New Zealand structural log prices have hit their highest level in more than two decades as local mills compete with the export market to secure supply to meet demand from the domestic market.
The price for structural S1 logs lifted to $124 a tonne this month from $123 a tonne last month and $114 a tonne at the same time last year, reaching the highest price for the grade since April 1994, according to AgriHQ's monthly survey of exporters, forest owners and saw millers.
"The New Zealand domestic log market has slowly but consistently risen this year, and the past month was no different," AgriHQ analyst Reece Brick said in his report. "Supply and demand fundamentals remain skewed in favour of sellers rather than buyers, squeezing even more returns out of harvested logs."
The market remains strong for most segments of the domestic industry, even as the volumes traded slowed when winter weather stymied construction activity, AgriHQ said, noting that local wood supply had been hampered due to difficulties harvesting in wet weather. While strength in the local housing market is helping stoke demand, the main driver behind higher domestic prices is that export markets are draining supplies out of New Zealand, the report said.
"Domestic mills are in a tug-of-war with export log traders for unpruned logs and are facing the prospect of further hikes in log procurement costs," Brick said. "A large portion of mills are still paying below the export market for logs. Log suppliers are currently attempting to gauge mills ability to absorb higher log prices.
"All signs suggest more increases are on the cards."
Prices in the log market are heavily reliant on Chinese demand, which is expected to hold in the medium term after the Chinese government introduced restrictions on logging native forests and reduced tariffs on imported logs to 11 percent from 13 percent to discourage the use of native wood, AgriHQ said. Other major markets including India, Japan and South Korea are also looking positive, the report said.
"The export log trade has only improved, though not drastically," Brick said. "Key components of the wharfgate log price either held their ground or improved through May and early June."
New Zealand exported 1,666,639 cubic metres of logs in April, up 3 percent on March volumes and 21 percent higher than a year earlier. Some 72 percent of the volume was exported to China.
"The volume exported in April is one of the largest amounts exported in the last 10 years and is only surpassed by August 2016," Brick said.
The value of log exports is expected to climb to $2.66 billion this year from $2.22 billion last year and reach $3.14 billion in 2021, according to the latest Situation and Outlook for Primary Industries published by the Ministry for Primary Industries last week.
Forest products are New Zealand's third-largest commodity export group behind dairy and meat products.
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