As we sit in the foggy aftermath of one of history's most extraordinary elections one thing is clear enough – Australia just received an enormous shot of financial adrenalin. We are accidental collateral winners from the Republican victory in the US. Call it the Trump gift and it's worth billions.
Trump's policy centrepiece to spend $1 trillion to rebuild America's infrastructure signals a massive increase in demand for commodities like iron ore and coal, which Australia produces. And since declaring he was set to "fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals", the prices of these commodities have taken off like a rocket.
More News Videos
- Video duration
- 02:00
Trump victory: will Australia have to 'muscle up'?
- Video duration
- 01:41
Who is Trump's trusted advisor?
- Video duration
- 01:07
Civilians displaced as Mosul fight rages on
- Video duration
- 00:43
Giuliani arrives at Trump Tower
- Video duration
- 01:11
Obama marks his final Veterans Day
- Video duration
- 01:08
Bowie artworks fetch $30 million
- Video duration
- 00:56
Stop Trump 'whinge-o-rama': Boris Johnson
- Video duration
- 00:52
Trump responds as protests continue
Trump victory: will Australia have to 'muscle up'?
What will a Donald Trump presidency mean for Australian defence policy?
The price of Iron ore – our biggest export – has soared to almost US$75 a tonne which is almost double where it was at the start of the year. In the past few days since the days it has gained more than 8 per cent.
According to Australian government's budget papers, the effect in 2017/18 of a change in the iron ore price alone is huge, with every $US10 a tonne change impacting tax receipts by $3.9 billion and nominal GDP by $13.4 billion.
In the latest budget the Turnbull government had factored in a price of $US55 a tonne up from the previous forecast of $US39.
If these price levels are sustained it will a positive king-hit to the budget deficit.
Not in its wildest dreams would it had expected the current price levels.
Coal which had already risen steeply this year also got a fresh tail-wind and is up again strongly with the contract price more than doubling this year and the spot price moving into the stratosphere.
Until last week many of the best commodities experts were tipping the price of iron ore and coal would move down by the end of this calendar year and stay there in 2017.
The unexpected Trump victory has turned the expectations for commodities prices upside-down.
Even though Australia doesn't supply the US with coal and iron ore, the fact that the global demand for these commodities will rise thanks to Trump's big infrastructure plans, means the global prices will rise.
Just how much demand will grow is unclear at this stage so its expectations and sentiment in the futures markets that are responsible for the prices soaring. Further turbocharging the expectation of increased demand is the fact that China is also undertaking an infrastructure building program, One Belt, One Road, to boost its own economy.
The commodities bulls are predicting the two countries are now set to start of the mother of all infrastructure building competitions.
And in the space of only a few days since the US election the fear of a massive trade war between the two largest economies in the world appears to have eased significantly.
Realistically Trump's ability to turn back the clock on global trade would be limited if it resulted in huge price hikes for US consumers on goods that they have become accustomed to getting cheaply from China.
And even if Trump places imposed tariffs on goods imported from China, the response from the Middle Kingdom could be to further stimulate its own economy.
From an economic perspective there are some negatives for Australia not the least of which is having to ditch the Trans-Pacific Partnership which over time could have delivered new markets to our beef, wheat and dairy producers.
But these will be easily outweighed by the benefits of improvements in mineral commodity prices.
And for investors in Australian commodity companies the past few days has been a bonanza.
Fortescue Metals has risen from $5.22 to $6.17 over the past few days. BHP Billiton shareholders have seen the stock spike from $22 to around $25 and Rio Tinto is similarly strong.
0 comments
New User? Sign up