RBA’s Kent Says Chinese Demand for Commodities to Remain StrongMichael Heath
China’s demand for commodities will grow “strongly” for some time, albeit at a slower pace, Reserve Bank of Australia Assistant Governor Christopher Kent said.
“Because the Chinese economy is so much larger now, even a somewhat slower rate of growth represents a large quantity of new demand for raw materials,” Kent said in the text of a speech to be delivered today in Perth, capital of Western Australia state.
Demand from China, Australia’s biggest trading partner, for iron ore and coal has fueled a resource investment boom that the RBA predicts will crest this year. Prices of Australia’s key export, iron ore, have rebounded since reaching a three-year low in September, when concern mounted that a slowdown in the world’s second-largest economy would curb demand for commodities.
“For much of the past year we have been looking for signs that China’s growth might stabilize,” Kent told the Committee for Economic Development of Australia forum. “A broad range of indicators suggest that this has now occurred, with economic conditions improving through the second half of 2012.”
China’s economic expansion is likely to pick up to 8.1 percent this quarter from 7.9 percent in the previous three months, according to a Bloomberg survey of analysts in January. The nation’s central bank said in its fourth-quarter monetary-policy report released Feb. 6 that growth momentum is “relatively strong” while highlighting concern that inflation risks will increase.
The RBA reduced its benchmark interest rate to 3 percent in December, matching a half-century low, as it tries to spur investment in industries outside mining in preparation for the mining investment peak this year.
Traders are pricing in a 43 percent chance the RBA board will reduce rates by a quarter percentage point to a record 2.75 percent when it meets next month, according to swaps data compiled by Bloomberg.
Kent said that, as Australian mining investment “tails away,” the nation will boost shipments of commodities.
“This is when exports will increase significantly in response to all of the investment that’s been undertaken,” he said. “Despite the potential for further growth in the demand for commodities, from China and other developing economies, we expect commodity prices to gradually decline over the next few years.”