News and Finance

Australia’s trade balance unexpectedly turned to a deficit in April as lower prices for coal and iron ore led to the biggest slump in exports since 1997.

The nation posted a A$91 million ($73 million) deficit compared with a revised A$2.3 billion surplus in March, the Australian Bureau of Statistics said in Sydney today. The median estimate in a Bloomberg News survey of 17 economists was for A$1.7 billion surplus.

An 11.3 percent drop in exports in April will buffet an economy that unexpectedly expanded in the first quarter as government cash handouts stoked consumer spending. Mining companies including BHP Billiton Ltd. and Rio Tinto Group are paring investment as overseas demand cools amid the worst global slump since the Great Depression.

“This report shows the impact of the global recession is really only just starting to have an effect on the local economy,” said Su-Lin Ong, senior economist at RBC Capital Markets in Sydney. “There are challenges ahead for the Australian economy.”

The Australian dollar fell to 80.12 U.S. cents at 1:06 p.m. in Sydney from 80.40 cents before the trade figures were released. The two-year government bond yield dropped 1 basis point, or 0.01 percentage point, to 3.60 percent.

Exports fell by the most since July 1997 to A$21.68 billion, the statistics bureau said. Shipments of non-rural goods, which include metals and minerals, slumped 12 percent from March. Agricultural shipments fell 11 percent in April. Exports of grains tumbled 27 percent.

Price Cuts

Rio Tinto, the world’s second-largest iron ore exporter, agreed to a 33 percent cut in contract prices with Japanese and Korean steelmakers this year. It has yet to agree on prices with China, the world’s biggest consumer of iron ore. BHP Billiton Ltd. has not agreed on any contract prices yet.

Annual coking coal contract prices fell 57 percent to about $129 a ton this year as global demand for the steelmaking raw material slumped paydayloans. Australia is the world’s largest exporter of coal and iron ore.

“The export sector is facing lower commodity prices and weak global demand,” said Annette Beacher, a senior strategist at TD Securities Ltd. in Singapore. “We believe there’s more pain to come, reversing the optimism of yesterday’s upbeat gross domestic product outcome.”

Australia’s GDP grew 0.4 percent last quarter from the previous three months as interest-rate cuts and fiscal stimulus help the nation defy a worldwide slump that sent Japan, Europe and the U.S. into recession, the government reported yesterday.

Investment Decline

Still, businesses cut spending on machinery and equipment by 9.6 percent in the first quarter, the steepest decline since 1991, adding to signs the economy will slow. Company profits tumbled a more-than-expected 7.2 percent in the quarter.

Rio Tinto slashed its global spending by $5 billion to $4 billion this year and BHP shut its $2.2 billion Ravensthorpe nickel mine.

Profit at BHP Billiton, the world’s largest mining company, slumped 57 percent in the six months ended Dec. 31 on costs to close mines and plants after metal prices slumped.

While emerging economies, including China, are turning around, “recovery in the major countries is likely to take longer to begin and be slower when it does occur,” Australia’s central bank Governor Glenn Stevens said this week.

The bank left the benchmark interest rate unchanged at a 49-year low of 3 percent on June 2. Stevens said today the bank has scope to cut interest rates further if needed.

Imports dropped 1.7 percent to A$21.77 billion in April, today’s report showed. Imports of capital goods, such as trucks and machinery, dropped 1 percent and imports of consumer goods decreased 1 percent.

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