Structural log prices hit new record on rising domestic demand

New Zealand structural log prices hit a new record as local mills compete with the export market to secure supply to meet the demand from the busy domestic construction market.

The price for structural S1 logs lifted to $127 a tonne this month, from $124 a tonne last month, and $115 a year earlier, according to AgriHQ's monthly survey of exporters, forest owners and saw millers.

New Zealand's economy is being buoyed by increased construction activity as record levels of tourism and migration stoke demand. However local wood mills are having to compete for log supply with the export market, with the price for S1 logs creeping above the price of export A-grade logs in AgriHQ's latest data for the first time since late last year.

"A consistently firming export log market has driven increases in structural log prices in recent months, though positive housing construction rates locally have been key to mills being able to stomach these increases," said AgriHQ analyst Reece Brick. "The short-term outlook is for either a steady or slightly firmer market, where the exchange rate movements will likely be key to the competitive pressure between the local and export markets."

Brick said the closing valuation between wharf gate and domestic values may indicate some stabilisation in the market towards the end of the year, assuming no major change occurs in the export market.

Log values at the wharfgate slipped by around $2 a tonne this month according to most of those surveyed by AgriHQ, hurt by a rise in the New Zealand dollar exchange rate with the US dollar through mid-July to mid-August to peak at a 28-month high of 75 US cents. However, the report noted that the exchange rate is now tracking downwards.

"Any concerns towards future easing of this market are minimal," Brick said. "There's little to no concerns regarding the state of overseas log markets for the short-term."

In China, New Zealand's largest log market, the price for unpruned log grades rose US$2/JAS, marking the 13th consecutive month without any weakening, Brick said.

Meanwhile, shipping rates were stable, following ongoing stability in world oil prices, Brick said.

"Exporters are anticipating shipping rates to stay locked in position as we approach the end of the year," he said.

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

(BusinessDesk)