New Zealand trade numbers for May

An interesting release coming out of NZ recently on trade numbers for May - interesting because on the surface, it seems to fall in line with many of the popular macro views but digging through the numbers produces some interesting data points. The high level message is pretty simple: imports got crushed and exports saw a decent rise, resulting in the largest trade balance (as % of exports) in 16 years. 

IMPORTS

The big drop has primarily been attributed to petroleum, petroleum products and passenger cars. In NZD terms, imports fell by $809M from $3.1B (a 20.7% drop YoY) - the largest YoY drop since Feb 1993. Most of the drop can be attributed to intermediate goods with capital goods falling on a smaller base and consumption goods being largely flat. Most interestingly, passenger cars were down about 52% YoY. This is a huge signal on the mood of the NZ consumer especially as the decrease has been relatively even on the 3000cc over/under (i.e. economy cars and luxury cars are both seeing decreased demand). At some point, the derivative differential between capital goods and intermediate goods is going to need to be resolved; the relationship would seem to be banded at a long-term equilibrium relationship and the current divergence would need to be corrected in the next 6 months - 1 year. The one mystery has to be NZD demand for petroleum and petroleum products. For example despite the price increases we've been seeing in spot and near crude, total crude oil imports have actually gone down 32.3%. Even after having a rough adjustment for currency movements, we're still left with the implied elasticity of NZD oil demand being unlike any other major markets. The most feasible answer seems to be an oldie but a goodie; the decoupling of the academic from the practical realities. I.e. crude oil shipments are irregular enough to screw with the numbers (Edit: this is mentioned by the NZ stats bureau).

EXPORTS

Exports were up $218M YoY to $4.0B. The big story here is Chinese demand with exports there accounting for 80% of the increase (i.e. ~$176M). The components are mostly agricultural commodities with milk products and timber/wood products accounting for $186M increase alone. The picture isn't particularly complicated but it is interesting to note the drop in exports in crude and aluminium. 

OVERALL

The trend is leaving some room for interpretation here. We have to think with the exports drivers being weak (especially in light of some troubling stuff coming out of China, hat tip Macro Man) and further weakness in imports due to the "more darkness before it turns light" argument, it's very possible for the surplus to remain in its general form over the medium to long term. Of course this a relatively weak conclusion due to the high level of uncertainty around certain line items. For example 25% of the export increase can be attributed solely to milk powder exports to China. Is more higher quality milk powder a structural shift in the political/pediatric dialogue in Beijing? Or can it be bundled as just another Chinese commodity story with demand likely to evaporate in the next few months? Even the crude story can be snatched by the bulls or the bears depending on if you want to believe in the practical difficulties of shipping crude oil to NZ or if you envision some complex demand function for crude driven by a highly unusual elasticity ratio - or somewhere in between those two views. Bottom line, despite what some of the economists are saying there's no strong reason to fade the NZD on CA fundamentals.

Comments

[Anonymous]

Great post Cornelius, good to have you back - though if NZD breaks 1.42 it's going to be a wild ride.

[whacked]

The principle reason would have to be the currency. Difficult to buy in anything new, due to the inflated cost by virtue of the weakness in the NZD.

Then again China does have a problem with their powdered milkamine, so a replacement (reverse engineerable) is the go ,,, only problem is that when they try and manufacture that stuff themselves they need cows.

[Anonymous]

A few points from NZ:

Remember that the population of New Zealand is just 4 million; monthly statistics can be readily distorted by a single shipment. Moreover, the oil situation is complicated here: NZ is a net oil importer, but does export as well as import crude oil. NZ only has one refinery, which runs primarily on imported low-grade Middle East crude. NZ's own crude oil is exported to Australia for refining, and the refined products shipped back!

On a day-to-day basis, the roads here in NZ became quieter when oil hit its peaks last year, but since then have returned to normal. However, car sales are through the floor. New car dealers are closing left, right and centre. Much of the market in NZ, though, is for vehicles imported second-hand from Japan - even these sales are dropping.

The other part is the political aspect: we recently voted in a centre-right government, led by a Prime Minister who used to be a Forex trader. They have a lot of political capital (at the moment), and are cutting expenditure all over the place. The PM is also taking a special interest in the currency. Although a weaker NZ dollar would be good for the country's farmers (our largest industry), he won't let it crash, and has been careful to appease the rating agencies lately. An export-led recovery rather than a massive govt bailout is the goal here.

[Anonymous]

WTF is wrong with our country...lets take it back from the fFEd , Obama, Geithner, and the rest of the crooks

good finance articles http://www.bit.ly/12NCJR

[Anonymous]

I really enjoyed your article and found it to be very informative, keep up the good work, I’ll be coming back to read any of your future articles..
Thank you!
xffseek

[Anonymous]

Good summaries above
2 other points that will affect future months.

The Aluminium exports are down because the smelter had a transformer fault that caused production to be reduced. The volumes should recover once it is fixed.

There is an oil feilds (Maari) starting production which will bring domestic production up to around 75% of consumption.