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March, 201910:15 PM



Biggest annual fall in petrol in over 2 years

Biggest annual fall in petrol in over 2 years

According to preliminary data from the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 3.4 cents last week to a 16-month low of 122.1 cents a litre.

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07.01.2019 03:44 PM

Biggest annual fall in petrol prices in over 2 years
Weakest manufacturing activity in 28 months
Weekly Petrol Prices; Manufacturing

Petrol: According to preliminary data from the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 3.4 cents last week to a 16-month low of 122.1 cents a litre. The annual fall in petrol prices to January 6 stands at 10.7 per cent – the biggest decline in over two years.

Manufacturing activity: The Australian Industry Group (AiGroup) Performance of Manufacturing Index fell by 1.8 points to 49.5 points in December – the first contraction (a reading below 50) in activity in over two years. In trend terms, the PMI fell by 1.3 points to 52.6 points.

Manufacturing wages lift: The AiGroup Performance of Manufacturing average wages index rose by 5.4 points to 64.2 points in December, above its historical average of 59.1 points. The petrol figures have implications for retailers, especially petrol marketing groups. The manufacturing data provides guidance for companies in the Industrials sector.

What does it all mean?

Petrol prices are down across the country. Perfect timing for those on holiday road trips. Unleaded pump prices have fallen by over 10 per cent over the past 12 months (to January 6 2019) – the biggest annual decline since October 2 2016. A combination of declining global crude oil prices in late 2018 and the continuation of the retail petrol price discounting cycle in major capital cities are behind plunging pump prices.

Motorists should, however, get prepared for a lift in petrol prices. Brent crude oil prices rose by 9.3 per cent last week to US$57.06 a barrel - the best weekly gain since December 2016. The US Nymex price lifted by 5.8 per cent to US$47.96 a barrel. The key Singapore gasoline price rose by US$5.10 - the most in over two years - or 9.2 per cent to US$60.60 a barrel. Prices have lifted as protests and bad weather have curtailed Libyan exports, while Saudi Arabia has reduced output in advance of agreed OPEC supply cuts. US exports of crude and refined product also fell sharply last week. And better US economic data boosted oil demand hopes.

Global manufacturing gauges fell in December amid signs of a deceleration in the world economy. The US-China trade war is a key factor in slowing trade flows. China’s official factory index contracted, falling to its lowest level since September 2016 and the US Institute for Supply Management manufacturing index fell the most in a decade. Here in Australia, the AiGroup’s factory gauge contracted for the first time in over two years.

While it was a weak end to the year for Aussie manufacturers, the largest manufacturing sector – food and beverages – continues to expand at a healthy pace (57.3 points) with “respondents reporting higher production in the lead up to Christmas”, according to AiGroup. Chinese export demand for high quality food and beverage products has been a key feature of Aussie manufacturing strength in recent years, so a weakening in export orders will require close monitoring.

Manufacturers are also contending with increasing wages and higher energy costs. While there was a slowdown in hiring in December, the AiGroup’s average wages index lift by 5.4 points to 64.2 points in December, above its historical average of 59.1 points. And rising gas and electricity prices continue to be headwinds for the energyintensive chemicals, metal products, machinery and equipment sectors.

What do the figures show?
Petrol prices

According to preliminary data from the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 3.4 cents last week to a 16-month low of 122.1 cents a litre. The annual fall in petrol prices to January 6 stands at 10.7 per cent – the biggest decline in over two years.

Today, the national average wholesale (terminal gate) unleaded petrol price stands at 112.2 cents a litre, up by 0.2 cents over the week. The terminal gate diesel price stands at 121.2 cents a litre, down by 0.1 cents over the past week. The wholesale unleaded price is down 35.2 cents a litre from recent highs.

Last week, the key Singapore gasoline price rose by US$5.10 - the most in over two years - or 9.2 per cent to US$60.60 a barrel. In Australian dollar terms, the Singapore gasoline price rose by $7.56 - the most in over 2½ years - or 9.6 per cent last week to $86.28 a barrel or 54.26 cents a litre.

MotorMouth records the following average retail prices for capital cities today: Sydney 113.5c; Melbourne 113.1c; Brisbane 113.7c; Adelaide 109.4c; Perth 113.6c; Canberra 146.2c; Darwin 131.8c; Hobart 150.6c.

Manufacturing Purchasing Managers’ Indexes

The Australian Industry Group (AiGroup) Performance of Manufacturing Index fell by 1.8 points to 49.5 points in December – the first contraction (a reading below 50) in over two years. It was the weakest reading since August 2016.

AiGroup noted: “The manufacturing sector contracted (albeit marginally) for the first time in over two years in December. Six of the seven activity indicators fell indicating generally weaker conditions. Respondents across the large metals, machinery & equipment and chemicals sectors have reported a gradual slowing of demand throughout the second half of 2018.”

On new orders: “The new orders index was the only activity index to improve in December but remained broadly stable at 49.0 points (seasonally adjusted). New orders were particularly strong in the food & beverages and machinery & equipment sectors but weaker in the chemicals and non-metallic minerals sectors. Manufacturers in Victoria continue to report strong levels of new orders from large construction and infrastructure projects.”

On exports: “The Australian PMI exports index fell by 3.7 points to 47.1 points, indicating that exports contracted in December (seasonally adjusted). The food & beverage and chemicals sectors dragged the export index lower in December.”

On production: “The production index fell by 2.4 points to 49.4 points, indicating stable production in December, but at a slower rate than in November (seasonally adjusted). This was the lowest result for this index since October 2017.”

On employment: “The employment index moved into contraction at 47.9 points, indicating contracting employment across the manufacturing sector in December (seasonally adjusted). This index reached a record high in March 2018 but has been trending down over the last few months. December marked the lowest result since 2016.”

On wages: “The average wages index rebounded by 5.4 points to 64.2 points in December, after falling in the previous two months (seasonally adjusted). This index is now back above its historical average of 59.1 points and indicates a greater proportion of businesses implemented wage increases in December than in November.”

On input prices: “Input prices remain elevated for energy-intensive sectors including the chemicals, metal products and machinery & equipment sectors, reflecting their ongoing problems with high input costs for gas and electricity.”

What is the importance of the economic data?

Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory's metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

The Australian Industry Group compile the Performance of Manufacturing Index and Performance of Services index each month. CBA and Markit also compile purchasing manager surveys for manufacturing and services sectors. The surveys are amongst the timeliest economic indicators released in Australia. The surveys are useful not just in showing how key sectors are performing but also in providing some sense about where they are headed. The key ‘forward looking’ components are orders and employment.

What are the implications for interest rates and investors?

Global crude oil prices have stabilised for now. In fact, last week oil prices rose by the most in more than two years. Prices are recovering after meaningful production cuts by OPEC producers and better economic data out of the US boosted sentiment.

Last week, the benchmark Singapore gasoline price rose by the most in over two years, implying an eventual increase in Aussie pump prices after prices fell through the Christmas-New Year period. The month-long retail discounting cycle is now into its final week, so motorists are well advised to fill-up in the coming days.

Two out of three of the AiGroup’s leading indicators are pointing to a contraction in activity – construction and manufacturing. The weakening in factory activity is at odds with the Commonwealth Bank’s December manufacturing gauge, which continues to expand, albeit at a decelerating rate. Nevertheless, a broader slowdown in global manufacturing activity is taking place amid a slowdown in trade volumes.

Rising input costs imply further margin pressures for Aussie manufacturers – not ideal given the softer demand backdrop. But it’s not all bad news. Factory activity in Victoria - Australia’s manufacturing growth engine - remains solid due infrastructure-related projects. And factory workers are getting paid more with wages lifting on the back of strong jobs growth.

CommSec expects official interest rate settings to remain on hold for the foreseeable future.

Published by Ryan Felsman, Senior Economist, CommSec
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