Log prices have dropped further under the weight of large log inventories accumulating in China, Westpac said in its fortnightly commodities update.

Chinese log imports had reached record volumes in the early part of this year, and with weaker demand from end-users as the pace of residential construction in China slows, unpruned log prices have fallen 20 per cent from their recent peaks, the bank said.

"We suspect they could fall further in the near term as import volumes - both from NZ and other suppliers - adjust," the bank said.

Domestic demand for structural logs continues to hold up well on the back of ongoing growth in building activity. In May, residential building consents were up 10 per cent on a year ago.


Growth in residential construction is set to continue, led by Auckland and Canterbury, Westpac said.

ASB Bank economists said that with log imports into China continuing at a rapid pace, log inventory levels in China have climbed to very high levels.

"As this wood stockpile has grown, demand for logs has fallen and put downward pressure on export log prices," ASB said. "Until both the Chinese housing market recovers and this stockpile is cleared, the downward pressure on export log prices will continue, likely through the remainder of 2014."