Australia's trade account, surplus hits record high on higher iron ore price: Andrew Hanlan
In February, the trade surplus climbed to a record high of $4.8bn, up from $4.35bn in January, eclipsing the previous record of $4.6bn in December 2016.
The February result exceeded expectations (market median $3.7bn and Westpac $3.8bn).
Imports surprised to the low side, declining by 1.1%, whereas we anticipate a rise of 1.1%. A drop in fuels was the source of weakness.
Exports provided an upside surprise, increasing by 0.2% vs a forecast decline of 0.9%. Notably, the expected pull-back in gold failed to materialise.
More fundamentally, a key dynamic driving a widening of the trade surplus is the boost to export earnings from higher commodity prices, notably for iron ore and coal.
Total exports in February are 13.2% above the level of a year ago, outstripping a 4.4% rise in imports.
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Metal ore exports (including iron ore) jumped in February, as anticipated, up by $1.0bn to $9.6bn - which is also a record high. Recall, the iron ore price leapt to US$85/t in the month as global supply was dented by the tailings dam disaster in Brazil. Iron ore is now trading close to US$90/t.
The trade surplus in the March quarter to date is running at $4.6bn a month, well up from $2.9bn per month in the December quarter. The bulk of this improvement likely reflects higher commodity prices.
The lift in commodity prices is boosting Australia's national income, which is flowing through to higher tax revenues - providing governments with additional fiscal flexibility, as evident in recent budget updates. However, despite this, wages growth remains sluggish.
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In February, the import bill declined by 1.1% to $35.0bn. Key to the fall was a drop in fuels, down $344mn. Imports ex fuel were broadly flat in the month, inching 0.1% lower. Similarly, for the March quarter to date relative to the December quarter, fuels are tracking sharply lower - likely a mix of lower prices and lower volumes.
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Export earnings inched 0.2% higher in the month of February. As noted above, metal ores (including iron ore) jumped by $1.0bn to $9.6bn, a record high - driven by rising prices. Coal fell by $0.8bn on lower volumes. For the quarter to date, export earnings are up by around 4% on the December quarter - led higher by metal ores and gold, as well as rural goods, more than offsetting a softening for coal.
ANDREW HANLAN is a senior economist for Westpac
