Later today we should see evidence to back all that talk about our strong terms of trade and rising national income.
For over three years now the Reserve Bank’s commodity price index has been telling the story of soaring prices and rising volumes and returns; with various federal and state governments and a host of companies in and servicing the resources sector feeding off the boom.
Now later today we will see the May trade figures from the Australian Bureau of Statistics. The optimists are forecasting the first surplus in around six years or more, and the cautious are saying a much smaller deficit, perhaps so tiny in the scheme of things to be not very meaningful.
And, after the dramatic improvement in April, and with a further improvement in June, we could get a sharply lower current account deficit for the June quarter and one better than expected for the 2007-08 financial year.
But that lies in the immediate future.
April’s trade deficit fell to $957 million, according to the ABS. That was a huge improvement from the $2.548 billion in March, and well over $3 billion in February.
That April figure could be cut in revision to take account of higher coal and iron ore prices not fully factored in for the Asian contract years that started April 1.
But with sharply higher iron ore, coking and steaming coal prices, plus the surge in oil and gas prices, analysts are saying that the near $1 billion deficit will be substantially cut, especially with coking coal exports cranking up from the Central Queensland mines after being cut by the floods in January and February.
Coal exports are at nowhere near their full potential from NSW and Central Queensland (but not Gladstone). That has helped keep prices of both coking and thermal coals high, but has meant a shortfall in tonnages and revenues for the companies involved and for the nation.
Imports picked by around 6% in May, which will go some way to soaking up some of the export gains, while base metal prices were easier as well.
Meanwhile the RBA’s Commodity Price Index for June gives another hint of the improvement underway.
The bank said that preliminary estimates for June indicate that the Index rose by 7.9 % (on a monthly average basis) in SDR (Special Drawing Rights, a way of equalising the currencies of the world’s major economies) terms, following an increase of 7.0% (revised) in May.
"The largest contributors to the rise in June were increases in the prices of coking coal, iron ore, thermal coal and wheat (see below). The prices of nickel, lead and zinc fell.
"In Australian dollar terms, the Index rose by 7.2% in June following an increase of 4.0% (revised) in May.
"As indicated in previous months’ releases, the export price data available do not yet fully reflect the strong increases in prices that have occurred for coking coal, iron ore and thermal coal.
"As a result, preliminary estimates have been incorporated into the Index for April, May and June for these commodities. In previous years, contract price changes have passed through to export prices over several months, and this is also expected to occur this year.
"The preliminary estimates included for April, May and June incorporate around three-quarters of the anticipated total increase in prices for these commodities. The preliminary estimates will be subject to review as more data become available."
