Roadblock ahead for NZ log prices

Photo / Natalie Slade

China's cooling house market and increased competition set to stunt recent strong export performer.

New Zealand log prices appear to have levelled out after a strong run over the last year and could be on their way down if market conditions in China deteriorate, economists said.

While the boom in dairy prices has tended to dominate the main New Zealand commodities groups, the log trade has also been a strong performer, registering a series of sturdy gains over the past year or so.

Like the dairy sector, strength in the log market has been driven by strong demand from China. But the extent of demand in China has not gone unnoticed by Northern Hemisphere foresters who have stepped up their exports to the republic to take advantage of higher prices.

Key producers in the American northwest and Canada, both of which had been supplying their recovering housing markets domestically, are shipping more logs to China. Russia, despite a punitive export tax on logs, is also sending more wood to the People's Republic.

The resulting increased supply, alongside signs of a cooling off in demand in China's housing markets, is expected to put downward pressure on prices, ASB Bank rural economist Nathan Penny said.

Latest Ministry for Primary Industries figures for the March quarter showed prices were still elevated - in a range of $171 to $198 a cubic metre (freight on board), having appreciated from a $144 to $153 range since the March quarter of 2012.

The ASB forestry price index, in US dollar terms, peaked in mid-April and has since fallen back by 1.2 per cent.

This came after a 20 per cent rise from the end of 2012 through to mid-April 2014.

"At this stage, they [prices] have flattened and fallen a touch, but we would expect them to come off the boil over the rest of this year because of those issues on the supply side and on that hint of housing weakness in China," Penny said.

ANZ economists said in a market commentary that anecdotes about the state of the Chinese housing market had been grim for some time, but now the problem was starting to show up in official data.

China's new home prices rose in April in the fewest cities for 18 months - 44 of 70 cities tracked by the Government - compared with 56 in March.

Developers continue to offer deep discounts, and some local governments are easing property curbs, the ANZ said in a commentary.

"A property slowdown has long been desired by the authorities, but there is a risk this train could overrun the station," ANZ said.

China home sales fell 18 per cent between March and April, and annual house price inflation is easing rapidly.

"Directing more lending at the sector runs the risk of delaying but worsening the eventual correction, with clear signs of housing oversupply and unsustainably high prices," the bank said. APNZ