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Log Market - May 2010

Export

As reported last month, Radiata prices in China slipped and A grade is currently trading at around USD140-145/JAS m³ CFR. This is down from a peak in March of over USD150. This is an inevitable correction of a steady price firming trend for the past two years.

At USD150 Radiata becomes uncompetitive with the Russian log price and imported lumber (e.g. from Canada) is also better priced.

Russian log supply typically peaks over March to May and NZ Radiata deliveries are expected to remain high. Following that, demand in China typically softens a little during their hot season, June to August.

There have been steady removals of logs from China ports but inventory remains high at about two months supply and buyers remain cautious.

Attempts by the China government to keep the lid on growth should be seen as a positive development as this will discourage speculation and should make the strong growth rates in China more sustainable. However, the real estate/property market is continuing to boom which increases risk. A bust in the property market could have broader ramifications for the Chinese economy.

Other Asian log markets have experienced log price falls, particularly India, but continued solid economic growth has resulted in some additional demand. Japan has seen some increased demand due to loss of some supply from Chile (post earthquake). Korea remains steady.

The exchange rate has been volatile over the past month, buffeted by the sovereign deft problems in Europe (Greece, Spain, Portugal). However, the Kiwi $ has returned to a trading range of 0.70-0.72.

Ocean freight has been steady with spot rates for log bulkers around USD50/JAS m³.

Overall, we expect some continued weakening in NZD at-wharf-gate prices in the coming months. However, the underlying market sentiment continues to be strong and there are still high levels of enquiry for Radiata pine supply from New Zealand. As usual, what NZ forest owners receive for their logs will depend on how CFR prices, foreign exchange and ocean freight interplay over the coming months.

Domestic

The domestic log market remains steady. Pruned, structural and pulp logs continue to be in strong demand. The recent fall off in export log prices and increase in second quarter domestic prices will be tending to favour domestic supply from some forests, (depending on distance from port and domestic purchasers).

Summary

Domestic prices rose in April to reflect second quarter price negotiations and will generally remain at these levels until the next review to set prices for the third quarter (July - September 2010). Domestic log sales will provide some price stability and support levels for average forest returns as export prices are expected to be more volatile and likely soften further over the next few months.

Indicative Average Current Log Prices

Log Grade$/tonne at mill$/JAS m³ at wharf gate
Pruned (P40) 129  
Structural (S30) 100  
Structural (S20) 84  
Export A   103
Export K   97
Export KI   90
Pulp 50  

Note: Actual prices will vary according to regional supply/demand balances, varying cost structures and grade variation. These prices should be used as a guide only.