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According to the MPS managing director, “tight supply side issues, high capacity utilisation rates, no inventory, plus good demand out of China and other parts of Asia, and other parts of the world for that matter”, are driving relentless commodity price increases.
“So what we’ve got are much higher prices for coking coal, iron ore, copper,” Mr Dawes says. “The gold price is quite strong … platinum, silver. All these things are producing very, very strong revenues, and will mean that the resource sector is very well underpinned with strong revenue growth, strong earnings growth and extremely strong balance sheets.
“Now just focusing on coking coal, (of) which we’ve seen the prices come through in the last couple of days - $300/tonne for hard coking coal.
“Now over the last 20 years, the typical price would be between $50 and $60. (A price of) $300 brings a lot of revenue to the coal mining companies. The numbers we’ve done are just on the basis of coking coal at $300, thermal coal at $100-$120 a tonne, and the iron ore price being up by 60-75 per cent, really will bring about an extra $35 to $50 billion additional revenue in the financial year ending June ‘09.
“Now obviously the (Australian) dollar level will be important in terms of determining what that will be, but in terms of percentage rises, those numbers will come straight through to the pre-tax bottom line for the major resource companies like BHP, Rio, Macarthur Coal and of course Fortescue Metals when its first shipments take place in the next month or so.
“Now, the strong commodity prices have moved up despite whatever’s happening in America, with the problems with the sub-prime (loans) and other issues in the financial sector.
“The US Federal Reserve Board has just made things easier in terms of monetary conditions to push interest rates down at the short end and increase reserves, and that will put forward pressure on the US dollar.
“The commodity sector is still quite unloved, despite these very strong earnings fundamentals. And we have to keep in mind that we’ve had a commodity bull market now for almost 10 years.
“The oil price and other important commodities like nickel and aluminium, platinum, they all bottomed in the fourth quarter of 1998. Here we are in the second quarter of 2008 and we’ve got resource stocks which are at high levels, but nowhere near the levels that they really should be, reflecting their underlying earnings.
“The other important point is that the participation rates of institutional investors and the public in the resources sector is still remarkably low.
What we’re also seeing is that the small caps stocks are starting to pick up. So, even though these stocks were perhaps badly affected by the sub-prime fallout, the volumes are picking up and the fundamentals are starting to exert themselves.
“All in all, a very strong time for (the) commodities sector and we think that we’ve got quite a few years of very strong equity markets for resource stocks coming through.”
“So what we’ve got are much higher prices for coking coal, iron ore, copper,” Mr Dawes says. “The gold price is quite strong … platinum, silver. All these things are producing very, very strong revenues, and will mean that the resource sector is very well underpinned with strong revenue growth, strong earnings growth and extremely strong balance sheets.
“Now just focusing on coking coal, (of) which we’ve seen the prices come through in the last couple of days - $300/tonne for hard coking coal.
“Now over the last 20 years, the typical price would be between $50 and $60. (A price of) $300 brings a lot of revenue to the coal mining companies. The numbers we’ve done are just on the basis of coking coal at $300, thermal coal at $100-$120 a tonne, and the iron ore price being up by 60-75 per cent, really will bring about an extra $35 to $50 billion additional revenue in the financial year ending June ‘09.
“Now obviously the (Australian) dollar level will be important in terms of determining what that will be, but in terms of percentage rises, those numbers will come straight through to the pre-tax bottom line for the major resource companies like BHP, Rio, Macarthur Coal and of course Fortescue Metals when its first shipments take place in the next month or so.
“Now, the strong commodity prices have moved up despite whatever’s happening in America, with the problems with the sub-prime (loans) and other issues in the financial sector.
“The US Federal Reserve Board has just made things easier in terms of monetary conditions to push interest rates down at the short end and increase reserves, and that will put forward pressure on the US dollar.
“The commodity sector is still quite unloved, despite these very strong earnings fundamentals. And we have to keep in mind that we’ve had a commodity bull market now for almost 10 years.
“The oil price and other important commodities like nickel and aluminium, platinum, they all bottomed in the fourth quarter of 1998. Here we are in the second quarter of 2008 and we’ve got resource stocks which are at high levels, but nowhere near the levels that they really should be, reflecting their underlying earnings.
“The other important point is that the participation rates of institutional investors and the public in the resources sector is still remarkably low.
What we’re also seeing is that the small caps stocks are starting to pick up. So, even though these stocks were perhaps badly affected by the sub-prime fallout, the volumes are picking up and the fundamentals are starting to exert themselves.
“All in all, a very strong time for (the) commodities sector and we think that we’ve got quite a few years of very strong equity markets for resource stocks coming through.”
