Oversupply fells export prices for logs

Export log prices are being squeezed by oversupply, with credit facilities limiting buyers' purchasing power.

The October Agrifax Forestry Market Report shows Chinese inventories are high and large volumes are being shipped from the United States and Canada, following the same pattern as last year when prices trended sharply downwards in response to the imbalance in supply and demand.

KS and KI log prices both eased slightly on last month to US$130 and US$124 respectively.

Global economic uncertainty has affected the market through its impact on the New Zealand dollar and through governments trying to "undo" fiscal infrastructure packages that had previously been invigorating building and infrastructure work.

Despite this, New Zealand has maintained market share against aggressive competitors.

Prices in China are expected to come back before the end of the year, although the traditional busy manufacturing period between September and November is looking unlikely at this stage. Imports from the US and Canada have exceeded volumes from New Zealand for the third time this year and, during August, these were 79 per cent up on the previous year. New Zealand exports rose just 15 per cent in the same period.

A downturn in construction in North America has resulted in excess volumes moving into Asia, but there are also reports of large volumes piling up at the ports of origin.

New Zealand saw small increases in exports to China, India and Japan and a small decrease to Korea.

Canada is also raising its profile in the lumber market, with a 125 per cent year-on-year increase making it the leading exporter of softwood lumber into China. US lumber exports to China experienced a 346 per cent increase.

Demand for logs in China and wood chips for bio fuel are driving a shortage of chip for pulp and paper.

The domestic log market is also coming under pressure from the downturn in the export markets and harvesters are reluctant to fell trees for a weak domestic market. Prices are still holding firm.

With no sign of stimulus in the building sector, the report states "it is very hard to see any relief for domestic mills".