Australian Exports Surge to Record in May on Iron Ore, Coal

By Jacob Greber

July 3 (Bloomberg) -- Australian exports rose to a record in May as prices for iron ore and coal surged, suggesting overseas shipments will underpin economic growth this year.

Exports climbed 1 percent to A$21.9 billion ($21.1 billion) in May, the statistics bureau said in Sydney today. The April trade balance was revised from a deficit to a A$12 million surplus, the first in six years, as mining companies led by Rio Tinto Group negotiated higher iron ore prices with China.

Rising sales abroad underscore central bank Governor Glenn Stevens' view that exports will buoy Australia's $1 trillion economy, even as 12-year high interest rates and record gasoline costs buffet domestic spending. Today's report showed the trade deficit was A$965 million in May, close to the A$900 million median estimate of 24 economists surveyed by Bloomberg News.

``The huge stimulus from booming iron ore and coal prices is finally showing up in the trade data,'' said Riki Polygenis, a senior economist at Australia & New Zealand Banking Group Ltd. in Melbourne.

``There will be large upward revisions to export values in coming months'' as more contracts are negotiated, and ``we may find Australia achieved a trade surplus in May,'' she added.

The Australian dollar traded at 96.20 U.S. cents at 1:10 p.m. in Sydney from 96.29 cents before the report was released. The two-year government bond yield was little changed at 6.86 percent.

Prior to April, Australia's trade balance had been in deficit since March 2002, and widened to a record shortfall of A$3.22 billion in February as exporters battled bottlenecks at mines and congestion at ports and railways.

Iron Ore Revision

The April 2008 balance was revised in today's report to a surplus after having been previously reported as a deficit of A$957 million. The adjustment was made to reflect an increase in contract prices for iron ore that were backdated to April 1.

Rio Tinto, the world's third-largest miner, won a price increase of as much as 97 percent for Western Australian iron ore from Asian steelmaker customers. The agreements for the 12 months that began April 1 match prices agreed on June 23 with Baosteel Group Corp., China's biggest mill, London-based Rio said yesterday.

BHP Billiton Ltd., the third-largest exporter of the ore, hasn't concluded price talks.

Today's figures ``point to the underlying growth in the Australian economy,'' said Rob Henderson, a senior economist at National Australia Bank Ltd. in Sydney. ``The Reserve Bank has been expecting the strong terms of trade to push the economy, and we're seeing that in these numbers.''

Imports Rise

Export earnings will rise 20 percent this year, and ``add substantially to national income and ability to spend'' by households, Stevens said on July 1.

Prices of the 19 commodities in the Reuters/Jefferies CRB Index jumped 29 percent in the six months through June 30, the most since 1973 and more than any second-half gain in at least five years, data compiled by Bloomberg shows.

Today's report also showed that imports rose 6 percent to A$22.8 billion in May, driven higher by a 17 percent jump in the price of gasoline and consumer goods such as cars, which climbed 8 percent.

That adds to evidence Australian household are weathering the central bank's interest-rate increases. Policy makers boosted the cash target in March, February, November and August by 100 basis point to cool the fastest inflation in almost 17 years.

Retail Sales

Retail sales unexpectedly climbed in May at the fastest pace in six months amid a pickup in spending on food, recreational goods, cosmetics and jewelry, a report published yesterday shows.

The jump in imports ``suggests that consumer spending and domestic demand may not be as weak as suggested by the Reserve Bank when it left rates unchanged on Tuesday,'' ANZ's Polygenis said. Given the ``numerous inflation risks both globally and domestically, further monetary policy tightening this year cannot be ruled out,'' she added.

Stevens and his board left the overnight cash rate at 7.25 percent this week, saying ``demand growth will moderate this year.'' The economy expanded at the slowest pace in almost two years in the first quarter.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net