Australia boasted its ninth straight month of sizeable trade surpluses in December as demand from China kept key commodity prices at dizzying heights while dire weather had less impact on shipments than feared. The surplus on goods and services amounted to A$1.98 billion ($2 billion) in December, down only slightly from A$2.1 billion in December and beating forecasts of $1.6 billion.
The surplus for all of 2010 was a record A$16.6 billion and historically high prices for iron ore and coal bode well for an even bigger bonanza this year, even accounting for recent heavy floods which disrupted coal production and exports. "It really has been an extraordinary year," said Brian Redican, a senior economist at Macquarie. "The floods will have more impact on coal volumes in January," he added. "But the outlook for prices is extremely bullish and the terms of trade could rise another 15 percent this year, which is massive."
Exports edged up 0.3 percent in December by value to A$24.6 billion, while imports rose 0.8 percent to A$22.6 billion. Volumes of iron ore and coal defied the weather to rise in December and looked to have outstripped imports for the whole quarter. That suggests net exports added to Australia's A$1.3 trillion in real gross domestic product (GDP) in the fourth quarter, after dragging on growth the previous quarter.
For 2010, export earnings were up a hefty 22 percent. This embarrassment of riches is boosting profits, jobs, incomes and tax receipts while funding a huge pipeline of resource projects. That in turn is a major reason the Reserve Bank of Australia (RBA) is expected to hike interest rates again in coming months as it seeks to manage the mining boom's inflationary threat.
Most analysts suspect the central bank will move again in the second quarter , though futures markets are leaning toward later in the year. One reason for market caution is that the run of pre-emptive rate hikes from the RBA - seven in 14 months - has worked to restrain consumer spending while underlying inflation slowed to a decade-low last quarter.
Higher mortgage rates have also cooled the housing market, with home prices only inching higher last quarter. Government data out Thursday showed approvals to build new private houses were flat in December, to be barely changed for the quarter. Still, a steep 21.3 percent jump in multi-unit approvals did help lift overall approvals by 8.7 percent, well above analyst expectations of a 1.8 percent increase. That could suggest that credit for large apartment projects is becoming easier to find.
More importantly, the RBA has its sights fixed very much on the industrialisation of China and India and the urbanisation their two billion people, which are likely to drive demand for Australia's commodity exports for years to come. Australian exports to China in the last six months of 2010 were up 57 percent on the prior six months, giving it a surplus with the Middle Kingdom of A$10.5 billion. And that is only likely to grow larger as the RBA's measure of Australian commodity prices jumped 4.9 percent in Australian dollar terms in January, while reaching record highs when measured in US dollars.
Prices for Australia's biggest export, iron ore, have been climbing since July as strong demand from Chinese steelmakers meets limited supply. Spot prices are now near record highs atop $185, which compares with $120 this time last year and less than $60 in early 2009. Since exports account for about one-fifth of the economy, the terms of trade are generating a staggering 12 to 15 percent of GDP in additional income every year, or roughly A$150-200 billion annually.
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