NZ export log prices firm in October, bolstered by low shipping rates, Chinese demand

Tuesday 25th October 2016

New Zealand export log prices firmed in October, aided by low shipping rates and solid demand from China, the country's largest export market.

The average wharf gate price for New Zealand A-grade logs advanced to $113 a tonne in October, from $111 a tonne in September, according to AgriHQ's monthly survey of exporters, forest owners and saw millers.

Forest products are New Zealand's third-largest commodity export group behind dairy and meat products, and returns to New Zealand growers are influenced not only by demand in overseas markets, but also the relative cost of shipping and fluctuations in the exchange rate. China's appetite for logs is holding at a positive level, aided by lower inventory levels and demand from the country's construction sector, according to AgriHQ's latest monthly report.

"Moderate inventory levels mixed with solid demand through China is acting to keep unpruned log prices at the wharf gate steady, aided by low and stable shipping rates," AgriHQ analysts Reece Brick and Shaye Lee said in their report. "Exchange rate movements are providing the greatest volatility in this area of the market with the NZD:USD highly variable week-by-week. This will likely be the main factor influencing wharf gate prices through the rest of the year, given the stable outlook for other components of wharf gate returns."

Prices for pruned logs bucked the trend, following an increase in the supply of lower quality pruned logs from owners of smaller woodlots who felled trees at a younger age than usual, causing sap-staining on the wood. The average wharf gate price for pruned logs slipped $3 to $159 a tonne, while the domestic price weakened by $6 to $184 a tonne, AgriHQ said.

"Pruned logs are still feeling some of the effects of weaker Chinese interest due to sap-staining on early-cut logs," the analysts said in their report. "The flow-on effects of the fall in Chinese demand for pruned logs has been felt in the NZ domestic market (as) a portion of pruned logs that would have been sent to the wharf gate only a few months ago are now being retained for sale within New Zealand. These lower quality logs are providing additional options for local mills, and in turn pulling domestic pruned log markets downwards."

The pruned log market is expected to stablilise as demand and supply come into balance, the report said.

Elsewhere in the domestic market, structural S1 logs held stable at $115 a tonne, while roundwood edged up to $83 a tonne, the highest level since July last year.

"It is anticipated that the domestic market should hold strong through the coming months, buffered by the seasonal increase in housing construction rates through summer," the analysts said.

A similar positive outlook is expected for the export market, the analysts said.

"There's little to suggest any significant negative movement in demand from export markets, which should act to support CFR (cost and freight) prices in the coming months, with some market participants expecting the market to improve through to at least the New Year."

BusinessDesk.co.nz

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