The boom is well and truly back – judging by the near 8% surge in the Reserve Bank’s commodity price index for October, released yesterday.
That was the biggest rise since the days of the mining boom five years ago and the RBA index is now back to where it was in February 2015.
We have already seen the impact on our terms of trade which rose in the June quarter by 2.3%, and looks like jumping by around 4.5% in the three months to September.
That in turn might be enough to produce a rise in the annual terms of trade to around 1%, from minus 5.4% in the June year.
The RBA index rose 9.5% in SDR terms (Special Drawing Rights, a special international currency used by the IMF which gives a broader view than just the movement in the US dollar value of the index, – which rose 2.1%, despite of a 6% rise in the value of the greenback last month). The SDR value of the index was up 2.1% in September.
"The largest contributor to the increase in October was the price of coking coal. Both the base metals and rural subindices increased slightly in the month. In Australian dollar terms, the index rose by 7.9% in October,” the RBA said.
Higher prices for coal, iron ore, and even minor metals such as nickel, tin and zinc, plus improving prices for wheat, and not to mention surges in the prices of sugar and beef have combined to send the RBA index sharply higher in the past couple of months.
"Over the past year, the index has increased by 16.0 per cent in SDR terms, led by higher coking coal prices. The index has increased by 7.8 per cent in Australian dollar terms,” the RBA reported yesterday.
"Consistent with previous releases, preliminary estimates for iron ore, coking coal, thermal coal and LNG export prices are being used for the most recent months, based on market information. Using spot prices for the bulk commodities, the index rose by 10.1 per cent in October in SDR terms, to be 34.2 per cent higher over the past year.”
The boom in coal prices for instance is not expected to be sustained given the surge has been so dramatic, so prices will come back. Iron ore prices are now well over $US60 a tonne and returning to levels seen earlier this year.
The boom is back
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And the news from China was solid yesterday with encouragingly strong readings from the two start of month surveys of manufacturing activity.
The official manufacturing Purchasing Managers’ Index, which measures large state-owned factories, came in at 51.2 for October, official data showed.
And the Caixin manufacturing PMI rose to 51.2 in October, the fastest pace of improvement since March 2011. A rebound in new order growth amid stronger demand helped the gauge, Caixin said in a statement. The Caixin report focuses on mid-size companies not included in the official survey.
And for a second day, world zinc prices hit five-year highs on Tuesday on growing consumer fears of a supply shortage. The price hit $US2,485 a tonne on the London Metal Exchange, up 50%. And, although we don’t produce very much frozen orange juice concentrate for export, world prices hit an all time high of $US2.36 a pound in New York. This is adding to the boom-like feeling in commodities.
