New Zealand export log prices slid to an eight-month low in August as a stronger local currency and higher shipping rates dented returns.
The average wharf gate price for New Zealand A-grade logs dropped to $110 a tonne in August, from $114 a tonne in July, according to AgriHQ's monthly survey of exporters, forest owners and saw millers. That's the lowest level since December's $104 a tonne.
Shipping rates to China and South Korea have advanced about 8 per cent this month, rebounding from their lows, as fewer ships visit New Zealand due to greater northern hemisphere demand and a drop in local appetite for cargo such as palm kernel. A lift in the kiwi has also made the country's exports less competitive after the Reserve Bank cut the benchmark rate this month but was less definitive than expected about the need for further easing.
"Nearly all changes in export log markets were negative for New Zealand log traders over the past month," AgriHQ analysts Reece Brick and Shaye Lee said in their report. "Higher shipping rates, the appreciation of the New Zealand dollar, and steady-to-softer in-market pricing have all worked against returns at the wharf gate."
Still, inventory levels at Chinese ports were lower than the same time last year, pointing to stability in prices and the potential for a marginal increase next month, they said.
Meanwhile, returns in the domestic market were in line with last month, AgriHQ said.
In the structural market, S1 logs slipped to $114 a tonne from $115 a tonne last month, which was the highest level since June 2014, AgriHQ said.
"Demand for structural logs has been impressive throughout all major regions, primarily a product of strong housing construction through key centres," the analysts said. "Many mills would be more than willing to take more logs than they currently are, but the relative tightness of supply is meaning this is not possible."
In the pruned market, P1 logs declined to $184 a tonne from $187 a tonne last month, which was the highest price since June 1995, AgriHQ said.
There has been an increase in the supply of lower quality pruned logs from owners of smaller woodlots who have been felling trees at a younger age than usual, although there is limited demand for these logs which tend to have issues with sapstaining, which affects the appearance of the wood, the analysts said.
"Mills will be seeking further price reductions in the short-term," they said in their report. "However there is a distinct lack of interest from domestic mills for any poorer quality logs" and Chinese buyers were also eschewing these logs.
Through July and early August, export pruned logs were trading for US$165/JAS (Japanese Agriculture and Forestry Standards), down from US$175/JAS at the same point last month, AgriHQ said.
"A period of increasing processing capacity within China appeared to mean these issues were overlooked, however now the demand situation has stabilised, the effects of trading these poorer quality logs is being felt," the analysts said. "The furniture industry within China is also in a weak state, which has also cut back interest in pruned logs."
Pulp prices were unchanged at $49 a tonne and have held within a range of $49 a tonne and $51 a tonne since September 2014, AgriHQ said.
Forest products are New Zealand's third-largest commodity export group behind dairy and meat products.