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 strong demand and high prices have significantly narrowed the trade deficit, with iron ore exports reaching a record high of $8.1 billion.
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, even during typically slow market periods.
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 plays a crucial role in the demand for Australian iron ore, as it has been importing record volumes. The shift from internal production to external purchases, due to high costs of local mines, has increased China's reliance on Australian iron ore.
China plays a crucial role in the demand for Australian iron ore, as it has been importing record volumes. The shift from internal production to external purchases, due to high costs of domestic mines, has increased China's reliance on Australian iron ore.
The rise in iron ore export growth has boosted Australia's nominal GDP by about 0.9 percentage points this year, thanks to increased export volumes and higher prices.
The rise in iron ore export growth has boosted Australia's nominal GDP by about 0.9 percentage points this year. This increase is attributed to both higher export volumes and prices.
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 may be offset by a forecasted 17% increase in export volumes.
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 may be offset by a forecasted 17% increase in export volumes.
Australian mining companies have seen their shares rise to multi-month highs due to the sustained high prices and strong demand for iron ore, particularly from China.
Australian iron ore suppliers have seen their shares rise to multi-month highs due to the sustained high prices and strong demand from China, which have bolstered their export revenues.
Port Hedland is a key export hub for iron ore, and recent data showed that exports to China reached a high in October, highlighting its importance in facilitating record export volumes.
The increase in Australia's iron ore export volumes is driven by mining projects moving into the production phase and strong demand from China, which has been investing heavily in infrastructure.
Future iron ore exports from Australia could be influenced by the continuation of mining projects moving into production phases, changes in Chinese infrastructure investment, and global market demand fluctuations.
While there has been a strong pick-up in Chinese infrastructure investment recently, slower investment growth is expected next year. This could potentially impact the demand for iron ore, although current high levels of investment have supported prices and demand.
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