Pete Wargent blogspot

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

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Monday, 4 July 2016

Commodity prices rebound in Q2

Commodities rally

There has been quite a significant rally in commodity prices lately, including in iron ore, natural gas, oil, copper, silver, aluminium, sugar, and most recently a substantial run-up in the gold price on global uncertainty.

Over the three months to June Bloomberg's commodity index recorded its best quarter since 2010. 

Since exports are shipped throughout the period - and not only only the last day of the month - the Reserve Bank of Australia (RBA) calculates its Index of Commodity Prices on a monthly average basis.

On this measure the index was down by 0.4 per cent in SDR terms in June after rising by the same figure in May.

Nevertheless over the second quarter this index did move 1.5 per cent higher, despite being 9.9 per cent lower of the year. 

Notably in Aussie dollar terms the index was some 3.7 per cent higher on a monthly average basis over the second quarter, taking the annual decline down to 5.7 per cent. 

Income up

Australia's commodity index is very heavily weighted towards the bulk commodities iron ore and coal, by far our most valuable commodity exports.

The most recent figures show the iron ore price well off recent lows at US$55.56/tonne to be 10 per cent higher over the last week of the calendar month. 

Overall the iron ore price rose by 11 per cent through the month June. 

However, with those gains being overwhelmingly skewed towards the end of the month they are not yet fully reflected in the RBA's commodity price index. 

It's early days, but on a monthly average basis it is therefore quite likely that there will be further gains in the index in July.

In terms of the national accounts for the second quarter, while it's too early to call but it seems that the economy probably grew by about 3 per cent in the financial year to June 2016.

The commodity price rally should be a welcome boost to the much-maligned real gross national income measure in Q2, the figures to March 2016 being represented by the green line below. 

100 quarters not out

On June 30, Australia passed an amazing 25 years of consecutive growth without experiencing a recession.

A remarkable record to make other developed economies envious.