Record exports to China. Flood crimps coal exports

International trade; China trade

• Trade surplus: The trade surplus fell from $3,169 million to $555 million in April. The Queensland floods were largely responsible in slashing coal receipts by $2,521 million.
• Record Chinese exports: Australia exported a record $93 billion of goods to China in the year to April.
• Chinese trade: In May, exports were up 8.7 per cent on a year ago (forecast +7.0 per cent). Imports were up 14.8 per cent (forecast +8.5 per cent). The trade surplus rose from US$38.05 billion to $40.81 billion.

What does it all mean?

• The floods in North Queensland significantly disrupted coal exports in April, causing the trade surplus to narrow markedly. But the big picture story is about exports to China – hitting fresh record highs in the year to April. The Chinese economy is turning over nicely, as evidenced by the near 15 per cent lift in imports over the past year. China buys a third of Australian exports and around a quarter of our imports come from China, so a healthy Chinese economy is very much in our interests.
• Despite the temporary disruption to coal shipments, Australia’s rolling annual trade surplus was still the biggest in five years in April.
• Capital goods imports are effectively a proxy for business investment. The good news is that imports are up 21 per cent on a year ago, the fastest growth in almost five years. The Reserve Bank notes that business investment is lifting and this is evidenced by the latest data.

What do the figures show?

International trade:

• The trade surplus narrowed from $3,169 million to $555 million in April. But the rolling 12-month surplus improved from $4.1 billion to $7.4 billion (biggest surplus in 5 years).
• The net services deficit fell to a 7-year low of just $21 million in April.
• Exports of goods and services fell by 8.3 per cent in April (goods down by 10.8 per cent). Imports of goods and services fell by 0.6 per cent per cent (goods down 1.4 per cent) after rising 4.7 per cent in March. Exports are up 20.0 per cent on a year ago, while imports are up 8.5 per cent.
• Rural exports fell by 1.8 per cent in the month while non-rural goods fell by 11.8 per cent and gold exports fell by 20.6 per cent after rising 65 per cent in the two previous months.
• The main components contributing to the fall in seasonally adjusted exports estimates were:
  • Coal, coke and briquettes, down $2,521m (45 per cent)
  • Metal ores and minerals, down $47m (6 per cent)
  • “Other rural”, down $54m (3 per cent)
  • Gold exports, down $373m (20 per cent).
• Volumes of iron ore fines were flat in April with prices down 8 per cent. Volumes of lump iron ore rose 3 per cent with prices down 6 per cent. Volumes of coal exports fell: Semi-soft -33 per cent; hard coking -65 per cent; thermal -5 per cent.
• Within imports, consumer imports fell by 1.2 per cent in April with capital goods imports up by 2.3 per cent while intermediate goods imports fell by 2.1 per cent.
• Consumption goods imports were down 5.5 per cent on a year ago while capital goods imports were up 21.0 per cent and intermediate goods imports were up by 10.1 per cent.
• Australia’s annual exports to China lifted from $90.53 billion to US$92.98 billion in the year to April – a record high and up 24 per cent on a year ago. Exports to China accounted for 33.2 per cent of Australia’s total exports, a 33-month high (record: 33.67 per cent).
• Australia’s annual imports from China rose from $60.0 billion to a 7-month high of $60.3 billion in the year to April and were down 2.2 per cent on a year ago. Imports from China accounted for a record 23.45 per cent of Australia’s total imports.
• Australia’s rolling annual trade surplus with China hit a 29-month high of $32.68 billion in April although this is still well down from the record high of $42.8 billion set in April 2014.
• Australia’s exports to India hit a 5-year high, totalling $13.5 billion in the year to February, up 37.3 per cent on the year.

Chinese trade:

• In May, exports were up 8.7 per cent on a year ago (forecast +7.0 per cent). Imports were up 14.8 per cent (forecast +8.5 per cent). The trade surplus rose from US$38.05 billion to $40.81 billion.

What is the importance of the economic data?

• The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.
• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.

What are the implications for interest rates and investors?

• The trade data has no influence on monetary policy. But the solid underlying demand for our exports and solid growth of Chinese imports are both serving to support the Aussie dollar in the mid-70s against the greenback.
• Encouragingly capital goods imports – a proxy for business investment – are up 21 per cent on the year. The Reserve Bank would be comforted about the perceived lift in business spending.
• Australian exports are rising solidly and will be instrumental in driving economic growth over the coming year.