The iron ore price rebound

Anyone who's worked in the resources sector will know that commodity price forecasts should generally be taken with a pinch of salt, and the cleverly worded day-to-day commentary (guesswork) an even larger pinch of salt. 

But it is interesting to note the tremendous turn-around in fortunes for the volatile iron ore spot price, particularly as prices were supposedly heading lower before a huge rebound which is approaching a 50% appreciation in price.

Today the spot hit US$131.90/tonne, a vast improvement on  the dismal depths seen in the third quarter of 2012 when the spot price fell below US$90/tonne.

Combine this tremendous rebound with an Aussie dollar correction from above 106 US cents to 91.7 cents and this equates to a A$ price of around $144/tonne.


Great news for the Aussie economy: what a lot can change in less than 12 months, eh?. 

Of course, it is something of a risky business being so highly leveraged against one manic-depressive commodity price as well as a similarly volatile currency, but naturally, it's all 'happy days' and sweetness and light when things are working out in your favour. 

Let's hope that things stay this way...


While on the subject of volatility in day-to-day prices, it's also interesting to note that RP Data has Sydney dwelling prices up by more than 4% in fewer than 6 weeks.

Hmm. So much for those "falling house prices" and "more properties being sold into a falling market" being reported in May (in the face of 80% auction clearance rates and 85%+ in the inner western suburbs).

Nationally RP Data has prices up by more than 1% in July, but much of that is really only offsetting falls reported in May. 

If inflation prints low net week (say, 0.6% for the quarter or less) then interest rates will likely be cut again in August and there now appears to be a genuine risk that Sydney's property markets will be sent into overdrive.

Sydney's real estate problems are multi-faceted and well documented: a booming population of 60,000 extra persons per annum, construction too slow, planning restrictions, NIMBYism, a disproportionate level of investor activity and appreciating land prices, to name but a few of the issues.

Sydney stands to be a likely beneficiary of the weak response to interest rate cuts elsewhere - in cities such as Adelaide, prices have stalled over the past half decade despite the recommendations to buy property there from yield-seeking property commentators, while Brisbane, Canberra and most regional markets have not been much cop either, and show few signs of really picking up to date. 

It very much looks like a long, slow, bleeding decline for many parts of the country - dropping interest rates fired up activity once through 2009-2010, but it doesn't look as though there will be much response a second time.

Futures markets are already pricing an August interest rate cut to 2.50% as more likely than not (a 64% chance of a cut on August 6), and indeed, they are all but pricing in two further cuts by March 2014.

It's overwhelmingly investors who are pumping up the Sydney property market, with prices breaking to record new heights.

Nationally, however, prices still remain 2% below their previous 2010 peak and don't seem inclined to be heading a whole lot higher at this juncture.

Dwelling prices from the RBA chart pack (a bit of a time-lag in the data here: it will be updated again soon):

Dwelling Prices graph

And copied below is the futures implied yield curve, showing the cash rate as likely to be headed towards 2.25% by March next year. 

Record low levels as the Reserve attempts to rebalance the economy away from mining construction and towards dwelling construction.

Interesting times...

Source: ASX


The category 3 heatwave continues in the UK.

Loving the cricket live from Lords, England making 361 in the first dig with another century from Ian Bell.

Now, Australia's turn...

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