Australian exports hit record high despite slowing Chinese economy
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Australia’s export boom has hit a new high despite mounting evidence the pulse in China’s industrial heartland is weakening.
The trade surplus jumped to $3 billion in September, thanks to a large leg-up from the already-healthy August surplus being revised up from $1.6 billion to $2.3 billion.
It is the third-largest surplus since the Australian Bureau of Statistics started compiling the data in 1971.
Exports rose by 1 per cent to a record $37.5 billion, while imports fell 1 per cent to $34.5 billion.
The exporters benefited from both strong prices — up almost 4 per cent over the September quarter — and higher volumes of goods being shipped out.
China factory activity stalling
However, the news from Australia’s major export destination for commodities was not so good.
China’s manufacturing sector has slowed and almost stalled.
The unofficial Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) for October, which focuses on small-to-medium enterprises — defied predictions of a contraction, but only just.
The PMI came in at 50.1 just off the 50 mark that divides expansion from contraction.
Yesterday’s official PMI showed a similar trend.
“Subdued sales were partly linked to weaker foreign demand, with export sales declining for the seventh month in a row,” Caixin noted.
“Relatively soft market conditions contributed to a further drop in workforce numbers, albeit modest, while buying activity rose only slightly.
“Furthermore, confidence regarding the business outlook for output dipped to an 11-month low.”
New tariffs threaten exports
In a glimmer of good news there was a marginal improvement in new export orders, although the indicator remained deeply in contractionary territory as the impact of rising US tariffs took hold.
However, the marginal rebound may reflect a rush to push exports out before the next step-up in sanctions is imposed.
The US and China slapped additional tariffs on each other in late September, while US President Donald Trump threatened another round of duties which would effectively cover anything else imported from China — of about $US260 billion worth of goods — currently not being taxed.
New imports orders from Chinese factories have been in decline since March as the US rhetoric and actions over China’s bilateral trade surplus mounted.
“Overall, the PMIs for October suggest that growth remained on a downward trajectory at the start of the fourth quarter, with more weakness likely in the coming months,” Capital Economics’ Julian Evans-Pritchard said.
“The readout from yesterday’s Politburo meeting leaves little doubt that policymakers will respond to this downward pressure with additional stimulus measures, though we don’t think this will succeed in putting a floor beneath growth until the middle of next year.”
China’s steel profits surge
So far, the big Australian miners have been spared much of the pain from China’s slowdown as steel-sector reforms underpinned booming profitability.
Data released by the China Iron and Steel Association (CISA) shows profits have risen by almost 90 per cent this year.
Aggregate profits hit $US33 billion in the nine months to the September quarter, thanks to higher prices and efforts to throttle back production in inefficient and polluting mills.
Production has been cut by about 150 million tonnes since the crackdown, but the appetite for higher quality Australian iron ore and coking coal remains strong.
Iron ore exports rose 7 per cent in September, mainly thanks to higher prices on fairly flat volumes. Coking coal volumes jumped, but prices were softer.
LNG exports rose by 6 per cent to $5 billion over the month as it continued a push to replace coal as Australia’s second-most-valuable export.
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