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Oleh/By		:	DATO' SERI DR. MAHATHIR BIN MOHAMAD 
Tempat/Venue 	: 	SHANGRI-LA HOTEL, KUALA LUMPUR 
Tarikh/Date 	: 	21/07/86 
Tajuk/Title  	: 	THE INTERNATIONAL SEMINAR 
			ON COMMODITIES 




Yang Berhormat Datuk Paul Leong, Menteri Perusahaan Utama; Dif-Dif
Kehormat; Tuan-tuan dan Puan-puan. Saya amat berbangga kerana dijemput
oleh pihak penganjur Seminar untuk berucap di Majlis pada pagi ini dan
seterusnya untuk merasmikan Seminar Antarabangsa ini.

2. Seminar ini adalah lanjutan kepada Seminar Kebangsaan yang diadakan
pada bulan April yang lalu. Pada kali ini bidangnya diperluaskan untuk
menyentuh lebih banyak lagi barangan utama serta penyertaan oleh
pakar-pakar dari lain-lain negara. Masalah yang kita hadapi ialah harga
barangan yang telah menurun dan keadaan yang tidak stabil dan lembab di
dalam pasaran komoditi antarabangsa. Kesemua ini menyebabkan negara-negara
membangun yang menjadi pengeluar barangan utama menghadapi pelbagai
masalah. Adalah menjadi harapan saya Seminar ini akan membincangkan dengan
mendalam segala perihal menyentuh komoditi dan menghasilkan ketetapan yang
berfaedah.

Ladies and Gentlemen, 

3. The World Development Report 1985 published by the World Bank states
that average per capita real incomes in most of Africa are no higher than
they were in 1970; and in much of Latin America they are back to the
levels of the mid 1970s. In other words the clock of economic progress for
these countries has actually stopped in the last few years so that dozens
of countries have lost a decade or more of development. In the case of
ASEAN countries, we have been more fortunate although there is no escaping
from the effects of falling demand and prices of exports of primary
commodities, petroleum and gas, and simple manufactured goods. In the past
Malaysia's diversified range of export commodities had stood in good stead
against the fluctuations in the commodity markets and the vagaries of the
world enonomy. But this careful hedging by Malaysia has failed as a
constellation of forces has driven down the prices of vitually all primary
commodities produced and exported not only by Malaysia and other ASEAN
countries but by the whole world. At the same time, the terms of trade
have increasingly favoured the developed industrialised countries. The
appreciation of the currencies of the developed countries has aggravated
the situation further.

4. Obviously, the falling prices of commodities affect the commodity
dependent developing countries most. The developd commodity producers
balance their earnings through their exports of manufactured goods, which
actually fetch better prices. The disparity between the developed and the
developing countries increases as their revenues and foreign exchange
earnings, their level of employment and their GNP plunge. In terms of
their own currencies the debt burdens increase even if they cease to
borrow. But they cannot stop borrowing. Their inflated debts mean that
many are now borrowing in order to pay their debts.

5. What is it that is happening to the commodities trade? Obviously it is
not the usual down swing in the cyclical changes that have always been a
feature of the market. For many years now, commodities have been suffering
a steady shrinkage both in terms of market growth and in some cases, of
actual market demands. Thus the demand for tin for example has in the past
decade or so, been reduced from about 250,000 tons per annum to about
150,000 tons. Some commodities like indigo have for practical purposes
disappeared from the scene. Most metals have been ailing for quite some
time and there seems to be nowhere the demands can go but down.

6. Occasionally there would be a surge in demands but they have always
been muted and certainly they have never been sustained. After a short
flurry the prices are likely to fall below the starting point. The slide
then continues until the next little frenzy of demands.

7. The pattern therefore is one of continuous downhill slide if we ignore
the little recoveries. Increases in price did seem to take place so as to
almost compensate for decreased demands. But this is mainly due to
currency fluctuations. Thus the gradual rise in the price of tin prior to
the collapse was quite meaningless to Malaysia because the Malaysian
Ringgit appreciated against the pound sterling, the main currency used by
the London Metal Exchange, the principal market place for tin. The rise
was actually a market manifestation of the devaluation of the British
pound.

8. The gradual slide in demand as well as prices can be coped by the
producers to a certain extent. They can diversify and reduce their
dependence on a single commodity. Malaysia, which for a long time depended
on tin and rubber saw the signs and systematically shifted emphasis to
palm oil, cocoa, timber and petroleum. The diversification paid fairly
handsome dividends. Certainly, it cushioned the effect of diminishing
revenues from tin and rubber.

9. But the recent total collapse of all commodities is a new
phenomenon. We should have foreseen this considering the slide that has
been taking place in the commodities market. But we were lulled into a
sense of security by the success of the diversification strategy. Despite
the obvious trend with all commodities we felt that the fluctuations in
the prices of different commodities would balance each other.

10. We have now learnt that all commodities can plunge at the same time no
matter how rare or how much is the present demand for them. The single
most important factor which has caused the downfall of the commodities is
rapidly advancing technology. Admittedly technology has contributed in
many ways towards the progress of commodities. But in some instances this
very progress has been the cause of the decline and fall of the
commodities.

11. New technology has for example enabled more of the particular
commodity to be produced. Thus, today's rubber tree produces ten times
more rubber than the original rubber tree smuggled out of the Amazon
forest. Similarly new tin fields are more easily found through satellite
surveys and mpre sophisticated prospecting methods. But the increase in
production simply means the market is more easily and more frequently
flooded. The glut reduces price and will continue to do so until the less
efficient are forced out of business.

12. But new technology has also reduced the usage of various
commodities. Tin plating for example requires less now than in the
past. New technology also results in a multitude of synthetic or natural
substitute materials. Again tin can be cited as an example. The main use
of tin is as tin plate in the food packaging industry. Now glass, paper,
plastic and alluminium compete and displace tin. Copper is losing out to
glass fibre. Alluminium and even titanium are gradually losing out to the
new carbon fibers and synthetic composites in the manufacture of aircrafts
and soon in motor cars. Ceramics are creating a whole new world in terms
of materials for manufacturing which will render out of date numerous
metals in the manufacture of engines and components.

13. Between over-production and displacement by substitutes, the
commodities are being squeezed out of the market. When ceramics for
example displace the metals, the dependence of some of the industrialised
countries on imports of the metals from the developing countries will be
reduced. The invention of the microchip on the other hand has reduced the
need for metal conductors to almost nothing. If we can imagine the size of
even a simple hand-held calculator if it were to use the old vacuum valves
and circuitary, we will understand just how much this microchip inventi on
has impoverished the metal producers.

14. The trend is for new technology to increase further the production of
various commodities while reducing the need for them. What this means in
commercial terms for the producers is that there is no future in
commodities.

15. But new technologies are not the only problem for the commodity
producers, especially the developing countries. Commodities are also
produced by developed countries. Naturally, developed countries do not
depend on their commodities to sustain a high level of economic
performance. If they are produced, it is simply because they are there or
the means of production such as vast acreage of land are there. A small
proportion of the population of developed countries are involved in this
production. But they have sufficient political clout to cause the
Government to pander to their wishes.

16. Thus, the production of these commodities are often subsidised. The
subsidy in itself stimulate more production. The excessive amount produced
cannot be consumed domestically. The Governments then try to protect the
domestic market. If still the product is not consumed then it is dumped
into foreign markets. Or, worse still, it is used as an aid item for needy
countries, which effectively deprives the competing products of developing
countries of their markets. Soya bean oil, butter and beef are among the
aid items which create havoc with the exports of many developing
countries.

Ladies and Gentlemen, 

17. It is well-known that some powerful developed countries are against
price fixing and subsidies. They refuse to join commodity agreements
because they negate free trade. They are against the operations of
stockpiles which disturb market forces. Subsidies are also regarded an
unfair practise that artificially influence prices. To compete in their
concept of a free market they have even suggested that low wages in
developing countries are a form of subsidy.They devise 'countervailing
duties' in order to jack up the price of cheap imports. But they
conveniently forget this when they fix their prices, release their
stockpiles and provide massive subsidies. Clearly for these countries
there are two standards - one for what they do and one for what others do.

18. The manipulation of prices is not done by Governments only. The
traders in the developed countries contribute their share. Sometimes, of
course, they benefit the producers, but more often than not the producers
suffer as agents, brokers, traders and the operators of commodity
exchanges speculate in commodities. Since the exchanges are owned and
operated by these players, the rules can be adjusted as they deem fit. On
several occasions when they appeared likely to loose large sums of money,
they changed the rules so as to save their pockets. It is a sordid game
that they play. I cannot say more.

19. Between the various factors that I have mentioned the commodities
trade has been almost completely destroyed. The various attempts to bring
order to the market has failed. The Rubber Agreement, the International
Tin Agreement, and other commodity agreements have all failed. Perhaps it
is unreasonable to expect consumers to prop up prices. But even agreements
between producers have not succeeded. The latest casualty is OPEC. Common
sense dictate that their members should curtail production and respect
agreement on quotas. But apparently each member would rather produce more
and earn less.

20. The commodities trade has obviously declined. Further more the decline
is not cyclical. Even the spurts in the demand reflect the declining
trend. There seems little doubt that for some commodities the end is
near. The question that must be asked now is whether anything can be done
if not to reverse the trend, at least to arrest or slow the rate of
decline.

21. It is unthinkable that the world, particularly the manufacturing
world, can do without commodities altogether. What is happening is
declining demands which result in declining prices. The obvious answer to
a decline in demand is to reduce the supply. If agreement between
different nations to reduce production is unable to work then the next
best thing is for the high cost producers to get out of the business
altogether.

22. The problem is how to discourage the traditional or new producers from
once again increasing the supply when the price swings upwards due to
reduced supply. My belief is that, it is important for the efficient
producers to avoid large profit margins. In the long term narrow profit
margins are always safer for business,any business including the
commodities trade.

23. Research among producers should be very closely related to the
market. Higher yield through new technology by itself is likely to be
detrimental to producers. More important is the research on increasing
usage. The latter is usually done by consumers. It is about time that
producers actively collaborate, finance and actually participate through
their own scientists in the research projects on newer uses.

24. The producer developing countries have always regarded research as of
secondary importance. They are very unwilling to set aside funds for this
purpose. To finance research on application rather than on production is
anathema to them. But the fact is that newer uses for their products must
mean increasing demands. Perhaps they can even invest in the new
application so as to get some benefit from the research results.

25. They should also actively participate in the search for
substitutes. All would not be lost if they have a slice of the business of
either producing or using the substitutes.

26. For a long time, Malaysia has strenously kept out synthetic
rubber. This has not stopped others from using synthetic. Possibly, it
would have been more profitable to Malaysia if it had invested in areas
which will maximise its profits from synthetic while nursing its natural
rubber industry.

Ladies and Gentlemen, 

27. The situation facing the commodities trade is serious. It is, of
course, more serious for the commodity-dependent developing countries than
for the developed countries. If the commodities business breaks down there
will be a lot of repercussions in the financial world. Already we have the
example in the fate of the International Tin Agreement. Other commodity
producing countries are going to be put on the chopping block. Debts
cannot be paid. The developed
countries and their banks are going to pay a heavy price as countries
default on their payments. Then trade in manufactures are going to suffer,
as less money is available to certain commodity producers to buy
manufactured goods.

28. The commodity trade problem cannot be viewed in isolation.It is
closely related to all trading and financial activities on which the
economic health of the world depends. The developed countries eventually
will lose as much as the developing countries unless they help out over
this problem.

29. The world is interdependent. We will learn how very interdependent it
is during a depression such as this. The short term gains of some
individuals or companies or countries should not lull them into thinking
this is someone else's problem. It is everyone's problem. Unless we solve
this problem we will all have to pay.

30. It is for the purpose of taking a hard look at the various problems
facing commodities and how to overcome them that Malaysia is organising
this International Seminar on Commodities. Invariably, the problems
affecting commodity markets and prices are interlinked with a host of
other economic issues, some technological in nature and others having a
political flavour, and, of course, unpredictable elements like climate and
weather and nature's own Pandora Box which can sharply alter commodity
forecasts and prices.

31. Having said all that I have said, I would now leave it to the experts
and the many distinguished participants of the Seminar to deliberate in
depth on the pressing issues and problems and to let us have their ideas
and recommendations.

Ladies and Gentlemen, 

32. Now I have great pleasure in declaring open this International Seminar
on Commodities
 
 



 
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