21/08/2012 (Radio Australia) - Lower commodity prices are taking their toll on the Pacific, with export growth down sharply in many economies, according to the ANZ Bank.

In its latest Pacific Quarterly, the Bank says agricultural commodities in particular have continued to trend down in the past month.

Presenter: Jemima Garrett

Speaker: Paul Gruenwald, Chief Economist Asia Pacific, ANZ Banking Corporation

GRUENWALD: We've seen the commodity prices trending down almost across the board. We've got the oil, such as palm and coconut, and also sugar cocoa, coffee and rice. Rice has levelled off a bit in the last few months, but generally the price for both soft and hard commodities prices for the first half of this year has been down.

GARRETT: Just how much have prices dropped by and why?

GRUENWALD: Well, I think the why is just the slowdown in global growth and demand, which is something we would expect when things are not going so well on the growth side. Drops have really ranged across the commodities, sometimes it is as much as, twenty, thirty, forty percent. So it really depends on which particular commodities we are talking about. Coffee for example, has fallen quite a bit since it peaked about this time last year.

GARRETT: Over the past few years, palm oil is one commodity that has been performing really strongly. Why the turnaround for palm oil?

GRUENWALD: it is hard really to put one finger on this. One of the things we have been scratching our heads about these last couple of years is that these price movements seem to be more than just driven by supply and demand in the market. We have a lot of financial speculation, if we can use that term, in some of these commodity markets, which is relatively new. So it tends to push the prices both up and down a bit more than one would expect. So, again, palm oil I a good one where the price has essentially doubled between early 2010 and the middle of last year and then they have fallen back to where they started. Certainly some of that is global demand but one suspects there are other forces at work in some of those markets as well.

GARRETT: Which Pacific countries are being most affected by the lower prices.

GRUENWALD: Well, I think all of them are. It depends what they are exporting. If you look at some of the hard commodity energy exporters like PNG and Solomons and Timor, particularly in the case of PNG, they've seen their export revenues come off quite a bit. We are not sure what is happening with the volumes but, certainly, the prices are contributing a good bit to the decline in exports.And then over in Polynesia, we've seen the soft commodity prices, as well. So we don't seem to have too much discrimination across the region, even though we are exporting different parts of the commodity story. My sense is the hit might be a bit bigger in the hard commodity space now, rather than the soft commodity space.

GARRETT: Indeed, Papua New Guinea and Solomons have gold and PNG has oil. Those have been up and down quite a lot lately. What is the latest on those commodities?

GRUENWALD: Well, you know, gold was pushing $2000. Now we are back around $1500. There is always a debate as to what one is actually buying; is it an inflation hedge?, is it a store of value? But certainly gold is a little less lustrous than it was a year or two ago and oil seems to go up and down, mostly for demand-driven reasons, although we have the occasional supply scare out of the Middle East that would tend to spike things. But, certainly the level of oil that we see now at 4110 is certainly consistent with, kind of, slow global growth. We certainly don't have much in there in terms of potential supply issues.

GARRETT: What are you expecting for commodities in the year ahead?

GRUENWALD: Well, if we have a modest global recovery, let's say the US is 2%-ish and Asia does reasonably well. And that would be predicated on a decent rebound in China in the second half of the year, so China could pull something seven and a half, close to eight per cent, commodity prices should do reasonably well. Europe won't be contributing. I think we are watching some of the weather related events, such as the drought in the US, to see if some of the soft prices will spike but with steady global growth we don't see too many huge surprises on the commodity front.