream in response to booming prices, but that will take years. For now, personal view, boom still has legs.

ashley owen
April 07, 2022

hi rob,
sovereign risk it not 'back' - it was never gone. Trump' trade war with China cut exports from a whole range of industries in Australia. Whitlam tried to nationalise Woodside's north-west shelf gas. Chifley tried to nationalise all commercial banks. WW1 closed off shipping lanes and exports (and imports), the German WW1 embargo stopped exports of lead and zinc, etc, etc.

April 09, 2022


"Sovereign risk never gone"? Really? How then would you explain Germany and indeed Italy being totally dependent for gas on the Russian Bear? Or the whole world being dependent on China for rare earths or antibiotics? Or Australia having next to no strategic storage for fuels?

Everything happening "right now" says to me that Sovereign Risk has been rapidly elevated in the consciousness of a free world that had gone to sleep in the delusion of globalisation. The net result will be changes that are structural rather than temporary.


Leave a Comment:



How the global renewables arms race will benefit Australia

Why copper prices are at all-time highs

BHP v Rio v Fortescue: it's all about the iron ore price


Most viewed in recent weeks

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Are term deposits attractive right now?

If you’re like me, you may have put money into term deposits over the past year and it’s time to decide whether to roll them over or look elsewhere. Here are the pros and cons of cash versus other assets right now.

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

How retiree spending plummets as we age

There's been little debate on how spending changes as people progress through retirement. Yet, it's a critical issue as it can have a significant impact on the level of savings required at the point of retirement.

Meg on SMSFs: $3 million super tax coming whether we’re ready or not

A Senate Committee reported back last week with a majority recommendation to pass the $3 million super tax unaltered. It seems that the tax is coming, and this is what those affected should be doing now to prepare for it.

How much do you need to retire comfortably?

Two commonly asked questions are: 'How much do I need to retire' and 'How much can I afford to spend in retirement'? This is a guide to help you come up with your own numbers to suit your goals and needs.

Latest Updates


Is 'The Great Australian Dream' a sham?

Peter Dutton has made housing a key issue for the next election, pledging to “restore the Australian dream” of home ownership. It got me thinking about what this dream represents, how it originated, and whether it’s still relevant today.


Clime time: Taxing unrealised capital gains – is there a better idea?

The efficacy and fairness of establishing an unrealised gains tax regime will hopefully be hotly debated at the next election. We need better ideas on how to use the strategic and unique benefits of our massive super funds.


How long will you live?

We are often quoted life expectancy at birth but what matters most is how long we should live as we grow older. It is surprising how short this can be for people born last century, so make the most of it.

Investment strategies

What poker can teach us about investing

So-called ‘resulting’ is what poker players call the tendency to judge a decision based on its outcome rather than its quality. It's something that happens a lot in investing, though should be avoided at all costs.

Latest from Morningstar

Should you buy and hold an Artificial Intelligence portfolio?

For those with the patience to own an investment as volatile as the AI sector, buying and holding a stock basket might make sense. However, based on internet stocks’ history, you need not rush to do so.


The bull market in commodities may be just starting

The world is entering a higher cost environment which will hit the profits of companies in many sectors. A key beneficiary will be commodities, where supply shortages are meeting increasing demand from AI and green energy.


The challenges facing electric vehicles

Slowing demand and profit warnings from the EV manufacturers has seen analysts revise down their EV penetration forecasts. What's behind the slowdown, and are the issues a blip or something more serious?



© 2024 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.