Australia export price boom underpins economyFriday July 18,...

Australia export price boom underpins economy

Friday July 18, 2008, 12:31 pm

(Adds analyst reaction)

By Wayne Cole

SYDNEY, July 18 (Reuters) - Australia's export prices leapt a record 13.5 percent last quarter as Chinese demand fuelled huge increases in iron ore and coal, an economic windfall that sets it apart from other industrial nations less blessed with resources.

The jump more than compensated for a 1.4 percent rise in import prices in the second quarter, which included a near 16 percent increase in fuel costs, government data released on Friday showed.

Indeed, apart from fuel and by-products like fertilizer, import prices were held back by the rising Australian dollar, which could mean next week's consumer price report might not be quite as inflationary as first feared.

As a result, Australia's terms of trade -- what it gets for exports compared to what it pays for imports -- looked to have climbed by around 12 percent in the quarter, a boon to profits, employment, dividends and tax receipts.

"The terms of trade, which effectively measure the nation's living standards, continues to surprise on the upside," said Su-Lin Ong, a senior economist at RBC Capital Markets. "It is a once in a generation shock which has underpinned a 13 percent increase in real incomes over the last five years."

Leading the export bonanza was a 54 percent rise in the price of coal, while metal ores increased by 27 percent.

Miners BHP Billiton (ASX: BHP.ax) and Rio Tinto (ASX: RIO.ax) recently agreed price rises with Chinese steel producers of up to 96 percent for iron ore, back-dated to April.

Strong global demand and tight supplies also saw coal prices more than double, and Australia is the world's largest exporter of coal.

For the year to June, export prices were up 13.3 percent, with foods such as wheat boasting the biggest gain of 29 percent.