...new name, & a new company logo of a duck flying off into the...

...new name, & a new company logo of a duck flying off into the distance...

Saw this elsewhere on hc, of interest, recent analysis by Michael Knox, head honcho Economist from ABN AMRO Morgans (graphics not included):

PORTFOLIO POINT: Far from being the start of a commodity price downturn, prices are still rising on the back of strong global demand.

Many commentators are suggesting that the world commodities boom has just ended. Forecasts of the end of the commodities boom have been some of the most consistent this decade for two reasons. The first reason is because they are consistently made. The second reason is because they are consistently wrong.

Indeed from the Australian point of view, such forecasts seem to be sternly opposed by the reality of what is happening in Australian export prices. In Figure 1 below we see the RBA Index of $US Export Commodity prices. This index was last updated by the RBA on 1 July. This year we have seen a dramatic up move in Australian export commodity prices in $US terms. From an index level of 234.8 in December 2007, this index has risen by almost half to 326.6 in June 2008.

The RBA in its commentary of 1 July suggests that the majority of the increase in export prices both in June and this year have been caused by increases in the price of iron ore, coal and wheat. The RBA says that the export price data does not yet fully reflect increases that have occurred for coking coal, iron ore and thermal coal.

What they have shown in the commodity index is their estimate of this increase in prices.

They believe that these estimates capture around three quarters of the anticipated total of increase in prices for these commodities. What this means is that the RBA index will rise further when the full contract prices for these commodities are included. Not only has the RBA index risen dramatically, the RBA is telling us that this index has further to rise.

In Figure 2 we see the percentage rate of change of the RBA index on an annual basis since January 1990. In the decade of the 1990s, the highest growth rate of $US export prices was an increase of 12.6 per cent for the year to November 1994. This increase has been dwarfed by the increases we have seen in the commodity boom years of this decade.

Prior to 2008, the largest percentage increase was a rise of 30.3 per cent for the year to March 2006. This is a very commendable boom level of acceleration by any standard except by the standard of this year. So far in 2008, Australian export commodity prices measured by the RBA index have risen by 47.4 per cent for the year to June. The RBA tells us there is more to come. Commentators suggesting the end of the commodities boom are living in a different world than that described by these numbers.

Conclusion

Australian export commodity prices in $US terms have risen dramatically so far in calendar 2008. For the year to June 2008, they have risen by 47.4 per cent. The RBA tells us these export prices have further to rise.

Forecasts of the end of the commodities boom are destined to repeat their level of consistency of previous years. These forecasts are wrong again this year.