Economic Buzz: Australian Manufacturing Sector Contracts For Nearly Two Years

The Australian manufacturing sector continues to suffer, despite getting help from weak currency and lower interest rates. The Australian Industry Group's Performance of Manufacturing Index (PMI) was 42.0 in July, down 7.6 points from June. The below-50 reading shows activity in the sector is falling. Manufacturing hasn't posted a monthly rise since June 2011.

Manufacturers are telling us that, while the fall in the Australian dollar and the May interest rate cut have been extremely welcome, they have not yet been enough to turn around a very challenging business environment. The weakness in the currency has fuelled higher prices for imported inputs without any real corresponding improvement in stronger exports.

The Reserve Bank Of Australia (RBA) noted last month that survey-based measures of business conditions improved in May, but were still a little below long-run average levels. Over the past few months, measures of sentiment had improved for some industries, including construction and business services, and declined slightly for other industries, most notably mining and manufacturing.

While the volume of resources exports had risen further, and was expected to continue to grow with the addition of new capacity for bulk commodities, the decline in commodity prices over the past year or so had weighed on the resources sector. RBA noted that while mining investment remained at a high level, planning and development work related to future projects had declined significantly since the previous year.

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Commodities Buzz: Global Dairy Giant Upgrades Milk Price Forecasts

The largest biggest dairy processors in the world, Fonterra raised its forecast for its milk price paid to farmers amid thin supplies. New Zealand-based Fonterra, raised by NZ$0.50 to NZ$7.50 per kilogramme of milk solids its forecast for its milk price in 2013-14, taking it NZ$0.10 from the record high set three years before. Fonterra has forecast a dividend of NZ$0.32 on top, taking the total forecast payout to its members to NZ$7.82 per kilogramme of milk solids, a jump of 28% year on year.

However, supply constraints in Europe, a major exporter, and China, the top dairy importing country during the northern hemisphere spring has contributed to an increase in dairy prices of 3% over the past two months.

Dairy supplies have been run down by strong export demand during a 2012-13 season of poor production, which fell by 3.0% in Australia and by 1.6% in New Zealand. However, going ahead in the second half of the year, milk production will be picking up in New Zealand and the EU, and that is likely to bring a global price decline in most dairy products as early as November or December.

Source by Commodity Insights