The Lucky country-Australia may not be that lucky anymore
3 news caught my attention
1. Australian PM, Gillard said that Aussie dollar is going to remain high for years to come.
2. Australia richest person(a woman) Gina Rinehart who owns iron ore mines could soon become the richest woman in the world.
3. Glencore and Xstrata are in merger talks.
The common link between these three news articles is metal commodities. The demand for these commodities are high due to China and other emerging nations and as supply couldn’t catch up in past decade, prices have skyrocketed. Of course, central bankers ultra-loose monetary policies lit the fire.
But can the commodity bubble continue without bursting? Answer is NO! China will change its economic model to focus more on consumption than investment and exports, it will also improve its efficiency in using resources so demand will grow at slower pace. Miners have been expanding production in anticipation of sustained high growth in demand by China. If the expectation is not met, supply will be greater than demand and with central bankers tightening their monetary policies in the next few years, commodities prices have to come down.
Australia should enjoy the tailwind as it lasts but it should be aware that the party won’t last forever. Luck may be running out for Australia in the next decade.
Entry filed under: Watch your step.