Logjam at China ports sees prices drop

Log prices have been propped up by a decline in shipping costs and a weaker local currency.

Export log prices dropped for the first time in eight months as shipments to China, the nation's largest market, exceeded demand, resulting in a buildup of inventory on Chinese ports.

The average wharf gate price for A-grade logs fell to $106 a tonne, from $110 a tonne in February, marking the first decline since July 2014, according to AgriHQ's monthly survey of exporters, forest owners and sawmillers. The AgriHQ Log Price Indicator, which measures average log prices weighted by grade, also posted its first decline in eight months, falling to 96.58 from 97.95 in February.

The price for A-grade logs delivered to China is at the lowest level since AgriHQ started tracking the grade in February 2012.

In recent months, log prices had been propped up by a decline in shipping costs and a weaker local currency even though demand in China had slowed.

"For the first time in eight months export returns for New Zealand exporters have dropped, as the drops in the currency and shipping costs failed to offset the decline in prices for logs delivered to China," said AgriHQ forestry analyst Ivan Luketina. "Log prices in China have fallen due to deliveries continuing to outweigh sales off ports."

Luketina said Chinese inventories of logs on ports exceeded four million cubic metres, instead of the usual level closer to two million cu m. Once inventories are over four million cu m, some ports will start to run out of room, which will lead to unloading delays. That meant prices tended to drop until the situation was corrected, Luketina said.

Meanwhile, pruned log prices had continued to rise thanks to high demand and localised short supply, he said.

"There is very tight supply in the Central North Island, and that has pushed prices up to between $155-$165 a tonne."