Frenzy over cheap logs spikes prices

Availability of cheaper logs led to a small price rise in November as many markets took advantage of this availability.

The December Agrifax Forestry Market Report shows a bounce last month with a lift in sentiment, but warns demand is still sensitive to oversupply in a very unpredictable market.

Credit issues are still seen to be holding back some small buyers and the report indicates demand from the significant Chinese market could turn on again "as quickly as it was turned off".

A lack of affordable housing and escalating property prices in China point to plenty of potential for suppliers to the building sector.

"It is expected the Chinese economy will continue to cool off until the second quarter of 2012. This is a deliberate act by the Government to stem inflation in the rapidly growing economy."

Imports into South Korea dropped back to more traditional levels in October after massive volumes in September. New Zealand recaptured its top market share in South Korea and log volumes from New Zealand are currently 5 per cent ahead on the same month last year.

A jump in the log supply from New Zealand has combined with a rapidly slowing Indian economy creating a "shambolic situation" in this market.

Overall, log export volumes out of New Zealand are improving after the mid-year slowdown. The natural increase as forests planted in the late 1980s and 1990s reach harvest is being absorbed by export markets.

Domestically, prices remain under pressure and there is limited demand for finished product globally. Mills are reportedly pulling back stock to support prices. The northern North Island region, including the Central Plateau, experienced the greatest jump in export log prices for the month, with 52 per cent of logs leaving New Zealand in the year to the end of October shipped from Tauranga and Whangarei ports.

Lumber exports have been steady for the past year, with the strong New Zealand dollar affecting exports into the United States. Ministry of Agriculture and Forestry data shows stocks were down in the third quarter which Agrifax analysts suggest will be welcome news to mills as it will support lumber prices.

Many mills are taking breaks during the Christmas period, which is also expected to help.

The small lift in New Zealand residential and commercial building activity during October is matched by "glimmers of a recovery" in the US.

Activity in Australia, however, continues to decline. Recent decreases in the cash rate there could support the building market.

Carbon Trading

The New Zealand Unit has dropped below $10 per tonne of carbon dioxide as problems with the European emissions trading scheme take a toll.

Economic uncertainty in the region and fear of a carbon credit oversupply have caused carbon prices to plunge globally.

The New Zealand Unit was down to $9.90 from $20.35 a year ago and $13.40 last month.

However, some action in climate change policy from the United Nations convention in Durban could stimulate markets.

Australian and New Zealand markets are forecast to be linked by 2015 to achieve a broader, deeper market for emissions trading.