By David Rogers
SYDNEY--Australia posted its biggest trade deficit in almost a
year-and-a-half, as weaker iron-ore prices and a stronger
Australian dollar weighed on the resource-rich nation's export
earnings.
The deficit widened to 1.91 billion Australian dollars (US$1.8
billion) in May from a revised A$780 million the previous month,
according to the statistics bureau.
The latest deficit was well above the A$100 million figure
economists had been expecting, while the April shortfall was raised
from A$122 million as the bureau factored in recent big iron-ore
price declines.
Australia, whose US$1.5 trillion economy has expanded for more
than two decades, had posted a string of trade surpluses between
December and March as resource companies--done building new mines
and transport facilities--began ramping up production to meet
rising demand from China.
The trade balance swung back into deficit in April, however, as
the currency rallied and prices for iron, Australia's biggest
export, slumped to a 20-month low as more supply came on stream. An
unusually benign cyclone season had also boosted export volumes in
the first three months of 2014, contributing to a 1.1%
quarter-to-quarter rise in gross domestic product.
Some economist say they think subdued iron-ore prices, coupled
with a buoyant Australian dollar that has risen 6% this year and is
getting close to parity with the U.S. currency, will continue to
weigh on the trade balance. Big declines last year in the Aussie
dollar had the reverse effect--helping to trim a long string of
deficits.
The latest trade gap was the worst outcome since January 2013,
which was around the time iron-ore prices last plumbed the depths
they are at currently, said J.P. Morgan's Ben Jarman, who is based
in Sydney. "Today's numbers confirm our sense that the trade
outcomes recorded in 1Q were as good as it gets," he said.
The investment bank this week cut steeply its forecasts for
high-quality iron-ore prices over the next few years, as Australian
producers push progressively more supply onto the international
market.
The Australian Bureau of Statistics said the unexpected size of
the May deficit was due chiefly to a 6% drop in the value of
so-called nonrural exports--which includes commodities such as iron
ore, coal and copper. The decline was exaggerated, as was the April
figure, by a downward revision to the value of export earnings to
take account of the recent iron-ore price falls.
"This mostly represents delayed recognition of the spot-price
falls recorded in prior months," J.P. Morgan's Mr. Jarman said.
"But the pass-through applied by the ABS still was abrupt."
Some economists said Australia's trade balance may well return
to surplus in the coming months if commodity prices stabilized.
"Export receipts will lift due to higher volumes and a
stabilization in commodity prices," said Commonwealth Bank of
Australia's Gareth Aird, also based in Sydney. He added that the
value of imports was set to remain "soft" as the need for mining
companies to buy heavy equipment from overseas recedes.
Despite a recent pickup in China's manufacturing sector, spot
iron ore traded at around US$94.20 on Tuesday, not far from the
20-month low of US$89.00 struck last month.
Meanwhile, the Aussie dollar hit an eight-month high of
US$0.9506 on Tuesday after the central bank, which held interest
rates at a record low, appeared to feel less anxious about the
health of the economy, which is struggling as a decadelong
mining-investment boom cools.
Write to David Rogers at david.rogers@wsj.com