WELLINGTON - World prices for New Zealand's main export commodities were provisionally higher last month, but a stronger kiwi dollar was dampening exporter returns, according to ANZ Bank.
The bank said its latest commodity price figures showed "tentative signs of stabilisation in commodity prices". However the outlook for dairy prices remained grim.
Prices for New Zealand's main commodity exports, including dairy products and timber, have plunged since the Asian economic crisis erupted nearly two years ago.
ANZ said its world commodity price index rose a provisional 2.2 per cent rise in May, building on April's 1.6 per cent gain.
In New Zealand dollar terms, prices were provisionally 0.4 per cent higher in May but down 0.6 per cent in April, due to the higher kiwi dollar.
ANZ said world prices in May were provisionally 0.3 per cent up on May 1998.
"However, a stronger New Zealand dollar over April and May means that the New Zealand dollar index, which is an indicator of prospective returns to exporters, is 2.1 per cent below May 1998 levels," the bank said. The kiwi dollar closed at 54.06USc on Friday but breached 56USc in early May before comments from Reserve Bank governor Don Brash stemmed its run.
ANZ said higher world prices for aluminium, fish and horticultural products drove April's gain and contributed to May's increase, as did rises in beef, lamb and sawn timber prices.
But world dairy prices continued to slide. With economic turmoil in Asia, Russia and Latin America taking their toll on demand, prices for dairy products had dropped sharply from a peak at the end of 1995, the bank said.
An increase in subsidies for European Union milk powder producers and the United States' roll-over of its milk power subsidies had also pressured prices.
ANZ said a current review of European agricultural policy still did not address the problem of over-supply.
The region was estimated to be producing up to 15 per cent more than its domestic needs.
"Although demand in Asia is expected to improve over 1999, supply conditions may limit growth in world dairy prices," ANZ said. - NZPA
Strong kiwi harms higher commodity prices
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