Forestry prices ease from highs - outlook positive

Rising US-China trade tensions are casting a shadow over the short-term outlook for log exports. Photo / Stephen Jaquiery

Forestry prices have eased back from the record highs hit in July, but returns are picked to remain positive for the rest of the year.

However, the escalating US-China trade tensions are casting a shadow over the short-term outlook.

Ports around the country, including Port Otago and South Port, have reported record or near-record log exports over the past 18 months, mainly because of high demand from China.

However, with the increasing trade and tariff wars between the US and China, the Chinese yuan has fallen against the US dollar, meaning its buying power has been weakened.

ASB senior rural economist Nathan Penny said while forestry prices in New Zealand dollar terms were only 2.5% below July's record, according to AgriHQ data, in US dollars prices were down 12% on the April high.

"Most of this fall can be put down to US dollar strength, while the Chinese yuan cross with the US dollar is down 9% over the same period," he said in a statement.

While the Chinese economy was "solid" and its housing market "firm", he anticipated forestry demand would remain "firm", Mr Penny said.

"Forestry prices will remain firm over the remainder of the year," he said.

However, he noted the "ratcheting up" of US-China trade tensions posed a risk to an otherwise positive outlook, which could begin to weigh on Chinese economic growth.

"In this scenario, forestry demand will wane and prices fall."

The ASB commodity price index fell 0.7% in US dollar terms in the last week of September, but because of a 1% decline in the New Zealand and US dollar cross rates, the kiwi-valued index was up 0.3%.

Sheep and beef prices led the US dollar index fall, down 1.9%, wool and beef both posted more than 2% drops and lamb prices were down 1.6%.

Dairy prices fell 0.3%, compounded further by an overall 1.9% decrease at the last Global Dairy Trade auction, Mr Penny said.