Cooling Chinese demand fells log prices
Export log prices have fallen 20 per cent in the last two months as a cooling in the Chinese property market leaves buyers there over-supplied.
NZX's Agrifax service said the fall was probably a "correction" rather than a more permanent state of affairs.
"However, it is a large correction," Ivan Luketina, an Agrifax agricultural analyst, said.
New Zealand has been a major beneficiary of the Chinese housing boom, and analysts are starting to voice concern that ports might also suffer if log volumes decline.
A Morningstar research note yesterday said the otherwise -progressive Port of Tauranga was vulnerable to a significant slowdown in Asian log demand.
Since April, the national average price for A-grade logs had dropped $24 from a record $124 a tonne, erasing a year's worth of gains.
Pruned log exports over the same period also fell by $17 a tonne, the lowest level seen in 24 months.
However, log volumes are yet to decline and the price is still historically high.
"It's around about where it was at the start of 2013 ... but I guess the worry is that it will fall further," Luketina said.
While there was normally some falloff in log exports during winter, he said it would probably be September before it was clear whether Chinese demand was definitely slowing.
Buyers had let their inventories build up before, causing the log price to crash in 2011.
There was also evidence that credit was tight, as other commodities were also piling up on Chinese wharves.
"There's been a cooling of the property market in China, which is leading to less credit availability," Luketina said.
This, combined with record log imports, meant inventories on ports in China built up quickly, and a price reduction was needed to rebalance the market. He did not expect an improvement in log prices for several months.
"Once it finds a floor, it's just a matter of clearing out the inventories and then it will start to go basically on supply and demand," he said.
"But the worry is with how big the property market slowdown is, and whether that demand is going to be a lot lower than it was last year. It's an unknown at the moment."
However, Luketina said there were compelling reasons why New Zealand's log trade to China would remain relatively buoyant.
"China is overall probably becoming more reliant on New Zealand supply and their housing market won't stop because they depend on it so much for their GDP growth," he said.
Russia's log exports were not expected to recover soon and the Pacific northwest's supplies were expected to tail off in the next five years.
"Looking long-term, China is still going to keep importing logs and the supply is more likely to be from New Zealand, just because those other main suppliers are slowing down."