Log Markets - November 2008

Some big news last week was the deferral of the planned increase in Russian log export tariff to €50 or 80% from 1st January 2009. Apparently the press release coincided with key negotiations between Russia and the Norwegian timber industry.

There is much speculation regarding the motivation for the deferral. Some commentators suggest that is was never intended to be introduced and it was just "sabre-rattling" by Russia. Others believe that the global financial meltdown and big drops in oil and gas prices mean significantly lower export revenue for Russia. The prospect of a big curtailment of log export revenue in this climate was highly unattractive.

However, since we didn't really know what the impact of this final tariff step would be, we don't really understand the impact of this deferral. Last week a Chinese log buyer, whilst confirming a large export order for the first quarter of next year reported to us: "We have based our orders on the current situation so the deferral of the [Russian] tariff has no impact".

As reported in Clarky's Comment, the current climate is creating larger than usual spread of wharf-gate returns. Forest owners are well-advised to shop around and make sure they understand the basis of the sales arrangements they are making and the price and credit risk associated with it.

PF Olsen has been working with log exporters and has established some highly favourable log sales over the coming months, and well into the summer (early 2009). "We are pleased to have accessed some strong segments of market demand which are enabling the big reductions in bulk shipping and exchange rate to flow through to forest-owner returns", says Peter Weblin, PF Olsen's Marketing Manager. To find out more of these opportunities FREE phone us on 0508 PFOLSEN (0508 736 5736) or phone Peter Weblin on 021 942 820.

Ocean Freight Rates Stabilise

After the Baltic Dry Index fell to less than 80% of what is was a year ago, bulk shipping rates are starting to stabilise - albeit at low levels. "We understand that some log exporters are getting fixtures in the high USD20s/JAS m3 but some are still running out higher rates from prior fixtures", says Weblin, "So long as there is sufficient demand to take NZ volume, at-wharf-gate prices should could still improve going forward".

Bulk Shipping Rates Fall Below Containerised Shipping

The rapid fall in bulk shipping rates has made this mode of shipping more competitive in many ports such as Tauranga. Whilst container rates for log shipments are also expected to reduce (based on lower vessel costs and the back-load factor), we are currently entering a period of higher out-going demand for containers (export of summer produce) and less containers are coming into NZ due to lower consumer demand.

For most forest owners, this switch (between break-bulk and containers) is a moot point as responsive marketing managers will simply move to the mode that yields the best net returns.

Log Prices

The NZX Agrifax Log Price Index, which measures returns from the whole forest, rose by only a little over $1 to $NZ76.80 a tonne in October. This was a function of small increases in export log prices and stable domestic log prices.

PF Olsen expects a similar movement in the index in November.

There is hope that the significant (USD586 billion) stimulus package announced by the Chinese Government on 7 November will shore up Chinese log demand. The largest such plan in China history, it calls for new housing, roads, railways and airport, plus rebuilding areas devastated by the earthquake on 12 May 2008.