Oversupply chops log prices

There has been a major drop in the prices of log exports, driven by a buildup of inventory in the main market, China, which is contributing to "a bit of a slowdown" of log exports handled by Port of Tauranga, says commercial manager Leonard Sampson.

"It's not a significant change at this time," he said. "This month we've noticed a small reduction in shipping volumes, but at this stage it's hard to say whether it's a market correction or just a blip. You can't read too much into it and it's such a fluid situation,"

Bulk exports such as logs and imports of bulk fertilisers and dairy feed supplements were a significant factor in an overall 5.5 per cent rise in overall annual trade volumes reported by the port earlier this year.

The current slowdown has been caused by a significant buildup of logs on wharves in China, said Mr Sampson, who noted that overall demand in China was still strong.

Latest figures from Statistics New Zealand show that the value of New Zealand log exports went from $1.6 billion in 2012 to $2.4 billion in 2013, accounting for 42 per cent of forestry product exports by value, compared with just 3 per cent in 1993, according to data cited by forestry management company PF Olsen.

Glenn Mackie, senior policy analyst with the New Zealand Forest Owners Association, said that there was a major price correction under way.

"We normally have an annual price correction, but that didn't happen last year," he said.

Peter Weblin, PF Olsen's chief marketing manager, said he didn't believe the long-term growth trend driven by China was changing.

"The market's been climbing consistently for the last couple of years and we don't see that trend changing."

But the buildup of inventory on Chinese wharves had triggered a fall with April's relatively small reduction in export log prices followed by larger reductions this month.

Some prices are down as much as $25/JAS per cubic metre, meaning that in just two months export log prices had lost 14 months of prior month-on-month gains. May export log prices were now equivalent to prices in January 2013.

Most market commentators were expecting a further drop in price in June, and then a recovery over the next few months, said Mr Weblin.