Commodity prices fall again in December

The Reserve Bank of Australia (RBA) yesterday afternoon released its Index of Commodity Prices for the month of December. According to the release:

Preliminary estimates for December indicate that the index fell by 1.0 per cent (on a monthly average basis) in SDR terms, after falling by 0.2 per cent in November (revised). The price of gold declined in the month, as did the estimated export prices of coking coal and iron ore, as they continue to adjust to lower spot and contract prices. In Australian dollar terms, the index fell 2.5 per cent in December.

Over the past year, the index has risen by 11 per cent in SDR terms. Much of this rise has been due to the earlier increases in iron ore, coking coal and thermal coal export prices. The index has risen by 10 per cent in Australian dollar terms over the past year.

Below are some charts illustrating the state-of-play. Data is shown in both Australian Dollar terms and Special Drawing Rights (SDR) terms, which is calculated by the International Monetary Fund and based on a weighted basket of four currencies – US dollar, euro, Japanese yen, and pound.

First, the index level and 6-monthly moving average percentage change of all commodities, both rural and non-rural:

As you can see, overall commodity prices are now falling but remain at highly elevated levels.

Now consider the breakdown by component. First, rural commodities:

It’s a similar story, with rural commodity prices also falling but remaining at elevated levels. However, rural commodity prices never rose as strongly as non-rural commodities (think iron ore and coal), as shown by the below charts:

Non-rural commodities dominate the RBA’s commodity index. As such, its movement tends to mirror the overall index, as is the case above.

Finally, precious metals – a sub-set of non-rural commodities – are falling quite sharply and remain well below the most recent peak:

It will be interesting to see which way commodity prices go from here, which obviously hinges on the performance of the Chinese economy.

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Leith van Onselen


  1. That is a rather myopic view UE,
    QE by any of the big three would have a strong effect. I haven’t thought thru the $A implications though.

    • UE is right on the fundamentals – in the long run supply and demand will determine the price trend (super cycle or another run of the mill commodities boom). Short term is anyone’s guess – as you say, another round of QE would have a big impact.

  2. Interesting to note the marked divergence between SDR and AUD price movements. Even though % wise they mirrored each other quite well, post late ’08 is a very distinguishable divergence between the index levels in terms of SDR and AUD (probably due to AUD hoolding up well against USD and EUR)

    This further adds weight to DFM’s thesis of currency being more resilient than what we would expect