Australia Trade Surplus Rockets to Record on Resurgent Iron Ore

(Bloomberg) -- Australia's trade surplus swelled to a record as mineral exporters cashed in on resurgent iron ore prices, highlighting the nation's connection to sectors of China's economy benefiting from fiscal stimulus.

The windfall climbed to A$5.75 billion ($4.02 billion) in May from the prior month's A$4.82 billion surplus, data from the bureau of statistics showed Wednesday. The price of iron ore -- Australia's biggest export -- has surged back above $100 a ton and traded above $123 on Tuesday in response to a supply squeeze and expanding Chinese steel production.

Iron ore has rallied over 60% this year after a dam disaster at Brazil's Vale SA and bad weather in Australia hurt mine production and underpinned forecasts for a global shortfall. The steel-making material got a fresh boost in June after Rio Tinto Group lowered its output target again following problems at its operations in Western Australia. On the same day, Vale said one of its major mines had restarted, although 60 million tons remain offline.

The value of monthly iron ore shipments surged to A$8.8 billion, the highest on record for data dating back to 1988. That was up almost 17% from April and 65% from a year earlier, highlighting the turnaround in the fortunes of the metal's producers. It has also helped swell company profits and government coffers, allowing Prime Minister Scott Morrison's administration to forecast the first budget surplus in over a decade in fiscal 2020.

A recovery in resources and stabilization of the property market could reinvigorate Australia's two traditional economic growth drivers: houses and holes. Combined with back-to-back interest-rate cuts -- yesterday and in June -- and tax reductions in the pipeline, it does give grounds for the central bank to sit on its hands for a period.

“If prices remain high mining investment may soon stop falling and could make a positive contribution to GDP growth,” said Ben Udy, an economist at Capital Economics “That's an upside risk to our forecasts for next year.”

--With assistance from Myungshin Cho.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, James Mayger

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