Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Monday, 1 February 2016

Spots the difference

Commodities slump

The Reserve Bank's Commodity Price Index continued its reversion with a -2.9 per cent decline (on a monthly average basis) in SDR terms, following on from a revised -3.9 per cent decline in December, to hit its lowest level since October 2005.

The monthly decline reflected weak prices for oil, coal and iron ore, while the base metals and rural exports subindices also declined slightly in the month. 

Over the past year the index has been smoked by -25.8 per cent lower in SDR terms, driven by sharp declines in the bulk commodities, iron ore and coal.

Aussie dollar offsets

In Aussie dollar terms the index was a somewhat less painful -17.2 per cent lower over the year to January, and indeed, there has been a bit of a bounce in commodity prices of late. 

In fact, the A$ commodities index using bulk commodities spot prices increased by +2.1 per cent in January.

Similarly, while the A$ bulk commodities index increased only moderately in January, using spot prices the bulk commodities index jumped by +5.5 per cent. 

The weights for the index are shown in the following chart.

Crude oil has rebounded from 13 year lows of $27.50/barrel to above $30/barrel, but there remains a risk that the bounce is not sustained if the "taps are turned back on".

If there's one thing the last few months have flushed out, it's a long list of people who can't predict oil prices (but reckon they can)!

The iron ore price has been similarly staring into the abyss of a supply glut, and the spot price this morning is US$42.50/dry ton (A$:59.90), which is also a rebound from the record low spot prices seen in December of well below US40.