Pete Wargent blogspot

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

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Saturday, 26 November 2016

Any old iron?

Shock and...

Australia's key export commodity iron ore had already experienced a studious rebound, up from below US$40/t at the beginning of the year to an average price of US$58/t in October (or about $A76/t in Aussie dollar terms). 

Well, stop press, because the spot price and commodity futures action through the month of November has been nothing short of bananas. 

The spot price closed on Friday at US$79.61/t for a colossal year-to-date gain of 82.7 per cent.

In Aussie dollar terms the spot price sits above A$107/t, which is actually higher than the monthly average price through the bubblicious past decade. 

And futures are pointing to yet further gains on Monday.

I don't know anyone who believes that such prices can last, but on top of a coking coal price which all but quadrupled to blaze through $300 per metric ton on Chinese demand an supply restrictions, this will deliver billions to the budget for as long as it's sustained.

And with wages growth remaining weak, the budget needs all the help it can get if Australia's AAA rating is to be maintained as it has been since 2003.

The budget has an in-built or automatic repair mechanism over time - bracket creep - which happens as wages rise and more income earners are pushed into higher tax brackets.

This is still happening, of course, but more slowly than forecast. 

Details as always from Scutty here over at Business Insider.