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NZ log prices hit new record highs on buoyant demand

Tuesday 21st March 2017

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Buoyant New Zealand activity has pushed up local log prices to new record highs.

The average price for roundwood logs used in the horticulture sector rose to $92 a tonne in March, up $2 from February's average price and at the highest level since AgriHQ began collecting the data in early 2002, according to AgriHQ's monthly survey of exporters, forest owners and saw millers. Structural log prices also increased, with S3 logs hitting $114 a tonne, the highest since AgriHQ began collecting the data in early 1995, while S1 logs rose to $122 a tonne, the highest since mid-1994.

Record high net migration and low interest rates are putting pressure on the nation's housing market, driving up prices and stoking construction activity. A booming horticulture industry is also spurring investment activity in that sector, helping drive demand for roundwood.

"The NZ domestic log market has maintained its incredible strength in recent weeks," AgriHQ analyst Reece Brick said in his report. "Orders were flowing into sawmills at a constant but rapid rate, mainly underpinned by the ever present housing construction sector, especially around Auckland. This procurement competition between mills meant the AgriHQ price for the majority of key domestic log grades lifted."

Brick said demand remained firm in the pulp, pruned and roundwood markets.

"There’s been little sign of any stagnation in the roundwood trade," he said. "Reports suggest many mills are running at or near their maximum capacity as orders keep coming in, and log supply is too tight to prevent any prices increases."

Brick said there was some concern about whether structural log prices may soften as inventory levels increased at North Island mills heading into winter when construction demand tended to slow.

Meanwhile, export prices for New Zealand logs softened by about $2 a tonne across the range of logs measured by AgriHQ.

"The key factor behind the weaker wharf-gate markets was the sudden increase in shipping rates," Brick said. "Unlike other months, it was not oil prices that created this small surge. Instead, an increase in commodity shipments to China, such as iron ore from Australia, has been the key factor. This has engaged a significant amount of previously idle shipping capacity in the Pacific, shifting the market in shipping companies favour."

Brick said exporters were watching the situation closely to see if the change was short-term, or part of a longer-term trend.

"From a domestic mill’s perspective, this softening is a step in the right direction, as it may entice more logs to stay within the NZ market," he said. "That said, a number of logs are still making premiums over domestic trading at the wharf gate, so any change in trading patterns is unlikely to be major for now. Additionally, exported pruned logs tend to be of lower quality than locally traded product, so not all of these logs would be sought after by NZ mills."

Shipping rates to China edged up to US$20/JAS from US$19/JAS last month and US$15.50/JAS a year ago, while rates to South Korea advanced to US$19.10/JAS from US$17.80/JAS last month and US$15.20/JAS a year ago, and rates to India lifted to US$26.30/JAS from US$23.60/JAS last month and US$20.90/JAS a year ago.

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

 

BusinessDesk.co.nz

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