Key exports holding up

By BRIAN FALLOW economics editor

Prices for New Zealand's key export commodities remain resilient despite a difficult international environment, says ANZ.

Its commodity price index rose 1.1 per cent in world price terms last month.

The index is 1.7 per cent off its peak in May but remains 8.1 per cent higher compared with a year ago.

The weaker New Zealand dollar has further boosted returns, the local currency index being 3.4 per cent higher for the month, 3.3 per cent off its peak in April but 6.6 per cent up compared with a year ago.

"While demand has softened globally, supply factors are underpinning prices for many of New Zealand's export commodities," said ANZ chief economist David Drage.

Lamb prices rose 8.6 per cent last month.

The British market had been strong and the outlook for the rest of the year was positive, with low stocks and the supply of British sheepmeat tight, Mr Drage said.

The United States will next month remove restrictions imposed two years ago on imports of New Zealand and Australian lamb. Both countries appealed successfully to the World Trade Organisation.

Cyclical domestic supply pressures in the US beef market, compounded by concerns that Australia may fill its US quota early, underlie a 7.5 per cent increase in the beef component of ANZ's index.

Dairy prices were unchanged, apart from skimmed milk powder, which weakened slightly.

"However, demand has softened as a result of heightened global uncertainty," Mr Drage said, "and some easing in prices is expected to result."

The recovery under way in both the Australian and New Zealand building industries should help to underpin timber prices and counteract weaker markets in the United States and Asia.

Pulp prices were stable for the fourth month in a row, having fallen sharply from their peak last year.

"There are indications that prices are now below production cost and that production cuts are being implemented worldwide.

"This should help bring supply and demand into better balance and help support prices around current levels."

Commodities to fall included wool (3.6 per cent), aluminium (2.3 per cent), fish (1.4 per cent) and skins (7.1 per cent).

On the rise were venison (1.2 per cent), kiwifruit (1.8 per cent) and apples (0.6 per cent).