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Log Market - December 2012

Export Log Market

At-wharf-gate NZ prices lifted $2-$5/JAS m³ across most export grades on the back of a slight easing in ocean freight rates, neutral NZ$/US$ cross-rate and an increase in CFR pricing (price at destination port in US$).

The volume of Radiata logs to China continued at strong levels and for the first time ever shipments of logs from NZ have exceeded those from Russia into China. This is despite Russia lowering its log export tariff in order to join the World Trade Organisation. This year Russian log volume is expected to be some 12-15% lower than in 2011. Increased investment in domestic sawmilling and increasing harvesting and logistics costs are behind this reduction. The increased sawmilling is seeing some of the drop-off in logs exported being made up by increased lumber exports.

NZ logs are gaining market share in China as overall demand for logs reduces. The third quarter of 2012 saw 19% lower volume of logs imported into China compared to the same period in 2011.

However, lower shipments of logs and lumber from North America and lower log supply from Russia, combined with steady Chinese demand, has seen a lowering of log inventories in China, currently estimated at about one month's sales volume (note, in 2011 inventories peaked at more than four months).

PF Olsen has been receiving unusually high unsolicited enquiry for export log supply to China (an anecdotal bell-weather of the log market), suggesting improving market sentiment and concerns emerging over a shortage of volume.

Sentiment for 2013 is also positive. There is an expectation that the new Chinese leadership will sufficiently stimulate the economy to ensure that growth does not fall further and risk raising unemployment and social unrest. A common view is that growth for 2012 will come in at about 7.7% (compared to 9.3% last year); for 2013 growth of 8.0% is forecast.

Korea has seen little change this year in the log market. Manufacturing is being ill-effected by low domestic growth and reduced global demand for goods. The housing and construction markets are still suffering from a prolonged slump. New Zealand's log exports to Korea are lower this year than for 2011 but market share has increased slightly.

Slow demand for packaging lumber is Japan is tracking weak industrial output and weak export sales, and limiting demand for Radiata pine from NZ. The housing and construction markets are improving slightly buoyed by the post-tsunami re-build and increased demand ahead of a planned hike in consumption tax.

The Indian log market has continued to improve, albeit marginally. The announcement of a new five-year plan to address India's ballooning current account deficit has seen appreciation in the Rupee/USD cross rate. This is positive for purchasing of logs from NZ in USD.

Although the Baltic Dry Index has been holding steady in recent times, rates for logs from NZ to Asia have eased. To address the low charter rates, owners are slow-steaming vessel in a bid to reduce freight capacity and decrease consumption of bunkers (fuel oil for ships).

Domestic Log Market

New dwelling consents in the US continue to strengthen and are currently at their highest levels since 2008. October saw new consents at an annualised level of 894,000 units and some commentators are forecasting over 1m units next year. A level of 1.5-1.7m units is considered a long-run sustainable level, so there is still plenty of head-room. Lumber production and prices are up in both the US and Canada. This activity is seeing less North American log and lumber volume exported to China and increased demand and price for NZ lumber.

International Wood Markets Group is talking about a wood "super-cycle" as supply constraints from Russia and North America coincide with burgeoning demand from China and the USA. The net result is that log and lumber demand in these countries are expected to grow steadily and drive global supply and prices.

Sawn timber prices in New Zealand, as reported in the ANZ commodities index, rose in November to a 2.5 year high.

Late in November, Carter Holt Harvey-owned Rotorua Profiles (a wood remanufacturing business) announced it would be closing, potentially affecting 50 jobs. Two weeks later it was announced that, due to a sale of the business to Profiles Woodproducts Ltd, all workers will now keep their jobs. This will come as a welcome relief to those workers and their families. Consultation is still on-going regarding up to 18 redundancies recently announced at Carter Holt Harvey's Tokoroa plywood plant.

Despite these developments, increased demand for wood products is starting to be seen from the Christchurch re-build. Some sawmillers are positioning themselves to increase sawlog demand and processing early next year in response. Sawlog prices have firmed in some regions.

The housing market continues to gain momentum with house price increases centred on Christchurch and Auckland, driven by reconstruction efforts and demographics respectively.

In the past three months housing consents were up 17% on a year ago. Auckland was up 16%, Christchurch up 50% and the rest of NZ up 6%. Nationally housing consents are still 27% below the ten-year average but at 16,401 are still 20% up from a year ago. This pace of growth is likely to continue and flow onto increased demand for wood products as well as other building materials.

Source: BNZ

On average, most grades are up $1-3 per tonne or JAS m³ compared to last month.

Indicative Average Current Log Prices

Log Grade$/tonne at mill$/JAS m³ at wharf gate
Pruned (P40) 142 150
Structural (S30) 99  
Structural (S20) 92  
Export A   103
Export K   96
Export KI   87
Pulp 56  

Note: Actual prices will vary according to regional supply/demand balances, varying cost structures and grade variation. These prices should be used as a guide only.