Cattle cool down and drink water at a man-made reservoir in the mountains near Ignacio, Colorado June 11, 2014. The land where the cattle graze is leased from the Forest Service by third-generation rancher Steve Pargin. Several times a year, he and a crew
IN PHOTO: Cattle cool down and drink water at a man-made reservoir in the mountains near Ignacio, Colorado June 11, 2014. The land where the cattle graze is leased from the Forest Service by third-generation rancher Steve Pargin. Several times a year, he and a crew led by his head cowboy, David Thompson, spend a week or more herding cattle from mountain range to mountain range to prevent them from causing damage to fragile ecosystems by staying in a single area too long. Picture taken June 11, 2014. Reuters/Lucas Jackson

Logs, the third largest export commodity of New Zealand is facing turbulence at the export market, with prices falling to a three year low. The log prices in May crashed heavily as demand stood flat in China on the back of huge inventories. China is New Zealand’s largest export market for wood.

As a result, the average wharf gate price for New Zealand A-grade logs fell to US$83 a tonne from $94 a tonne in April, marking its drastic slide in prices ever since May 2012, according to AgriHQ's monthly survey of exporters and saw millers. The AgriHQ Log Price Indicator is a key index of average log prices weighted on the basis of grade.

Prices May Rise

The inventories are currently in the range of 4 million cubic metres, which is double the normal levels. However, Chinese sawmills have slowly stepped up demand by taking an average 65,000 tonne per day from the ports, breeding the optimism that bottom of the market has been reached and prices will pick up, according to AgriHQ.

Revived sawmill activity in China saw off take around 60,000 tonnes per day in March and if the trend sustains, inventories may deplete, provided the supply shipped is kept low, noted analyst Emma Dent. The continued decline in export prices is also feared to impact domestic log prices, reports NZ Herald.

"High take off from ports is a good indicator that ports will start to clear which will increase demand leading to prices returning to normal levels," noted Dent of AgriHQ. However, the log market had a strong run in the domestic market despite the export market softening with the Chinese New Year’s hang-over. Now the scenario is, pruned prices strengthened in domestic market, export pruned and domestic unpruned prices staying flat -lined and export market's unpruned log prices dipped $10-$17.

Local Demand

As for local demand, structural logs are at a high. Prices of pruned logs rose in May with the average price staying at $161 per tonne compared to $160 a tonne in April. Average price in the North Island was $164 a tonne that outpaced the South Island’s $148 per tonne due to tight supply in the Central North Island, pointed out an analyst.

(For feedback/comments, contact the writer at k.kumar@ibtimes.com.au)

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