NZ log export prices bottom out after slump

NZ log prices have improved after slumping earlier in the year. Photo / File

New Zealand log prices in China have improved after slumping earlier in the year, restoring a little confidence to the sector.

"A" grade logs last traded at US$112 per JAS metre after last month hitting a low of US$105/metre.

Logs landed on Chinese wharves this time last year were trading at US$140/metre, continuing what had been a five-year-long run of strong prices.

"Prices have improved a little in the China market," ANZ Bank rural economist Susan Kilsby told the Herald.

"Some of that is a reflection of volumes being pulled back a bit, but it does feel like it has hit the bottom for the moment," she said.

"A little bit of confidence is creeping back into the market - there has definitely been some improvement.

"It's really driven by the fact that supply has tightened up, which has provided a little bit of confidence," she said.

The longer-term uncertainty in the market related to whether pressures in the Chinese economy would impact on demand.

"To date it has not really shown through in the numbers that are coming off the wharves in China," she said.

The slump in prices earlier in the year coincided with the Chinese summer, when construction activity tends to fall off because of the heat.

Kilsby said it would take a few more months before there was a clear indication that demand was continuing at normal levels.

For the moment, the Chinese Government's spending on infrastructure had been strong and supportive.

A portion of New Zealand logs goes towards making pallets - part of the market that is sensitive to manufacturing activity.

"There has been a definite slowdown in China's manufacturing, so that could slow [log] demand," Kilsby said.

Last month, New Zealand logs started piling up on Chinese wharves as cheap, sawn timber made its way by train into the People's Republic from Russia and Scandinavia.

NZ Forest Owners Association president Peter Weir said then that the price drop was a "major re-set" and that the log harvest needed to go on hold for at least six months to allow prices to recover.

New Zealand logs are the country's third biggest export by value, earning $5.2 billion last year, mostly from China.

Traders said the timber market in China had been undermined by high levels of product arriving by train from Europe.

About 30 trains a week travel between Chongqing, China and Duisburg, Germany, fully loaded. The trip takes 12 days versus 45 by ship.

They said a weakening Chinese currency and US taxes applied to Chinese manufactured goods had affected market sentiment.

In terms of supply, big windstorms, and drought stress in Germany, Finland, the Czech Republic, Italy and France across 2017 and 2018 have created vast areas of forest that are being accessed for timber production.