The export market has been snaking its way upwards for nine consecutive months, but it’s only since the new year that the market really got into its groove again. In that time wharf gate prices for A-grade logs have lifted from an average of $115/JASm3 to almost $150/JASm3.
The second half of 2020 saw a glut of softwood logs (pine and similar variants) sent into China from all countries – an average of 3.8 million tonnes per month – all while the world economy was scraping by. Understandably, this was keeping log prices muted. However, business confidence and activity has been on the rise in China since Q4 2020. Combine this with log supplies into China coming off their peak, mills receiving more cash for timber, a few logistical challenges and the awareness that NZ harvesting slows as winter approaches, and you have a recipe for strong buying from China.
Some of these lower log supplies into China are seasonal – shipments typically fall away around Chinese New Year, and through colder months in Europe. But Australia being effectively banned from China, and Russia focusing on processed wood rather than log sales, has freed up market space for NZ logs.
There is understandably some resistance to further price increases, but it is doubtful we’ll see any significant change in the market short-term. Port-level log stocks are continuing to decline, even with both North America and South America starting to send a few extra shipments to make the most of the current market.
It’s not all plain sailing though. Getting product to international markets remains a bit of a battle, much like with other commodities leaving NZ. Last month average shipping costs were more than double what was being paid at the end of last year, reaching the highest levels since 2010. Backlogs at ports globally are restricting the availability of shipping capacity, causing transport companies to prioritise main shipping routes, of which NZ is nowhere near. This is even more noticeable through the South Island, given the extra travel distance and smaller loads collected at each port.
If both shipping and exchange rates were around the same level as winter last year, it’s likely that A-grade export logs would be making $50/JASm3 more than was being paid last month.
Almost all sectors of the domestic market are going strong too, mainly due to the very fiery housing market pushing greater new home builds and renovation work. The only exception is the paper industry, where newsprint production is only a third of what it was in late-2019.
Residential building consents through Q1 ballooned out to 1.63 million m2, a little more than 300,000 m2 above the five-year average, which was already well above historic levels. About two-thirds of this growth came from central/upper North Island regions.
Mills have largely battled to meet the number of orders coming in and are often looking to expand capacity where possible. This is causing a lift in the cost of wood products across the board in NZ. Domestic log prices have yet to move significantly though, as small woodlots expand harvesting to capitalise on the stronger market, toning down the competitive tension between mills to secure supplies. Red Stag is due to open a new processing plant soon, which is expected to boost NZ wood production by 5%.
