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NZ log prices may have reached lows after supply eases

NZ log export prices may have reached lows after supply eases, Agrifax says

By Tina Morrison

June 27 (BusinessDesk) - New Zealand export log prices to China, which have dropped by about a third to $87 a tonne in the past three months, may start to stabilise next month as supply eases, slowing an inventory build up on the ports of Asia's largest economy, according to Agrifax.

Log inventories on Chinese ports have more than doubled since the start of the year to about 4 million tonnes, which equates to about two-and-a-half months' usage, as an expansion in China's housing market led to a surge in supply from exporters wanting to benefit from higher prices, according to Agrifax forestry analyst Ivan Luketina. A slowdown in the Chinese housing market has caused prices to drop and led to tighter credit for log buyers, denting Chinese log imports, he said.

"House sales in China are slowing down and the flow on effect from that is that the banks are less willing to lend money out for development or buying houses, and that means earlier on in the year there was a dip in usage of the logs," Luketina said. "The dip in usage earlier in the year combined with the massive imports has caused the inventories to really grow quickly. The inventories need to come down, and that should be starting to happen now."

Government figures today showed New Zealand exported $4.14 billion of logs, wood, and wood articles in the 12 months ended May 31, up 24 percent from a year earlier.

Chinese log inventories may not return to more normal levels for at least four months and prices are unlikely to rise before then, Luketina said. A correction following a spike higher in 2011 took about 20 months to recover, suggesting the latest price recovery would likely take a slow, consistent path, he said.

The price decline may be welcomed by the domestic market where mills have struggled to compete for wood with exporters, Luketina said. However, while industrial and utility log types will probably follow the decline in Chinese export prices, structural and pruned grades are likely to decline only marginally as demand remains strong in the Christchurch and Auckland housing markets, he said.

(BusinessDesk)

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