COMMODITY WATCHER S CHARTBOOK

Transcription

1 COMMODITY WATCHER S CHARTBOOK A Companion Release to the ANZ Commodity Price Index July 0 For further information: John Bolsover, Manager Industry Analysis Ph bolsovej@anz.com

2 ANZ Commodity-Watcher s Chartbook Table of Contents ANZ Commodity Price Index Introduction... 1 Wool... 2 Skins... 2 Lamb... 3 Beef... 3 Dairy Products... 4 Kiwifruit... 5 Apples... 5 Forestry... 6 Fishing... 7 Aluminium... 7 Real Commodity Prices... 8 Australian Commodity Price Comparison... 9 Commodity Research Bureau Indices Economist Industrials Index Summary ANZ Commodity Price Index Construction Appendices i. ANZCPI Quarterly World Price Indices ii. ANZCPI Quarterly NZD Indices iii. New Zealand Merchandise Trade Exports iv Top 5 Markets (%) by Commodity ANZ s monthly Commodity Price Index publication is available on the ANZ web site at

3 Introduction ANZ s World Commodity Price Index has pointed to a lift in world prices for New Zealand s key commodity exports - from a cyclical trough since mid The index has risen for 12 of the 17 months since December 1998 and rose for 6 consecutive months prior to easing in April 0 (-2.6%). It stabilised again in May (+0.5%) and is currently 12.6 per cent higher than in December Continued weakness in the NZ Dollar has provided an additional boost to prices with the up 22.4% since December Commodity prices, measured in NZ Dollar terms, have risen to their highest levels since the series began in January This partly reflects weakness in the NZ Dollar, but is also due to genuine improvements in world markets following the downturn in many key economies after the Asian crisis in 1997/98. Index (July 1986=) ANZ COMMODITY PRICE INDEX 1986/87 = +13% +22% This booklet documents the trends for the components of the ANZ Commodity Price Index. It shows that the resurgence in offshore prices over the past 17 months has been broad-based across virtually all New Zealand s commodity groups. Furthermore, the world growth outlook has been largely unhampered by stockmarket volatility in the US earlier in the year, indicating that the overall outlook for commodity prices remains positive. Market developments and trade issues for those commodities which dominate New Zealand s trade exports give every indication that prices should at least hold through 0. This bodes well for the export sector s contribution to economic activity over this period. The RBA, CRB and Economist indicators reinforce the turnaround in commodity prices since mid However, Australian commodity export prices have lifted to a lesser extent than New Zealand s. Prices for some of Australia s hard commodities have shown improvement over the past year, but key items - such as coal and gold - have languished and prices for primary products have underperformed New Zealand s on average. While a lower NZD is presently helping to boost export returns, this booklet shows that prices for commodities in world markets remain close to all-time lows in real terms despite their recent turnaround. Page 1

4 Wool and Skins The wool market is changing away from wools for handknitting yarns (in particular China) and towards machine knitting and carpets. This has been reflected in a decline in demand for mid-micron crossbred wools (exacerbated by Chinese quota complications). Chinese machine made carpet mills may offer future opportunities (they have traditionally used synthetic fibres). Demand for finer wools has improved, particularly from Italy. Higher diameter fibre wool prices will be supported by increased activity in European and US carpet markets. Sentiment improved towards the end of the season as China resumed buying. Skin prices have partially rebounded with the improving South Korean economy and a cyclical increase in demand for leather apparel. Index (July 1986=) Wool 7% Exports y/e March 00 $886 m +10% Index (July 1986=) 250 Skins 2% Exports y/e March 00 $516 m +57% 50 0 Page 2

5 Lamb and Beef Demand for lamb in the EU (55% of NZ lamb exports) is strong. UK and Irish lamb production expected to ease in 0 and 1. A more traditional supply pattern of UK lamb will improve NZ s counter seasonal supply advantage. Beef supply in the key US market (64% of exports) is expected to tighten later in 0, following record production in 1999 and through summer 0. US cattle herd towards rebuilding phase and not expected to peak until 4 to 6. US consumption up - reversing a 30 year trend - as health concerns fade. Korean market strong - tender system to be liberalised from 1; Taiwan firm; Japan remains weak. South American exports are increasing. Competition intensified following the devaluation of Brazilian Real. As major Asian markets like Japan and Korea open up, prices internationally will be determined less by the US market and more by other major importers. Index (July 1986=) Lamb Index (July 1986=) Beef 13% Exports y/e March 00 $1,625 m +5% 11% Exports y/e March 00 $1,305 m +19% Page 3

6 Dairy Products A gradual improvement in the world dairy market is occurring from a cyclical trough. Reductions in subsidies by the EU and the US (part of their WTO commitments) has been positive for milkpowders and casein. Market sentiment is positive - internal demand in the EU is good and demand from the major milkpowder importing countries in Latin America, South East Asia and the Middle East has picked up (with China emerging as a growing market). However, the weak Euro has effectively lowered the price of those EU exports traded internationally. Russia s economic problems have impacted on butter prices which are at historically low levels. This has, in turn, constrained cheese markets. Skimmed Milk Powder and Whole Milk Powder Index (July 1986=) Butter, Cheese and Casein WMP 10% SMP 4% Butter 5% Cheese 7% Casein 6% 32% Exports y/e March 00 WMP $1,078 m SMP $ 496 m Butter $ 656 m Cheese $ 904 m Casein $ 769 m Other $ 650 m Dairy $4,553 m Index (July 1986=) % Chg Since Dec 98 WMP + 6% SMP +20% Butter -37% Cheese - 4% Casein + 8% - 3% Page 4

7 Horticulture Enza is juicing one million cartons of braeburn apples - following a bumper apple crop - in an attempt to apply the brakes in a fragile market. This followed a 20% increase in NZ s export crop over pre-season forecasts. There is a glut of apples on world markets despite smaller crops in South America and South Africa. The US and Asian markets are expected to be stronger. However, the northern hemisphere market has been unseasonably protracted eroding NZ s counter seasonal advantage. Similarly, kiwifruit have suffered from a bumper European crop. Combined with a smaller fruit profile this has meant a slow start to the 0 season. The new Zespri Gold variety (although only trialed in 1999 and requiring sensitive handling) is expected to partially offset lower returns for Kiwi Green in 0/01. Index (July 1986=) Kiwifruit $/tray 10 Grower Price (rhs) % Exports y/e March 00 $464 m +109% Index (July 1986=) Apples 3% Exports y/e March 00 $485 m -9% Page 5

8 Forestry Demand from Asia lifted in 1999 following the post crisis fall. The South Korean market for logs has partially rebounded and is likely to become more robust as the export led recovery flows through to the domestic economy. In contrast, the Japanese crating market remains weak. Overall, prices are expected to lift gradually in 0 from their current low levels. Processed timber exports to the US increased dramatically in the late 1990 s, supported by the lower NZD. However, the US market has weakened recently as residential construction eases, aggravated by high supplies. The Australian market is similarly expected to weaken following the introduction of GST. Demand for pulp has strengthened. There has been some rationalisation in the industry, while large pulp producers in North America have cut their capacity Logs and Processed Timber Index (July 1986=) 300 Processed Timber Logs Index (July 1986=) 250 Wood Pulp Logs 5% Timber 5% Pulp 4% 14% Exports y/e March 00 Logs $ 572 m Timber $ 687 m Pulp $ 424 m $1,683 m % Chg Since Dec 98 Logs - 9% Timber - 9% Pulp + 54% + 3% 50 0 Page 6

9 Fishing Exporters diversified into Australian, US and European markets following the Asian crisis but have since benefitted from the pick up in Asian economies in The slow pace of trade liberalisation (tariffs and subsidies) remains a key issue for seafood, despite improved access for hoki into the EU. Aluminium Markets were buoyant in 1999 as demand outstripped a moderate growth in worldwide production (affected by an explosion at Kaiser Aluminium s one million tonne per annum alumina refinery in Louisiana in the US which led to its subsequent shutdown). Further increases in activity in Asia, Europe and the US is expected to sustain further increases in demand in 0 while smelting capacity is expected to grow only slowly. Index (July 1986=) Fishing 7% Exports y/e March 00 $862 m +50% Index (July 1986=) Aluminium 8% Exports y/e March 00 $1,013 m +18% 0 Page 7

10 Real Commodity Prices The ANZ World Commodity Price Index has lifted 13% from its low in December However, it remains 15% below its peaks in March 1995 and February In real terms world prices reached a historical low in December 1998 and remain low. The Real is calculated by deflating the ANZ World Commodity Price Index by the G7 countries Producer Price Index. It is currently 27% below it s peak in February 1989 The New Zealand Dollar ANZ Commodity Price Index was 41% higher in May 0 than January However, the increased sharply in 1986 and the latest May 0 index was just 16% higher than in December 1986 The Real has fallen 17% since the series inception in The Real deflates the NZD index by New Zealand s GDP deflator. Nominal and Real World Prices Index (July 1986=) Real Nominal and Real NZD Prices ANZ ANZ % Chg January 1986 to Present +16% Real % Chg January 1986 to Present -4% Index (July 1986=) ANZ Real ANZ % Chg January 1986 to Present +41% Real % Chg January 1986 to Present -17% Page 8

11 Australian Commodity Price Comparison New Zealand s commodity prices have followed a similar cycle to Australia s despite New Zealand s much more concentrated reliance on agricultural products. Both New Zealand and Australian commodity prices peaked around the same time in However, prices for New Zealand s commodity exports fell more sharply in 1990, at a time of high oil prices during the Gulf war. New Zealand s commodity prices then entered a growth phase, ahead of Australia driven primarily by lamb, beef, dairy products, wool and forestry products. World economic growth became increasingly established in 1994 led by the United States and continued through the following two years. New Zealand experienced strong demand for its exports through this period, driven by aluminium, most dairy products (butter, cheese, and whole and skim milk powders), wool, skins, wood pulp and horticulture. Demand for metals and minerals also increased during the period 1994 to 1996 following a rebound in world industrial production. Together with strong growth in agricultural commodities this contributed to a lift in the RBA Commodity Price Index, although Australia s index grew more moderately than the ANZ Commodity Price Index. Australia - RBA Commodity Price Index ANZ Index (July 1986=) 125 RBA Index ( = ) ANZ USD Index RBA Commodity Price Index ($US) +1% 75 RBA Index (USD) (rhs) 60 ANZ USD Index +10% After peaking in the mid 1990 s commodity prices followed a downward cycle. Weak global economic growth, particularly following the Asian crisis, exacerbated several supply/demand imbalances that emerged in important agricultural and mineral markets during this period. World economic growth strengthened markedly in mid This was accompanied by a lift in Commodity prices. However, Australian export prices have lifted to a lesser extent than New Zealand s. Prices for some hard commodities have shown improvement over the past year, but key Australian commodities - such as coal and gold - have languished. Prices for primary products have underperformed New Zealand s on average. Page 9

12 Commodity Research Bureau Index The CRB Spot Price Index measures the price of 22 raw industrial and agricultural commodities for immediate delivery in various US markets. The CRB Forward Price Index averages the prices for all designated contracts for forward deliveries within six months of the current date for each of the indexes 17 component raw industrial and agricultural commodities. The CRB Indices have followed a similar cycle to the ANZ (US Dollar) Commodity Price Index. Within the CRB Commodity Index, minerals have shown the greatest long term decline in real prices reflecting significant technological improvements in exploration, extraction and refining over time. Economist Industrials The Economist Index measures price changes for raw industrial materials including metals, fibres, rubber, crude oil and food. Commodity Research Bureau Index CRB Index (1967 = ) CRB Forward Index Economist Index Economist Industrials Index (USD) CRB Spot Index Economist Industrials ANZ USD Index (rhs) ANZ USD Index ANZ USD Index (rhs) ANZ USD Index +10% CRB Commodity Spot Index ($US) +0% CRB Commodity Forward Index ($US) +16% Economist Industrials Price Index ($US) +10% Page 10

13 Summary The ANZ Commodity Price Index measures the average price of New Zealand s main commodity exports in international markets. New Zealand s mix of commodity exports is heavily dominated by food and forest products. This compares with Australia which has a much larger metals, minerals and energy component. Industrial commodities such as metals and minerals have a heavy reliance on world industrial activity. Agricultural commodities are dependent on world growth and demand more generally. The world economy is clearly recovering from the financial crises that took hold in 1997 and As a result demand for commodities strengthened during This has been reflected in a lift in the prices for New Zealand s commodity products across the board. Only world butter (-37%), processed timber (-9%) and logs (-9%) have failed to achieve a lift in prices since December In addition, the lower New Zealand dollar has more than offset these falls for all but butter - which in itself has been more than offset by increases in the prices of milkpowders and casein. Australia s commodity price recovery lagged New Zealand as some key hard commodities - such as coal and gold - languished. ANZ Commodity Price Index May 0 % change 3 mths % change 12 mths Wool Beef Lamb Skins Dairy Horticulture Forestry Fish Aluminium % change 3 mths % change 12 mths Outlook The recovery in Asia has exceeded nearly all expectations. Industrial activity is on the rise in key economies such as the US, UK and the EU area. World growth is expected to continue through 0, although we caution a number of structural problems remain in Asia. This is expected to translate into further improvements in commodity prices as demand for commodities strengthens. Page 11

14 ANZ Commodity Price Index Construction The ANZ Commodity Price Index is a monthly index measuring the average price of New Zealand s main commodity exports in international markets. The indicator prices used to compile the index have been carefully selected to reflect market conditions facing New Zealand commodity producers. New Zealand often produces particular species or grades of commodity (and may sell them within markets that are segmented due to regional or other factors). Accordingly, generic price indicators (such as those compiled for US or Australian producers) are not necessarily a reliable guide to market conditions faced by New Zealand exporters. ANZ World Commodity Price index The ANZ Commodity Price Index measures the average price of New Zealand s main commodity exports in international markets. The index comprises 16 commodities which account for an estimated 88 per cent of New Zealand s commodity exports and 61 per cent of all merchandise trade. The commodities included in the index and the currency in which they are collected are:- Wool (NZD); Beef (USD); Lamb (GBP); Skins (NZD); Butter (USD); Cheese (USD); Wholemilk Powder (USD); Skimmilk Powder (USD); Casein (USD); Apples (EUR); Kiwifruit (EUR); Wood Pulp (USD); Sawn Timber (USD); Logs (JPY); Fish (NZD) and Aluminium (USD). The three commodities (wool, skins and fish) collected in New Zealand dollars are converted to international indices using ANZ s trade weighted index. The 16 commodities are then indexed and weighted - based on a 12 month moving average of export revenues - to give the ANZ World Commodity Price Index. NZD Commodity Price index The 13 commodities collected in overseas currencies are converted to New Zealand dollars using relevant exchange rates. The 16 New Zealand dollar commodity prices are then indexed and weighted to give the. Quarterly tables Appendixes 1 and 2 show the ANZ World Commodity Price Index and New Zealand Dollar Index for each of the 16 commodities on a quarterly basis for the period from March 1986 to March 0. Merchandise export tables Appendix 3 shows New Zealand s merchandise exports for the years ending March 1996 to March 0. Principal Markets Appendix 4 shows the top 5 markets (%Free-on- Board) for each commodity. Sources: Statistics New Zealand, Wools of New Zealand, AffCo New Zealand Ltd, Agrifax, Meat New Zealand, the New Zealand Dairy Board, ENZA Ltd, Datastream, Japan Lumber Reports, Reserve Bank of Australia, Bridge Commodity Research Bureau, Ministry of Agriculture and Fisheries, Ministry of Foreign Affairs and Trade. Page 12

15 Appendix 1 QUARTERLY WORLD PRICE INDEXES WOOL BEEF LAMB BUTTER ALUMINIUM FISH WOOD SKINS APPLES CHEESE SAWN LOGS WMP SMP CASEIN KIWI ANZCOM PULP TIMBER FRUIT Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Economics@ Page 13

16 Appendix 2 QUARTERLY NZD INDEXES WOOL BEEF LAMB BUTTER ALUMIN FISH WOOD SKINS APPLES CHEESE SAWN LOGS WMP SMP CASEIN KIWI ANZCOM PULP TIMBER FRUIT Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Page 14 Economics@

17 Appendix 3 New Zealand Merchandise Trade Exports ($Million Free-on-Board) 12 month Year Ending March p % Change Wool 1,156 1,034 1, % Lamb 1,250 1,526 1,532 1,485 1, % Beef 1, ,154 1,112 1, % Venison % Other Meats and Edible Offals % Total Meat 2,643 2,705 2,928 2,838 3, % Skins % Velvet % WMP 838 1,035 1,064 1,167 1, % SMP % Butter % Cheese % Casein % Other Dairy % Total Dairy 3,359 3,973 4,365 4,1 4, % Livestock % Total Pastoral 8,045 8,598 9,132 9,279 9, % Kiwifruit % Apples % Wine % Other Fuit % Vegetables % Cereals % Other Horticulture % Total Horticulture 1,194 1,231 1,348 1,484 1, % Logs % Processed Timber % Wood Pulp % Total Forest Products 1,593 1,389 1,442 1,348 1, % Fish % Aluminium , % Total Commodity Exports 12,412 12,702 13,579 13,903 14, % Other Exports 7,334 7,543 7,866 7,920 6, % NZ MERCHANDISE EXPORTS 19,746 20,245 21,445 21,823 20, % Source: Statistics New Zealand Page 15

18 Appendix 4 Five Largest (fob) Export Destinations by Commodity (Year Ended December 1999) Wool Australia (14%), UK (11%), China (11%), Italy (11%), India (8%). Skins Italy (32%), Korea (28%), Hong Kong (7%), Australia (6%), India (5%). Sheepmeat UK (28%), Germany (13%), USA (10%), Belgium ( 8%), France ( 6%). Beef USA (58%), Japan ( 8%), Canada (8%), Taiwan (7%), Hong Kong (3%). Whole Milk Powder Malaysia (12%), Sri Lanka (9%), China (7%), Thailand (7%), Venezuela (6%). Skimmed Milk Powder Malaysia (13%), Taiwan (12%), Philippines (9%), Japan (7%), China (5%). Butter UK (20%), Belgium (10%), Egypt (8%), USA (5%), Russia (5%). Cheese Japan (22%), USA (15%), Australia (13%), United Kingdom (9%), Belgium (5%). Casein United States (52%), Japan (14%), Germany (10%), Italy (4%), R o Korea (4%). Kiwifruit European Union (55%), Japan (26%), USA (5%), Taiwan (5%), Australia (4%). Apples European Union (65%), United States (20%), Hong Kong (4%), Singapore (3%), Taiwan (3%). Logs and Processed Timber Japan (29%), Australia (20%), R o Korea (18%), United States (16%), Taiwan (4%). Wood Pulp Japan (21%), Australia (20%), Indonesia (14%), R o Korea (14%), Taiwan (8%). Fish Japan (23%), United States (22%), Australia (12%), Hong Kong (10%), Germany (5%). Aluminium Japan (51%), R o Korea (19%), Australia (14%), USA (5%), Taiwan (4%). Source : Statistics New Zealand New Zealand Ministry of Foreign Affairs and Trade Page 16

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