Wednesday, April 24, 2024

Early signs of teetering for A-grade logs 

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Summer gains in wharfgate prices were built on rickety foundations, and prices have already begun to weaken, writes Reece Brick.
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Export log markets rolled through late spring and summer in a much healthier state than was witnessed in the five months prior. Over that time prices for A-grade logs at the wharfgate shifted from an average of $93-$115/JASm3 – roughly equivalent to a per-tonne price – up to $120-$135/JASm3.

While this may not appear like a huge swing, it makes a significant difference to the bottom line once harvesting and transport costs are taken into account – particularly for those in the South Island, who are paid less due to the higher cost of getting ships into port.

Unfortunately, these lifts were always built on rickety foundations and prices have begun to weaken since. While there are vessels delivering logs to the likes of South Korea, Japan, and India, combined they pale in comparison to the volumes taken by China. 

And the lift in the market through the back end of last year was almost all based on fewer log shipments making their way to China, rather than an improvement in underlying demand.

Through November-January, China imported only 5.6 million tonnes of softwood logs (pine and similar varieties), 3.0 million tonnes under the average over those months in the previous five years. 

The massive drop in supply mainly came from fewer logs entering from Europe, partially due to issues with the Suez Canal making transport too costly, though both North and South America have been quiet too. 

New Zealand is one of the few markets that has upped its supply over recent years.

But our rush to capitalise on the firmer market meant we shipped a record volume of logs to China in February – 2.08 million m3 – and in the process twisted the market from undersupply back to oversupply. 

The fall hasn’t been overly harsh yet, around $10/JASm3 as of mid-March, but it is a little concerning given the market has usually tracked sideways or upwards between February and March over the past 10 years.

It’s not all about supply, though, as all indicators point to log usage within China remaining subdued over the coming months, potentially for the full year. 

Earlier this month China Vanke, the second-largest property developer in China last year, had its credit rating downgraded to “junk” due to doubts about its ability to pay short-term debt requirements. 

Another big developer faltering isn’t anything out of the ordinary based on the past three years, but there was a perception that this developer was more secure due to having government backing.

Real estate construction in China fell to the lowest level since 2007 last year at 954 million m2. Through 2018-2021 this was consistently 2.0 billion m2 and 2.3 billion m2. 

New Zealand log suppliers aren’t as exposed to China’s property sector as in the 2010s. However, these issues are significant in terms of investor and consumer confidence and therefore cause ripple effects across all sectors of the economy. 

One example of this is the fact that personal savings within China recently reached all-time highs. 

Locally, it is all a lot less dramatic. Mills have reported a much smoother start to the year for timber sales, helped by the fact that many have managed to sell down stocks that were stacked on-mill through much of last year. 

With this said, there’s unlikely to be a jump in demand anytime soon based on an even slower start to the year for new housing consents – though the reduction in windthrow logs being harvested through the central Plateau will ease supply through this part of the country.

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