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Market Report - May 2010
The sun does indeed rise in the east
In my last report it was great to reflect on the China powerhouse and the effects that the economy was having on the New Zealand forest industry. Since January prices in China have continued to improve to the point where it is starting to be good fun to have a portfolio of business in the harvesting and market sandpit.
Wharf gate prices have moved upward by an average of $18 to $20 a cubic metre. This has resulted in an improved bottom line for growers in the order of 40 per cent to 50 per cent. Loggers and truckers have become very busy and it is hard to find extra staff. What a great problem to have.
Caution
A note of caution has crept into the market in recent days. An over-supply of log out of New Zealand and Australia to China compared to sales has seen inventory levels in sawmills and log yards build to unhealthy levels. As a result expected price increases for late April and May have not occurred with settlements slightly below the pre-existing levels.
On the domestic scene prices are generally under pressure with most regions reporting modest increases in the better grades. Sawmill owners are generally getting the logs they need but there are always exceptions to the rule. Where there is an over-supply, for example pruned grades in Nelson and Marlborough, prices have remained flat, but not decreasing.
Export log market
In March, total sales in China were 377,340 cubic metres with supply at 491,290 cubic metres. Inventory levels have built from a reasonably unhealthy 663,390 cubic metres in February to a quite unhealthy 778,360 in March. Based on projected sales, that is nearly seven to eight weeks’ supply.
Wholesaler’s have become nervous about moving aging high value stock in to an over-supplied market as timber sales struggle to match the current inventory cost. It is not difficult to work out what is going to happen if we do not tighten the noose around the supply lines back to three or four weeks.
Bullish on growth
Although the cautionary note pervades the market, most commentators remain bullish, blaming a longer than expected cold winter and non-existent spring. They also reflect on not unusually high levels of stock for this time of year, albeit at levels that are starting to be uncomfortable. Most believe the sales are out there waiting warmer weather and a more active construction sector.
The Chinese government seems very committed to maintaining the economic stimulus programme while also trying to stop the 8.7 per cent growth horse from bolting. A staggering 9.9 per cent growth is predicted for 2010 against a prediction for New Zealand’s economy at 2.8 per cent. Mind you there are one or two more Chinese to feed their growth. An so we would expect their hunger for food and better houses will be matched with continuing demand for our wonderful radiata pine logs and timber.
Possibilities in Korea
Meanwhile in the land of the Kia car makers, log supply and demand is in relative balance and prices are trending upward to match the China market with slight lag. Some sawmills are not selling inventory following a switch to western hemlock late last year, which was an apparent reaction to what they termed over priced New Zealand logs. Markets have resisted the change and some swing back to logs from the land of the long white cloud is evident.
Some exporters are eyeing up Korea as a possible means to stem the log flow to China to allow things to correct. Volumes into Korea are now such that it will not take much to upset the supply demand. Good discipline by New Zealand and Australia suppliers will be required with some apparent down side if we do not manage the log flow carefully.
Concerns in India
Meanwhile in the land of the Morris Oxford makers, domestic demand for timber is improving in line with general confidence in the economy. While an unprecedented 8.2 per cent growth is predicted, there are concerns about high inflation and the associated rapid rises in food prices. Some of the latter relates to poor agricultural outputs following a poor growing season. The issue of global warming and food production could have more fundamental effects than just nasty old carbon dioxide.
Again sellers are eyeing this market to soak up some volumes destined for China, but at just three to four vessels a month from Australia and New Zealand, it will not take much to upset the rice cart. Some commentators are suggesting the India market is already adjusting its thinking for April and May vessels with a drop expected of five to eight US dollars a cubic metre.
Overall it is great to report a very positive scene. Despite some apparent downside, it looks like the improved bottom line for growers is here for a while although at levels that might pitch around a little for the next few months.
Shipping
In the last Tree Grower report I was able to show that crystal ball gazing was unwise given that previous predictions had proved incorrect. Unbelievably I then went on to say commentators were suggesting sea freight rates were expected to weaken to around US$43 to US$45 a cubic metre.
Just to show some never learn, the reality was freight rates increased to the low to mid $50s reducing what would’ve been much healthier wharf gate prices. Shipping settlements for April and May sailing varied from the high $40s to low $50s, and this time I am not taking any notice of the commentators for the May and June vessels.
What we can say is that demand for iron ore and coal is chugging along. While total imports to China have actually been weakening, sea freight volumes internationally have been increasing as economies claw their way back from the recessionary abyss. Meanwhile large vessel builds have been hitting a crescendo with the world fleet growing by 209 for the previous 12 months, representing 18.25 million tonnes of stuff going somewhere for the next 12 months.
Domestic log market
The reduced number of sawmills throughout New Zealand is having an apparent up-side for the survivors, with most regions reporting good volume throughput. There are isolated pockets of undersupply of logs but generally the supply demand scales are in balance.
Prices are on the move upward and forest owners at least are saying not before time. Most log sellers are saying that getting a price increase is a bit like trying to extract a tooth without anaesthetic. But in the face of improved timber prices you could not blame sawmill owners for trying to claw back a long period with a negative balance sheet.
Price Recovery
Internationally most reports suggest a general firming in timber prices with a standard indicator cut of log kiln dried rough sawn product selling at US$30 to $40 above 2009 prices. Of course, as with all these things, it is sometimes hard to work out reality from reality. As long as this trend continues we should see domestic log prices remain bullish.
The construction sector and new house starts continue to show modest recovery. As a result, framing grade logs are moving well and this is where we have seen the biggest price increase. For most regions, log price lifts in this segment have been in the order of $5 to $10 a tonne. This is a totally new phenomenon to include in my Tree Grower report.
Pruned log prices have for the first time in a long while shown signs of recovery. With the odd exception, prices for domestic and export sales have improved. A couple of regions report domestic demand increasing and a higher level of preparedness to discuss price.
Nelson and Marlborough is an exception where an increase in harvest activity is leading to higher volumes of pruned logs in the market. The domestic market is struggling to cope with the extra volume of stock and there is some suggestion sellers are accepting discounts to move this highly perishable stock.
I suspect we will be moving to a period when we rue the day we allow the net stocked area of our plantation forest to decline. The potential that we have espoused for so long in terms of the future for our industry could be just around the corner. Clearly and unequivocally, and I make no apology for being boringly repetitive, the only way forward for climate and country is to get out there and plant more trees, and quickly.
Log price table key
Understanding the figures
(below)
- Domestic prices are per tonne landed "at mill door".
- Export prices are per JAS cubic metre landed "at wharf gate".
- The absence of data reflects insufficient sales.
- Prices above or below those indicated are entirely possible if
wood quality exceeds or is below the normal market expectation.
- P1 AND P2 grades are pruned logs with a minimum 40cm
SED and 34cm SED respectively (note SED =
Small End Diameter)
- S30 and
S20 grades are small branch logs with a minimum 30cm SED
and 20cm SED respectively
- L30/A30 grades are large branch logs with a minimum 30cm SED
- K grade are export logs sold to Korea. KA grade is better
grade log with a minimum 30cm SED. K grade are smaller
standard multi purpose logs and KI is a large branch large
Industrial log.
- S30 price for Northern South Island relates to N35 grade
Radiata pine log sales
| NZ$ per tonne |
North NI |
Central NI |
South NI |
North SI |
Central SI |
South SI |
| P1 (P36-P38) |
115-125 |
121-126 |
115-120 |
125-140 |
125-130 |
120-125 |
| S30 |
83-87 |
84-86 |
75-85 |
88-100 |
90-94 |
85-90 |
| S20 |
73-76 |
64-66 |
68-72 |
84-88 |
72-77 |
60-65 |
| L30/A30 |
- |
59-61 |
- |
- |
64-69 |
65-70 |
| Postwood |
70-75 |
62-67 |
65-75 |
65-80 |
80-95 |
65-70 |
| Chip |
35-37 |
37-45 |
30-33 |
38-40 |
38-40 |
33-40 |
| NZ$ per JAS |
|
|
|
|
|
|
| KA |
108-111 |
114-117 |
106-109 |
109-112 |
98-101 |
103-106 |
| K |
104-107 |
108-111 |
99-20 |
103-106 |
93-96 |
97-100 |
| KI |
96-99 |
98-101 |
92-95 |
96-99 |
85-88 |
93-96 |
| Pulp |
80-83 |
- |
83-85 |
85-88 |
78-81 |
82-85 |
Macrocarpa log sales - Nov - Jan sales
| Macrocarpa logs |
South Island |
North Island |
| |
Landed at mill
door/tonne |
Landed at mill
door/tonne |
| Pruned Min SED 40cm |
$230 - $250 |
- |
| Pruned Min SED 30cm |
$140 - $160 |
- |
| Small branch Min SED 30cm |
$125 - $130 |
- |
| Small branch Min SED 20cm |
$90 - $100 |
$85 - $100 |
| Large branch/Boxing/Sleeper |
$80 - $90 |
- |
| Firewood logs |
$60 - $70 |
- |
Allan Laurie is the managing director of Laurie Forestry Ltd 
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