Australia: Trade surplus narrows to only $0.1bn in October - Westpac

Andrew Hanlan, Research Analyst at Westpac, notes that in October, Australia’s trade surplus narrowed from $1.6bn to only $0.1bn, falling short of expectations.

Key Quotes

“In October the trade surplus printed at $0.1bn, down from $1.6bn in September.”

“This was a sharper than expected narrowing of the trade surplus, with market expectations on $1.4bn and Westpac $0.9bn.”

“Export earnings fell, while the import bill rose, with adverse movements in prices a key factor in October.”

“Exports earnings declined by 2.8%, -$900mn, vs a forecast -1.7%. Metal ores was the main negative, as anticipated, down $0.8bn, dented by a dip in the iron ore price, which has subsequently rebounded. Coal exports were also down, meeting our expectations, -$146mn, on lower volumes at a time when China is looking to reduce thermal coal use. Service exports took a breather, down $118mn, but the trend remains strongly upwards, to meet rising demand from the Asian region. A lift in gold in October, +$362mn, provided a partial offset. However, fuel exports disappointed in October, with a flat result, at odds with an expected solid gain driven by expanding capacity in the LNG sector.”

“The import bill increased by 1.9%, +$600mn, surprising to the high side. We had anticipated an increase of $300mn. The cost of imports increased in October as the currency fell, down 2.3% against the US dollar, to 77.9¢. Fuel imports, often volatile, provided the surprise, jumping by $274mn.”

“In summary, a disappointing start to the December quarter for the trade balance. Much of the deterioration was due to adverse price effects, including a dip in the iron ore price, which has been reversed. The upswing in LNG exports is a plus going forward, with considerable further upside, as additional capacity comes on stream.”