Export commodity prices fall

By Phil Boeyen, ShareChat Business News Editor

Friday 2nd November 2001

New Zealand is finally feeling the pinch of a slower world economy with commodity prices dropping 2.4% in October.

The ANZ World Commodity Price Index shows lower or static prices were recorded for almost all commodities last month after remaining resilient in recent months in the face of a global slowdown.

ANZ senior economist, David Drage, says it has taken some time for the deteriorating world economy to flow on to lower prices, with global supply and demand remaining in reasonable balance for New Zealand's agricultural commodities.

"With the buffer provided by strong commodity prices now starting to wane, New Zealand's agricultural sector is likely to start to feel the ill winds of a weakening world economy."

The main driver of the decrease was a sharp drop in skin prices, down 23% as stockpiles build in Asia.

"The terrorist attacks appear to have accelerated a weakening the US market, which started slowing six to seven months ago. Korea has taken the drastic action of winding production back by 40-60%, which it is expected will take at least three months to work through the system," the bank says.

Wool prices fell by 7.4% and sawn timber by 3.5% while lamb and beef prices remained relatively buoyant.

The bank says further weakness in the NZ dollar has also partly offset world price weakness, with its dollar index falling by a modest 0.6% during the month.

"While ongoing currency weakness is of benefit to exporters, the outlook for the Kiwi dollar is highly uncertain in the current global environment," says Mr Drage.

"Emerging signs of widespread commodity price weakness is a worrying development for the New Zealand economy."

Mr Drage says the latest data will reinforce the likelihood of a sizeable interest rate cut by the Reserve Bank in its next Monetary Policy Statement on November 14.

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