Drop in log prices seen as 'seasonal'

Radiata log prices have finally started dropping as the record number of logs entering Chinese ports swell inventory levels.
Chinese imports have reached record levels in the past quarter, but the June Agrifax Forestry Market Report shows in-market prices there have fallen more than US$10/JASm3. A KS log is now at US$144 and a KI log at US$140.
The report indicates these prices are likely to track downwards through the New Zealand winter, but should improve in the last quarter.
Activity in China is expected to lift again, just as Russian and North American suppliers begin their seasonal decline, but analysts say, by then, they should also have a clearer idea of what effect the post-earthquake/tsunami rebuild in Japan will have.
Demand for New Zealand wood products has surged slightly in Europe, which could be the first sign of the Sendai earthquake beginning to disrupt normal supplies. This demand is from the more stable European states, such as France and Germany.
The decline in log prices is similar to the situation last year, although this price peak occurred in May rather than April.
In 2010, prices plunged more than 15 per cent before starting to climb again in September, eventually recovering all lost ground.
Although prices are expected to lift again in 2011, it is uncertain whether they will regain their record May levels.
Exports to China did slip back to pre-Christmas levels in April, but so far this year New Zealand has exported more than 2.5 million cubic metres there - up about 600,000 cubic metres on the same period in 2010.
New Zealand exports make up almost a third of all Chinese imported logs, with two thirds coming from North America. A weak domestic market has made Asia a strong focus for North American suppliers and this is seen as a risk for New Zealand as available capacity and favourable exchange rates allow American and Canadian logs to compete strongly for market share.
Exports to Korea surged during April to reach their highest levels since July 2008, narrowly topping April 2010 figures. Dwelling approvals in Australia remain stable at early 2009 levels, having dropped after flooding in Queensland during the first quarter.
In the domestic market, these tumbling export log prices have presented a glimmer of hope for wood processors, with domestic buyers are hopeful local prices will also fall in the upcoming period.
That said, pruned log prices have lifted within New Zealand in the past month and processors are buying only as much as they need while prices remain high.
High rainfall and extreme weather in the central North Island have added to an already tight supply of pruned logs. Demand for lower grade logs is also strengthening.
Further strong earthquakes in Christchurch mean many damage assessments and insurance processes are starting again from scratch, suggesting the effect of the rebuild on domestic demand is still likely to be some way off.
CARBON TRADING
The New Zealand Unit has slipped below $20 per tonne, with weak demand from emitters and a reluctance to sell at the lower price among credit holders. As a result, trading activity is very limited.
European carbon prices are still higher than the New Zealand Unit because of the exchange rate. These prices have also softened due to large volumes becoming available from the United Kingdom and Germany.
China has announced plans to set up a domestic carbon trading market and is drawing up rules.