Australia's trade account dives to A$673mn deficit on China, gold and iron ore
The latest trade numbers show that Australia's account unexpectedly slipped into the red in January as exports to China were hit by the Lunar holiday and gold shipments which took a steep dip.
Author: By Wayne Cole
Posted: Friday , 09 Mar 2012
SYDNEY (Reuters) - Australia's trade account unexpectedly dived into the red in January as exports to China were hit by the Lunar holiday and shipments of gold took a steep drop, making a soft start to the year for one of the country's success stories.
Friday's data showed a deficit on goods and services of A$673 million ($713 million) in January, confounding forecasts for a surplus of A$1.5 billion and shaving some gains off the local dollar.
Much of the miss looked to be due to the early timing of the Chinese holidays as exports of goods to the Asian giant dropped by more than A$1.7 billion from December to January. Bad weather also looked to have disrupted iron ore shipments in January.
Exports of non-monetary gold are also highly volatile from month to month and took a huge A$1 billion drop in January when adjusted for seasonal factors. In all, exports dived 8.2 percent in January, while imports dipped only 1.1 percent.
"Half the story is gold and half looks to be iron ore deliveries to China," said Brian Redican, a senior economist at Macquarie. "Crucially, we expect these to be temporary drops and we should see a rebound in February."
"Still, it does show the drawback of relying so much on the resource sector to drive your economy," he added.
The trade numbers followed disappointing reports on economic growth and employment this week and had to add somewhat to the case for another cut in interest rates.
The Reserve Bank of Australia (RBA) held its cash rate at 4.25 percent at its monthly policy meeting on Tuesday but said there could be scope for an easing should the jobless rate suffer a sustained increase.
Interbank futures <0#YIB:> imply around a 24 percent probability of a cut in April, rising to almost 100 percent by June.
COUNTING ON COMMODITIES
Still, the outlook for resource exports remains bright with the sector spending heavily to meet demand from the industrialising billions in China and India.
Government data show miners alone expect to raise investment by 85 percent to a record A$94 billion in the year to June, with a further rise to at least A$120 billion planned for 2012/13.
One drag on the trade account is that many of these projects need heavy equipment that can only be sourced offshore, thus adding to the nation's imports. A high local dollar is helping lessen the bill, but capital goods imports will still eat into the trade surplus for some time to come.
Eventually, however, all this spending should greatly boost export volumes of iron ore, coal and LNG. Australia is on course to be the world's largest exporter of LNG by 2017.
The government's Bureau of Resources and Energy Economics this week said export earnings from resources climbed 15 percent in 2011 to a record A$190 billion, equal to almost 14 percent of Australia's A$1.4 trillion of GDP.
Iron ore topped the export list at A$59.3 billion, followed by coal at A$46.9 billion. For the 2011-12 financial year, resource exports were expected to reach A$206 billion.
That will only grow further. Output of liquefied natural gas, in particular, is set to treble as A$180 billion of projects come on stream.
And while prices for key commodity exports like iron ore and coal have eased, they still remain high by historical standards.
The RBA's own measure of Australian commodity prices remains more than three times the average of the entire 1990s. Spot iron ore prices have stabilised around $140 a tonne .IO62-CNI=SI for months now, far above the cost of production enjoyed by Australia's major miners.
(Reporting by Wayne Cole; Editing by Paul Tait)
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