After a bumpy 2020, Australian meat producers and exporters face headwinds in 2021.
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SINGAPORE — Natural gas prices in Asia hit a record high last week and will likely go down from here, according to political risk consultancy Eurasia Group.
“We’ve heard single cargos indeed sell in the high $30s, I heard one at $39 [per million British thermal units],” said Henning Gloystein, director of energy, climate and resources at Eurasia. That level seems like the “high mark” for prices and the peak, he said.
According to S&P Global Platts, the benchmark Japan-Korea-Marker (JKM) spot price for liquefied natural gas in February reached a record high of $32.49 MMBtu last week. Natural gas demand for heating soared after a cold spell gripped North Asia, the report said.
The jump in prices has been “pretty extreme,” but won’t last much longer as the cold season is ending and demand for heating will fall, Gloystein told CNBC’s “Squawk Box Asia” on Monday.
“At some point, of course, it will get a little bit warmer,” he said. “Prices for February and March will probably come down because … the winter will end for sure.”
“This is probably the peak of the spike,” he added.
The liquefied natural gas (LNG) cargo ship Cygnus Passage from Russia berths at an LNG terminal operated by China Petrochemical Corporation (Sinopec Group) on January 7, 2021 in Tianjin, China.
VCG | Visual China Group | Getty Images
Natural gas prices in Asia fell to a record low in the second quarter of last year when the coronavirus crisis spread, but they have surged more than 1,000% since July.
Gloystein said the cold weather and some supply outages have played a part in that surge, but one “big overlooked factor” is the vast number of households in China that switched from coal to natural gas last year.
More than 10 million households in China were estimated to have moved from coal to natural gas for heating their homes, he said. The majority of those transitions happened in the last quarter of 2020, just before winter arrived, he said.
This gasification program and the move to cleaner fuels in China will remain in place, without a doubt.
“Then it did get really cold, and suddenly they had to serve all this new demand which, by some estimates, it will be the equivalent of moving all of Australia’s households to another fuel within a single year,” Gloystein said.
Utilities and energy companies did not have enough storage to prepare for such a big increase in demand, he added. As a result, demand outstripped supply and drove prices to a record high.
Gloystein said companies usually build up storage during the summer and use it up in the winter, topping up as needed. This time, however, China suddenly had to purchase more gas for new customers at “literally whatever price, and no one was prepared for that in the market.”
Still, the trend of switching away from coal to gas will likely continue, he added.
“This gasification program and the move to cleaner fuels in China will remain in place, without a doubt,” he said.
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Australians love of housing continues with even more vigour during the Covid recession – powered by government incentives and record low interest rates, which look set to remain low for many years.
In November a record $23.96bn in new housing loans were taken out. This record reveals how weird this recession is – there is higher unemployment, but it is mostly driven by forces that have little to do with the underlying strength of the economy.
It means that for those still with a full-time job things are pretty good – especially if you are thinking about buying a home.
And so in November last year, the level of new housing loans was 24% above where it was 12 months earlier:
The big boost has come from owner-occupiers – up 31% over the 12 months compared to just a 4% growth for investors.
This lack of investor loans however is just a continuation of what has happened since 2016 when the surge of apartment building came to an end. In November the total of owner-occupier loans was 38% above what it was in January 2017, while investor loans were down 38%:
And among owner-occupiers the big surge has come for those looking to build a new home.
It has to be said that the government’s homebuilder grant of $25,000 for new builds and substantial renovations has worked as intended.
Since it came into effect in June last year, the number of home loans for the construction of houses has doubled from 3,491 in June to 7,107 in November.
So great has been the surge of home loans to build houses that in November the number of such loans was well above even the level that occurred during the GFC when the Rudd government also introduced measures to boost housing construction:
And yet there has also been a big jump in the purchase of established homes. This is less to do with government policies and grants and more to do with the record low interest rates.
It is true that even before the pandemic interest rates were at record lows, but the impact of the Reserve Bank dropping the cash rate to 0.1% might have had the opposite psychological impact that pushing it to 17% in 1989 had.
Back then rates were already high but that final increase knocked the stuffing out of those with a mortgage, and it scared the hell out of those thinking about taking out a home loan.
Similarly, if you were ever worried about holding off taking out a loan because of fears about interest rates, the RBA cutting the cash rate to 0.1% removed them. Even the most risk averse borrower was thinking now it’s the time to take out a loan.
For many this has not just meant a home loan but also a car loan – the number of which has completely recovered from the drop in April last year:
Partly this is because the option of a big spend on an overseas holiday has completely dried up, and as a result loans for travel remains barely above zero:
But will these low rates last?
We know that increases in home loans lead to an increase in house prices, and the Reserve Bank would not wish for a divergence of house prices while unemployment remains high – for such a level is unsustainable and risks a collapse once government grants end.
It also will lead to a decrease in housing affordability as incomes will not keep pace with house prices.
In the past that would have meant an increase in rates, but not now.
Shane Wright reported on Monday in the Sydney Morning Herald that the RBA is instead looking at tightening lending standards should house prices continue to rise.
It will need to do this because there is no prospect at the moment of any increase in wages and inflation that would force the RBA to lift rates.
The most recent market inflation expectations suggests inflation growth will be well below the RBA’s target of 2% throughout this year:
Last November, the Reserve Bank announced that it “will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range”.
This was a change on its previous advice that it would not do so until it was “confident that inflation will be sustainably within the 2–3 per cent target band”.
As of now, actual inflation has not been above 2% for over five years – and when it was wages growth had been long above 2%:
The RBA has noted that to get inflation back above 2% “wages growth will have to be materially higher than it is currently” and this “will require significant gains in employment and a return to a tight labour market”.
In essence that means unemployment back around 5%. As a result the RBA “is not expecting to increase the cash rate for at least three years”.
And so home loans are likely to continue to grow and so too will the gap between house prices and household income.
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Finding a rental property in Canberra at this time of year is almost always a battle, as hordes of people flock to the national capital to start university and take up new jobs.
But as the country remains in the grip of the coronavirus pandemic, there was hope among prospective tenants that this year would be less brutal.
It’s not. In fact, it’s worse.
“The market is crazy,” real estate agent Mel Brill said.
“It just has a mind of its own at the moment.”
While COVID-19 has halted the usual influx of international arrivals, more Australians are relocating to Canberra from interstate than agents expected.
And the mass exodus from the territory that usually happens at this time of year is not occurring, with most Canberrans seemingly happy to stay put.
From northside to southside, inspections have been drawing record crowds and more applications than agents can handle.
And, because demand for rental properties is so high, house hunters have even been offering well above the asking price to increase their chances of success.
“I had 30 groups through a house in Ainslie that was advertised for $620 and I was getting offers at $750 — it was ridiculous,” Ms Brill said.
Low supply + high demand = $$$
According to data from CoreLogic, Canberra is currently the most expensive city for renters in the country.
The median weekly rent for a house in the capital is $657 — up 3.6 per cent since 2019.
Apartment rents are also increasing but not as quickly, with the average now $473 per week.
Hannah Gill, president of the Real Estate Institute of the ACT (REIACT), said the housing and rental markets live by a simple equation of supply and demand.
When supply is low, demand becomes high, causing prices to skyrocket.
“Data released this week showed a 1.1 per cent vacancy rate, which is just not a sustainable vacancy rate,” Ms Gill, said.
House hunters at breaking point
Single mother Kellee Roberts had not rented in more than a decade and was not prepared for the angst that finding a new home in Canberra would bring.
“I’ve been to inspections where there are 40 and 50 people at them,” Ms Roberts said.
Ms Roberts has been looking for a rental property since selling her home in Gowrie last November.
She applied for more than 10 properties in two weeks and was rejected from every one.
“I’d like to think being a single parent doesn’t work against me, but it probably does,” Ms Roberts said.
“Only having one income in a family, people have that concern that you’re not as financially secure and I do feel like it does go against me.”
It shouldn’t, RIEACT’s Ms Gill said.
“When we’re looking for a tenant, all we should be looking for is their capacity to care for the property and pay the rent,” Ms Gill said.
“So, how many kids they have, how many pets they have, what they do for a living, none of that should actually come into play.”
It got to the point where Ms Roberts had less than a week to find somewhere to live.
She wasn’t sleeping and was overwhelmed with stress.
Then she finally got the news she had been waiting for — she was approved for a home in Rivett and is scheduled to move in this week.
“I’m very, very relieved,” she said.
Battle of the uni students
For two months, ANU student Hannah Young has spent every spare moment looking for a house to move into with three friends.
“We have all come from living on campus and it’s just been so hard because there are so many students doing the same thing,” Ms Young said.
“We’ve just been staring at the apps and real estate websites, waiting for houses to come on the market.”
The group has been to more than 30 inspections and submitted at least 15 applications.
“Because, if you’re offering what they’re asking for, you’ve got no shot, especially if you’re a student group, because that’s the only way you’re going to seem more attractive than families and professionals.”
In the past week, Hannah and her friends finally had some luck — they were approved for a four-bedroom house in Ainslie.
“I still feel such disbelief — I can’t believe we have a house, and it’s such a relief to delete the real estate apps,” Ms Young said.
The good news didn’t come cheaply, though.
The house was advertised for $800 per week but the group had to offer $200 more to secure it.
And the only reason they are able to afford that is because their parents are chipping in.
“This whole time I’ve been thinking, ‘Oh, woe is me’ but most student groups wouldn’t be getting parental support,” she said.
“And they’re having to compete with groups who have parents throwing money at the situation.”
Everything, everywhere being snapped up quickly
It is not only houses that are hot property in Canberra, with demand for units also soaring.
“Honestly, nothing is hard to move at the moment,” Grace Hooper, Independent Property Group’s general manager of property management, said.
“We’ve had a few large developments in Canberra — one in Braddon and one in Kingston — and they have rented extremely quickly.
“Usually with developments we do see, because there’s a large volume, they do take a little longer. But at the moment, that’s just not the case.”
But while competition is fierce, agents want would-be tenants to know that it is not always the highest bid that wins.
“Sometimes there’s a better fit or something else an owner is looking for, and most landlords will forgo $10 or $20 dollars for a tenant they feel really happy with in their property.”
While interest in Canberra as a place to live may be high, investors are starting to look elsewhere, according to experts.
Ms Gill said there were for a number of reasons for that.
“If you’re looking at rents alone, Canberra’s a great place to invest and it always has been,” Ms Gill said.
“But if you’re looking at running costs and some of the other elements that tie into holding property in Canberra — land taxes and the balance of tenant and landlord rights, for example — that’s where it becomes a little bit murky.”
Ms Gill said those concerns meant investors were increasingly looking at areas beyond the the ACT border.
She said that was a huge concern because supply was already so strained and rental stress had become increasingly common.
“Housing needs to be a right, not a privilege,” she said.
“That creates a significant flow-on effect for rental stress and the way people can live in Canberra.”
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U.S. consumer prices rose 0.4% in December, led by a sharp rise in gasoline prices.
Last month’s increase, the largest in four months, followed a 0.2% rise in November and no change at all in October, according to Labor Department numbers released Wednesday.
Inflation for all of 2020 rose a modest 1.4%, well below the Federal Reserve’s 2% target. Analysts believe inflation will remain subdued with the U.S. economy still unable to break out of a pandemic-induced downturn.
For December, energy prices rose 4% with gasoline prices surging 8.4%. Even with that big jump, gasoline prices are 15.2% below where they were a year ago, when people were still commuting to work. Food costs rose 0.4% in December and are 3.9% higher than a year ago.
Core inflation, excluding volatile food and energy, rose a slight 0.1% last month, and just 1.6% over the past 12 months.
Inflation has been dormant over the past decade, a development that is allowing the Federal Reserve to keep interest rates at ultra-low levels during a surge in Covid-19 cases that has forced more business shutdowns at a time when millions are out of work.
Kathy Bostjancic, chief U.S. financial economist, said the benign inflation performance will likely mean that the Fed does not start raising interest rates until 2024.
“The Fed’s policy objectives signal that monetary policy will remain very accommodative for a considerable time,” Bostjanci said.
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Warnings of increasing energy prices, unreliability as renewables flood market
Australia’s Energy Security Board has warned energy prices may begin to rise and supply grow increasingly unreliable unless the nation’s grid undergoes urgent reform.
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House prices in Australia’s biggest cities could decline early in 2021 due to raised coronavirus restrictions for the latest infections affecting the eastern states.
Tim Lawless, the research director of property data group CoreLogic, said house prices would probably decline in the first couple of months as buyers become wary of the latest Covid-19 restrictions.
“It stands to reason that the latest coronavirus changes will dent consumer confidence and the housing market could be negatively impacted,” he said on Monday.
States and territories from December have prevented travellers, mostly those from New South Wales, entering following the Sydney virus outbreak that has spawned more than 100 infections.
NSW last week followed Victoria’s lead in mandating masks be worn for indoor settings in most parts of the state.
Lawless said consumer confidence indices usually dipped following heightened measures.
“We can see when consumer sentiment falls, we see a similar fall in transactional activity,” he said.
“Buying a property is a high-commitment decision and you want to be confident about your household finances, your job and the ability to get a mortgage.”
Australia’s housing market increased in value in 2020, despite the drag on activity caused by the outbreak of coronavirus.
The national home value index rose 3% over the year to a median price of $574,872, according to CoreLogic.
Values in regional areas led the way with a 6.9% increase for a combined median of $420,502, compared to 2% for major capital cities for a combined median of $651,983.
Melbourne was the only capital city to finish the year in negative territory – albeit on a relatively healthy median price of $682,197 – after battling two waves of Covid outbreaks.
The most expensive city was Sydney, with a median value of $871,749, and the cheapest was Darwin at $416,183.
Lawless said record low borrowing rates supported the market in 2020, along with a “spectacular” rise in consumer confidence.
Confidence was buoyed in the latter months of the year as Covid-related restrictions and border constraints began to be lifted.
“Containing the spread of the virus has been critical to Australia’s economic and housing market resilience,” Lawless said.
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House prices in regional Australia have risen at a higher annual rate than in capital cities for the first time in more than 15 years, as COVID-19 increases people’s desire to live outside the big smoke.
CoreLogic data shows national house prices rose 1 per cent in December
Regional prices grew almost 7 per cent compared to 2 per cent growth for capital cities
Government stimulus saw house prices finish the year 3 per cent higher
Annual data by real estate analysts CoreLogic shows dwelling values in capital cities rose 2 per cent during 2020.
That compares to an almost 7 per cent increase for regional markets.
“Regional markets haven’t outperformed the capital city markets since 2004,” CoreLogic research director Tim Lawless said.
There has been intense speculation about Australians choosing to relocate regionally during the pandemic, as working from home arrangements make it easier for people to move away from big cities where major employers are typically based.
Mr Lawless said there was now enough data both out of CoreLogic and the Australian Bureau of Statistics to back up this speculation.
“I think this trend is quite entrenched now and it will persist into 2021. Perhaps as we go into mid-2021 we will start to see affordability diminish between capital and regional markets,” Mr Lawless said.
Mr Lawless said the hottest markets were those that were only a few hours drive from major capital cities, such as the Gold Coast, Sunshine Coast, Geelong, Daylesford, Ballarat, Wollongong, and Newcastle.
“They’re leading the pack in terms of strongest growth,” he said.
“People can have the best of both worlds and live in a marketplace with lifestyle benefits and lower prices, as well commute back to big cities if they need to,” Mr Lawless said.
Sea and tree changes predate COVID
Mr Lawless said it was not as simple as saying the pandemic caused the regional demand. It was more likely COVID-19 had sped up an existing trend of people wanting a sea or tree change.
While ABS population data out in November did show regional relocation trends during 2020, it also showed this trend had been happening in some locations pre-COVID.
For instance, people leaving Melbourne for regional Victoria had already been trending up pre-2020, with capital city house prices from 2017 reflecting this.
Mr Lawless said if this trend continued into 2021, it may lead to homes in regional Australia becoming even more expensive.
That may be good news for investors in regional markets, but it is not good for renters in regional locations who have previously been settled there with cheaper rents compared to big cities.
“Perhaps as we go into mid-2021, we will start to see affordability diminish between capital and regional markets.
“If we look at the trend where regional house prices and rents are rising quickly, at a time when incomes are quite stable if not falling, with JobKeeper declining as well, I think we will see affordability issues creep into these markets.”
National house prices rise in December
As well as showing the full data for the year 2020, the CoreLogic figures also show what happened to house prices in December.
Across the country, house prices rose by 1 per cent in the last month of 2020 as Victoria began to open up after months of heavy lockdowns due to coronavirus.
It is the third consecutive month CoreLogic’s national home value index rose, following a 2.1 per cent drop in dwelling values between April and September.
Regional Tasmania saw the biggest year-on-year growth with prices rising 11.9 per cent, followed by regional NSW jumping 8.3 per cent and regional South Australia up 8.1 per cent.
Darwin recorded the biggest rise in capital city housing prices, up 9 per cent, with Canberra coming in second (7.5 per cent), followed by Hobart (6.1 per cent).
Darwin enters ‘very strong recovery’
Darwin’s rise comes after the tropical capital city with a population of just over 100,000 people experienced a major housing downturn following a gas-led boom.
“It does look like Darwin is in a very strong recovery now,” Mr Lawless said.
Melbourne was the only capital city to record a drop in house prices compared to 2019 (-1.3 per cent).
Melbourne’s dip comes after the major capital city endured not one but two lockdowns during COVID.
“We have seen a lot of diversity across the capital cities,” Mr Lawless said.
“The prices for housing markets is very much in line with how those cities have contained the virus and how their economies are performing.
“Melbourne is definitely playing catchup. That really reflects the weakness of the market through two rounds of lockdown.”
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Gold futures finished lower Monday, after back-to-back gains, giving up an early rise in a choppy trading session as investors deemed some firmness in the U.S. dollar and a global stock rally sufficient headwinds for bullion.
Bullion had briefly scored a modest bounce toward its highest level in about six weeks intraday after President Donald Trump signed a coronavirus relief package over the weekend, ending a brief standoff between the White House and Congress.
Gold is viewed as a hedge against devaluation of dollars and large deficits being run up by governments to curb the harmful economic effects of the COVID-19 pandemic.
Bullion has benefited over the year from economic uncertainties created by COVID-19, but has been struggling to hold on to key levels near $1,900, with the rollout of experimental vaccines and remedies that have been rapidly authorized by governmental health bodies to tackle the pandemic.
Risk markets scored a boost on Monday after the signing of the relief bill, as the coronavirus pandemic continued to surge across the country and the rest of the world.
The legislation was seen as a support for gold prices because government spending is seen putting pressure on the dollar. However, much of the move in gold from COVID aid measures may have been priced into the metal, some experts said.
A neutral dollar, tilting slightly higher in the session, eventually helped to pressure gold lower. A firmer dollar tends to make assets priced in the commodity less appealing to buyers overseas.
The dollar was flat at 90.323, as measured by the ICE U.S. Dollar Index DXY.
Gold for February delivery
shed $2.80, or 0.1%, to settle at $1,880.40, after posting a 0.3% weekly decline on Thursday and snapping a streak of three consecutive weekly gains, FactSet data show.
Silver for March delivery
meanwhile, which trades at times as both an industrial and a precious metal, got a lift from hope of a better economic backdrop from the passage of relief aid. Silver prices climbed 63.1 cents, or 2.4%, to settle at $26.539 an ounce, following a weekly slump of 0.3% on Thursday.
Metals trading last week settled an hour earlier on Thursday, at 12:30 p.m. Eastern, and remained closed in observance of Christmas on Friday. Markets will be closed this Friday in observance of New Year’s Day.
Elsewhere on Comex, March copper
added less than a penny, or 0.2%, to settle at $3.571 a pound, after the industrial metal booked a 1.9% weekly loss on Thursday.
finished at $1,043.10 an ounce, a gain of $14.20, or 1.4%, after a weekly decline of 1.4%. March palladium
added $5.90, or 0.3%, to settle at $2,351.80 an ounce, following a weekly decline of 1.1%.