Oil-producing nations contributed to significant volumes of global dairy trade and were hurting with reductions in government incomes as a result of the slump in prices.
Rabobank data for January to November 2015 indicated sales volumes to oil producing nations the United Arab Emirates, Venezuela, Algeria and Nigeria were all up significantly over the year before, when milk powder prices touched US$5000 a tonne for brief periods.
For January to November Venezuela’s sales volume was up 42,000t on the year before.
While those countries had experienced lower incomes from oil, the lowered powder prices had more than offset that for much of 2015.
But Rabobank analyst Emma Higgins said continuing low oil prices into 2016 would invariably have an effect on those countries’ ability to continue buying.
“Low oil prices will weigh on dairy sales through 2016.
“For net sellers of oil, especially Nigeria and Venezuela, they are facing extreme challenges to their economic growth.”
Only this week Venezuela reported 140% annual inflation and a growing deficit in the face of slumping oil prices.
In the Middle East, Saudi Arabia’s efforts to burn off United States fracking operators by riding out the slump and not reducing production had it ripping through net foreign reserves at an eye-watering rate of US$8.5 billion a month.
Higgins said Russian sales were also limited in part by fallout from the ban on imports but also because of low oil prices.
“The rouble has fallen in value and consumers have lost their purchasing power and simply cannot afford dairy products.”
Wool exporters, however, were relatively upbeat after expectations the slump in oil prices would drive out wool as an option to cheaper synthetics.
Wool Services International chief executive John Dawson remained “quietly optimistic” wool would weather the oil price slide in coming months.
“We have just passed through our peak wool supply period and prices are still looking relatively good when we have the greatest amount of product around,” he said.
Mid-micron wool was trading healthily up on the corresponding time last year.
AgriHQ market reports put 35 micron wool this week at $5.95/kg, up from $4.85/kg a year ago. Fine wool also continued to trade well, with 29 micron at $8.95/kg, up from $7.50/kg a year ago.
Dawson attributed the strong prices to a defined market segment placing value on sourcing a natural product and less of that product around to meet the demand.
Without exact data it was hard to know how much wool volumes had declined in five years but he suspected it would be 10%.
“And we continue to see demand from commercial operators for wool carpets, often for fire protection, and there are people out there prepared to pay more for wool, both in garments and carpets.”
“NZ’s distance from key markets makes our supply chain particularly sensitive to network costs such as fuel and economies of bigger vessels.”
David Ross
Kotahi
Despite the lower fuel prices, primary sector exporters were unlikely to see major downward movements in their shipping costs over coming months.
Bunker fuel used to power ships had fallen on the Bunkerworld Index to 400, almost half what it was a year ago.
Typically, bunker fuel accounted for 50% of a ship’s operating costs.
But Maersk New Zealand managing director Gerard Morrison said fuel pricing was only one component of a shipper’s operational costs.
“Shipping rates are fundamentally driven by supply and demand, not fuel prices.
“However, we do have a bunker fuel factor built into shipping costs and that factor has been adjusted down to allow for the drop in fuel costs.”
Thanks to a global overcapacity in shipping assets, exporters from and importers to NZ already enjoy a highly competitive price for shipping and one that might not be able to be sustained given losses being experienced by global shipping companies.
Last year Maersk had to shed thousands of jobs and drop plans for some new vessels amid a gloomy global shipping industry.
At 615 points this week the Shanghai Containerised Freight Index was recording an all-time low and Morrison said daily shipping rates had come down by “figures with four numbers in them”.
Freight company Kotahi’s chief executive David Ross said it was transparent in passing savings to customers. Kotahi is an alliance of Fonterra and Silver Fern Farms.
“NZ’s distance from key markets makes our supply chain particularly sensitive to network costs such as fuel and economies of bigger vessels.”
Global oil in surplus
- Price one year ago – US$45/barrel
- Price today – US$31/barrel
- Global demand – 1.2 million barrels a day
- Global production – 2.6m barrels a day
- Estimated surplus for 2016, first half – 1.5 million barrels a day
Source: International Energy Agency
Related story: No fuel savings likely despite half-price sale
