WTO predicts oil increases to dampen 2005 trade growth

Related tags Raw material prices International trade

Price increases for oil and other commodities are likely to dampen
growth in trade and overall output in 2005, according to World
Trade Organisation statistics.

But despite the sharp rise in oil prices, the volume of world trade is still likely to grow by 8.5 per cent in real terms by the end of 2004, a significant improvement over 2003. The vigorous trade expansion observed in the first half of 2004 is expected to provide enough momentum to raise global trade volume.

"Growth in world trade in 2004 will not be adversely affected by higher oil prices to any great extent because we are seeing good growth in trade and output in China, Latin America and Africa,"​ said director-general Supachai Panitchpakdi.

"We have also seen stronger than expected economic recovery in Japan. Strong demand is behind rising prices for oil and other commodities and markets appear to be handling this well."

But food processing and packaging, which has arguably been one of the hardest hit sectors by rising energy costs, still faces a daunting situation. The cost of many ingredients and packaging materials are at historically high levels; according to market analyst MEPS, prices for flat rolled steel products in Europe have now in most cases reached their highest level in the last two decades.

A whole variety of raw material prices are hostage to the vagaries of global oil and natural gas prices. Natural gas - a starting point for the production of polyethylene - has shot up in price this year, with the effect that chemical giants have continually passed on the cost to packaging firms.

In addition, a fall in world grain production has forced a draw-down of global stocks for wheat, rice, corn and soybeans. Soybean prices recently hit 15-year highs and wheat and corn 7-year highs.

The difficulty for packagers and manufacturers is that they have been unable to pass on these higher costs, and are effectively being squeezed by an increasingly powerful and competitive retail sector.

The rapid expansion of China's economy, has been a major factor in driving up oil and raw material prices. The surging import demand for oil, copper, soybeans, and many other primary commodities contributed significantly to higher costs.

"Consumption in China is a factor,"​ agrees Association of Fruit and Vegetable Processing Industries (OEIFTL) secretary general Pascale Keppenne. "Energy consumption is high, and the country is also using more and more cans."

But China's increased purchase of investment goods, semi-manufactured goods and machinery parts has also sustained output and exports in many East Asian economies. In 2003, as in the second half of the 1990s, China's merchandise export growth was twice as high as that of world trade. Although China's imports grew faster than exports in 2003, the country still recorded a significant trade surplus.

Higher commodity prices, in particular for fuels, have also contributed greatly to the rebound of merchandise exports of oil-exporting countries in the Middle East, Africa and the transition economies.

WTO statistics show that world merchandise trade increased in nominal terms by 16 per cent to $7.3 trillion in 2003. In real terms, merchandise trade grew by 4.5 per cent in 2003, compared with 3 per cent in 2002 and a decline in 2001. Trade in commercial services grew by 13 per cent to $1.8 trillion in nominal terms.

The figures are in the WTO's latest annual report on International Trade Statistics. The entire report, with comprehensive data on international trade flows in the recent period up to 2003, will be available in November on the website​ and in printed form.

Related topics Processing & Packaging

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