New Zealand export log prices edge up in November; Chinese demand remains weak
New Zealand export log prices edged up in November although demand from China, the country's largest market, is likely to remain subdued until the second quarter of next year.
The average wharf gate price for New Zealand A-grade logs rose to $98.1 a tonne, from a revised $96.3 a tonne in October, according to Agrifax's monthly survey of exporters, forest owners and sawmillers. The Agrifax Log Price Indicator, which measures average log prices weighted by grade, advanced to 92.7 from a revised 92.2 in October.
New Zealand log returns were bolstered in the month by declining shipping prices as oil prices fell, some exporters raised prices to fill ships, and as some buyers at South Island ports passed on the lagged effect of price gains from a lower kiwi dollar. Still, import prices in China continued to decline even as log inventories on the wharves of Asia's largest economy reduced on lower supply, as importers found it harder to get credit and housing demand remained lacklustre.
"Inventories on ports are slowly getting better...which generally would mean slight increases in price at New Zealand," said Agrifax forestry analyst Ivan Luketina.
Still, he said China is heading into a seasonal slowdown for building with the arrival of winter and Chinese New Year, which is likely to keep demand for logs subdued.
"Some exporters aren't really expecting much increase in prices there until the second quarter next year," he said, adding lower inventories will likely be dependent on a continued drop off in supply.
China imported 14 percent less logs in the third quarter of this year, compared with the second quarter. Of its major log markets, the country took 13 percent less logs from New Zealand, 10 percent less from Canada and 9 percent less from Russia while supply outside of the main countries dropped away quite significantly following a price correction, Luketina said. Supply from the US hadn't dropped away as much as other main markets and it appeared price drops were yet to be passed through in that market, he said.
A weak Chinese housing market had squeezed margins for importers of some building materials, with reports some had overstated their inventories in an attempt to secure bank loans, Luketina said.
"It's meant banks there are taking quite a closer look at who they are lending to and whether it is specifically for log imports, or if they are actually using log imports as a front to fund other businesses," he said. "A lot of the importers are finding it hard to get access to the credit they need so it's meant a drop away in demand."
Meanwhile, Chinese property analysts are divided on whether a lifting of bank restrictions on house mortgages will arrest a decline in house prices, he said.
The weaker Chinese log market has prompted some forest owners to turn to the domestic New Zealand market, which has had less price volatility and where the appetite for structural logs is underpinned by demand in the Auckland and Christchurch housing markets.
"A few forest owners are trying to increase what they are sending to the domestic market just to have more stable returns for awhile," Luketina said. "It seems a lot of sawmills are expecting quite a busy summer."
Meanwhile, demand for pruned logs was picking up on optimism about the US housing market, he said.