New Zealand dollar offsets commodities' price increase

Tuesday 6th April 2010

The ANZ commodity price index surged to a new record high last month, and while the lifting kiwi dollar almost offset the rises, the NZ. dollar index also posted a new high.

At 224.3, the commodity price index, which measures a basket of commodities traded by New Zealand, was up 1.8% from February, and eased past July 2008’s previous record high of 223.5. Equally, the NZD index rose to a new high of 166.5 last month, marginally ahead of the 166.4 set in August 2008.

Seven commodities recorded a March rise, with four weaker. Logs surged 9.2%, reaching an 18 month high and 50% higher than the recent mid-2009 low.

Aluminium prices rebounded 7.7% last month and sit at a similar level to two months earlier. Beef and lamb prices continue to hit new highs, lifting 6.8% and 4.2% respectively. Seafood prices gained 3.5%, and the two other forestry commodities (sawn timber and wood pulp) rounded off the lift in prices, rising 4% and 2.6% respectively.

March’s largest price decline was in wool, which retraced 3% from last month’s high. Dairy and venison prices both eased 1.2%, which the price of skins slipped 0.9%.

The lift in the kiwi dollar relative to all New Zealand’s major trading partners except the Australian dollar limited the rise in the NZD commodity price index to just 0.4% in March.

The index has had a rollercoaster ride over recent years. In 2007 prices doubled within 12 months, then slipped back to where they had prevailed before the rise. Over 2009 there was another surge in prices, taking the level up to about three quarters of the previous spike.

The leap in dairy prices in 2007 “ initially began as a consequence of an Australian drought restricting the supply of dairy products to the global market,” the ANZ said. “This was exacerbated by news that European countries were to gradually phase out export subsidies. In addition, populous developing economies, including China and India, were underpinning a longer-term lift in demand for dairy products.”

Fringe dairy export nations gradually increased production and the increased supply caused a global dairy price retracement, as well as the global economic slowdown whittling away international demand.

“An improving lift in the world economy and renewed demand from China has seen prices lift again,” the ANZ said.

The bank notes that there has been a surge in milk powder exports to China, reflecting the Chinese authorities switching from locally produced milk powder following the melamine tainted milk scare.

Dairy exports make up over $9 billion of New Zealand’s $40 billion total overseas merchandise trade.

Businesswire.co.nz

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