The Economy: Trade Surplus Still Strong, But For How Long?

We had another solid trade performance in September, which capped a strong three months for the country's trade account.

The trade surplus fell $389 million in September, according to figures from the Australian Bureau of Statistics yesterday.

The balance on goods and services was a surplus of $2.564 billion in September, seasonally adjusted, and compared with a downwardly revised surplus of $2.953 billion in August (originally more than $3.1 billion).

Exports fell 3% in seasonally adjusted terms and imports declined 1%.

The ABS said that in seasonally adjusted terms, exports (goods and services credits) fell $712 million (3%) to $27.325 billion. Non-monetary gold fell $411 million (24%) and non-rural goods fell $295 million (2%). Rural goods rose $45 million (2%). Services credits fell $52m (1%).

On the import side (goods and services debits), the ABS said there was a $323 million (1%) drop, in seasonally adjusted terms, to $24.761 billion. Intermediate and other merchandise goods fell $460 million (5%) and consumption goods fell $155 million (3%). Capital goods rose $302 million (6%) and non-monetary gold rose $39 million (7%). Services debits fell $47 million (1%).

The most important figures in the trade data is the analysis on the monthly performance of the crucial iron ore and coal exporting sectors.

The ABS said in September :

iron ore, fines rose $84 million (2%) with exports to China up $316 million (10%), with volumes up 5% and prices up 4% and Taiwan up $16 million (18%), driven exclusively by volumes
bituminous (thermal) coal fell $104 million (7%) with exports to Taiwan down $80 million (33%), with volumes down 33% and prices down 1% and China down $76 million (29%), with volumes down 26% and prices down 4%
hard coking coal fell $96 million (4%) with exports to India down $121 million (20%), with volumes down 25% and prices up 7% and Japan down $84 million (14%), with volumes down 18% and prices up 4%
semi-soft coal rose $80 million (10%) with exports to China up $110 million and Taiwan up $23 million (27%), with volumes up 37% and prices down 8%.

The ABS said that the sum of seasonally adjusted balances for the three months to September 2011 was a surplus of $7.347 billion, up nearly $1 billion on the surplus of $6,352m for the three months to June 2011.

It was also well above the $6.79 billion surplus for the September quarter of 2010.

The ABS said that if seasonal factors used in compiling the quarterly balance of payments are applied, the September quarter 2011 surplus was $7,761 million, up $1.53 billion on the revised June quarter 2011 surplus of $6.231 billion.

The ABS said the major drivers to the better performance in the three months to September, compared with the June quarter were on the export side:

metal ores and minerals, rose $1.833 billion (8%). In original terms on a recorded trade basis, iron ore and concentrates, rose $1.757 billion (11%) primarily on volumes
coal, coke and briquettes, rose $966 million (8%). In original terms on a recorded trade basis, coal, not agglomerated, rose $1.059 billion (9%) primarily on volumes
non-monetary gold, rose $919 million (27%). In original terms on a recorded trade basis, non-monetary gold rose $717 million (22%) on both volumes and prices.

On the imports side, the drivers were:

non-industrial transport equipment, rose $703 million (21%). In original terms on a recorded trade basis, passenger motor vehicles, rose $665 million (22%)
processed industrial supplies, rose $551 million (10%). In original terms on a recorded trade basis, other processed industrial supplies rose $567 million (18%)
industrial transport equipment, rose $422 million (26%). In original terms on a recorded trade basis, motor vehicles for transporting goods, rose $538 million (42%).

The trend to now watch for in the trade data is if there's a fall in volumes as well as prices for the next few months to reflect the slowing in demand and lower prices for iron ore and coal in markets in China, Japan, South Korea and India.

Wheat prices have slid sharply in recent weeks as signs of a major global harvest have been confirmed.

That will impact the value of rural exports over the summer and early autumn.

Some analysts think trade deficits might start appearing in the first half of next year when export volumes and prices for iron ore and coal will be down on the same period of 2011 (especially prices, which could be down 40% if current levels are maintained).