Now we know what all this talk about our improving terms of trade means.
There was a lot of talk about the improvement in our terms of trade in this week’s current account figures for the March quarter and then the national accounts for the same three months, making an extensive mention of the term.
The statistics showed there was a 4.2% rise in our terms of trade in the March quarter, thanks to rising spot prices for coal and iron ore and higher prices for gold, some metals and oil and energy exports.
On top of that we had figures from the Reserve Bank on Monday showing another strong month in April for commodity prices, with a rise of more than 6%, not as much as in March, but substantial nevertheless.
Yesterday we got the trade figures for April and they provided a perfect illustration of what the improvement in our terms of trade means.
In short, April saw Australia’s trade account storm back into the black for the first time in a year.
A surge in higher prices for iron ore and various coals boosted our export performance in April, producing a surplus of $134 million, an improvement of $2.174 billion on the deficit in March.
Iron ore prices recorded by the ABS were up 32%, coal prices 7%. Volumes of both commodities rose as well, with more to come.
That supports the Reserve Bank’s contention that our terms of trade could increase substantially this year, possibly by 20% to a new all time high, boosting national income.
The last trade surplus we had was in April 2009 of $92 million, thanks to the dying impact of the previous surge in iron ore and coal prices ending in March 2009, with new, lower priced contracts kicking in from the next month.
The reverse happened in April of this year with price rises of 40%-80% and more from new quarterly contracts and higher priced spot sales of iron ore and coking and thermal coals boosting exports.
The Australian Bureau of Statistics revealed today that the value of our exports jumped 11% in April from March, while the value of imports was unchanged.
That was the biggest monthly rise in 30 years.
The ABS said that seasonally adjusted, exports rose $2.191 billion to $22.661 million.
"Non-rural goods rose $2,292m (18%) and net exports of goods under merchanting rose $15m (65%). Rural goods fell $67m (3%), non-monetary gold fell $48m (4%) and services credits fell $1m."
Non-rural goods comprises iron ore, coal and other metals.
On the import side, there was a rise of $17 million seasonally adjusted to $22.527 billion.
The ABS said that non-monetary gold rose $299m (or 50%), consumption goods rose $151m (3%), and capital goods rose $30m (1%). "Intermediate and other merchandise goods fell $439m (6%) and services debits fell $24m."
The ABS said the main contributions to the turnaround were metal ores and minerals, up $1,011m (25%), seasonally adjusted.
"In original terms, the rise in metal ores and minerals was driven by iron ore and concentrates, up $768m (32%) with volumes up 2% and prices up 29% and coal, coke and briquettes, up $875m (40%) seasonally adjusted."
"In original terms, the coal, coke and briquettes component rose $790m (35%) with volumes up 26% and prices up 7%. Other mineral fuels, up $259m (14%)."
The trade figures confirm that while Europe remains a big worry, the Reserve Bank of Australia’s confidence that our surging trade performance will deliver healthy economic growth this year, is not misplaced.
BHP Billiton and Japanese steelmakers have set a 12.5% hike in the price of coking coal for the July-September period, from the previous quarter. That’s up 765% from a year ago.
It’s an extra $US25 a tonne, depending on coal type.
Iron ore prices for the next quarter are under negotiation.
The RBA reported that its index of Australian commodity prices climbed to a 19-month high in May. The index is now up 44% from lows touched in May last year and approaching an all time high.
This will continue for so long as the other downside risk isn’t realised: a sharp and sudden slowdown in Chinese economic growth and the consequent fall in demand for our resources.
Investors reacted by pushing the Australian dollar up to 84.60USc yesterday and scaling back any prospect of an emergency cut in interest rates in the coming months.
The central bank held rates steady at 4.5% at its June policy meeting this week, having already lifted them six times in eight months, but only committed to a pause in the "near term".
That ”near term” is as long as the RBA wants it to be.
