New Zealand structural log prices rose to the highest level in 24 years and A-grade export logs hit a record as local mills compete with the export market to secure supply for the domestic construction market amid strong demand from China.
The price for structural S1 logs increased to $130 a tonne this month, from $128 a tonne last month, marking the highest level since 1993, according to AgriHQ's monthly survey of exporters, forest owners and saw millers. Export log prices lifted between $2-to-$5 a tonne for the majority of grades, with the price for A-Grade logs touching $128 a tonne, up from $127 a tonne last month and the highest level since AgriHQ began collecting the data in 2008.
New Zealand is experiencing strong demand for its logs from China, which has clamped down on the harvesting of its own forests and reduced tariffs on imported logs to meet demand in its local market. AgriHQ said Chinese demand for softwood logs remains strong, lifting back to record levels in the latest data for September with Chinese imports of New Zealand logs currently tracking 10 percent ahead of last year.
"Those trading in the domestic log market are continuing to receiver near-record returns and there's nothing to signal that this situation will change anytime soon," said AgriHQ analyst Reece Brick. "Looking forward, all prospects will be determined by the direction the export log market takes."
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Brick said wharf gate values climbed through October and early November and will likely hold high until the Chinese New Year period. Also known as the 'spring festival', the Chinese New Year falls on February 16 next year, and the festival will last until March 2, about 15 days in total. As an official public holiday, Chinese people can get seven days' absence from work, from February 15 to 21.
"Beyond that point, it's still a wait-and-see situation," Brick said.
He noted the latest situation and outlook report released by the Ministry of Primary Industries continues to shed a positive light on forestry's prospects over the next two years.
"They predict strong Chinese interest in logs over the short-medium term, underpinned by its ban of commercial logging of natural forests, falling Russian log supplies, and a 2 per cent reduction on its imported log tax."
Brick said "the only proper negative" when it comes to the export market is shipping rates, which are rising faster than log values. However, this was being masked by a weaker New Zealand dollar, he said.
"There is still a level of uncertainty as to whether shipping rates have reached their peak or have a little more upswing to come," Brick said.
Still, he said "in terms of market fundamentals it is all still quite positive."