A new up-wave in commodity prices

The fastest growth last year was in a country called Vietnam. Vietnam absorbed 9.2 million tonnes of Chinese steel, which is 10% of total exports. South Korea absorbed 8.4 million tonnes, which was 9% of exports. Thailand absorbed 4.9 million tonnes, which was 5.3% of exports, and the Philippines 4.8 million tonnes.

That's not the United States. It's not Germany, it's not France. It's countries north of us which are using all that steel because the growth rate is so good, is so strong. The Philippines absorbed 4.9 million tonnes. Indonesia absorbed 4.2 million tonnes. Turkey, not north of us, but to the west absorbed 4 million tonnes, the UAE 3.7 million tonnes. India, even though it has its own steel manufacturing industry which is growing incredibly rapidly, absorbed 3 million tonnes.

Let us look at some of those countries where we saw that rapid demand and look at GDP growth. I want to look at four of them and what the GDP growth is and what the size of those economies are.

First, Vietnam which had the strongest growth. A lot has happened in Vietnam. In China, wages have gone up so much that they've priced themselves out of the manufacturing business. A lot of that manufacturing is now going to Vietnam. So, what you're having is the roll out of factory building in Vietnam as manufacturing moves from China.

What's interesting is that Vietnam has 100 million people, the size of its economy is $US 0.5 trillion, and that economy grew by 6.9% this year. That's the kind of growth rate that China used to have. The IMF thinks it's going to grow by 6.9% next year as well. Another country is the Philippines. The Philippines has 117 million people in it. It also has an economy of just over $US 0.5 trillion dollars. It's growing at 5.7% this year. The IMF thinks it's going to grow by 5.9% next year.

Indonesia is an enormous country with 280 million people, almost as many people as the United States. It produces income of $US1.5 trillion and is growing at 5% this year, a touch faster than China’s annual growth, 5.1% next year. Indonesia will keep growing at that rate because its population continues to grow, unlike China.

India, of course, is the big guy in the Indo-Pacific. It grew by 6.9% this year. It will grow by 6.7% next year, according to the IMF. It of course, has a population of 1.4 trillion people bigger than China. India’s economy this year was $US3.9 trillion. I compare that to a little country in the South Pacific, a small open economy, as economists say, which has only 27 million people in it. You're right, its Australia. Australia has an economy of $US1.8 trillion.

ECONOMIC STRATEGY │ 28 October 2024 3

What you've got here are two stories for recovery in commodities. First, you have a financial story, which is obvious. The Fed is going to cut rates. The US dollar will fall, and after a lag, commodity prices will go up.

Still, what is important is that this commodity market has strong structural demand, and that strong structural demand is coming not from strong growth in China anymore, but from strong growth in the Indo-Pacific. There is particularly strong growth both in Vietnam and in the Philippines and strong growth in Indonesia. Of course, the big guy in the block is the strong growth in India.