It has been a while since I wrote something about Australia's Trade Deficit and Foreign debt. In fact that last article was way back in June 2005!!
The Aus. Bureau of Stats. (ABS) released the figures for International Trade in Goods and Services February 2006 recently, and the original figures are so close to balanced, there was a minor $AUD 105Million in it.
This increase in Goods credits is still driven by the demand for ore and minerals. Australia's commodity (BBQ) economy continues the provide the fuel for growing economies. Almost all the goods were up by at least 12-15% over the last month's numbers suggesting that the numbers were adversely affected by the shorter February month.
If you review the pdf you can see the tables for the original, the deficit gets close to balance and then extends again. Civilian Aircraft makes an important impact of the debit side of the ledger, however fuel debits as up 43% over 8 months compared to last February.
No signing the K. Protocol means that Australia has not been penalised for having a comparative advantage in coal, given coal and coking coal is now by far our largest export.
The other stuff hasn't changed much as the US is still our biggest trading partner and the partner which we run the highest trade deficit with.
For all the worry and concern about China destroying our manufacturing, it is benign with the overall trend in our favour, our exports to China rose $AUD 3.6 Billion, 48% over 8 months (Feb 05 to Feb 06) whereas our imports only rose $AUD 1.9 Billion, 15% over the same period.
A quick check of the finances saw non-financial corporations borrowing heavily, this is most likely to pay for expansion to fuel the demand. An early signal that corporations feel they have expanded enough would be an continued fall in demand for imported capital goods, although the original series still shows that the continued demand for what would seem to be mining related equipment. This might also be seen in a reduction for corporate credit, although this could last longer as corporations use strong cash flows to borrow for merger and acquisition (M&A) to continue to expand.
Takeover fever really hasn't touched the booming mining industry as high prices allow companies to revisit unexplored leases both in Australia and elsewhere, rather than choosing to buy working mines to booster production whilst keeping costs at bay. M&A is happening in areas which are feeling the pinch on margins.
Mining costs will increase as lower yield ores are sourced to fill existing orders i.e. the mine life can be extended as most calculations are based on a specific price, increases in price make mining lower grade ores possible and if the company is smart it will mine those lower grade ores now at a higher cost whilst saving the lower cost, higher yielder ores for when prices drop. The aim afterall is extending the life and profit of the mine for as long as possible. This method is more longer term, ending up with more profit at the end, rather than having massive profits now at the expense of few or none later. I am sure there are companies doing both...
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Previous articles:
Trade Deficit and Foreign Debt -1
Trade Deficit and Foreign Debt -2
Trade Deficit and Foreign Debt -3
Trade Deficit and Foreign Debt -4
Trade Deficit and Foreign Debt - 5
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