Biggest lift in export prices for four years
Export and import prices

Export & import prices: Import prices rose by 0.2 per cent in the March quarter but were down by 6.2 per cent on a year ago. Export prices rose by 11.2 cent in the quarter to be up by 8.6 per cent on the year. The terms of trade probably rose by around 9-11 per cent in the March quarter.

Commodity prices: The CommSec daily commodity index has lifted 5.3 per cent so far in 2021 while the Aussie dollar has lifted just 0.6 per cent.

The terms of trade data is useful in assessing the outlook for the Australian dollar and therefore trade-exposed businesses.

What does it all mean?

• On average in the March quarter, the CommSec daily commodity index rose by 18.1 per cent while the Aussie dollar rose 5.7 per cent against the greenback (from US73 cents to US77 cents). Amongst the price gains were thermal coal (up 31.8 per cent); coking coal (up 17.7 per cent); copper (up 18.1 per cent); oil (up 37.8 per cent); beef (up 6.4 per cent) and iron ore (up 24.4 per cent). The main fall in price was recorded by gold (down 4.5 per cent).

• The CommSec daily commodity price index records market prices in US dollar terms. So prices differ from the Bureau of Statistics export price index. The ABS export price Index records “prices received for exports of merchandise that are shipped from Australia each quarter.” And the prices are recorded when “exported goods physically leave Australia.”

• The Aussie dollar has closely tracked commodity prices over 2021 and is well supported near US77-78 cents. The CommSec daily commodity index has lifted 5.3 per cent so far in 2021 while the Aussie dollar has lifted just 0.6 per cent. Higher commodity prices are balanced against the likelihood that interest rates will remain low for a number of years. A softer greenback is also serving to support the Aussie dollar near US77-78 cents. While the US economy is strengthening and the vaccine roll-out is impressive, the US Federal Reserve is likely to keep interest rates low until inflation is entrenched well above 2 per cent.

• Commonwealth Bank (CBA) currency strategists tip the Aussie dollar to lift to US80 cents in June and hold near US81 cents at the end of 2021. A higher Australian dollar provides headwinds for globally-focussed companies, companies with significant earnings from abroad and exporters that don’t benefit from higher commodity prices.

• The iron ore price fell from all-time highs on Wednesday, dropping US$3.40 or 1.8 per cent to US$190.45 a tonne.

• CBA commodity strategist, Vivek Dhar wrote on yesterday’s fall:

• “Iron ore prices fell on demand concerns after Chinese authorities decided to remove an export rebate on 146 steel products from May 1. Policymakers also removed the import duty on pig iron, crude steel and recycled steel. The new policy settings will likely weigh on China’s iron ore demand as economic incentives to use more imported scrap steel have increased, while the economic incentives to export some steel products have decreased.”

What do you need to know?

International trade prices – March quarter 2021

• Import prices rose by 0.2 per cent in the March quarter but were down by 6.2 per cent on a year ago. Export prices rose by 11.2 cent in the quarter to be up by 8.6 per cent on the year.

Import prices

• According to the Bureau of Statistics (ABS):

“The main contributors to the rise were:

• Petroleum, petroleum products and related materials (+26.3 per cent), driven by stronger oil demand and reduced global supply.

• Road vehicles (+0.6 per cent), driven by increased demand for new passenger vehicles.

The main offsetting contributors were:

• Telecommunications and sound recording equipment (-6.1 per cent), due to the discounting of older model mobile phones.

• Gold, non-monetary (-9.6 per cent), due to continued easing of global uncertainty.

• Office machines and ADP machines (-6.1 per cent), due to the impact of exchange rates and the appreciating Australian dollar.”

Export prices

“Main contributors to the rise were:

• Metalliferous ores and metal scrap (+18.2 per cent), driven by the demand for iron ore from China and constrained global supply.

• Gas, natural and manufactured (+20.2 per cent), due to the oil-linked contracts capturing the recovery in oil prices from late 2020.

• Petroleum, petroleum products and related materials (+37.3 per cent), driven by stronger oil demand and reduced global supply.

• Coal, coke and briquettes (+5.8 per cent), reflecting the demand for thermal coal during the northern hemisphere winter.

The main offsetting contributors were:

• Gold, non-monetary (-9.7 per cent), due to continued easing of global uncertainty.

• Fish, crustaceans, molluscs (-26.8 per cent), driven from decreased demand for lobsters from China.

• Cereals and cereal preparations (-3.2 per cent), driven from a record Australian harvest placing downward pressure on prices.”

What is the importance of the economic data?

• The Australian Bureau of Statistics provides quarterly estimates of export and import prices. The figures assist in gauging inflationary pressures in the economy.

What are the implications for investors?

• Commodity producers have been doing well over the past three months. Both rural and non-rural commodity prices have been rising, and out-pacing the gains for the Aussie dollar. Success at supressing the Covid-19 virus has allowed production and export to continue with few delays. Strong demand for our high-quality resources has continued, supporting prices.

• Mining and energy prices have scope to remain at historically-high levels as countries focus on job-intensive infrastructure projects to drive economic recovery.

Published by Craig James, Chief Economist, CommSec