Welcome to another update from Martin Place securities, on the resources market here in Australia.
Without a doubt we can say we've got a lot of volatility in these markets and looking back at the broad indices it's clear that the Australian market's the same level it was two years ago with a lot of internal volatility as the market moves up to around that 5,000 level on the all ords. Each time it gets up there, there seems to be some international event which undermines everything.
But as we look back over the past decade there's been a lot of volatility, a lot of international issues, a lot of natural disasters, and it's been extremely difficult to make money and to see any trend , it's been very, very difficult indeed.
But as we go through all of this, we do see that the markets are still maintaining a certain pessimism, which I think is healthy, in one sense, as it does not appear to be reflecting the true fundamentals that we see.
What I would like to confirm to people; there are three things that we really define and recognize in the market place. The first thing is the demand side issue that we have through, what we call, the non-OECD countries, China, the BRIIC, India, whatever you want to call it. It means that those non-OECD emerging countries and economies have been very robust, and they've had this very strong demand for raw materials; consequently we see it most clearly in the steel industry.
The steel numbers in china for April showed a record level of just over 715million tonnes annualized production, it's a very good sign of the underlying demand within the economy. People are concerned about Chinese growth, but they've been concerned about Chinese growth probably for about the last 5 or 6 years, but I think it will remain quite robust as we see the economy broadening and increasing in its level of complexity and sophistication which I think will only strengthen the economy.
The second thing that we always look at is supply side. As far as the resource sector is concerned we've got real tightness in the iron ore market, tightness in the coal market, tightness in the oil market, the copper market, and gold and silver. Then we can look at the smaller metals, and look at the rare earths that have really got supply side issues that are going to keep commodities on the boil I think for quite some years to come.
And the third thing is that the debasement of western currencies, as we've seen, particularly in the united states, and also parts of Europe, but really interesting to see the strength of the Australian Dollar against all those currencies.
The volatility, again, reflects the various things from European debts, US debt and natural disasters, but overall I think this thing is going to resolved to the upside. One of the really important things we see is BHP with its views. Everyone should look at the presentations that BHP puts out because they are really at the leading edge, and at the coal face, if I can use that term, of what is happening in the real markets, and they're the ones that are saying that the iron ore market is undersupplied; they're the ones that are saying the copper market is tight.
We also like to focus on all those increased commodity volumes mean at high prices. It means much higher revenues in the Australian dollar as we've pointed out in presentations and you'll see in the slide here the first five years of the 2000 decade, we saw Australian exports from the resource sector being around 50billion, they got up to 160 billion in 09 and they're down a bit in 2010, although they should be up a bit this year, but by the time we get to 2015 we're looking about around 250 billion dollars, another 100 billion dollars of export revenues. And even that's based on Iron Ore prices that aren't as high as we want at the moment, and also $1.20 on the currency against the US dollar, so that will have a big impact on what goes on in Australia.
So when we look at those fundamentals, the markets, the commodities, the commodity prices, I think gold and silver, oil and copper, have probably bottomed just in the last week and I think we're going to see much higher prices on those going forward, and I think we'll see some catalyst to send out market higher into 2012.
Finally, I want to talk about the cash levels. There's been very large about the amount of cash that's gone in the banking systems, the CMT systems, and superannuation funds, as far as we can work out, have probably got around 25-18% cash overall, now that's a lot of cash on the sidelines, superannuation funds are about 1.3trillion dollars and that's bigger than GDP and it really means that 25% of GDP is cash. That cash will be redeployed and I think it's going to be a pretty interesting twelve months ahead of us.
For further information and a full transcript please visit our website: www.mpsecurities.com.au
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