ANZ world commodity index falls in July; NZD index trails by 2.8 pct m/m

The ANZ’s World Commodity Price Index fell 1.4 percent m/m in July. The recent fall in forestry prices weighed on the index, with dairy price movements also negative. The index has weakened by 0.5 percent in the past year, according to the latest report from ANZ Research.

The fall in the index was exacerbated by the strength of the New Zealand dollar during the month of July, resulting in the NZD Index falling 2.8 percent m/m.

The forestry price index slipped a massive 8 percent as demand from China for logs fell away. A high level of supply of logs from New Zealand and other regions has resulted in a build-up of stock on wharves in China, at a time when usage rates have eased.

Building activity slows in China during its hot summer months and buyers are also more cautious than normal due to the impact the trade war between China and the United States is having on manufacturing activity.

Some of the logs exported to China are used to produce pallets to transport finished goods. The demand for pallets is falling due to manufacturing activity in China slowing.

Dairy prices fell 1.6 percent overall in July, but are now starting to firm. Butter and cheese prices remain under some pressure, particularly in Europe. New Zealand skim milk powder has been trading at a premium to product from other sources. Whole milk powder prices are stable and are expected to be supported in the year ahead by relatively tight supply.

However, shipping costs increased sharply over 2019. The Baltic Dry Index moved from a trough of 595pts in February to above 2000pts in July. This was largely due to the supply of vessels easing while demand for shipping products like iron ore has been strong, bolstering freight rates.

Meanwhile, shipping rates are expected to rise in 2020 in response to tightening environmental rules on fuel, the report added.