Japan overtakes US to become Australia’s second biggest trading partner

Two-way trade with Japan jumped 13 per cent in the last financial year, to $69 billion, just ahead of the US at $66bn.

Australia’s exports to Japan rose 18 per cent in 2016-2017, when coal sales were up 36 per cent and iron ore sales up 15 per cent.

Japan has leapfrogged the US to reclaim the second slot among Australia’s trading partners, new figures reveal. And gas sales are set to turbocharge exports to Japan and to other energy-hungry countries in north Asia over the next few years.

After topping Australia’s trade figures for several decades, Japan was displaced in financial year 2010 by China, especially by its enormous, continuing appetite for iron ore, which accounts for more than half the goods exported.

Japan then held on to its position as Australia’s second-biggest trading partner. But in the 2016 financial year, the US overtook it, when exports and imports of goods and services were combined, pushing Japan down to third. Now, the latest figures show two-way trade with Japan jumped 13 per cent in the last financial year to $69 billion, just ahead of trade with the US at $66bn.

Australia’s exports to Japan rose 18 per cent in 2016-2017, when coal sales were up 36 per cent and iron ore sales up 15 per cent.

Coal made up 26 per cent of Australia’s goods exports to Japan in the 2017 calendar year, and iron ore 15 per cent. Australia’s trade surplus in 2017 reached $23bn.

South Korea is Australia’s third-biggest export market, but larger imports by Australia push the US up to third in overall two-way trade.

Australia’s L N G exports

In the last financial year, Australia sold $63bn of iron ore, $54bn coal, $28bn education services, $22bn each in natural gas and tourism, and $19bn in gold. Then come other exports worth $5bn to $7bn each, including aluminium, beef, wheat and crude oil.

Manuel Panagiotopoulos, the director of Australia Japan Economic Intelligence, told The Australian that Japan’s position as Australia’s second-largest trading partner looks to continue, based on the stable demand for coal and iron ore, plus the growth of liquefied natural gas exports and the opportunities opened up by the free trade agreement and the newly signed Trans-Pacific Partnership. Through these agreements, he said, “Japan’s largest opening of its market has been to Australia”.

The Bureau of Resource and Energy Economics forecasts in its most recent Resources and Energy Quarterly publication that Australia’s LNG export earnings will rise by 60 per cent from $22bn in financial 2017 to $36bn in financial 2019, mainly due to much higher volumes — 52 million tonnes to 77mt in those two years.

The bureau says: “Higher export volumes will be driven by increased production at Gorgon, as well as the completion of the three remaining LNG projects under construction — Wheatstone, Ichthys and Prelude. These three projects will add about 21mt to Australia’s LNG export capacity.”

It adds: “Japan, South Korea and China are expected to be the major destinations for Australia’s LNG exports. While prospects for growth in the imports of Japan and South Korea are limited, Australian producers are expected to capture an increasing share of both country’s imports.”

Inpex is the major shareholder in the Ichthys Project, which has a projected operational lifetime of 40 years with annual production of 8.9mt of LNG.

Wheatstone, which also has an annual production target of 8.9mt of LNG, made its first shipment to JERA in October 2017. Prelude’s major shareholder is Shell, with Inpex as a minority shareholder. Prelude’s expected annual production is 3.6mt of LNG.

Mr Panagiotopoulos said that the free trade agreement, known as the Japan-Australia Economic Partnership Agreement, which has been in force since 2015, “has been very successful in creating opportunities for Australian exporters in numerous sectors, including sugar, with sales up 69 per cent in 2016-17, fruit and nuts, 19 per cent growth, and medical instruments, up 22 per cent. Even beef, which is a mature market, grew by 5.3 per cent as Australian producers gain market share”.

In addition, “Japan has been an unexpected but committed and effective leader, along with Australia, in the successful effort to keep alive, revive and implement the TPP” since the US quit, he said.

Mr Panagiotopoulos said: “This agreement increases Australia’s access not only to Japan but also to Canada and Mexico, with which Australia does not have existing FTAs.”