By David Uren,Economics Correspondent, From:The Australian
Resource giants BHP Billiton and Rio Tinto are about to reap price rises in excess of 20 per cent for iron ore and coking coal in contracts with steel mills in China and Japan that are about to be renegotiated.
The June quarter contracts will lift prices beyond those reached in 2008 before the global financial crisis, with analysts tipping there could be further gains in the September quarter. However, market economists are cautious about endorsing the view of Reserve Bank board member Warwick McKibbin that the resources boom is a bubble set to burst, with at least 40 per cent of the run-up in prices due to loose monetary policy in the US and Europe.
"Prices for bulk commodities (iron ore and coal) are being driven by China's demand cycle," Westpac senior economist Justin Smirk said. "Little of the financial money in commodity markets is flowing into bulk commodities." (By The Australian)
He said it was impossible to estimate how much of China's demand would be influenced by US monetary policy, but he doubted it would be 40 per cent.
Iron ore and coal contracts are negotiated on the basis of spot market prices between December and February. The contracts will be concluded in coming weeks.
Mr Smirk said iron ore prices were likely to rise by 20 per cent in the June quarter and a further 5 per cent to 10 per cent in the September quarter, with similar increases in coking coal.
A spokesman for Wayne Swan said the government did not expect commodity prices to remain this high but believed strong demand from Asia would continue for some time.
Macquarie Group international economist Mark Tierney said financial flows from loose monetary policy were not to blame for high commodity prices. He said zero interest rates in the US and Europe were contributing to demand, with world economic growth running at 4-5 per cent.
"The level of world GDP is now back to where it was in 2007 and is growing quickly, with China's growth accelerating. You don't have to look around and blame a speculative bubble for that.
"We simply haven't got the supplies that are needed.
"It takes time for the supply response, and by the time it catches up to where demand is now, demand will have grown further." (By The Australian)
The June quarter contracts will lift prices beyond those reached in 2008 before the global financial crisis, with analysts tipping there could be further gains in the September quarter. However, market economists are cautious about endorsing the view of Reserve Bank board member Warwick McKibbin that the resources boom is a bubble set to burst, with at least 40 per cent of the run-up in prices due to loose monetary policy in the US and Europe.
"Prices for bulk commodities (iron ore and coal) are being driven by China's demand cycle," Westpac senior economist Justin Smirk said. "Little of the financial money in commodity markets is flowing into bulk commodities." (By The Australian)
He said it was impossible to estimate how much of China's demand would be influenced by US monetary policy, but he doubted it would be 40 per cent.
Iron ore and coal contracts are negotiated on the basis of spot market prices between December and February. The contracts will be concluded in coming weeks.
Mr Smirk said iron ore prices were likely to rise by 20 per cent in the June quarter and a further 5 per cent to 10 per cent in the September quarter, with similar increases in coking coal.
A spokesman for Wayne Swan said the government did not expect commodity prices to remain this high but believed strong demand from Asia would continue for some time.
Macquarie Group international economist Mark Tierney said financial flows from loose monetary policy were not to blame for high commodity prices. He said zero interest rates in the US and Europe were contributing to demand, with world economic growth running at 4-5 per cent.
"The level of world GDP is now back to where it was in 2007 and is growing quickly, with China's growth accelerating. You don't have to look around and blame a speculative bubble for that.
"We simply haven't got the supplies that are needed.
"It takes time for the supply response, and by the time it catches up to where demand is now, demand will have grown further." (By The Australian)
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