Strong NZ dollar and weaker markets drive log prices to seven-month low

The average wharf gate price for New Zealand A-grade logs dropped to $114 a tonne in July. Photo / Alan Gibson

• Forest products are NZ's third-largest commodity export group.
• A lift in the Kiwi dollar has made the country's export logs less competitive.
• Moderate inventory levels at ports will counter some of the potential weakness.

New Zealand export log prices have slipped to a seven-month low as a stronger Kiwi dollar and weaker prices in key markets dent returns.

The average wharf gate price for New Zealand A-grade logs dropped to $114 a tonne in July, from $116 a tonne in June, according to AgriHQ's monthly survey of exporters, forest owners and saw millers. That's the lowest level since December's $104 a tonne.

The in-market price of A-grade logs in China declined to US$117/JAS (Japanese Agriculture and Forestry Standards) from US$120/JAS last month as Asia's largest economy heads into a seasonal construction slowdown. A lift in the New Zealand dollar following the UK's vote to leave the European Union also made the country's export logs less competitive.

"New Zealand log exporters have experienced some weakness in returns," AgriHQ analysts Reece Brick and Shaye Lee said in their report. "While in-market returns for logs fell a little, the exchange rate had a large influence on wharf gate prices."

Still, inventory levels at ports were moderate compared to past seasons and would act to counter some of the potential weakness, they said.

Meanwhile, the New Zealand domestic market is "sturdy", AgriHQ said.

"Supply and demand elements are in log harvesters' favour at present," the report said. "While many mills throughout the North Island would be more than willing to take in more logs than they currently are, there isn't enough volume available to do this without paying above the market rate."

While in-market returns for logs fell a little, the exchange rate had a large influence on wharf gate prices.

AgriHQ

In the pruned market, P1 logs rose to $187 a tonne from $184 a tonne last month - the highest price since June 1995, AgriHQ said.

In the structural market, S1 logs gained to $115 a tonne from $114 a tonne last month, the highest level since June 2014, AgriHQ said.

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.