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Log Market - October 2008

Export Log Market

Export log prices rose again in October by an average of $4/JAS m3 extending their 5th consecutive month of price increases. Notable was the wide range of price changes with some traders staying more or less flat and some posting larger increases - a function of their exchange rate and ocean freight rate exposure in a highly volatile market. These at-wharf-gate prices are being driven by the lowering value of the NZ$ and lowering ocean freight rates (see Massive Drop in Ocean Freight Rates). There is actually downward price pressure on delivered log price (at Asian ports) based on weak demand from Korea and a very weak won.

Another positive factor (as reported in last month's newsletter) is the impending large increase in Russian export log tariffs, still scheduled to come into effect in January 2009. Just how this will play out in terms of demand and price for NZ logs is unknown, although (credit crisis aside) considerable upside on both price and demand is being forecast by some commentators.

So going forward, we have the positive influences of the Russian log tariff, the lowering value of the NZ$ and much lower ocean freight rates. These will be offset by an as-yet-unknown negative impact of the credit crisis on Asian economies and log demand (which could pan out to be substantial once the dust of the credit crisis settles).

Container-traded logs continue to post competitive prices and provide excellent sales opportunities, especially for forest owners in the Auckland, Napier, Wellington, Lyttleton and Port Chalmers catchments. Shipping conditions going forward, however, are expected to move to favour break-bulk as break-bulk rates fall much faster than container rates. However, a new Auckland-based container log export operator commenced this month providing an alternative for exporting client logs through Ports of Auckland.

Domestic Log Market

October saw renegotiated prices for the final quarter of 2008. Prices were held on most grades with some modest falls in pruned log prices in some instances.

Many domestic log processors are facing tough times with continued property and construction weakness in main markets. There has been some relief in the form of more favourable US$ and AU$ cross rates, although the latter has rapidly moved unfavourably in the last two weeks. We are seeing an increase in age-debtors and increasing vigilance in terms of credit management.

Crow's (the widely read authority on the North American lumber and panels markets) chillingly reports that the Case-Schiller 20-city composite index of house prices in the USA has fallen 20% nationwide since July 2006. Some areas have fallen by over 35%, especially in Arizona, California and Florida. Whilst NZ clear wood from pruned logs is increasingly seeking alternative homes in Australasia and Europe, the North American Moulding & Better and Shop markets are still critical for New Zealand.

In these volatile times, our Harvest-Ready strategy is more important than ever. If you have a woodlot over 23 years of age, Getting Harvest-Ready is one of the best investments you can make. It gives you great option value. How ready will you be to get your logs to market when you decide you want to harvest? To find out about getting Harvest-Ready call your local PF Olsen representative, or call us on 0508 PFOLSEN (0508 736 5736), or email us on info@pfolsen.com.