Iron ore price slump ends record trade surplus run

Strong coal and gas exports in September failed to offset a large slump in the iron ore price that drove overall export values lower and ended Australia’s four back-to-back record trade surpluses.

But at $12.2 billion, the September surplus was still the third largest on record and Australia continues to benefit from global commodity demand.

Exports fell sharply by $3 billion (6 per cent) over the month, and despite booming oil prices, imports fell $586 million (2 per cent) as supply chain disruptions continued to hamper the global distribution of goods.

“The peak in the trade surplus has passed – now that the iron ore price bubble has burst,” Westpac senior economist Andrew Hanlan said, adding that the growth in coal and gas prices was expected by the market.

Iron ore was trading about $US90 ($120) a tonne on Thursday after peaking at $US237 a tonne in May. It was $US120 a tonne in September.

Metal ores and minerals, which largely constitute iron ore, fell $2.9 billion, or 16 per cent, and coal rose by $330 million (6 per cent). Other minerals, which capture LNG, were up $450 million (8 per cent). Demand for Australia’s coal and gas comes amid global energy crises that have driven prices higher.

In August, coal exports increased by $600 million to $5.4 billion, a 13 per cent month-on-month rise, while LNG increased by $800 million to $5.9 billion, up 16 per cent. Iron ore exports were down $736 million, or 4 per cent, over the same period.

“Prices for these commodities have surged recently, and while prices are down from record levels, they still remain quite elevated,” Commonwealth Bank analysts said.

On imports, a $1 billion fall in imported consumer goods and a $62 million fall in intermediate and other merchandise goods was partially offset by a $466 million rise in capital goods.

Fuel shipments fell $231 million (7.6 per cent) despite booming prices globally, and consumer transport equipment fell almost $1 billion (38 per cent), which was largely attributed to the global COVID-19 disruptions.

A sizeable weekly rise in US crude inventories took oil prices lower on Wednesday night (AEST), and fresh nuclear talks with Iran have many hopeful that further supply will come online in the not too distant future.

However, prices have been elevated in recent months, including September, driven by the limited output from OPEC coinciding with a spike in demand as economies reopen after COVID-19 restrictions.

According to the Federal Chamber of Automotive Industries, motor vehicle sales fell 8.1 per cent year-on-year in October, with 74,650 cars rolled out of car yards. The result was lower than in October 2019.

Sales were down 22.3 per cent in Canberra, 15.4 per cent in Western Australia, 12.2 per cent in NSW and 10.3 per cent in Queensland; in Victoria, sales rose 6.1 per cent.

“Automotive manufacturers like all those in the global manufacturing sector are dealing with a microprocessor shortage, which is leading to longer wait times to get products to market,” FCAI chief executive Tony Weber said.

“Australians are continuing to purchase vehicles, and carmakers are working to deliver products to our shores.”

Toyota was the market leader in October with 15,395 vehicles sold. This was followed by Hyundai with 6115 and Ford with 5462. Mazda was in fourth place selling 5181 cars and Kia came in fifth with 4853.

Imports of machinery and industrial equipment were down $31 million, or 1 per cent, which was fully offset by a $100 million increase in civil aircraft imports, a sector that enjoyed its third monthly increase in imports.

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