Aussies Go Back to Future as Iron-Coal Drives Trade Surplus

  • Commodity price surge spurs first trade surplus since 2014
  • Coal exports increase to highest amount in five years

Australia Posts Surprise Trade Surplus

Australia recorded its first trade surplus in almost three years as Chinese demand stoked prices for its two biggest exports, iron ore and coal.

Key Points

  • First trade surplus since March 2014
  • Exports climbed 8% from month earlier; imports were little changed
  • Most iron ore exports since August 2014 in local currency terms; most coal exports since January 2012
  • October trade balance revised to A$1.12b deficit from A$1.54b shortfall
  • The monthly change in the trade balance of A$2.36b was the biggest positive turnaround since April 2010

Big Picture

Australia’s trade performance closely correlates with demand from China’s old growth drivers like infrastructure and apartment construction. The government in Beijing’s stimulus program, together with cutbacks in coal output, helped underpin a surge in coal and iron ore prices that’s now reflecting in Australia’s sharply improving trade balance.

Separate data released Friday showed iron ore cargoes from Australia’s Port Hedland, the world’s largest bulk-export terminal, climbed to a record in December, capping full-year shipments at an all-time high.

Economist Takeaways

“The rise in commodity prices that has generated the trade surplus has not resulted in much higher export volumes, and that’s crucial for real GDP growth,” said Paul Dales, chief Australia & New Zealand economist at Capital Economics Ltd. in Sydney. “The economy will probably escape a recession (two consecutive falls in GDP), but only just.”

“We expect the trade surpluses to continue till mid‑2017,” said Michael Workman, a senior economist at Commonwealth Bank of Australia. “Some retracement in bulk commodity prices is very likely by then as supply conditions are restored to early 2016 levels, especially in China.”

“There are also some quiet achievers worth noting for November,” said Michael Turner, fixed-income and currency strategist at Royal Bank of Canada in Sydney. “Firstly, LNG exports have jumped by almost 20 percent (not seasonally adjusted) in the fourth quarter, likely reflecting the ramping-up of shipments from large projects. Secondly, rural goods rose 17 percent (A$600 million) on the month.”

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