SYDNEY Oct 12 Surging coal prices are set to
shower Australia in cash, erase its trade deficit, jumpstart
nominal economic growth and, perhaps, mark the end of a
five-year campaign of interest rate cuts by the central bank.
Prices for Australia's second-biggest export earner have
been on a tear since July and are now finally feeding into
contracts between miners and their customers.
Reports this week suggest Japanese steel makers have agreed
to double the price of coking coal for the fourth quarter to
$200 a tonne. That would be a transformation from the first
quarter of the year when the mineral fetched just $81.
In just the past three months spot prices for thermal coal
have climbed 40 percent, while coking coal is up 130 percent.
That is a boon for Australia where coal accounts for a tenth of
exports at around A$2.8 billion ($2.12 billion) every month.
"The price spike, if sustained, could potentially be large
enough to wipe out the country's overall trade deficit by
itself," said George Tharenou, an economist at UBS.
The trade shortfall stood at A$2 billion in August when the
surge in prices had yet to be fully felt.
That would be heaven sent for a mining sector that was
considered down and out just a few months ago. Just this week,
Glencore said it would hire more than 200 workers at
its Collinsville coal mine amid resurgent Asian demand.
The desperately needed boost to profits should shore up
investment, dividends and wages, while gifting the Coalition
government with a welcome tax windfall.
And it is not just coal. Prices for the country's single
biggest export earner, iron ore, currently sit at $56.60 a tonne
compared to a trough last December of $37.
Asian spot prices for liquefied natural gas, another major
earner, are up over 50 percent from lows touched in April.
Australia has more than $180 billion of LNG projects coming
online which would make it the world's top exporter.
Analysts at ANZ estimate the rise in coal alone could lift
annual growth in nominal gross domestic product from the current
recession-like 3 percent to a far healthier 5 percent.
All of which is likely what Reserve Bank of Australia (RBA)
Governor Philip Lowe had in mind last month when he foreshadowed
a lasting turnaround in Australia's terms of trade after a half
decade of decline.
And it is a major reason why UBS thinks the RBA is done
cutting rates after easing to a record low of 1.5 percent in
"There's going to be a noticeable improvement in the terms
of trade and nominal GDP growth," said Tharenou. "The economy
simply doesn't need more stimulus."
($1 = 1.3187 Australian dollars)
(Reporting by Wayne Cole; Editing by Kim Coghill)