With the mining sector and commodity prices such a topical issue at the moment (for all the wrong reasons), it’s worthwhile having a look at the latest statistics regarding Australia’s resources and energy sector. As you can see from the Reserve Bank’s ‘Commodity Price Index’ below, non-rural commodity prices are down 21.6% since peaking in July 2011 (the non-rural component of the index includes prices for base metals and other resources, while rural commodities include agricultural items).Click to enlarge
The fall in commodity prices is one of the primary reasons why Australia’s terms of trade (the ratio of export prices to import prices) have peaked, as can be seen in the graph below (taken directly from the RBA’s latest Statement on Monetary Policy). While the fall in commodity prices and the terms of trade appears to be quite glum news, look at how high the indicators are compared to their long-term average. Despite falling by nearly 22%, the non-rural component of the Commodity Price Index remains 125% higher than the long-term average.Click to enlarge
The slowdown in commodity prices can be tied back to the slowdown in the Chinese economy, where economic growth has moderated from around 15% pre-GFC and will likely end the 2012 year around 7.5%, according to the OECD. The OECD is also projecting an improvement in Chinese economic growth over 2013, with a growth forecast of 8.5%, suggesting we are likely to see at least a stabilisation in Chinese resources demand, if not some level of growth.