In the aftermath of the highly controversial win of Trump as US president, one thing is clear enough for Australia – it is going to receive an enormous shot of financial adrenalin. How will this happen when it seems that every political analyst believes otherwise? One of Trump’s policies is to spend at least US$1 trillion for rebuilding America’s infrastructures. This means an overwhelming demand for commodities like iron ore and coal which are being produced by Australia in massive amounts.
Ever since Trump declared that he is going to fix inner cities and rebuild airports, highways, schools and hospitals, the prices of commodities have certainly gone up. Iron ore which is the biggest of Australian exports has soared to almost US$75 a tonne, almost double the price at the start of the year. In the past few days, it has gained another 8% increase in price.
The change in the price of iron ore alone is huge. The price of coal has also risen steeply with the contract price more than double this year and spot price moving towards the stratosphere. Even if Australia does not directly supply the United States with coal and iron ore, the global demand for these commodities are expected to increase with Trump’s policy of big infrastructure improvements.
How much the demand for commodities will grow is still relatively unknown but the expectations and sentiments of the global market are resulting into the soaring of prices. On the other hand, China is also boosting its infrastructure projects and it looks like there will be a competition in infrastructure building.
From an economic perspective, the Trump presidency may result to some disadvantages for Australia but it will be outweighed by the benefit in the improvement of mineral commodity prices. This is welcome news for investors in Australian commodity companies.
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