City Forests gets a boost through log prices at record highs

A recently publish monthly survey of forest owners, sawmills, and exporters from AgriHQ show that the boom in the construction and horticulture sectors have carried up demand from sawmills.

But while the growth in that area have been making the most of the highs for the past 18 months, the increasing shipping rates and New Zealand dollar strength may rain on the parade.

Chief Executive of City Forests, Grant Dodson, said in an interview with the Otaga Daily Times that the “uncharacteristically steady market for the past 18 months” could be attributed to the mixture of the strength of the New Zealand dollar, market prices, and low shipping rates. “The driving factor has been China’s economy, which is going well. But also helping is China’s ban on using any of its own forest stocks, which has been done for environmental reasons,” he explained.

Likewise, rising housing constructions in the North American market means that less wood from Canada and the United States (US) would be on the international market. “That’s what is putting New Zealand in such a strong position. The Korean and Indian markets are also still significant,” Dodson continued.

Prices on the market for A-grade timber over the last 5 years have swung between NZ$113 (US$85) to NZ$237 (US$165) per m³, Dodson elaborated.

The low shipping rates also played a vital role in the high returns. Shipping wood from Dunedin, New Zealand, to various countries in Asia have stayed around an average of US$45 for the past ten years. For the past one and a half years, the price has ranged between NZ$13 (US$18) and NZ$36 (US$25).

Reece Brick, an analyst at AgriHQ, stated that the increment in shipping prices is not because of a jump in oil prices, but is instead attributed to a rise in commodity shipments to China, like iron ore from Australia, “This has engaged a significant amount of previously idle shipping capacity in the Pacific, shifting the market in shipping companies’ favour,” he said.

Brick explained that the domestic orders going into sawmills at a fast but constant rate was primarily based on the housing construction industry, especially the sector around Auckland, New Zealand. “This procurement competition between mills meant the AgriHQ price for the majority of key domestic log grades lifted,” Brick explained.

Often used in the horticulture sector, roundwood logs’ average price went up by NZ$2.88 (US$2) in February 2017 to hit NZ$132 (US$92) per tonne in March 2017, the highest level since 2002.

Prices for structural logs have also risen, and S3-grade logs have hit NZ$164 (US$114) per tonne, the highest price since 1995. S1-grade logs have increased to NZ$175 (US$122) per tonne, also the highest level since 1994.

The fast-growing horticulture industry is also driving up investment activity, according to Brick, which pushes up demand for roundwood in turn.

However, Dodson is anticipating an impact on the sector in the coming six months as the New Zealand dollar remains volatile, and shipping rates as well as global interest rates continue to creep up. “Fundamentally the market’s still looking good for at least the next six months,” he said.

Source: Otaga Daily Times