Coronavirus: Iron ore surge delivers trade record as China reopens

China reopening for business drove an iron ore-fuelled trade surplus record in March.

Iron ore shipments to China drove a trade surplus record in March. Picture: Supplied.

The nation's miners are set to once again provide partial protection against the ravages of a global downturn as resources exports drove a more than doubling in Australia’s trade surplus in March to a record $10.6bn.

The blockbuster result was thanks to a surge in sales of iron ore to China as our biggest trade partner reopened for business after a month of lockdown to halt the spread of the COVID-19 virus.

The March surplus eclipsed the previous high of $7.8bn in June 2019.

Australia escaped the ravages of the GFC thanks to a terms of trade boom as our miners fed a massive construction-led stimulus effort in China.

China CBA senior economist Belinda said her bank had been expecting the economy to contract over the first three months of the year, but “the sheer size of the trade balance and strength in exports” meant there was now a chance of a “positive result” for GDP in the quarter as net exports added 0.3 percentage points to growth.

The $6.7bn boost to our trade earnings was largely due to a $5.6bn, or 15 per cent, lift in exports, reinforced by a large $1.2bn, or 4 per cent, fall in imports, according to seasonally adjusted figures from the Australian Bureau of Statistics.

The end of the Chinese shutdwn and a rebound in iron ore capacity following cyclone disruptions pushed metal ore exports up by 32 per cent, or $2.8bn, as a lift in the Australian-dollar price of the steelmaking ingredient amplifying the result.

More broadly, commodity prices climbed around 3.5 per cent in March, implying miners’ export volumes rose strongly.

Non-monetary gold exports – a typically volatile figure – also more than tripled in March, adding $2.5bn to total exports, helped along by a surging price for the precious metal.

Following the release of the data, Citi chief economist Josh Williamson revised his forecast for a 1.2 per cent slump in GDP over the March quarter, to a milder 0.5 per cent contraction.

“Just as Australia’s trade accounts outperformed during the US-China trade war, they have entered the COVID-19 period in far better shape than anyone could have imagined,” Mr Williamson said.

 

Services trade, however, on both sides of the ledger suffered a dramatic drop in March as international travel plunged and borders were closed.

“We suspect both travel exports and imports will approach zero in April due to the international travel ban,” ANZ economist Hayden Dimes said.

Services imports collapsed by nearly a fifth, or $1.5bn, following a 5.9 per cent drop in February.

Service exports – which includes education and tourism services – also fell for a second month, down 9 per cent, or by $0.7bn, after dropping 8.5 per cent in February.

Travel exports collapsed 14 per cent in March, although this was more than offset by a 36 per cent plunge in travel service imports.

 

Ms Allen said even continuing strength in exports wouldn’t be enough to do more than cushion the severe economic damage from the coronavirus pandemic in the June quarter, even if it does mean Australia escapes the technical definition of a recession as two consecutive contractionary quarters.

“I don’t think “miners can save us again,” she said.