Miners arrive back to the surface after finishing their shift at Centennial Coal's Myuna mine. Photographer: Ian Waldie/Bloomberg
Miners look out of a dolly cart as they arrive back to the surface after finishing their shift at Centennial Coal's Myuna mine. Photographer: Ian Waldie/Bloomberg
A worker at BHP Billiton's Mt. Whaleback mine in Western Australia. Photographer: Nelson Ching/Bloomberg
Builders work on the construction of a new house in the town of Karratha in the Pilbara region of Western Australia. Photographer: Ron D'Raine/Bloomberg
Damien Lee, general manager of Professional Recruitment Australia, an engineering recruitment company, in Perth. Photographer: Ron D'Raine/Bloomberg
Damien Lee, general manager of Professional Recruitment Australia, standing in front of a resources map of Western Australia in his office, in Perth. Photographer: Ron D'Raine/Bloomberg
Travis Marks, a 24-year-old with no college degree, is hitting pay dirt as Australia’s mining bonanza fuels demand for workers. Already making triple the nation’s average salary, he expects to get even richer.
“With what’s going on in the industry, there’s lots of big jobs coming up,” said Marks, who earns A$220,000 ($227,150) a year -- more than Federal Reserve Chairman Ben S. Bernanke’s $199,700. His job as a rigger for a company providing construction and maintenance services to the resources industry is “a really good way to get ahead as a young bloke,” he said.
Reserve Bank of Australia Governor Glenn Stevens faces a developed-world rarity: wage pressure in an economy near full employment. While he paused in raising interest rates this year to gauge the impact of the nation’s most expensive natural disaster, HSBC Holdings Plc projects an increase in the third quarter.
“The concern for central bankers is what happens for inflation expectations,” said Paul Bloxham, chief economist at HSBC in Sydney and a former Reserve Bank official. “The big concern is that you start to see signs of some sort of wage- price spiral.”
With incomes rising for Australians like Marks, National Australia Bank Ltd. says markets underestimate the likelihood of higher rates to contain inflation. Traders are betting Stevens won’t boost borrowing costs at the next policy meeting April 5 or for the rest of the year and see only about a 50 percent chance of an increase in February 2012, according to bank bill futures.
In a research report this week, National Australia Bank said investors should bet on three-year swap rates rising to 5.75 percent from about 5.3 percent. It sees the nation’s currency appreciating to a record $1.05 in June from $1.0325 at 10:52 a.m. in Sydney today.
Australia’s economic growth is extending into sparsely populated areas as Chinese and Indian demand drives export revenue from raw materials to a record. Perth-based Mineral Resources Ltd. (MIN) said in March it exported the largest manganese shipment from an Australian port when a 74,000 metric-ton Panamax carrier departed Port Hedland, in the northwest of Western Australia.
Qantas Airways Ltd. (QAN), based in Sydney, started a passenger service March 14 using Boeing Co. 737s to help workers reach job sites in Western Australia’s Shire of East Pilbara. The region, where 10,500 people live in an area the size of Germany and summer temperatures reach 46 degrees Celsius (115 Fahrenheit), is also the home of Mt. Whaleback, the world’s biggest open-cut iron-ore mine, owned by Melbourne-based BHP Billiton Ltd. (BHP), the world’s largest mining company.
HSBC estimates the total value of Australian mining and resource projects proposed or under construction at $777 billion, or about 60 percent of gross domestic product.
Wages grew 3.9 percent in the three months through December from a year earlier, the fastest pace since the first quarter of 2009, according to government figures. When the central bank decided March 1 to keep its official cash rate at 4.75 percent, it said wage growth had returned to levels reached before a 2009 decline.
“Guys that were asking for A$150,000 in November are asking for A$180,000 and getting it,” said Damien Lee, general manager of Professional Recruitment Australia, which supplies workers to companies including Woodside Petroleum Ltd. (WPL), Leighton Contractors and Royal Dutch Shell Plc. (RDSA)
The Reserve Bank has had a threshold of about 4.5 percent for wage growth -- a combination of 2 percent productivity and the 2.5 percent mid-point of the central bank’s inflation target range, according to Stephen Roberts, a senior economist at Nomura Australia Ltd. in Sydney. That limit now is likely 4 percent or lower, as productivity slows to less than 1 percent, he said.
The gap between yields on Australian government bonds and inflation-indexed notes today shows investors expect consumer prices will rise an annual 2.97 percent for the next five years, the fastest among eight developed nations tracked by Bloomberg.
“For industries like construction, incentives to move to mining sites will increase and put pressure on wages in capital cities,” Roberts said. Wage growth already is near the central bank’s “line in the sand,” where increases become inflationary and unions may exert more pressure, he said, predicting the central bank will raise rates later this quarter.
Unions see an opportunity to lock in higher compensation as unemployment hovers around 5 percent, about half the rate in the euro zone.
The Construction, Forestry, Mining and Energy Union, Australia’s biggest in the building industry, sought pay increases in February of as much as 24 percent over four years. The Communications, Electrical and Plumbers Union is seeking annual pay rises of 5 percent over the next three years, almost double the inflation rate.
“Industry has the capacity to pay,” Dave Noonan, national secretary of the CFMEU’s construction division, said in an interview.
Unions contend that cost-of-living pressures for workers are higher than reflected in the nation’s consumer price index, which rose 2.7 percent in the fourth quarter from 12 months earlier, the smallest gain in a year.
The gap between the central bank’s weighted median measure of inflation and the annual wage-price index, based on Feb. 23 statistics bureau figures, is the widest in six years.
Torrential rains in Queensland during December and January have compounded concerns about labor shortages. The storms flooded about 30,000 properties, shut coal mines, cut rail lines and damaged crops. An area the size of Egypt was declared a disaster zone, including parts of the state capital, Brisbane.
Reconstruction is expected to cost A$20 billion, according to Melbourne-based Australia & New Zealand Banking Group Ltd., and it will take two years and 34,000 tradesmen to rebuild Brisbane homes, said Graham Cuthbert, executive director of Brisbane-based industry group Master Builders Queensland.
Queensland already was experiencing high demand for civil engineers after the state was hit by floods a year earlier and that will only intensify after the latest deluge, said Simon Bristow, regional director at Hays, a recruitment firm.
“The market is tightening,” Bristow said.
Two coal-seam gas projects, expected to cost more than A$30 billion, are proceeding near Gladstone, a port in Queensland. Santos Ltd. (STO), Australia’s third-largest oil producer, and BG Group Plc (BG/), the U.K.’s third-biggest gas producer, will start hiring the first of more than 10,000 construction workers needed for the projects later this year.
Prime Minister Julia Gillard said in February the resource industry could be short 36,000 workers in the next four years and the government will have to introduce measures to encourage older Australians and parents to rejoin the workforce. She also plans to relax restrictions on skilled migration.
Labor availability and rising wages are the biggest concern of 55 percent of Western Australian businesses this year, up from 42 percent a year ago, according to a survey released yesterday by Commonwealth Bank of Australia and the state’s Chamber of Commerce and Industry.
So far, the Reserve Bank has relied on consumer spending restraint and higher household savings to cool inflation in recent quarters and allow it to delay rate increases.
With incomes rising in an economy forecast by the bank to grow 4.25 percent in 2011, when measured from the fourth quarter of 2010 to the final three months of this year, surging wages could force Stevens to boost a benchmark rate that’s already the highest in the developed world.
“At some stage, households will be comfortable with the war chest of savings built and throw caution to the wind,” said Jarrod Kerr, director of Australia rates strategy at Credit Suisse in Singapore. “The RBA is lying in wait for this moment and will restrain households if spending accelerates too much.”
Marks, the rigger who works for Monadelphous Group Ltd. (MND), expects to move closer to home in northern Queensland as mining and energy projects swing into gear, he said in a telephone interview from Perth, the capital of Western Australia. Friends often ask him how they can get into the resources businesses, too.
“It’s hard work, but for the money it’s worth it,” he said.
March 23 (Bloomberg) -- John Stephenson, a fund manager at First Asset Investment Management Inc., talks about the outlook for commodity prices, investment strategy and some of his commodity stock picks. Stephenson, author of "The Little Book of Commodity Investing," speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)
Coffee, sugar and cocoa prices will rise five- to 10-fold by 2014 because of shortages that will mean consumers getting “swamped” by food inflation, according to Superfund Financial.
A lack of farmland and rising costs means growers will fail to keep up with demand, said Aaron Smith, managing director of Superfund Financial (Hong Kong) Ltd. and Superfund USA Inc. Commodities account for about 40 percent of Superfund’s $1.25 billion assets under management. Smith correctly predicted record copper prices in November and a month later rightly anticipated that silver would outperform gold.
A United Nations index of world food prices jumped to a record last month, contributing to riots across northern Africa and the Middle East that already toppled leaders in Egypt and Tunisia. Global food security is threatened by “excessive price volatility and speculation,” farm ministers from 48 countries said in a joint statement after meeting in Berlin in January.
“There’s a tremendous shortage of food, there’s a tremendous shortage of arable land,” Smith said in interview in London. “Any kind of food products are going to increase.”
Coffee jumped more than fivefold in the two years through July 1994 and more than tripled from February 2002 to March 2005. Sugar prices rose fourfold from June 2002 to February 2006 and more than tripled from June 2007 to February last year. Cocoa advanced 242 percent from December 2000 to January 2003.
Arabica coffee traded on ICE Futures U.S. in New York almost doubled in the past year and traded at $2.663 a pound at 7:33 a.m. local time. Raw-sugar futures advanced 51 percent to 27.03 cents a pound, while cocoa is little changed at $2,960 a metric ton.
Coffee prices jumped after wet weather damaged crops in Colombia and on forecasts for a smaller harvest in Brazil, the world’s largest exporter. Sugar gained after floods in Pakistan andAustralia and cocoa advanced as fighting after elections in November disrupted exports fromIvory Coast, the largest grower.
Superfund, founded in Vienna in 1995, specializes in so- called managed futures, using its own trading system to buy and sell commodities and currency futures, stocks and bonds. It has a 24-hour trading operation in Chicago, Smith said.
The U.S. consumer price index rose 0.5 percent in February, the most since June 2009. Asian countries from China to Indonesia raised interest rates this year to curb inflation. European inflation quickened to 2.6 percent in March, the fastest since October 2008 and above theEuropean Central Bank’s 2 percent limit.
The commodity bull market may last for 15 to 20 years, Smith said in July 2008. The Standard & Poor’s GSCI Index of 24 commodities, which that month dropped as much as 66 percent through February 2009, is still 20 percent below its 2008 peak.
Wheat traded in Chicago is down 8.7 percent this year and sugar has dropped 16 percent. Global sugar production may exceed demand for the first time in four years if “normal weather conditions” return to the biggest growing nations, broker and researcher Jonathan Kingsman said last month.
Access to water, higher labor costs and rising incomes are also issues for food commodities, Smith said.
“There’s about 7 billion people in the world,” he said. “When you have that many people, it only takes tens of millions of people to move up a market that’s so small like sugar.”
World food production will have to increase by 70 percent by 2050 to meet increasing demand from an expanding global population, projected to rise to 9.1 billion by 2050 from 6.9 billion now, Hiroyuki Konuma, the UN Food and Agriculture Organization’s regional representative inAsia, said in an interview in Bangkok on March 9.
Food costs are at “dangerous levels” after pushing 44 million people into poverty since June, World Bank President Robert Zoellick said last month. That adds to the more than 900 million people around the world who go hungry each day, he said.
It’s “an incredibly difficult humanitarian story because the poorest countries will be hit the hardest,” Smith said. “The average person is going to be swamped by food inflation. The new arms race is food and energy.”
An indirect way of betting on food prices is to buy gold, because it tends to do well when inflation accelerates, he said. Gold has gained the past 10 years and reached a record $1,447.82 an ounce last week, while silver is up 22 percent this year at $37.775 an ounce. Gold will climb to $2,000 and silver to $60 in three years, he said.
“I think that gold, and to a lesser extent silver, will dramatically underperform soft commodities, but will at least have a high correlation to them,” Smith said. “When we see short-term rates in the U.S. at double digits then you can start to speculate that gold might be getting close to the end of its run.”