Australia | Jun 29 2007
By Chris Shaw
With recent data on the state of the Australian economy showing more signs of strength than weakness a boost is not really needed, but according to Commonwealth Bank commodity strategist Tobin Gorey one is likely coming from higher agricultural and bulk commodity prices.
Gorey notes the latest data released by the Australian Bureau of Agricultural and Resource Economics (ABARE) indicates better rainfall is expected in most areas, which should boost the value of agricultural exports.
While meat and livestock exports will be the slowest to recover given the time taken to restock herds, the group puts the total increase in value for exports from the sector at around 3%. This may seem only a minor increase, but as Gorey notes the group has allowed for some price falls given grain and oilseed prices in particular are currently at elevated levels.
Higher mineral and bulk commodity prices will also provide a boost, the ABARE estimates calling for the value of energy mineral exports to increase by 6.5% in 2007/08. Within the sector coal should record a significant increase, Gorey noting the group expects the value of thermal coal exports to hit $8 billion in 2007/08 from $6.8 billion this year, which was down on 2005/06’s $7.2 billion. The value of metallurgical coal exports is forecast to increase only slightly in the coming year.
Similarly iron ore exports should surge thanks to a combination of higher prices and higher volumes, with ABARE estimating total exports of $18.7 billion in 2007/08. This is up from a forecast $15.9 billion this year and $12.9 billion in 2005/06.
Even the metals and minerals sector will contribute, ABARE estimating total exports here will rise by 9% in value, following on from the 30% gains achieved last year.
As Gorey notes these increases will flow through into all sectors of the Australian economy, as the transport and construction industries should benefit from higher spending by mining companies and the government will enjoy higher tax revenues as a result of stronger company profits.
At the same time the higher commodity prices have lifted Australia’s exchange rate, so bringing down the total level of imports. This generates some improvement in the balance of payments, further strengthening the economy overall.
