A REBOUND in iron ore exports was not enough to stem a rise in Australia's trade deficit in May, as businesses took advantage of the higher Australian dollar to import more industrial transport equipment and fuel.
Imports of capital goods, which provide the infrastructure underpinning Australia's resources boom, rose by $176 million in May, 40 per cent more than last year and the strongest annual growth in almost 10 years.
An economist at CommSec, Savanth Sebastian, said the ability to make "capital investment at favourable prices had been great news for businesses".
"The Australian dollar strength has been a two-edged sword on the trade accounts because it hurts the competitiveness of our exports, but makes imports cheaper," he added.
Nevertheless, increased demand from China and Korea helped iron ore sales rise 16 per cent over the month.
Coal sales, Australia's second-biggest exports, dipped 3 per cent, however, as a result of lingering supply bottlenecks related to strike action at Queensland coalmines and extreme rainfall.
Australia's total exports, $26.8 billion in May, fell $285 million short of total imports, marking the fifth consecutive trade deficit this year.
Even according to Macobusiness, exports to China have just hit a record high. The article attracted few comments of course because it doesn't sit well with a generally bearish outlook for the Australian economy!
China and Japan retained their status as Australia’s two key export markets, accounting for $7,327 million (32%) and $4,129 million (18%) of exports over the month. Exports to China also hit a new record high over the month, exceeding the previous record (October 2011) by $258 million (see below chart).
Even according to Macobusiness, exports to China have just hit a record high. The article attracted few comments of course because it doesn't sit well with a generally bearish outlook for the Australian economy!
Steel production has not slowed in China, but steel consumption has. Steel is overflowing out of warehouses in QingDao as it continues to stockpile.
Until steel consumption reverts back to previous volumes, this is actually very bad news. Commodity steel will continue to backlog, and when no more can be stockpiled, demand will fall through a hole in the floor.
But go ahead, celebrate. Why save for tomorrow when you can spend it today?
Iron ore output is increasing - demand is there - so they will always be hitting record volumes.
This is business as usual - there is no need to get excited about it.
When output suddenly drops - that's the time to get excited about it.
It wasn't just record volume, it was record sales value. I would expect at some point volume will increase but sales value will fall as the higher production actually puts more serious downward pressure on prices. And yes you are right re what to get excited about, but bears on Macrobusiness and some here have been predicting / calling for the end of iron exports growth to China for quite some time, and it just doesn't appear to be happening at this point.
TheRazorsEdge
But go ahead, celebrate. Why save for tomorrow when you can spend it today?
Sorry but I don't see your point? Also, why would the steel mills keep buying iron ore if they truly have glut of steel and their demand for steel is falling? This typical bear excuse to explain "good" data makes no sense to me?
It wasn't just record volume, it was record sales value. I would expect at some point volume will increase but sales value will fall as the higher production actually puts more serious downward pressure on prices. And yes you are right re what to get excited about, but bears on Macrobusiness and some here have been predicting / calling for the end of iron exports growth to China for quite some time, and it just doesn't appear to be happening at this point.
Sorry but I don't see your point? Also, why would the steel mills keep buying iron ore if they truly have glut of steel and their demand for steel is falling? This typical bear excuse to explain "good" data makes no sense to me?
The chinese don't seem to run jit inventories. I guess they just don't trust their suppliers. Shame, because there are vast savings to be made here.
Maybe it's something to do with a controlled economy. MIW may be able to expand on the theories.
I see the whole think like the instillation of an IT project. Near the go live date you have 300+ bodies on the floor, working nights and weekends to get the damn thing in on time.
When it goes live, it's all hands on deck. There are masses of overtime during the initial bug period.
Then - when it calms down, there's nothing, and 250 contractors walk out the door leaving a support staff of 50.
I don't know much about the mining industry - but I would be very surprised if things worked differently when demand falls off a cliff.
The only question is whether China can manage their economy. But can anyone tell me how many successful slowdowns have resulted in a soft landing versus a hard landing? It seems that once an economy changes direction, it's quite hard to turn it.
It wasn't just record volume, it was record sales value. I would expect at some point volume will increase but sales value will fall as the higher production actually puts more serious downward pressure on prices. And yes you are right re what to get excited about, but bears on Macrobusiness and some here have been predicting / calling for the end of iron exports growth to China for quite some time, and it just doesn't appear to be happening at this point.
It will continue until it cannot. GDP growth in China is a centrally planned fiction designed to attract capital investment.
Quote:
Sorry but I don't see your point? Also, why would the steel mills keep buying iron ore if they truly have glut of steel and their demand for steel is falling? This typical bear excuse to explain "good" data makes no sense to me?
You've never lived in a centrally planned economy. Steel mills keep producing steel because it contributes to GDP. GDP targets are mandated by the central government because high GDP growth attracts capital and technology, which is what the central government needs to transform a nation that still has nearly 600 million people living in the agricultural age.
Steel in China is primarily used in the construction of high rise buildings. China already has whole cities of empty high rise buildings, for what possible reason would it need more empty cities?
That you think this is 'good' data shows just how effective this form of propaganda is. Go ahead, believe it if you need to.
It will continue until it cannot. GDP growth in China is a centrally planned fiction designed to attract capital investment.
Well the export $$$ for Australia are not fiction. They are VERY real.
Quote:
You've never lived in a centrally planned economy. Steel mills keep producing steel because it contributes to GDP. GDP targets are mandated by the central government because high GDP growth attracts capital and technology, which is what the central government needs to transform a nation that still has nearly 600 million people living in the agricultural age.
Steel in China is primarily used in the construction of high rise buildings. China already has whole cities of empty high rise buildings, for what possible reason would it need more empty cities?
That you think this is 'good' data shows just how effective this form of propaganda is. Go ahead, believe it if you need to.
Have you lived in a centrally planned economy? I'm not denying China is that by the way, or that some funky stuff goes on from time to time, but I think most in Australia fail to grasp the scale of the Chinese economy and how it's need for growth has such a profound REAL impact on our economy. Re whole cities of empty high-rise buildings - really? Are you sure about that? Got any contemporary examples? Even the so called "ghost cities" of China turned out to be bullshit remember? Pictures taken at 5am and such? I've read other twisted data before trying to claim Claim that China had massively over-built commercial space years ago - turned out to be all flawed analysis and bear porn. Are you still believing some of that I wonder? Happy to be proven wrong though if you have evidence for your claim?
The chinese don't seem to run jit inventories. I guess they just don't trust their suppliers. Shame, because there are vast savings to be made here.
Maybe it's something to do with a controlled economy. MIW may be able to expand on the theories.
I see the whole think like the instillation of an IT project. Near the go live date you have 300+ bodies on the floor, working nights and weekends to get the damn thing in on time.
When it goes live, it's all hands on deck. There are masses of overtime during the initial bug period.
Then - when it calms down, there's nothing, and 250 contractors walk out the door leaving a support staff of 50.
I don't know much about the mining industry - but I would be very surprised if things worked differently when demand falls off a cliff.
The only question is whether China can manage their economy. But can anyone tell me how many successful slowdowns have resulted in a soft landing versus a hard landing? It seems that once an economy changes direction, it's quite hard to turn it.
Must admit the whole steel thing in China is pretty opaque to me. I just did a quick search to find out what steel inventories are doing this month, but couldn't find anything more recent than feb/march when inventories were up 47%, but the info is way out of date considering what has changed since then.
I suspect the reason why inventories pile up is that once the mill is running and you have paid for the ore, it is a big decision to shut down production.
If you remember, in feb/march there were plenty of reports coming out about ore shipments being cancelled or defaulted upon. Maybe it was because inventories were so high and the mills, not having sold any steel, had no money to buy the next shipment of ore?
Reading the commodity guys in the blogosphere over the past week, they are saying shipments to China are picking up again and they are expecting Iron ore prices to top $150/tonne again by November. Could this mean the inventories have been sold down? There certainly were a lot of shovel-ready projects approved in May, and by now I guess the central government's programme for building low-cost housing would be in full swing.
The Chinese steel market is dominated by a few state-owned enterprises that effectively control the price of iron ore into the country and the price of steel on the market, but there are a lot of private mills as well. Last year the gvernment put in place a ban on the building of new steel mills and concrete factories, but 2 new steel mills did sneak through the mass approvals in May.
The Chinese also opened a new trading platform for Iron ore in Shanghai in May. This is ostensibly to free up the market and reduce the power of the two opposing cartels of the Chinese SEOs on one side and Rio, BHP and Vale on the other side. But then I saw warnings in the Chinese press for the private steel mills not to get in front of the lead of Baosteel, essentially saying "we are still a cartel here." BHP sponsored the opening of a rival iron ore trading platform in Singapore recently as well. One wonders how it will all pan out.
While I was a student I worked for a while in Weipa. The way they reacted to demand was through shift management. When things were really hopping, they ran 3 shifts. If demand dropped and the stockpile of treated bauxite got above a certain level, they would stop the night shift, but layoffs would be minimal. If it got even slower, then I guess the afternoon shift would be stopped and then people would definitely have to be let go.
Last time I followed my dreams it led me to a casino, a bar, a gun shop, then a bank. Never again! AREPS™
It will continue until it cannot. GDP growth in China is a centrally planned fiction designed to attract capital investment.
You've never lived in a centrally planned economy. Steel mills keep producing steel because it contributes to GDP. GDP targets are mandated by the central government because high GDP growth attracts capital and technology, which is what the central government needs to transform a nation that still has nearly 600 million people living in the agricultural age.
Steel in China is primarily used in the construction of high rise buildings. China already has whole cities of empty high rise buildings, for what possible reason would it need more empty cities?
That you think this is 'good' data shows just how effective this form of propaganda is. Go ahead, believe it if you need to.
China hasn't been a centrally-planned economy for a long time. The government does not set targets for steel production any more. Up until a little while ago they were trying to slow it down, though.
The big SEOs create a lot of inefficiency and are not held on as tight a rein by the banks as they should be, but in the end even they are constrained by finance. If they can't sell their steel they can't buy ore.
The Chinese central government doesn't give a damn about what the GDP number is. All they really care about is unemployent and inflation.
Also, the days when China was chasing FDI are over. If you are going to set up a service industry business you can get some tax holidays if you are going to export the services, but that's about the extent of the encouragement these days.
Last time I followed my dreams it led me to a casino, a bar, a gun shop, then a bank. Never again! AREPS™
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