The Economy: Trade Weakens, Home Loans OK

The impact of China's slowing economy on our export performance was clearly shown yesterday, but home loans rose for yet another month.

Chinese growth, industrial production and exports have all been slowing for the past few months.

That saw global prices for commodities such as iron ore, coal, copper and nickel fall sharply in October, aided by a surge in fears about the eurozone.

That weakness has continued into this month, though at a reduced level.

And even though the trade surplus fell noticeably in October, economists say the figures for November and December will also be weaker.

And yesterday there was news that another important markets for us, India, had seen a sharp 5.1% drop in industrial production in October.

The fall was the first for two years, bigger than expected and raised pressure on the country's Reserve Bank to cut interest rates at its next meeting on Friday.

The news means that our exports, especially of coal, iron ore and other commodities, will remain under pressure for a while yet.

The October trade surplus fell as global prices dropped, especially for iron ore and coal and thermal coal.

The trade surplus narrowed to $1.59 billion from $2.249 billion in September (downwardly revised) according to the Australian Bureau of Statistics data released yesterday. That was $400 million under market forecasts.

The ABS said that in seasonally adjusted terms, exports were down just $49 million at $27.20 billion in October.

But that hid some significant changes in the composition of shipments.Iron ore and coking coal shipments to China were weaker, but to India and other Asian markets they were a bit stronger, especially thermal coal exports to China.

The ABS said, "Exports of non-monetary gold fell $197m (15%). Rural goods rose $60m (2%) and services credits rose $77m (2%)."

Seasonally adjusted, exports of non-rural goods edged up $14 million to $19 billion in October, helped by mineral fuels which rose $144 million, or 7% in the month.

Imports, seasonally adjusted, rose $605 million or 2% to $25.725 billion.

"Non-monetary gold imports rose $334m (57%), intermediate and other merchandise goods rose $173m (2%), capital goods rose $60m (1%) and consumption goods rose $48m (1%). Services debits fell $10m," the ABS said.

Manufactured goods exports, however, fell $84 million, or 6%, while coal, coke and briquettes shipments dropped $75 million, or 2%. .

In October the price of iron ore plunged by 30%, to under $US120 a tonne, as Chinese steel mills slowed production.

Iron ore prices have since recovered to be about $US140 a tonne.

The ABS said the volume of iron ore fines exported rose 7% in the month, but the value dropped 8% in the month.

The ABS said the value of iron ore fines exports to China, on a recorded trade basis, fell $110 million or 3% in October, while volumes for lump iron ores were up 6% but prices fell 9%.

Exports of the premium lump iron ore to China fell $23 million, or 2%, with volumes rising 8% in the month while prices fell 10%.

Hard coking coal exports to China fell 19% in the month, but rose 9% to Japan and 11% to India. Overall, hard coking coal exports fell 4% in the month.

Semi-soft coal exports to China sank 50% in October by $107 million, with volumes down 47% and prices down 6%.

Thermal coal exports to China rose $47 million, or 25%, with volumes up 23%, and prices up 1%.

Rural exports, seasonally adjusted, rose 2% to $3 billion in October.

According to the latest ABS data home loan approvals in October rose for a seventh month, fanning hopes that the housing market will improve.

The number of loans rose 0.7% for the month to 51,981, compared with the downwardly revised 51,639 (or 1.9% rise) in September, the ABS said.

Market forecasts for housing finance commitments to be unchanged for the month.

The Australian Bureau of Statistics (ABS) said total housing finance by value fell 2.5% in October, seasonally adjusted, to $20.458 billion.

The value of home loans for owner-occupied homes fell 1.2% to $14.4 billion after seasonal adjustments.

The value of loans for investment homes, though, fell 5.5% to $6.1 billion.

The number of commitments to buy new homes rose 0.1% after seasonal adjustments, while commitments to buy established homes rose 0.9%.

The number of loan commitments for building homes fell 1.7%.

NSW saw a 1.3% increase and WA saw a big lift.

First-home buyers accounted for 17.9% of dwellings financed in October, up from 16.4% in September and higher than 15.4% share a year ago.

Analysts say they do not expect the Reserve Bank rate cuts in November and December to boost approvals until late in the first quarter of next year because the Christmas - New Year period is a time of low interest in property.