Buoyant housing demand elevates structural log prices to 22-year high in 2016

Monday 19th December 2016

Buoyant residential building activity has pushed up the average price for top structural logs this year rise to the highest in more than two decades.

The average price for structural S1 logs in the domestic market held at $117 a tonne in December, the highest level since June 2014, according to AgriHQ's monthly survey of exporters, forest owners and saw millers. S1 logs averaged $113/t this year, the highest level since 1994 when it averaged $118/t, AgriHQ said.

Record high net migration and low interest rates are putting pressure on the nation's housing market, driving up prices and spurring construction activity. Data released by Statistics NZ today showed residential building consents passed 30,000 for the first time in 11 years in the 12 months through October.

"Higher quality structural logs went through one of their better years on record," AgriHQ analyst Reece Brick said in his report. "The momentum in the New Zealand domestic log market has not slowed at all through November and early December, and there's little to indicate this situation will change through the early months of next year.

"Looking forward, this positivity is set to remain in the short term. Market participants have already indicated that domestic contracts for structural logs are set to lift a little in Q1, driven by firm demand from the housing construction sector."

AgriHQ's Brick said domestic log supply remained tight for local mills.

"While there are enough logs coming out to keep mills satisfied for now, there certainly aren't any inventories building at mills," he said.

Damage to roads and other infrastructure following the Kaikoura earthquake last month had added to supply constraints through Canterbury and some areas further north, he said.

Elsewhere in the domestic market, the price of unpruned logs remained stable while the price for pruned P1 logs fell to $176/t from $178/t last month as a drop in international demand led to higher volumes being available in the local market, AgriHQ said.

"Even though the lesser volumes of pruned logs heading to ports took some pressure away from domestic market pricing, it still enjoyed its best year since the mid-1990s," Brick said.

P1 logs traded at an average value of $179/t compared to annual averages of between $127/t-to-$161/t in the decade prior, he said.

Meanwhile, the price of most export logs declined over the past month, AgriHQ said.

"Shipping rates were largely in line with the previous month, however there are signals that upwards movement could be on the cards," Brick said in his report.

BusinessDesk.co.nz

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