Record iron ore exports tip balance of trade towards surplus

The continued resilience of iron ore prices and record exports to China could help the trade balance move into surplus next year, analysts say.

Iron ore prices have remained stronger for longer despite expectations they would ease as market demand enters a slow period, holding above $US130 a tonne in recent times and boosting shares in Australian suppliers to multi-month highs.

The trade deficit narrowed to $284 million in September from a $693 million deficit in August, with iron ore exports rising to a record high of $8.1 billion, official figures show. At the same time, Port Hedland data released on Tuesday showed exports to China reached a high in October.

"While the decline in commodity prices since 2011 has been associated with a return to the norm of monthly trade deficits in Australia, the rise in commodity export volumes in recent months is nonetheless helping to mitigate the extent of Australia's trade imbalance," Deutsche Bank economists Adam Boyton and Phil O'Donaghoe said.

Analysts said the rise in export volumes was expected to continue as mining projects moved into the production phase.

The rise in iron ore export growth is estimated to have boosted Australia's nominal GDP this year by about 0.9 percentage points, HSBC economists Paul Bloxham and Adam Richardson said in a research note.

Export volumes for iron ore - Australia's single-biggest export - are estimated to have risen about 16 per cent in 2013, with prices up 7 per cent compared with last year, HSBC said.

"A pick-up in Chinese infrastructure investment in recent months has supported demand for iron ore. Indeed, a strong pick-up in Chinese spending on infrastructure in recent months saw iron ore prices rally in the third quarter, which is typically a seasonally weak quarter," the economists said.

In the year to September, imports into China surged to a total of 794 million tonnes, a record high.

"What we're seeing happening is that some of the internal production that China was producing is actually being transferred to external purchases, and that's probably because a lot of their mines were high cost," Fat Prophets resources analyst David Lennox said.

Slower investment growth for China is expected next year. HSBC analysts estimate that iron ore prices could fall from $US134 to $US115 a tonne in 2014, potentially knocking 0.6 percentage points off Australia's nominal GDP.

That in turn is expected to be offset by a forecast 17 per cent pick-up in export volumes.