August trade deficit driven to record high by rising costs of crude oil and diesel imports

August trade deficit driven to record high by rising costs of crude oil and diesel imports

The increased cost of oil and diesel imports pushed New Zealand's trade deficit to a record monthly high in August.

Statistics NZ says the August trade deficit was $1.5 billion, equivalent to 37% of exports. The average monthly deficit in August over the last five years was $1 billion. The annual trade deficit widened to $4.8 billion in August, the highest in nine years.  

Imports rose $675 million, or 14%, in August versus August 2017 reaching $5.5 billion, the third-highest total on record. Exports increased $366 million to $4.1 billion.

The biggest contributor to the rise in imports was petroleum and products, Statistics NZ says, which climbed $186 million, or 50%, year-on-year. This increase was led by $98 million increase in crude oil, and a $73 million rise in diesel import costs.

Below is Statistics NZ's full release.

Monthly trade deficit widest on record – Media release

26 September 2018

A rise in goods imports to near record levels in August 2018 has contributed to the largest-ever monthly goods trade deficit, Stats NZ said today.

The trade deficit in August 2018 was $1.5 billion (37 percent of exports). The average monthly deficit in August over the last five years was $1.0 billion.

“This month’s rise in imports to near record levels occurs at the time of year when exports are typically at a low point,” international statistics manager Tehseen Islam said.

“The high values for total monthly imports in the last four months helped push the annual trade deficit to a nine-year high of $4.8 billion.”

In August 2018, imports rose $675 million (14 percent) on the same month last year to reach $5.5 billion, the third-highest total on record. Exports were up $366 million to reach $4.1 billion.



Petroleum and products lead imports rise

The leading contributor to the imports rise was petroleum and products, up $186 million (50 percent) from last year. This increase was led by crude oil (up $98 million) and diesel (up $73 million).

Imports of crude oil and other petroleum products tend to fluctuate from month to month. The quantity of crude oil imported in August 2018 fell 13 percent from August 2017, but prices rose by about 60 percent.

The latest unit price for crude oil remains 31 percent lower than the most-recent series peak in May 2012.

Imports of vehicles, parts, and accessories also rose in August 2018, up $55 million. Imports of buses, cars, and trucks all had similar contributions to this rise.

Meat leads exports rise

The value of total exports was $4.1 billion in August 2018, up $366 million (9.9 percent) from August 2017.

The leading contributor to the rise was meat products and edible offal, up $137 million (43 percent). This increase was led by sheep meat (up $83 million or 55 percent) and beef (up $45 million or 31 percent).

“New Zealand is exporting more beef and lamb, and getting better prices too,” Mr Islam said.

Dairy products were up $80 million (17 percent), led by an increase in butter and other milk fats, up $63 million.

Forestry products rose $74 million (18 percent), led by a rise in untreated logs, up $58 million.

ASB's economists said the August deficit compared to market forecasts for a $925 million deficit and their $900 million deficit pick.

"Moreover, the August deficit was the largest monthly deficit on record.  Note though that August is normally the weakest month of the year for trade as agricultural production slows over winter.  Also, note the more modest seasonally-adjusted deficit ($434m) was similar to recent deficits.  For example, the average seasonally-adjusted monthly deficit over 2018 has been $474m," the ASB economists said.

"Export values were weaker than expected, falling 4.7% mom in seasonally-adjusted (s.a.) terms. Falling dairy export volumes accounted for much of the surprise; these were down 27% over the month.  Dairy export prices also fell a touch so that dairy export values plunged 28.4% in seasonally-adjusted terms."

"However, we expect the decline in export values to prove temporary. In particular,agricultural production has started the new season on positive note on the back of favourable growing conditions and supportive prices in NZD terms. Dairy production is up over 5% on a season to date basis. As a result, we anticipate that dairy export volumes (and values) will rebound over coming months," the ASB economists said.

"There are no implications for our OCR view. We expect the annual trade balance to narrow over the remainder of 2018 as agricultural production rebounds with the new season. However, higher oil prices (and a widening ‘oil deficit’) will keep the lift gradual."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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That's a huge hole to fill. And it will grow with our growing population, murder of oil and gas industry, and little growth potential in our primary production. One suggestion is to fully irrigate Canterbury - worth up to $5billion a year in increased production.

Only if it's to invest more in horticulture than agri, surely. No sense in devastating the Canterbury environment for short term financial gains, especially in a world of growing dairy production and falling prices.

According to agri industry reps I know in the area, aquifer levels are already way, way below what they were in the past, pretty badly stressed in some cases.

Collect some of sea or near-sea outflows from Rakaia, Rangitata, Ashburton, Waimakariri, Hurunui and pump them back up country. Would provide enough water to irrigate whole of Canterbury. Create up to 20000 jobs.

doing what?

Have you been past any of those rivers in high-summer?

Nothing much to pump

puketepapa. Have you been past any of those rivers during winter floods or spring snow melt? Massive surplus flows, 90% of which flushes unused to the sea. Collecting a small part of this surplus, storing and releasing it during low flows is the best approach; the principle that is behind most Canty schemes these days. Or was, until the coalition withdrew support for irrigation.

yet those irrigated farms have some of the highest rate of rural support councillors.

A product of over leverage and diary price fluctuations rather than anything inherent in dairying or irrigation.

or overestimating the financial advantage of irrigation and underestimating the costs.

RickStrauss. While aquifers are under stress from previous over allocation, stored water irrigation schemes supported by the previous government are progressively reducing stress on aquifers and the longer term outlook is more positive.

Agree with you on horticulture vs dairy. Hopefully the courts continue to stymie the insane proposals to convert more of the Mackenzie to milking.

A huge scale horticultural farmer I know in Canterbury told me that intensive irrigated dairy adds about 10mm of high quality top soil per year. Over about 10-20 years the previously not great land is turned into superb land for horticulture - where it earns more than dairying does. So high output horticulture will follow on the coat tails of intensive dairying in canterbury.

But Canterbury still needs more water to maximise its potential.

Should we not be looking at putting long term plans in place to reduce our dependence on the world for some of these goods?

E.g. 1 Oil & Gas, follow other countries leads to put a ceiling on car economy and slowly force NZ to use more economic cars. Phase in a 100% electric vehicle policy over the next 30 years. Invest in more renewable and battery technology. Will not solve it overnight but will help reduce the burden for the next generation.

E.g. 2 Start a large cultural push around working from home so people don't need the second household vehicle or flexible times so we don't burn up a lot of gas sitting still on the motorway.

Start thinking long term about solutions to keep money within NZ. While i don't think a trade deficit is bad, when you couple it with the large amount of foreign ownership of NZ companies, you have a lot of profit that leaves NZ and does not get invested back into productivity.

Good thing is that NZ's electricity is almost entirely from renewable sources anyway, so we have a good headstart there. The primary energy security vulnerability is our dependence on oil for transport.

A better idea instead of e.g. 2 would be to drive jobs out of the 2 cities (Auckland and Wellington) into the regions, where nearly 44% of our population lives.
In contrast, the 10 largest US cities together house less than 8% of the country's population.

So many of our housing, transportation, public infrastructure etc. problems would become less pronounced if we were to disperse people and businesses across the country instead of living on top of one another.

And compared to almost all equivalent metropolitan cities world wide Auckland has a very small productivity advantage over its rural areas. But Auckland certainly needs massive infrastructure spending and significant govt costs providing accommodation to beneficiaries. Mid-sized cities are the most efficient and provide the optimum well-being to inhabitants.

On your productivity comment, I pointed out in an earlier comment on a similar article that Auckland does not produce anything of its own to gain some sort of a productivity advantage. The majority of its businesses solely provide services to other business and consumers within the city and to our regions where export goods and services are produced (dairy, fruits, timber, tourism etc.).
Before spending billions on Auckland's infrastructure, we probably need to understand whether the investment is simply for the sake of housing more incoming migrants or to build a foundation for high-value industries.

I agree that productivity is a difficult concept once you get beyond making things and measuring the total sales with respect to the costs. So is a surgeon twice as productive if they cut two legs off instead of one? However I imagine a KFC in an Auckland suburb would have greater turnover for less cost than a KFC in a small town; petrol stations in Auckland ought to be pumping more gas than rural fuel stops. Where it gets hard is measuring the productivity of Fonterra with its HQ in Auckland.
Ref incoming migrants - I keep making comments generally against the unusually high number of immigrants to NZ; it seems to have been policy for about 70 years under all types of govt and it has always produced the same result - a gentle decline in our economic status. However we cannot blame all immigrants - if all our immigrants were working in above average exporting businesses and on well above average wages then logically they would be a benefit to NZ. It has never been tried.

Advisor. Regional economic minister Shane Jones seems to be struggling on how to stimulate activity in the regions. Perhaps you could offer him a few tips on how one 'drives' jobs from the main centres to the regions? I'd also be curious.

Shane's mate, Winnie was on to something when he said the government should consider relocating some of its operations out in the regions. Independent and autonomous crown agencies come to mind. A bunch of crown research institutes are already located far away from the Beehive fringe and are doing well.
It won't do as much to boost our regional economy in one shot but will provide a decent start and make a statement that the government is willing to walk the talk. Food for thought!

TrappedM. At 30cents a K/M to power an EV we don't need 'force' to drive a wholesale conversion. Pricing will moderate with scale and battery range extend as the technology leaps forward. The 600K/M range required for most one day journeys in NZ is probably not that far away and will over come the last remaining reservations. Even my other half has lately been muttering that her next one will be an EV. The wave is starting to build but it'll be the pollies who determine the speed of uptake through user taxes.

Working from home is, and will continue to be, a viable option for a limited minority of people.

Nothing to worry about here at all, besides ANZ's business confidence survey is sky-rocketing up. So what if we are buying more stuff than we are actually selling to the world, I'm sure it's perfectly okay and we can always call on ANZ to help us out to fund the difference between our income and expenses.

True. For the most part, our exports are commoditized in nature as they lack in complexity, therefore we have little pricing power in the market. Also, most of the semi to high skilled workers moving to NZ from overseas work for inward focused, service-oriented companies (IT, construction, retail).
I think the buck stops here for our low wage, low innovation economy. There is no productivity growth, current account rebalancing or higher wages in sight as long as we continue buying first world products from the world and selling our third world commodities to them.

Absolutely true. NZ is 54 in the Economic Complexity Index ranking. I.e. NZ sells simple, low added value items to the world and buys high added value and complicated to manufacture items from other countries. NZ is doing phenomenally well in primary industries but these industries cannot support a well-paid average for NZ population as a whole.

Countries such as Finland, Holland, Denmark, Switzerland or Sweden (that NZ keeps being compared to) are the opposite. All of these countries rank very high on ECI. They also rank very high on Global Innovation Index. NZ is doing OK on GII however it has a rather terrible efficiency ratio (i.e. NZ is very poor at converting rather high levels of inputs into innovation to actual output)

wow, and these are the good times.

Andrewj

Just Rock 'n' roll man. Then Rock 'n' roll over.

Addicted to oil, just like the rest of the planet. We should shut down our oil & gas industries, that'll help.

Yup, effectively shutting down the oil and gas industry has done wonders for Venezuela. Let's do this!!!

Perhaps we should tax petrol and diesel more. Something needs to be done. Presumably adding half a million more people increases our gas consumption quite a bit, not sure the Beehive Buffoons quite thought that through. I guess they thought they would bring tents with them or something too.

Great idea - you can start by forgoing all vehicle and air travel - all plastics - all electricity !

Do let's know how it all pans out

..so how do you you think things will pan based the current trends?

Whats your solution JB..are you a believer of science? Do you have a plan you can share with us?

Foyle. Well at least Venezuela doesn't have our immigration problem, people are flooding out. A dose of
Maduroism here would quickly solve our AKL housing crisis.

Oh, I thought that we were trying that. Doesn't seem to have worked so far, so we obviously need to do more of it. We need more slogans, more catchprases, more relentless optimism. Come on everyone, get smiling, get mortgaging, get spending tomorrow's income today. Go for the money, go ANZ, BNZ, Westpac, ASB Kiwibank, get the money. Party, smile, party, smile. Wave. Be Happy.

Oh great, a silver lining. But we can do it with far less dramatics and eating of pets - just by signalling the shutttering of an industry like oil and gas so that the high earning professionals will relocate their tax paying asses to a more hospitable country. The great brain drain to Aussie is starting up again.

Low export vol needs a much lower kiwi $ to maintain nominal cash flows for national debt servicing ability.