Record iron ore exports tip balance of trade towards surplus
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.
Frequently Asked Questions about this Article…
Record iron ore exports, particularly to China, are helping to tip Australia's trade balance towards a surplus. The trade deficit narrowed significantly in recent months, thanks to the strong performance of iron ore exports.
Record iron ore exports, particularly to China, are helping to tip Australia's trade balance towards a surplus. The strong demand and high prices have significantly narrowed the trade deficit, with exports reaching a record high of $8.1 billion.
Iron ore prices have remained strong due to a pick-up in Chinese infrastructure investment, which has supported demand. This demand has kept prices above $US130 a tonne, contrary to expectations of a decline during a typically slow market period.
Iron ore prices have remained strong due to a pick-up in Chinese infrastructure investment, which has supported demand. This demand has kept prices above $US130 a tonne, contrary to expectations of a decline during a typically slow market period.
China is a major player in Australia's iron ore export market, with exports to China reaching record highs. The country's infrastructure investments have driven demand, making it a key destination for Australian iron ore.
China plays a crucial role in the demand for Australian iron ore. Recent data shows that exports to China have reached record highs, driven by increased infrastructure investment and a shift from internal production to external purchases due to high costs of local mines.
The rise in iron ore export growth has boosted Australia's nominal GDP by about 0.9 percentage points this year, according to HSBC economists. This highlights the significant economic impact of the iron ore sector.
The rise in iron ore export growth has boosted Australia's nominal GDP by about 0.9 percentage points this year. This growth is attributed to a 16% increase in export volumes and a 7% rise in prices compared to the previous year.
While iron ore prices are expected to fall from $US134 to $US115 a tonne in 2014, export volumes are forecasted to increase by 17%. This increase in volume is expected to offset the potential negative impact on Australia's GDP.
HSBC analysts expect iron ore prices to fall from $US134 to $US115 a tonne in 2014, which could reduce Australia's nominal GDP by 0.6 percentage points. However, this is expected to be offset by a forecasted 17% increase in export volumes.
China is importing more iron ore because some of its internal production is being replaced by external purchases. This shift is likely due to the high cost of domestic mining operations, making imports a more economical option.
Chinese infrastructure investment has significantly influenced iron ore prices by increasing demand. This demand has led to a rally in prices during the third quarter, which is typically a seasonally weak period for iron ore.
The strong performance of iron ore exports has boosted shares in Australian mining companies to multi-month highs, reflecting investor confidence in the sector's continued growth and profitability.
Port Hedland data is significant as it shows the volume of iron ore exports to China, which reached a high in October. This data highlights the strong demand from China and its impact on Australia's trade balance and export figures.
Slower investment growth in China could lead to a decrease in iron ore prices, potentially impacting Australia's GDP. However, the expected increase in export volumes may help mitigate this effect.
China's shift in iron ore purchasing strategy is largely due to the high costs of internal production. As a result, China is increasingly relying on external purchases, particularly from Australia, to meet its demand for iron ore.
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