Soaring coal price and boom in gas exports could erase trade...

Soaring coal price and boom in gas exports could erase trade deficit


Taking coal to Newcastle, and taking down the trade deficit. Picture: Stefan Jannides

• JAMES GLYNN, RHIANNON HOYLE
• The Australian
• 12:00AM October 7, 2016
• Save
• • Share on Facebook
  • Share on Twitter
  • Share on email
  • Share more...

Soaring coal prices and a big lift in natural gas exports could soon wipe out Australia’s monthly trade deficits, underpinning the first surpluses in two and a half years.
The resource-rich economy posted a smaller-than-expected trade deficit of $2.01 billion in August, according to the Australian Bureau of Statistics.
Economists had expected a shortfall of $2.17bn.

Falling commodity prices have kept trade accounts in deficit since April 2014, but that situation could reverse due to a surge in coal prices in recent months, and a rebound in iron ore prices since the start of the year.
A resource investment boom over the last decade has lifted the volume of Australia’s liquefied natural gas exports with three new processing plants coming on stream in Queensland and one in Western Australia.
That’s supporting stronger than expected GDP growth as export volumes climb, economists said.
Coal has been one of the best performing commodities this year.

Spot price of Australian coking coal, used to make steel, has surged to $US213.40 a tonne, according to the Steel Index, a data provider. That is double the price it sold for in mid-August, and almost triple its price at the beginning of 2016.
Thermal coal, burned for electricity, has also rallied, and Australian prices are trading up almost 70 per cent on the start of the year.

Australia is the world’s biggest shipper of coking coal, and the second largest supplier of thermal coal, behind Indonesia.
Prices have climbed because of cuts to production in China, which has traditionally produced much of the coal it needs for its steel mills and power plants. That has sparked a buying frenzy in the international market.
China’s coal imports surged to 20 million tonnes in August, up 48 per cent year-on-year, according to the latest available data from the general administration of Customs.

While some miners sell a portion of their production at spot, or current prices, much of the coal produced in Australia is sold in quarterly contracts with buyers in Asia.

Analysts say a sharp jump is expected for fourth-quarter contract prices currently being negotiated, up from a price of $US92.50 per tonne settled in the third quarter.

Negotiations have been protracted as buyers and sellers, in somewhat of a “standoff”, struggle to settle on a new level for prices, Macquarie said in an October 4 note.

“The massive spike in coal prices recently means export values will likely surge across September and October, which will narrow the trade deficit sharply,” said Scott Haslem, chief economist at UBS Australia.

“If sustained over coming months, it could potentially be large enough to wipe out the overall trade deficit by itself,” Mr Haslem said.

Meanwhile, the price of iron ore, the country’s biggest export, is up 27 per cent since the start of the year.

For Australia’s central bank, this means it can rest easier about the Australian dollar which has crept higher recently, sparking debate about whether a cut in interest rates is needed to keep exports competitive.

“The upshot of these revisions is that the resilient Australian dollar doesn’t seem to be applying as much of a drag on services exports as was previously thought,” said ANZ economist David Gradwell. “There is still considerable momentum in the sector.”

Services exports, such as tourism and education, have been lifting over time.
Dow Jones Newswires

http://www.theaustralian.com.au/bus...t/news-story/5cec6781375663a5a5cdea2f01a6d0bc