Australian Trade Balance Turns to Surplus on Exports

By Jacob Greber

July 31 (Bloomberg) -- Australia's trade balance turned to a surplus in June as coal and meat exports jumped, bolstering the nation's 17-year economic expansion.

The trade surplus was A$411 million ($387 million) compared with a revised deficit of A$253 million in May, the Bureau of Statistics said in Sydney today. The median estimate of 24 economists surveyed by Bloomberg News was for a A$100 million shortfall. It was the second surplus in three months.

Today's report adds to evidence exports of raw materials will offset slowing domestic demand after central bank Governor Glenn Stevens increased the benchmark interest rate to a 12-year high in March. Export income is forecast to surge after mining companies including Rio Tinto Group negotiated a price increase of as much as 97 percent for iron ore destined for China.

``It's a great result and is primarily due to the increase in bulk commodity prices,'' said Joshua Williamson, an economist at TD Securities Ltd. in Sydney. With the slowing in domestic demand for imports ``we should start to see successive trade surpluses. That's going to help the current account deficit.''

Prior to April, Australia recorded 74 straight monthly trade deficits as imports outpaced exports that were hampered by a drought and bottlenecks at ports.

Exports rose 2 percent to A$23 billion in June from May, today's report showed. Coal shipments jumped 21 percent and mineral fuels gained 5 percent. Meat exports increased 8 percent.

Imports Drop

Imports fell 1 percent to A$22.6 billion. Non-industrial transport equipment dropped 12 percent.

The Australian dollar slipped to 94.37 U.S. cents at 12:17 p.m. in Sydney from 94.47 cents before the figures were released. The two-year government bond yield fell 7 basis points to 6.3 percent from yesterday. A basis point is 0.01 percentage point.

The central bank forecasts the mining boom will boost Australia's terms of trade, a measure of export earnings, by 20 percent this year after prices for iron ore, coal and other commodities surged to a record.

Export income ``will add substantially to national income and ability to spend, even with the slowing in global growth to below-trend pace that the bank is assuming,'' Stevens said on July 1, when he left the benchmark lending rate at 7.25 percent for a fourth month.

Retail Sales

Stevens has raised rates four time since August last year in an effort to cool annual inflation that surged to 4.5 percent in the second quarter. The bank aims to keep prices increases between 2 percent and 3 percent on average.

Recent reports suggest increased borrowing costs, surging oil prices and falling stock markets are forcing households and businesses to cut spending.

Retail sales fell 1 percent in June from May, the biggest drop in six years, as households spent less at department stores, a separate report showed today.

Consumer confidence slumped in July to the lowest level in 16 years, businesses in June were the most pessimistic since 2001 and home-loan approvals fell in May by the most in eight years, reports showed this month.

Today's trade report ``is good news. The mining boom is keeping Australia's economy afloat,'' said Shane Oliver, chief economist at AMP Capital Investors in Sydney.

Australia may return to a trade deficit in coming months after a gas explosion in Western Australia cut off almost 30 percent of domestic gas supplied to that state, which generates about a third of the nation's exports.

The natural gas shortage, which was triggered by an Apache Corp. pipeline explosion on June 3, may cost the Western Australia state A$6.7 billion, the Chamber of Commerce and Industry estimated earlier this month.

Fallout from the explosion will subtract about a quarter percentage point from gross domestic product, the Reserve Bank of Australia said on July 15. The bank forecast in May that Australia's economy would expand 2.25 percent this year.

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