NZ structural log prices advance to 23-year high as mills compete with export demand

Monday 25th September 2017

New Zealand structural log prices edged up to the highest level in more than two decades as mills compete with the export market to secure supply for the local construction market.

The price for structural S1 logs lifted to $128 a tonne this month, from $127 a tonne last month, and is sitting 11 percent above last year's level and 21 percent higher than the five-year average, according to AgriHQ's monthly survey of exporters, forest owners and saw millers. The S1 structural log price is at its highest level since April 1994.

Demand for New Zealand logs is strong in China, New Zealand's largest log market, with in-market prices for unpruned logs at their highest level since mid-2014 and pruned log prices just shy of their last peak in mid-2016, AgriHQ said. China has clamped down on harvesting of its own forests and reduced tariffs on imported logs. It imported 2,894,326 tonne of logs in July, the highest level since April 2014, with New Zealand recording the largest lift, making up 37 percent of imports in the month, ahead of the 35 share it typically holds, AgriHQ said.

"As far as the market is concerned, any potential downward movement in values will have to be driven by wharfgate values," said AgriHQ analyst Reece Brick. "Mills are ruing the on-going strength of the export market, forcing them to meet these values or find themselves short on supply."

Some mills have paid premiums above the main contract market to secure supplies from the spot market, Brick said, noting that the current price for structural S1 logs is about $3 a tonne more than the wharfgate price A-grade logs.

Still, Brick said further upward movement in prices is less likely as domestic pruned log supply moved into balance over recent weeks and export interest remains short of the level experienced in early 2016.

He noted residential construction activity is slowing in Canterbury as the bulk of the earthquake rebuild reaches completion, while talk of stagnating house prices has slowed building from property investors.

"Whether this is a temporary state brought about by winter or an indication of a longer-term trend will become more obvious over the next month or two," Brick said. "Other areas have displayed a little more resilience, though it does appear that construction has come back from its peak through Auckland and the central North Island."

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

(BusinessDesk)

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