A Reserve Bank official is confident that the worst is over for commodity prices and Australia will continue to benefit from a strong Chinese economy.

Prices for iron ore have fallen by about two-thirds in the past two years after reaching highs of about $US180 a tonne. But RBA assistant governor for economics Christopher Kent said commodity prices are still quite high.

“One of the reasons why commodity prices now are much higher than they had been is because demand has expanded over many many years,” he told a UBS conference this week. “So you’d need a really big retraction in demand to bring us back to those levels.”

Kent said a further substantial fall in commodity prices is possible, but another large drop in demand is unlikely. But if commodity prices were to fall further the Australian dollar would also drop, which would help the local economy adjust. Kent said an additional benefit for Australia is the other opportunities it has to export to China, particularly in services.


UBS economist Donna Kwok said as China’s middle class grows, so will the demand for services and goods that Australia is in a good place to provide.