Log Market - August 2009

Domestic Market

The announced closure of Prime Sawmills in Gisborne was another blow for domestic processing and particularly serious for the East Coast region which has limited processing capacity as it is. Within a week, however, there was a further announcement that the operation would continue, albeit, at a much lower level of activity.

Otherwise, the domestic market has been stable with prices remaining largely unchanged overall. High export demand for logs and wet winter conditions is keeping the volume of domestic logs subdued but generally balanced with demand.

The Crows Lumber and Panel Price Indices crept up over the past month in conjunction with the improved outlook for the US economy, but are still 17% and 12% (respectively) off their values this time last year. The Radiata market in the US is described as "firm at low levels". Radiata Mldg&Btr 5/4 inch random width flitch is selling at USD1,000/mbft. Radiata Mldg&Btr has traditionally been an important market for NZ sawn Radiata clear timber.

Export Market and Ocean Freight

Despite shipping indices for the large bulk carriers continuing to fall for the month, the price of out-bound NZ log bulkers (Handysize vessels) continued to rise with spot rates exceeding USD40/JAS m³. The divergence is due to reduced incoming tonnages (e.g. coal and fertiliser), high demand for vessels and reduced supply of vessels due to a major vessel supplier seeking court protection.

However, continued increases in log price in China has offset not only these increases in ocean freight rates, but also continued appreciation of the NZ$, resulting in at-wharf-gate prices moving up $3-$5/JAS m³ in August.

In addition to China continuing to take large volumes of NZ logs, Korea is also starting to show strength again, and prices have increased sharply in that market in the past two weeks.

The consensus view is that export log prices will stay firm with modest increases expected through to the end of the year.

The Agrifax Combined Log Price Index, which indicates returns from the whole forest, increased $2/tonne in the South Island (to $71/tonne) and remained unchanged in the North Island at $73/tonne.