Trade surplus narrows as commodity prices drop

December 12, 2011

The monthly trade surplus narrowed more than expected in October to its smallest since March as demand for commodities from China faltered.

The trade surplus narrowed to $1.59 billion from $2.56 billion in September, according to the Australian Bureau of Statistics. Economists polled by Bloomberg expected the trade surplus to fall to $2 billion.

"It could be the first sign of a weakness for demand for commodities from China but a lot will depend on how Europe evolves," said St George Bank chief economist Besa Deda. "We think the weaker commodities prices and the relative strength of the Aussie dollar, combined with strong demand for capital goods imports probably means we've seen the peak of the surplus."

The ABS said iron ore fines exports to China, on a recorded trade basis, fell $110 million or 3 per cent in October. Volumes for lump iron ores were up 6 per cent but prices fell 9 per cent.

The fears of a steep recession in Europe have weakened demand for Chinese exports which in turn is hurting Australian sales into China.

The Australian dollar fell after the release of the trade figures and a separate report on housing finance, losing about one quarter of a US cents to about $US1.017 in recent trade.

China effect

Ms Deda noted that China recently began easing policy in response to the impact of the European debt crisis and economic slowdown in China. Europe is China's biggest export market.

Rural goods, seasonally adjusted, rose 2 per cent to $3 billion in October.

Ms Deda said St George is still forecasting healthy trade surpluses to come, especially with Queensland's coal industry's production improving after the floods at the beginning of the year however the peak of the surplus has probably passed.

In seasonally adjusted terms, non-rural goods exports edged up $14 million to $19 billion in October, helped by mineral fuels which rose $144 million, or 7 per cent in the month.

Manufactured goods exports, however, fell $84 million, or 6 per cent, while coal, coke and briquettes shipments abroard fell $75 million, or 2 per cent.

Goods and services imports rose 2 per cent, or $605 million, to $25.7 billion in October, with capital goods rising $60 million or 1 per cent.

"We had a big rise in capital goods imports coming through that is reflecting the strong business investment boom," Ms Deda said.

Import boost

Moody's Economy.com analyst Matthew Circosta said demand for exports is weakening and that the trade surplus would continue to narrow.

"Softer commodity prices are flowing through to lower export receipts, while strong business investment and household consumption are boosting imports."

"Recent interest rate cuts will support domestic demand, which along with the rampant mining boom, will continue lifting the import bill and narrow the trade surplus," said Mr Circosta.

HSBC chief economist Paul Bloxham said rising imports are consistent with the solid domestic demand in the Australian economy.

"Some (demand) is leaking offshore, given the elevated level of the Aussie dollar," he said.

Mr Bloxham said the leakage is not just around online retail shopping but investment in the mining boom, which includes the surge in equipment imports.

Lumps, fines, coal

In October the price of iron ore plunged by 30 per cent, to about $US120 a tonne, as Chinese steel mills slowed production. Iron ore prices have since recovered to be about $US140 a tonne.

Exports of the premium lump iron ore to China fell $23 million, or 2 per cent, with volumes rising 8 per cent in the month while prices fell 10 per cent.

Hard coking coal exports to China fell 19 per cent, in the month, but rose 9 per cent to Japan and 11 per cent to India. Overall, hard coking coal exports fell 4 per cent, $79 million, in the month.

Semi-soft coal exports to China sank 50 per cent in October, by $107 million, with volumes down 47 per cent and prices 6 per cent lower, the ABS said.

Thermal coal exports to China rose $47 million, or 25 per cent, with volumes up 23 per cent, and prices up 1 per cent.

Sourced smh.com.au

Miners push European shares to 29-mth closing high

17:50, Monday 14 February 2011

* FTSEurofirst 300 (E3X.FGI - news) up 0.3 pct

* Commodity (COMIN.NX - news) stocks gain on China import data

* Banks (SBK.NX - news) lower ahead of sector results

LONDON, Feb 14 (Reuters) - European shares hit a 29-month closing high on Monday, with miners up after Chinese trade data highlighted strong demand for raw material and as talk of easing inflation in the country capped fears of further tightening.

The pan-European FTSEurofirst 300 index of top shares closed 0.3 percent higher at 1,177.86 points, its highest close since early September 2008.

The index, up 3 percent this month, has rebounded almost 83 percent since hitting a record low in March 2009.

Miners in the STOXX Europe 600 basic resources index rose 1.6 percent as copper prices neared record highs after data showed a fall in China's trade surplus to a nine-month low, following surprisingly strong imports, notably of copper.

"The import data reaffirms the growth story in China and helps to give confidence in mining companies that interest rate rises are not going to suppress metal demand in the medium term," said Joshua Raymond, market strategist at City Index.

Traders also said there was talk China's consumer price index (CPI (Berlin: CEJ.BE - news) ) may have risen 4.9 percent in the year to January, well below the forecast of 5.3 percent, adding that might be because of weighting changes in the CPI.

"Inflation has been the major worry and there has been a fear of monetary overkill, but until the (inflation) data is released (on Tuesday) we could see a bit of volatility," said Heino Ruland, strategist at Ruland Research in Frankfurt.

Share (LSE: SHRE.L - news) price gains were kept in check by falls in heavyweight banking stocks ahead of sector earnings results due this week. Societe Generale (Paris: FR0000130809 - news) and BNP Paribas (BNPQF.PK - news) , which report this week, both shed around 1.2 percent while Lloyds Banking Group fell 1.7 percent.

Bucking the trend, Credit Suisse (CSMA - news) gained 1.9 percent after the Swiss bank said it will issue 6 billion Swiss francs ($6.2 billion) of contingent convertible capital bonds, or CoCos, to satisfy stricter capital rules. [ID:nLDE71D039]

ARM Holdings (LSE: ARM.L - news) rose 6.6 percent as traders cited bullish notes from Goldman Sachs (NYSE: GS - news) and Morgan Stanley (DWDF.EX - news) on its outlook. Nearly all the world's mobile phones and tablets use the company's low-power technology.

France's Thales (Hamburg: CSF.HM - news) rebounded from earlier losses to rise 4.6 percent, as investors brushed aside a profit warning from the defence company. [ID:nLDE71D0BM]

Cementing expectations of a pick-up in merger and acquisition activity, British energy services provider John Wood Group surged 13.9 percent after U.S. conglomerate General Electric bought a unit of the company for $2.8 billion.

(Reporting by Joanne Frearson;Editing by David Hulmes,sourced:resuters)

Tags:FTSEurofirst, Commodities, European market, shares, Chinease trade data, strong demand, raw materials, STOXX Europe, traders, Credit Suisse, ARM Holdings, Goldman Sachs Group Inc.,Thales, John Wood group, General Electric.

Australian cyclone risks to commodities trade

Wed Feb 2, 2011 2:34am EST
SYDNEY (Reuters) - A massive cyclone due to slam into Australia's northeast coast on Wednesday could prove costly for major producers of commodities such as sugar, coal, nickel, copper and gold.
Cyclone Yasi, now closing in on the central coast of Queensland state, is forecast to generate winds of up to around 300 kph (180 mph) by the time it comes ashore late on Wednesday.
Here are the main risks to commodity markets.
SUGAR
The cyclone threatens to flatten sugar cane in an area accounting for roughly a third of Queensland state's production, which in turn makes up more than 90 percent of national sugar production.
Crop damage could further pressure world raw-sugar prices, already at three-decade highs.
Australia ranks among the top-three raw-sugar exporters alongside Brazil and Thailand, shipping more than 3.0 million metric tons in a normal year, or about 10 percent of the world export market.
In 2006, a weaker cyclone, named Larry, slashed national raw sugar output by almost 8 percent to 4.7 million metric tons.
The abnormally wet start to the Australian summer this year caused the country's worst harvest in 20 years.
Raw sugar exports for 2010/11 are forecast to fall to around 2.4 million metric tons from the previous 3.2 million metric tons, after recent heavy rains and floods cut sugar content, says leading sugar exporter Queensland Sugar Ltd.
Queensland-based Cane growers Association had hoped for a modest recovery in sugarcane production to around 29 million metric tons in 2011/12 from 27.3 million metric tons in 2010/11.
A normal harvest is around 33 million metric tons.
Harvesting usually starts mid-year and can finish as late as December. The current crop threatened by Yasi is in its early growing phase.
Global sugar supply will just cover demand this year and prices will fall by end-2011, a Reuters poll in January showed, although that fine balance could easily be upset by dire weather or logjams at ports in Brazil, the world's top sugar producer.
Also in the path of the cyclone are the two biggest Australian sugar ports: Mackay, which can handle 3 million metric tons a year, and Townsville (2 million metric tons).
COTTON & GRAINS
About five million tonnes was left uncut because of rain disruption and is most at risk being smashed by the cyclone because it is standing taller than the new 2011 crop.
COAL MINES, GRAZIERS ON ALERT
Yasi, one of the world's most powerful cyclones, is so large that it is expected to travel as far inland as the Mt Isa mining region, about 1,000 km inland, before finally breaking up.
Xstrata said it was bracing for high winds at its Mount Isa Copper mining and smelting unit and also at its Ernest Henry copper mining operations even further inland.
Most of Queensland's coal mines lie south of the cyclone's predicted march west across the state, but the northerly mines, such as Rio Tinto's Hail Creek mine and Xstrata Coal's Collinsville mine, have been closed. Xstrata was considering shutting its Newlands mine as well.
The Pajingo gold mine, south of the historic gold mining town of Charters Towers and yielding around 2,200 ounces a month, is well within the forecast path of Yasi, and the owner said on Wednesday that work had been suspended.
Queensland state's large livestock industry also prepared on Wednesday for heavy loses from Cyclone Yasi.
Australia's National Farmers Federation estimates that the cyclone could affect a fifth of Queensland's A$3.3 billion ($3.34 billion) herd if it barrels through prime grazing areas.
Queensland, with about 12 million head of cattle, accounts for about 44 percent of the national herd.
Australia's banana growers also face major losses, with the crop now in full swing. In 2006, local banana prices quadrupled after Cyclone Larry destroyed 80 percent of the national crop.
"Losses will likely be catastrophic again," the National Farmers Federation said in an email to Reuters. ($1 = 0.988 Australian Dollars)
(Additional reporting by Rebekah Kebede in PERTH and Lewa Pardomuan in SINGAPORE; Editing by Mark Bendeich, Yoko Nishikawa and Sanjeev Miglani, sourced :Reuters)

Chinese steel industry to step up mergers in 12th five year plan

Monday, 31 Jan 2011
It is reported that during 12th five year period, several giant steel enterprises will be formed in China with strong ability of self innovation and global competitiveness, estimating top 10 steelmakers will take up 60% national capacity.

An insider said that it is part of important contents of steel industry 12th five-year plan.
As per report preliminary plan was basically finished and sought for next step opinions and given the plan was supposed to release at the end of last year.

As a big country of steel production and consumption, China crude steel production listed top one of the world for continuous 13 years especially in 21st century and crude steel annual growth was 21.1%. CISA officials estimated that total surplus still existed in 2011 due to severe blind investment.
In overall in the new plan, total volume of production capacity will be controlled, mainly satisfying domestic demand. In addition, new plan will focus on M&A and optimization of industrial distribution, upgrading standard of backward capacity elimination, energy saving and emission reduction. (sourced:mysteel.net for real time access to China steel new)

Commodities-Climate & Weather news; 2-week heavy rain alert for north Australia

Jan. 13, 2011
The prevailing La Nina event, blamed for triggering record-breaking rains over Australia, may be just peaking and is quite sometime away from a wind-down.
Northern Australia is likely to experience above average rainfall for at least another week or two, according to the Bureau of Meteorology (BoM), the national forecaster.
ACTIVE TROUGH
The potential for tropical cyclones to form in the surrounding seas will also remain at a moderate to high level whilst the Australian monsoon trough is active in the area.
La Nina refers to a cooling event in the central and east equatorial Pacific, with strong winds pushing warm waters towards Australia and the adjoining west Pacific.
The warm waters fuel convection and sets up thunder clouds, which in turn breed tropical storms and cyclones.
The December to March Australian monsoon is a successor event to its better known northern hemisphere counterpart, the Indian or Asian monsoon.
Studies have shown that preceding Australian conditions may have virtually had no significant correlation with succeeding Indian conditions.
But comparable Indian conditions have shown significant correlations with many succeeding Australian regional values.
For instance, India saw some heavy to very heavy rains batter the country in what was a linear extension of the very same La Nina conditions in the Pacific.
That such strong wet weather should have come virtually on the heels of a record-smashing drought underwritten by the year 2009 El Nino year had made scientists and researchers sit up and take notice.
Nobody had bargained for the scale and intensity of the rain fury unleashed over the continent in the far-east.
But researchers at the Tokyo-based Regional Institute for Global Change (RIGC) had flagged the possibility of ‘stronger than usual La Nina' well in advance.
And this is what has proved now, with the BoM itself saying in its latest update that a major La Nina event continues to affect the Pacific Basin.
Long-range models surveyed suggest that this event may be at its peak, and will persist into the southern hemisphere autumn.
But RIGC researchers are of the view that the event could last through the whole of this year even while progressively weakening and may peter out in 2012 only.
THIRD WETTEST
Previous strong La Nina events, such as those of 1974 and 1955, have also been associated with widespread and severe flooding in eastern Australia.
Sea surface temperatures off the Queensland coast in recent months have been at or near record levels.
The current event has contributed to 2010 being Australia's third wettest year on record, and Queensland having its wettest December on record.

Source: www.thehindubusinessline.com ByVinson Kurian,Thiruvananthapuram