Rising wholesale power prices squeeze NZ producer margins in June quarter

New Zealand producers had their margins squeezed by rising electricity and gas prices in the June quarter as increasing prices for beef, lamb and dairy products weren't enough to offset more expensive power.

The output producers price index, which shows the prices producers receive for their goods and services, rose 1.3 percent in the June quarter, a smaller increase than the 1.4 percent increase in the inputs PPI, which shows how much they pay to produce things, Statistics New Zealand said. The outputs measure was led higher by an 8.8 percent gain in prices received by sheep, beef cattle and grain farmers and a 6.9 percent increase in meat and meat product manufacturing prices. However, the price producers paid for electricity and gas supply rose 8.5 percent, seeing an overall narrowing of margins in the quarter.

"These increases were influenced by higher prices for electricity generation, partly arising from a dry winter," business prices manager Sarah Williams said in a statement. "Higher output prices for electricity lead to higher input costs for other industries."

Wholesale electricity prices have spiked higher in recent months as low hydro-lake levels coincided with heavy winter demand for power.

Still, the data show annual margins improved with the output PPI rising 5.2 percent from a year earlier, outpacing a 4.7 percent increase in input prices. The recovery in global dairy prices drove the annual movement, with prices received by dairy cattle farmers jumping 53 percent in the June quarter from a year earlier, and dairy product manufacturers' output prices rising 35 percent. The annual increase in input prices was led by dairy product manufacturers whose costs were up 42 percent.

"In the June year, prices received by dairy cattle farmers were up 53 percent due to a rise in farmgate milk prices, from $4.25 to $6.50 per kilo of milk solids," Stats NZ's Williams said. "This was still lower than the March 2014 quarter peak, when forecast milk prices were $8.65."

The construction sector has been facing increased margin pressures as competition for skilled labour drives up costs. Input costs for construction producers rose 0.8 percent in the June quarter for a 2.9 percent annual increase, while quarterly output prices gained 1.3 percent and were 4.3 percent higher than a year earlier.

Prices paid by farmers rose 0.7 percent in the quarter for a 1.1 percent annual increase, while capital goods prices were up 0.9 percent in the three months ended June 30 and 3.2 percent on an annual basis.

(BusinessDesk)