NZ export log prices jump to 7-month high on pick up in Chinese demand

Friday 20th November 2015

New Zealand export log prices jumped to a seven-month high in November as demand picked up in China, the country's largest market.

The average wharf gate price for New Zealand A-grade logs rose to $92 a tonne from $83 a tonne in October, marking the highest level since April, according to AgriHQ's monthly survey of exporters, forest owners and sawmillers. The AgriHQ Log Price Indicator, which measures log prices weighted by grade, increased to 92.51 from 88.41 last month.

Log prices increased sharply this month as Chinese demand picked up to 70,000 cubic metres a day towards the end of October, and about 50,000-60,000 cubic metres a day in November. The pick up in demand comes after log exporters reduced shipments to China following weak market conditions, and has caused inventory levels on Chinese ports to fall to between 2.3-to-2.6 million cubic metres from about 3 million cubic metres last month and 4.7 million cubic metres in August, AgriHQ said. Some now expected inventories to drop below 2 million cubic metres, AgriHQ said.

"The main cause of this sharp increase has been a reduction in supply and high off-take from Chinese ports. Due to the poor market conditions some exporters delayed harvesting over winter while others diverted supplies to other markets," said AgriHQ analyst Emma Dent. "The current lack of supply has resulted in a knee-jerk reaction from Chinese traders who are now seeking to source product to fill contracts."

Prices are expected to firm through December, although the market remains volatile, Dent said.

"The market has the potential to overshoot in its price recovery, in which case prices will need to drop for the market to find the right balance," she said. "Improved market conditions mean supply to China is likely to increase which would place downward pressure on prices."

Lower shipping rates and a favourable New Zealand exchange rate were helping underpin the local export market, she said.

Meanwhile, prices for New Zealand domestic logs were steady with pruned logs at $167 a tonne from $164 a tonne last month, and structural logs at $103 a tonne from $105 a tonne.

Domestic log processors are struggling to source supply in some regions due to competition from the export market, Dent said.

Logs, wood, and wood articles are New Zealand's third-largest commodity export behind dairy products and meat.

BusinessDesk.co.nz

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