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NZ export log prices fall in June on stronger currency and higher shipping costs

Tuesday 28th June 2016

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New Zealand export log prices slid to a five-month low in June as returns were hurt by a stronger local currency and an increase in shipping costs.

The average wharf gate price for New Zealand A-grade logs dropped to $116 in June, from $120 a tonne in May, according to AgriHQ's monthly survey of exporters, forest owners and saw millers. That's the lowest level since January's $115 a tonne. 

Shipping costs to China, the country's largest log export market, rose this month to US$16.20/JAS, from US$14.70/JAS last month, following an increase in oil prices and a decline in ship visits as demand waned for fertiliser and palm kernel. The New Zealand dollar also strengthened 4 percent over the month after the Reserve Bank refrained from cutting interest rates, making the nation's log exports less competitive.

The in-market price of A-grade logs in China advanced to US$120/JAS from US$113/JAS last month even as inventory levels on Chinese ports increased to 3.8 million cubic metres from 3.6 million cubic metres last month. Some 50,000 cubic metres per day is currently being taken from ports although AgriHQ expects demand to decline in coming months.

"Cracks are slowly emerging in the Chinese log market, with the impressive market prices that have been present over the past few months likely to subside as we progress towards the middle months of the year," AgriHQ analysts Reece Brick and Shaye Lee said in their report. "Demand typically slows through the summer months in China, and the feeling among the market is that this trend will remain apparent this year, leading to a fall in in-market pricing through until September. 

"Reports indicate demand out of the industrial sector has fallen away over the past month. Activity in the Chinese economy was given a boost following the Chinese New Year period after the government introduced stimulus packages to keep the economy running. However these packages are now being tightened, taking some of the edge out of demand for logs," the report said.

Meanwhile, in the New Zealand domestic market, demand continued to underpin prices for both pruned and structural logs, AgriHQ said.

In the pruned market, P1 logs rose to $184 a tonne from $181 a tonne last month, with mills absorbing the higher prices as end users of products made using pruned logs resisted the increase, AgriHQ said.

In the structural market, S1 logs held unchanged at $114 a tonne with mills unable to build up inventories as supply meets demand, AgriHQ said.

Forest products are New Zealand's third-largest commodity export group behind dairy and meat products.

BusinessDesk.co.nz



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