Commodity prices are at an interesting juncture. Some, like “softs” which include foods but exclude grains, have performed very strongly since the start of the year. Others, such as gold and oil, respond to geopolitical tensions especially when it concerns regions of high oil production (such as the Middle East). And some are coming off high levels at the start of the year and are reflecting a slowing global economy (copper and natural gas). Indeed, it’s very much a mixed bag, with some product prices reflecting particular circumstances relating to constrained production issues (frozen orange juice is at record highs because of weather conditions and disease in Florida).
Source: Kuemmerle Research
For Australian investors, the Reserve Bank of Australia’s (RBA) Commodity Price Index is probably a better way to track those commodity prices that matter most to us (see RBA chart below). That is because the RBA has developed an index (the RBA Index of Commodity Prices) which is linked to Australian commodity exports. Thus, as an example, in line with developments in export values over recent years, the weight of iron ore in the index will increase, while the weights for gold and base metals might be reduced. Recent compositional changes to the RBA’s Commodity Price Index show that the most important commodities in the index are iron ore (27% of the total weight), metallurgical coal (16%), LNG (15.8%), thermal coal (9.5%), gold (7.5%) and alumina (4%).
The Index dropped by 22% year-on-year in September 2023, primarily influenced by lower prices of thermal coal and liquified natural gas. The Index declined by 17% in Australian dollar terms.
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