Oil seeds and beverage prices spike

International trade prices

• Export & import prices: Import prices fell by 1.6 per cent in the September quarter and were down 0.4 per cent on a year ago. Prices of exports fell by 3.0 per cent in the September quarter but were up 14.2 per cent on a year ago. Coal prices fell by 7.4 per cent in the quarter with natural gas down 4.0 per cent.
• Oil seeds & oleaginous fruit and beverages & tobacco prices soar: Export prices for oil seeds and oleaginous fruit (olives, sesame seed & walnut) products rose 14.1 per cent in the quarter to 6-year highs. Export prices for beverages and tobacco increased by 10.8 per cent to 2-year highs.
• Terms of trade: Based on today’s data we expect that the ratio of export prices to import prices (terms of trade) fell by around 1.4 per cent in the September quarter after declining 6 per cent in the June quarter.

What does it all mean?

• The strong rebound in export prices last year and into early 2017 occurred on the back of a significant recovery in commodity prices. Supply disruptions from Cyclone Debbie in Queensland propelled thermal and coking coal prices higher, while demand for steel-making ingredient iron ore rose on the back of buoyant Chinese construction activity.
• Commodity prices has since eased-back from earlier year highs. The Reserve Bank of Australia recently reported that commodity prices were broadly flat in aggregate in US dollar terms. The Aussie dollar rose by 3.1 per cent in trade-weighted index terms during the September quarter, having a downward impact on trade prices.
• While coal, iron ore and natural gas prices retreated in the September quarter, oil seed and oleaginous fruit export prices soared by 14.1 per cent in the September quarter to 6-year highs. Export prices of beverages and tobacco increased by 10.8 per cent to 2-year highs. Australia’s high quality food products are in high demand from the rising middle income classes of Asia, boosting fortunes of regional Australia amid a ‘dining boom’.

What do the figures show?

Export & import prices

• The Bureau of Statistics (ABS) reported that import prices fell 1.6 per cent in the September quarter after declining by just 0.1 per cent in the June quarter. Import prices fell 0.4 per cent over the year.
• The ABS said: “The fall was driven by lower prices received for Telecommunications and sound recording equipment (-7.8%).
• Petroleum, petroleum products and related materials fell 2.0%, following a fall in the June quarter 2017 of 4.6%, as increased supply entered the global market.
• The appreciation of the Australian dollar against the US dollar had a downward effect on import prices, including for Office and automatic data processing machines (-4.7%), Furniture and Parts thereof (-6.9%) and Articles of apparel and clothing accessories (-3.2%).”
• Seven out of the ten broad import categories recorded price declines in the September quarter.
• Export prices fell 3.0 per cent in the September quarter 2017. This follows a decline of 5.7% in the June quarter, as prices weakened for some of Australia’s major export mining products. Export prices are up 14.2 per cent over the year.
• The ABS said: Australia’s mining commodities continued to decline in the September quarter 2017. Coal, coke and briquettes fell 7.4% and metalliferous ores and metal scrap fell 1.5% driven by prices received for Iron ore.
• Gas, natural and manufactured fell 4.0%, reflecting the fall in crude oil prices in the June quarter 2017. Export contract prices for LNG are influenced by the international crude oil prices with a two to four month lag.
• The appreciation of the Australian dollar against the US dollar had a downward effect on export prices, particularly for Gold, non-monetary (-3.2%).
• Petroleum, petroleum products and related materials fell 5.8%, following a fall in the June quarter 2017 of 4.4%, as increased supply entered the global market.
• Meat and meat preparations fell 3.4%, driven by falls in beef prices due to improved domestic and global supply.”
• Eight of the ten broad export categories recorded price decreases in the September quarter.
• The ratio of export prices to import prices (a proxy for the terms of trade) fell by 1.4 per cent in the September quarter after declining by 6 per cent in the June quarter.

What is the importance of the economic data?

•   The Australian Bureau of Statistics (ABS) provides quarterly estimates of export and import prices. The figures assist is gauging inflationary pressures in the economy.

What are the implications for interest rates and investors?

• Softer commodity prices over the September quarter mean that Australia’s terms‑of‑trade will post a second consecutive quarterly decline, albeit much smaller than the previous quarter.
• That said, the ‘Dining Boom’ is continuing to replace the ‘Mining Boom’, boosting the economy’s fortunes and national income. Oil seeds and oleaginous fruits, together with beverage and tobacco prices rose, boosting incomes in regional Australia.