Dollar gives NZ a piece of record commodity prices

By PAULA OLIVER

ANZ's world commodity price index rose 2.7 per cent in April, setting a record for the 18-year-old indicator.

In New Zealand dollar terms the tumbling kiwi helped local export commodity prices, pushing them 5.6 per cent higher last month.

A recovery in dairy prices from 16-year lows in July 2002 has played a key part in the index's boost, but dairy is far from alone.

Last month wool, lamb, beef, venison, skins, logs sawn timber, wood pulp, seafood and aluminium prices also all rose.

The only two commodities not to rise were apples and kiwifruit, which held steady.

ANZ chief economist David Drage said it was hard not to be impressed by the performance of commodity prices during the past 21 months.

But he was cautious about the outlook - saying that supply influences that had been at play through events such as droughts in Australia and the United States could change.

The droughts had cut supply of dairy products and beef.

Drage said there was potential for a correction in world commodity prices later in the year and into next year. "Taking into account where commodity prices are at present, the potential for demand to weaken at current price levels, the waning influence of some of the supply side factors and the influence the weak US dollar may have had, I wouldn't discount a cyclical deterioration in world commodity prices," Drage said.

What that would mean for New Zealand exporters depended largely on the kiwi dollar. Its nosedive had been welcome, but the currency's outlook was uncertain and it had the potential to revisit higher levels, Drage said. Against the US dollar the average level of the New Zealand dollar last month was 3.1 per cent lower than in March - continuing the trend of the month before.

It also fell 4.1 per cent against the Japanese yen, 0.8 per cent against the euro, 1.6 per cent against the pound and 2.2 per cent against the Australian dollar.

Exporters were still feeling the impact of the kiwi's strength over the past three years, Drage said.

Its turnaround together with the strength in world prices gave some cause for confidence that the worst fears for the export sector could be avoided.

The biggest increases last month were again among forest products.

World pulp prices increased by 6 per cent, backed by strong demand from China, a weak US dollar, and tight markets for ocean freight. But ANZ warned there were signs that Chinese demand was waning.

Log prices increased 5.9 per cent, while dairy prices held strong, increasing 0.6 per cent.

Index values

APRIL 2004

World price index 141.4

Monthly gain 2.7%

Annual gain 18.2%

NZ price index 118.1

Monthly gain 5.6%

Annual gain 4.6%