WA economy: Westpac and Commonwealth keep an eye on iron ore sales as trade surplus slides

Major bank economists will keep a close eye on Australia’s giant iron ore sales amid a pricing dispute with China and a fall in the national trade balance.

The country posted a $2.9 billion surplus in November, down from $4.4b in October, according to the Australian Bureau of Statistics. That will slightly weigh on economic growth for the quarter.

Westpac senior economist Mantas Vanagas said the latest result was “one of the lowest levels in recent years”.

He said falling iron ore export volumes for the month were “disappointing” — down 9 per cent — “but it is worth noting that this followed two strong increases in September and October”.

“Looking through this volatility, the underlying trend in nominal iron ore outflows remained broadly flat, when steel production in China, which is the main destination for Australian iron ore, continues to decline,” he said.

“Iron ore exports will warrant close attention, especially given tensions between Australian exporters and Chinese authorities, who are seeking to leverage their power to obtain better prices.”

Recent figures also showed a pullback on data centre investment, he said, which had been a key driver of stronger economic growth in the September quarter.

Iron ore is the State’s biggest industry with sales tallying more than $110b annually, close to a quarter of Western Australia’s output.

There was speculation late last year that major buyer China Mineral Resources Group was cracking down on Pilbara purchases amid price negotiations with BHP.

Commonwealth Bank’s Ashwin Clarke said a 2.9 per cent drop in national exports through the month had been “a surprise” — and also highlighting the steel-making commodity as a major factor.

“Spot iron ore prices were up slightly in the month, which suggests the decline was due to lower iron ore volumes,” Mr Clarke said.

“This may indicate the reported iron ore pricing dispute between BHP and China’s state backed iron ore trader China Mineral Resources Group is reducing export volumes.”

Investment bank Goldman Sachs earlier this week predicted plans to cut steel capacity in China would be slower than expected, keeping margins tight for the country’s mills.