RBA goes the jawbone, again. The Reserve Bank goes on another selling campaign next week, this time led by deputy governor Phil Lowe. He is the man of the next week or so, with no fewer than three separate appearances in public — including two set-piece speeches. In fact next week is a busy one for the central bank and, by the end of it, we should have a good understanding of what it thought of the budget and the current state of the economy.
Lowe speaks on Monday. The minutes of the bank’s May board meeting (where the cash rate was cut to 2%) are out the next day. Lowe moderates a panel discussion at a finance and governance conference in Sydney, while on May 22, assistant governor Malcolm Edey addresses a cards and payments conference. Friday, a meeting of the Payments Council convenes — the RBA is getting tougher on some card and interchange fees. Then, on May 27, Lowe steps out in public again in Sydney at a financial regulation conference, while two days later assistant governor Edey speaks at another finance conference, this one involving research. Now about the Aussie dollar …? — Glenn Dyer
China steels itself. Buried in Wednesday’s production data for China for April was gloomy news for Australia’s iron ore producers and the federal and Western Australian budgets — the country is losing its taste for steel. While China’s crude steel output fell 0.7% in April to 68.9 million tonnes, from the same month in 2014, it was also down slightly from the 69.1 million tonnes produced in March. That left total output for the first four months of this year down 1.3% at 270.1 million tonnes, from the same period in 2014. The slide in production mirrors the 6.2% slump (to 177 million tonnes) in apparent steel consumption in the first quarter (against a fall of 4% for all of 2014). Chinese steel mills are boosting exports, and they are running at an annual rate of more than 100 million tonnes. Iron ore spot prices in China fell 1.3% overnight Thursday to end at US$61.20 — the third daily fall in a row.
Meanwhile, the hypocrisy of Twiggy Forrest in complaining about BHP and Rio Tinto’s iron ore exports continues. Forrest is calling for government intervention, in direct opposition to his approach when the former Labor government introduced the mining tax, when Forrest and Gina Rinehart stood together on a truck in Perth to lead a noisy campaign opposing the government move. Now he wants government (of a different colour and more susceptible to the blandishments of rent-seekers like Forrest), to come to his aid — forgetting that he and his company have done more to flood the global iron ore market with extra ore (155 million tonnes) than any other producer. Finally, Forrest says he has set up a website called “Our Iron Ore”. It is Australia’s iron ore, not Fortescue’s — despite what Forrest might think. That website has yet to hit the internet. — Glenn Dyer
Darkening outlook for US coal. Tonight, struggling US coal miner Walter Energy is supposed to make two multimillion-dollar interest payments after missing them on April 15. The company, which is losing money, confronting over US$1 billion of debt and liabilities, needs to pay the money by the close of business tonight, our time, otherwise it will be considered to be in default.Walter Energy is a major producer of coal, coke, and natural gas, in addition to leading producer and exporter of metallurgical coal for the global steel industry from underground and surface mines located in the Unites States, Canada, and the United Kingdom, and said earlier this week that it had US$435 million in liquid assets. So it is playing a game of bluff with its lenders — no doubt threatening to go into bankruptcy protection and restructure, a now common tactic in the struggling coal sector. — Glenn Dyer
Not so glittering gold. Demand for gold has slowed as buyers in China switch their cash to playing the booming sharemarkets of Shanghai and Shenzhen (and lately Hong Kong), according to data from the World Gold Council. But demand from India remained firm in the three months to March, as did demand from investors, led by the Russian central bank, which again led a line of central banks chasing the precious metal to offset their holdings of US dollars. Overall demand totalled 1079 tonnes in the March quarter, down 1% from the first three months of 2014, and over 100 tonnes short of the five-year average for the first quarter, according to the WGC. Gold prices started and ended the quarter at US$1183 an ounce, while sharemarkets across Asia were up 6%. In China, they were up more than 20%. Chinese gold-buying (mostly for jewellery) fell 10% in the quarter, helping drive global demand from the sector 3% lower.
Demand in India jumped 22% as the impact of tight controls by the former government on imports vanished. The WGC said central banks continued to chase gold, buying 119 tonnes in the quarter — flat compared with the year ago period. It was the 17th quarter in a row that central banks have been net buyers. Russia’s central bank bought 30 tonnes (or 1 million ounces) during the quarter, its biggest purchase in six months. Desperados. — Glenn Dyer