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).
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.
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.
With so much riding on the mining sector, the release of the Bureau of Resources and Energy Economics (BREE) ‘Resources and Energy Major Projects’ publication last week provides a timely update on key economic variables and the investment pipeline for the sector. The latest update from BREE highlights the changing landscape for resources and energy-related projects; there are 11 fewer committed projects in the pipeline since April 2012 (due to some projects being completed), however the value of committed projects has increased by around $8 billion, which is an historic high.
Another key point from the report is the significant proportion of projects which are classified as ‘mega projects’, i.e. those projects worth at least $5 billion.
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