City Forests confident of good result

City Forests and Port Otago are set to benefit from the past year's log price boom; pictured, logs headed for Port Chalmers and ultimately Asian destinations last week. Photo / Stephen Jaquiery

City Forests is quietly confident booming export log prices will for a second year underpin a strong financial result, for the Dunedin City Council-owned company.

Records may also be set for Otago Regional Council-owned Port Otago.

Chinese demand for logs during the past two years has proved a boon for forest owners, while sawmillers have had to compete for the pricier logs, putting a dampener on their profit margins.

It was understood in one month late last year 45 log ships departed New Zealand, most bound for Asian destinations.

China's appetite for logs has increased since it stopped milling its own forests and Russia and Canada are supplying other markets at present.City Forests does no sawmilling at all now and has 17,000ha of forest spread over about 21,000ha of land.

City Forests' chief executive Grant Dodson said, when contacted, he expected to again sell about 45% of the company's logs to domestic sawmillers around Otago and Southland, and the 55% balance was headed offshore.

"We're committed to supporting domestic processing.

"Those mills effectively receive priority of log supply and generally take the best quality logs from our forests with the remainder being exported," he said.

Mr Dodson was unable to give specific details on trading, as the company's half-year report is due to go to the board for sign-off next month. However, he said the half-year log sales profits were "noticeably ahead of last year".

He said in January 2016 a typical A grade saw log was sold for about $100, $115 in January last year and $125 this month. Port Otago commercial manager Peter Brown said, when contacted, export log volumes were "tracking strongly" and predicted a record 1million cum might go across the wharves, from both Dunedin and Port Chalmers this financial year.

"Exporters are telling us that demand is still good," Mr Brown said.

Mr Dodson said the log prices were generally benchmarked by the export log market which had been "very positive" over the last two years, with strong demand and increasing prices.

"This has driven a period of quite significant price rises for most domestic customers but that's variable by log grade," he said.

The price increases had put pressure on domestic sawmillers and City Forests had always worked with them to implement any increases in a sustainable way, while achieving fair value for its logs, he said.

"In many cases this has seen delayed price increases for domestic customers while they adjust for the change," he said.

Last September City Forests booked a record dividend payment to the council's Dunedin City Holdings Ltd.

City Forests mad a pre-tax surplus of $29million, which was $5.8million ahead of forecast.

After a $20.1million surplus for the year ended June 2017, City Forests paid $6million in dividends during the year.

The company's annual report said log prices for the company's main export markets, China and South Korea, had climbed steadily through the year.

Mr Dodson said if the log prices held for the remainder of the financial year, City Forests' 2016-17 financial year could be ahead of the previous trading year.