Yup... massive jump by WOR yesterday and esp Tuesday hammered my short position.
From today's Oz. Full article available via link at end:
The Australian
12:00AM October 13, 2016
Spectacular price gains from a broad sweep of commodities — and strong growth in LNG exports against a backdrop of prospective price increases — is reshaping Australia’s economic outlook.
The nation’s top five commodity exports — representing more than $130 billion in annual income — have benefited from price rises since January, in a move that is expected to translate to a multi-billion-dollar windfall for Canberra’s budget bottom line.
The move came as iron ore magnate Andrew Forrest declared yesterday that the “worst is behind us” in terms of the commodity price rout.
At the same time, ratings agency Moody’s said Australia should outpace other commodity-exporting, AAA-rated economies in 2016 and stay at the head of the pack in following years.
The commodity gains have not returned prices to the heady heights of the mining boom, which ran out of puff in 2011 after a 10-year bull run in response to China’s double-digit economic growth led to chronic oversupply.
But the gains made so far this year are nevertheless spectacular. Volatility remains the order of the day, but whereas volatility to the downside dominated the agenda, now the talk is to the upside.
In US dollar terms, coking coal is up 178 per cent, thermal coal 74 per cent, zinc 45 per cent, oil 37 per cent, iron ore 26 per cent, nickel 18 per cent and gold 18 per cent. The only laggards are copper (flat) and uranium (down 35 per cent).
In agribusiness Australia’s biggest export with global sales of more than $10 billion — beef — has nearly doubled in price.
This week miner Peabody and Japan’s Nippon Steel negotiated a quarterly coking coal price of $US200 a tonne, underscoring the strength of contract pricing despite a move to spot prices.
All this has been enough for HSBC chief economist Paul Bloxham to call an end to Australia’s “income recession’’.
“We are seeing a supply correction across a broad range of commodities from iron ore to coal, zinc and nickel,” Mr Bloxham said.
“We think the trough was early this year, so if you thought Australia was experiencing an ‘income recession’, it’s in the past.”
The rise in commodity prices should support Australia’s terms of trade and inflation rate such that the Reserve Bank is unlikely to cut interest rates further and the Australian dollar is unlikely to fall below US70c again in the foreseeable future.
HSBC recently boosted its forecast spot iron ore price — Australia’s biggest export earner — to $US51 a tonne for this financial year from $US41 a tonne.
For BHP alone, a $US1 a tonne increase in the iron ore price increases its annual earnings by $US45m. The spot price is currently $US110 a tonne above its 2015 average. At the national level, Treasury estimates a $US10 a tonne increase in the iron ore price would result in a $1.4bn increase in tax receipts.
“If you look at the reasons why the iron ore price has lifted, its stronger demand from China due to their fiscal stimulus, but the thing we’ve been highlighting is that there’s a supply correction under way as the Chinese have been cutting back on their own production of low-grade, high-cost iron ore or magnetite and instead choosing to import more high-grade hematite from Brazil and Australia. China’s own iron ore production is down about 13 per cent from its peak,” said Mr Bloxham.
Mr Bloxham said the coal recovery was the most exciting due to a policy shift in China including cutbacks on working days in coal mines to cut overcapacity.
“That’s seen a sharp fall in Chinese production of coking and thermal coal, which has boosted China’s coal imports and coal prices globally. Coking coal prices are up around 131 per cent in the past four months and thermal coal prices are up about 60 per cent.”
He said the rise in prices this year has been unmatched since 2008. “If the full impact of the rise in coking and thermal coal was flow through to the actual export prices, we think this could boost export values by $25bn, which is a whopping 2 per cent of nominal GDP.”
ANZ said that with the surge in coking coal prices flowing to a doubling of contract prices, the economy was in line for a boost.
It cautioned that while it believes prices for the coking coal are unlikely to remain at these heady levels — a unanimous industry view — the lift to national income in the near term was by “no means insignificant in the order of around 2 per cent of nominal GDP’’.
“But while the recent surge in coal prices may not be completely sustained, the lift underlines our view that commodity prices have bottomed and the drag on national income that has been reflected in weaker profits, government revenue and wages has largely run its course,’’ ANZ said.
ower stations ‘would take hit’
(20min delay)
