Export log prices record first drop in eight months as Chinese inventories build

New Zealand export log prices dropped for the first time in eight months as shipments to China, the nation's largest market, exceed demand, resulting in a build up of inventory on Chinese ports.

The average wharf gate price for New Zealand A-grade logs fell to $106 a tonne, from $110 a tonne in February, marking the first decline since July 2014, according to AgriHQ's monthly survey of exporters, forest owners and sawmillers. The AgriHQ Log Price Indicator, which measures average log prices weighted by grade, also posted its first decline in eight months, falling to 96.58 from 97.95 in February.

The price for New Zealand A-grade logs delivered to China are at the lowest level since AgriHQ started tracking the grade in February 2012. In recent months, New Zealand log prices had been propped up by a decline in shipping costs and a weaker local currency even though demand in China had slowed.

"For the first time in eight months, export returns for New Zealand exporters have dropped, as the drops in the currency and shipping costs failed to offset the decline in prices for logs delivered to China," said AgriHQ forestry analyst Ivan Luketina. "Log prices in China have fallen due to deliveries continuing to outweigh sales off ports, especially during the quiet Chinese New Year period."

Luketina said Chinese inventories of logs on ports now exceed four million cubic metres, instead of the usual level closer to two million cubic metres.

Once inventories are over four million cubic metres, some ports will start to run out of room, which will lead to delays in unloading. That means prices tend to drop until the situation is corrected, he said.

Meanwhile, pruned log prices have continued to rise due to high demand and localised short supply, he said.

"There is very tight supply in the Central North Island, and that has pushed prices up to between $155-$165 a tonne. A similar issue is being seen for structural logs in Canterbury, where S1 logs are in very short supply," Luketina said.

(BusinessDesk)