Export log prices hit new record on continued strong demand from China

New Zealand export log prices edged higher to a new record, buoyed by continued strong demand from China, a weaker currency and historically low shipping rates.

The price for A-Grade export logs reached $129 a tonne, up from $128 a tonne last month, and $127 a tonne the month earlier, marking the highest level since AgriHQ began collecting the data in 2008, according to the agricultural market specialist's monthly survey of exporters, forest owners and saw millers. All of the main log grades tracked by AgriHQ either held steady or lifted as much as $2 a tonne on the previous month, AgriHQ said.

New Zealand is experiencing strong demand for its logs from China, which has clamped down on the harvesting of its own forests and reduced tariffs on imported logs to meet demand in its local market. AgriHQ said Chinese demand for New Zealand logs remained just as firm as previous months, and is set to hold that way until at least the Chinese New Year in February next year.

"Strong and constant demand out of China is the main factor which has pulled wharfgate log prices to record levels," said AgriHQ analyst Reece Brick. A weaker local currency, which had been trading around seven-month lows against the US dollar for most of November and early December, as well as historically low shipping rates had also supported wharfgate log values, he said.

Brick noted that the main issue for the export market at the moment is shipping logistics, with massive volumes of logs heading to the export market creating congestion at ports.

Beyond China, export markets have had mixed fortunes, he said.

In the New Zealand domestic market, trading continued at essentially the same level as a month ago, though some higher prices were reported, he said. This put the national average for structural logs at $129 a tonne, pruned logs at $182 a tonne and roundwood at $97 a tonne.

"Strong housing construction rates continue to underpin wider demand for timber from mills - a situation which is set to remain the norm for at least the medium term," Brick said.

Mills have benefited from consistent wood flows in recent weeks, as dry weather conditions halted any previous disruptions to harvesting, he said.

"All signals point to stable-to-firming domestic log prices through Q1 next year," he said.

Still, Brick noted that rising wharfgate prices over the past 18 months have forced mills to be more price competitive and more mills are battling to make a profit margin, even with strong end-user demand for processed wood.

"Although short-term cash flow is an issue, part of the concern is the mills' inability to invest in new technology," Brick said. "Many are unable to front the cash to invest in more efficient machinery that would allow them to make larger margins on logs. This calls into question the longevity of these mills, especially if there's no reprieve in competition from overseas traders."

(BusinessDesk)