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New Zealand log prices have improved to the point where forestry companies can now start to reinvest after a period of low prices throughout the 2000s, Rayonier NZ managing director Paul Nicholls says.
Latest data from the Ministry for Primary Industries (MPI) showed prices firmed over the September quarter, reflecting a better outlook for construction in some Pacific Rim countries. Prices generally have improved over the last 18 months after spending the better part of a decade in the doldrums.
MPI data showed prices for pruned export logs were in a $177 to $201 a cubic metre (freight on board) range over the September quarter, up from a previous 12-quarter average of $171.
Unpruned A grade log prices were at $143-$162 a cubic metre, up from the 12-quarter average of $128. Unpruned K grade prices were at $132-$156, up from the 12-quarter average of $119. Even pulp log prices were better - trading in a $128 to $131 range, up from a 12-quarter average of $112.
"It's where we needed to be in order to generate money to reinvest in forestry in New Zealand," Nicholls told APNZ. "Prices are OK at the minute, but the (high) exchange rate is a concern," Nicholls said.
The New Zealand dollar remains high by historical standards, trading today at US84.5c, just US4c short of its record post float high of US88.40c set in 2011.
Log demand out of China was steady and better prices were being paid in Korea and India, Nicholls said.
"Clearly, as the housing market in the US picks up, there are less logs leaving the West Coast of the United States going into Asia, which allows New Zealand logs and lumber to find a home relatively easily in those markets," Nicholls said.
The Australian market was patchy, with construction in some states picking up while others were slowing down.
"Overall you could say that there is more construction activity, but it's not by any means consistent across the Pacific basin," he said.
Rayonier - New Zealand third biggest forestry company - sells about 60 per cent of its logs to the domestic market and exports about 35 per cent.
Nicholls said improved prices would help forestry businesses make their investment decisions. "Where they are at the minute certainly helps the business, but if they were another $10 to $15 higher that would be great," he said.
ASB economist Christina Leung said log prices were being supported by strong demand from the Canterbury rebuild, house-building demand in Auckland, a recovery in the US housing market and strong construction activity in China.
"In New Zealand, we expect the Canterbury rebuild and increased house-building demand in Auckland to remain the key drivers of construction growth given the extent of housing shortages in these two regions," she said.
In the US, favourable weather had boosted construction activity, although the uncertainty over US fiscal issues more recently had led to some slowing in demand, Leung said.