The 43% in March’s trade surplus from February’s revised surplus, to a near record $2.5 billion was much bigger than market forecasts for a surplus of around $1.7 billion.
It was in fact our second highest ever trade surplus after October’s record $2.6-plus figure.
A sharp fall in imports of capital goods (and a fall in imports of non-monetary gold) more than offset a small but significant rise in consumption goods, especially textiles, clothing and footwear (up $340 million in the month overall).
The trade performance more reflected the slump in demand for imports, while export income was steady, despite falls in commodity prices. Rural exports were the star in the month, according to the ABS.
That’s because the month of March was the last for the very high priced coking, thermal coal and iron ore exports.
New, lower prices for coal started April 1, new iron ore prices have yet to be agreed on by BHP Billiton and Rio Tinto, but there is talk of provisional pricing.
Of interest is that the trade surplus and export performance has been strong through the March quarter, despite BHP and other companies selling unwanted contracted tonnages of iron ore, various coals and other minerals onto the spot markets at sharply lower prices.
That won’t hold off the day when the sharp fall in export income, and the rapid worsening in our terms of trade and in our national income, start showing up in the official figures.
We should get a glimpse this time next month, and a better idea in June.
The ABS said that the seasonally adjusted balance of good and services "was a surplus of $2,498m in March 2009, an increase of $746m on a revised surplus in February 2009." February’s surplus was revised down from the originally reported $2.1 billion.
As the market had been expecting a surplus of $1.7 billion, it’s another surprise on the upside, just as February was.
The ABS said the increase in the seasonally adjusted surplus was primarily due to the fall in goods and services debits, mainly in other goods and capital goods."
"Seasonally adjusted, goods and services credits rose $16m to $24,647m.
"Rural goods rose $257m (10%) while other goods fell $139m (6%) and non–rural goods fell $126m (1%). Services credits rose $25m (1%).
"The rise in rural goods was largely driven by the cereal grains and cereal preparations component, which rose $249m (41%).
"Seasonally adjusted, goods and services debits fell $730m (3%) to $22,149m.
"Other goods fell $640m (33%), capital goods fell $563m (12%) and intermediate and other merchandise goods fell $207m (3%), while consumption goods rose $661m (15%). Services debits rose $19m. The ABS said the fall in other goods was driven by non–monetary gold, down $806m (46%).
"The components in consumption goods with the largest increases were consumption goods, up $206m (13%), textiles, clothing and footwear, up $134m (21%) and non–industrial transport equipment, up $104m (13%)."
To get an idea of the downward pressures already on our trade account, take a look at the Reserve Bank’s latest Commodity Price Index (for the year to April).
The Bank said that preliminary estimates indicate the Index fell, in Australian dollar terms, by 20.1 per cent in April, following a fall of 7.3 per cent (revised) in March."
"The largest contributors to the fall in April were decreases in the estimated prices of coking coal, iron ore and steaming coal. The prices of copper, nickel and wool rose.
Preliminary estimates for April indicate that the index fell by 14.9% (on a monthly average basis) in SDR (Special drawing Rights) terms, following a decrease of 4.8% (revised) in March.
"The large falls in the estimated prices for coal and iron ore in April reflect the renegotiation of annual contracts, the RBA said.
"Benchmark thermal coal contract prices have fallen by 44 per cent, while metallurgical coal contract prices have settled around 60 per cent lower. Benchmark iron ore contract prices are yet to be agreed; however, large falls in iron ore export prices are anticipated.
"In previous years, changes to bulk commodity export agreements have passed through to export prices and the index over a number of months, and this is also expected to occur this year.
"Some adjustment in coal and iron ore export prices had already taken place prior to April, in part reflecting spot market sales.
"The estimates for April – preliminary, because actual export data provided by the Australian Bureau of Statistics are not yet available – assume that a substantial proportion of the remaining anticipated price falls will be reflected in the final April data; a further 8 per cent fall in the index is anticipated as export prices for coal and iron ore fully adjust over the coming months," the RBA said.
That pressure will show up soon in our trade account, and is what is most worrying the RBA about the impact of the slump on demand and output.
The fear is that the shock of this sharp fall in income later in the year will see the economy slide deeper into a recession, boosting unemployment.
