Pete Wargent blogspot

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

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Tuesday, 1 November 2016

Commodity prices on a tear (+29pc since January)

Commodities take off

After increasing by a revised +2.1 per cent in September, the Reserve Bank of Australia's Index of Commodity Prices soared by +9.5 per cent in October. 

This means that not only will national income rebound in Q3, it may positively rip in Q4. 

The index is now up by +29 per cent since January to be +16 per cent higher than a year ago.

In Aussie dollar terms, the index is up by +19.9 per cent since December to be +7.8 per cent higher than a year ago. 

If you look at the subindices you can see that export prices are still lagging miles behind spot prices, which have increased by a muscular +95.1 per cent (SDR terms) still bottoming out in December.

In fact using spot prices for the bulk commodities, the Index of Commodity Prices is a thumping +34.2 per cent higher than a year ago!

The gains were largely driven by coking coal, as well as iron ore, while base metals and rural subindices also rose in the month.

The coking coal price began the year at under US$80/tonne, yet today it touched US$260/tonne, due to a surge in Chinese imports and supply constraints. 

If export prices continue to follow the trajectory of spot prices, then the best of the spike may yet be to come.

A handy boost indeed for the Treasurer!

No surprise, then, that the Reserve Bank kept rates on hold today looking at these very positive numbers.