Australia: Commodities fall narrows trade surplus, say economists

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2 Sep 2010

A sharp fall in coal and iron ore exports to China and India and one-off purchases of military aircraft are the factors behind a much lower than expected trade surplus, economists say. The trade balance narrowed to a surplus of $1.888 billion in July, seasonally adjusted, about half the level of the June surplus of $3.438 billion, according to Australian Bureau of Statistics (ABS) data.
Economists had expected a surplus of $3.1 billion in July .
Coal and iron exports to China were down 77 per cent and down by 47 per cent to India in July, the ABS said.
JP Morgan economist Helen Kevans said the trade balance figures reflected a fall in the price of coal and iron ore as well as one-off aircraft purchases.
"It was a bigger narrowing of the surplus than expected," Ms Kevans said.
"Factored into that are a number of one-off purchases of aircraft, which have put up the import side of the ledger a little bit more than we had forecast.
"The other factor is that we did see a sharp pullback in exports of our key commodities, and that's going to be at play for the next few months."
The import of the other merchandise goods category was up $477 million after the Department of Defence bought six super Hornet aircraft in July, the ABS said.
During the month, exports were down 4 per cent in seasonally adjusted terms, while imports were up 2 per cent.
Ms Kevans said markets had seen commodity prices "come off quite a bit" over the past few months and forecast a further narrowing of the surplus.
"These contracts are now reflecting those (lower) spot prices, so we do expect export values will come down as a result of that over the next few months.
"That will rein in the surplus."
Overall, exports to China were down 7.8 per cent while exports to India were 26.9 per cent lower in the month.
However, exports to both countries are still well up on a year ago.
ANZ economist Riki Polygenis said the Chinese Government closed 40 per cent of its steel industry in July for maintenance, which resulted in the large decrease in export demand.
"It was very disappointing," she said.
"The trade balance is now half what it was in June. It was largely driven by a fall in resource exports, particularly in coal and iron ore."
Nomura Australia chief economist Steven Roberts said exports were going to be volatile for the time being because of regular month to month price changes and volumes.
"This month was one where the volumes of the key commodities came back, non-rural exports came back six per cent in the course of the month and led to that fall in the side of the trade surplus.
"Having said that, it's still a big trade surplus, last month was an outsized one on a (downwardly) revised $3.4 billion.
"So we're still running trade surpluses and we expect to see that continuing."
Mr Roberts said the data didn't change the outlook for the Reserve Bank to keep interest rates on hold until the end of calendar 2010.
BHP Billiton declined to comment on reports that several Japanese steelmakers agreed to a lower coking coal price.
The report comes amid a slowdown in Chinese steel demand, which has already fuelled concerns that it could lead to a fall in iron ore prices in coming months.

Source: Heraldsun