Data Diary

Australia’s trade deficit – are commodity exports fading?

Posted on 09 December 2009

When we last looked at how the commodity sector was tracking, there was a general sense of optimism as conveyed in their end of year reporting (see article from 27 October).  On the face of it, the trade data released today by the Australian Bureau of Statistics doesn’t seem to confirm this optimism.

Big picture – Australia’s trade deficit rose in seasonally adjusted terms from $1.85bn in September to $2.38bn in October.  While a relatively strong domestic economy has been continuing to suck in the imports, our export sector has been flagging.

So what is going on?  Well, it appears that the price compression that has been underway in the commodity sector continues unabated – particularly in those big ticket exports – iron ore and coal.  Consider the following chart of the Implicit price deflators:

Export (and import prices) continued their downward trend.  Now maybe this can partly be explained by the strength in the AUD, but there seems to be more to it than that.  Have a look at the export and import price indices:

And the explanation from the ABS as to the drop in export prices:

The Export Price Index decreased by 9.6% in the September quarter 2009. The decrease was driven mainly by falls in prices received for coal, coke and briquettes (-34.2%) and metalliferous ores and metal scrap (-12.1%), as well as the appreciation of the Australian dollar against all major trading currencies. These falls were partly offset by rises in prices received for non-ferrous metals (+16.1%) and petroleum, petroleum products and related materials (+5.4%). Through the year to September quarter 2009, the Export Price Index decreased by 20.7%, the largest annual decrease since the current series began in September quarter 1974.

Postscript – we have mentioned previously that the AUD was starting to look a little green around the gills.  As always, Kevin’s Market Blog has succinctly analysed the prevailing trend in his blog today (see here).  The global carry trade about to be unwound perhaps?