Commodity prices tick up in September

Positive economic data from the United States and China has led to improved investor sentiment and the second consecutive month of growth for the Deloitte WA Index.

Despite talk of a commodity slow-down, the majority of commodity prices strengthened over the month, with market capitalisation for the index increasing by 2 per cent to close at $142.8 billion at the end of September.

The strength of commodity prices supported a slight rebound after 18 months of losses, with base metals such as nickel increasing 15.9 per cent, tin 13 per cent and iron ore 17.5 per cent.

In August, iron ore fell 22.8 per cent due to concerns about a slowdown in China and the cancellation of a number of large projects. Market capitalisation for the Deloitte WA Index increased only 0.2 per cent.

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Deloitte said commodity prices appeared to be both a symptom and a cause of financial market strength, as most global indices posted growth in September which coincided with a seven-month high in the United States Consumer Confidence Index (14.7 per cent).

Positive housing and employment data drove a 3.4 per cent increase in the US S&P500, while the All Ordinaries gained 1.6 per cent.

Tim Richards, Deloitte's head of national mining, said that as interest rates fell, inflationary pressures on the Australian dollar should also reduce. 

"Australian markets are particularly sensitive to movements in demand from China, with much of the recent slowdown attributed to slowing economic growth in China and increases in inventories at steel mills, curbing demand for iron ore in particular," he said.

Iron ore accounted for 20 per cent of Australia's export values in 2011, with 70 per cent of those exports shipped to China.

The demand for gold as a safe haven continued precious metals' upward trend, although the lack of physical demand for gold coupled with near-zero interest rates in the United States has led to speculation that the price of gold may now be inflated.

Investors were still wary of Europe, with the FTSE 100 closing just 0.8 per cent up on August.

Their caution extends to falling revenues for Japanese companies based in China, which drove the Nikkei down 0.4 per cent for the month.

A strong yen has further tarnished Japanese exporters' competitiveness.

Deloitte said Asia is expected to remain the main driver of global economic growth, as the urban population doubles to three billion by 2050 with the majority of the world's middle classes dwelling in the region.