Log prices hit new record highs on buoyant demand

AgriHQ analyst Reece Brick

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

The average price for round wood 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.

Structural log prices also increased, with S3 logs hitting $114 a tonne, also 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, boosting prices and stoking construction activity. A booming horticulture industry is also spurring investment activity in that sector, helping push demand for round wood.

"The New Zealand domestic log market has maintained its incredible strength in recent weeks," AgriHQ analyst Reece Brick says.

"Orders are 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 means the AgriHQ price for the majority of key domestic log grades lifted."

Mr Brick says demand remains firm in the pulp, pruned and round wood markets.

"There's been little sign of any stagnation in the round wood trade," he says.

Mills at maximum 
"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."

Mr Brick says there is 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," Mr Brick says.

"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."

Mr Brick says exporters are watching the situation closely to see if the change is 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 New Zealand market," he says.

"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 New Zealand mills."

Shipping rates to China edged up to $US20/JAS from $US19/JAS last month and $US15.50/JAS a year ago, while rates to South Korea advanced to $US19.10/JAS from $US17.80/JAS last month and $US15.20/JAS a year ago, and rates to India lifted to $US26.30/JAS from $US23.60/JAS last month and $US20.90/JAS a year ago.

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


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