Despite diminishing demand from China, log prices in New Zealand are expected to remain high in the rest of 2016. This phenomenon is quite surprising as it is against market rules. Nevertheless, there are other factors, which trigger such situation on the wood market.
Photo: Rafal Chudy
One should assume that when the demand from one country, especially important for export, is falling down, then the prices on the local market should decrease. This is according to demand-supply theory. However, the wood market is more complex than this. Apparently, every market is influenced by many other factors.
New Zealand exports significant amount of wood to China. In recent months, export volumes to China had fallen. Partly, it was due to increasing New Zealand’s main competition in the Chinese market, which came from United States and Russian log exporters.
In addition, many economists predict that China’s GDP growth will slow down from 6.9% last year to 6.5% this year.
However, wood demand from other importers have grown up recently.
Anne Bonifac, senior economist at Westpac Banking Corporation, said that other significant log export markets, such as Korea and India, had also been faring better than China and could provide some offset for weaker demand from China.
The question arises if slowing demand from China and its impact on log prices in New Zealand can be compensated by the demand from other countries.
Ms Bonifac said “[…] it is difficult to envision log prices being able to maintain their current high levels as growth in China continues to slow.”
Another important factor that drives log prices in New Zealand it is residential construction. A domestic demand for logs continued to growth significantly in past few months and is expected to grow further.
Ms Bonifac said: “construction activity [in New Zealand] was still forecast to grow strongly over the next couple of years”.
Last important factor discussed, about wood market in New Zealand, was currency exchange. Stubbornly high New Zealand dollar was pointed as one of the most important factors, which in significant has been inducing imports, by the same time reducing logs exports.