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Log Market - February 2013

Hot dry weather is generally positive for forest harvesting activity (apart from the fire danger or fire incidents restricting activity). Fortunately, fire activity has been relatively subdued in New Zealand as it was spared the widespread destruction from fires in Australia.

Strong log volumes are being supplied into a strong market. January saw more logs exported than usual as domestic mills came on stream after Christmas shut-downs.

Export Log Market

China, despite currently celebrating the Chinese New Year, has had strong demand for New Zealand Radiata pine logs in January/February and prices have firmed. Traditionally celebrations run for 15 days but with long-distance travel by 100s of millions of Chinese, the impact on business lasts up to a month. New Zealand Radiata pine market share has continued to grow as the expense of Russian log supply, and, to a lesser extent, supply from North America.

Log inventory levels in China dropped in the second half of last year and have continued to stay at relatively low levels. Inventory will increase over February as imported logs continue to arrive with reduced log processing during the New Year holiday period. The same market drivers from the second half of last year are expected to continue through 2013. These are –

  • Chinese economic growth of around 8-9%.
  • Continued Chinese investment in infrastructure development and low-cost housing.
  • Constrained log supply from Russia due to cost of production and depleted harvesting infrastructure.
  • Fewer North American logs to China in lieu of domestic supply into an improving US property market and economy generally.
  • Lower harvest volumes from beetle-killed forests in Canada resulting in less lumber for export to China.

Log imports to China in 2012 actually fell (by 15%) compared to 2011 (the first full year decline since 2008). However, volumes in the second half of 2012 were higher (by 9%) than the first half and the momentum culminated in December 2012 seeing an all-time record volume of logs unloaded in Chinese ports. Wood Resource Quarterly reports log shipments in the second half of 2012 (compared to the first half) being 29% and 20% higher from NZ and the US respectively, showing NZ increasing market share at the expense of the US. Russian log shipments actually declined by 9% in the same period. In the current market conditions New Zealand is in a strong position to be a preferred supplier of softwood logs to China.

Wood Resource Quarterly also recently reported that Chinese domestic logs such as Chinese fir, Mongolian pine, larch, poplar and birch are at record price levels.

The NZ$/US$ exchange rate has been predominantly trading in the $0.82-$0.84 range for the past two months. This relatively high rate is still being offset by continued low shipping rates. Shipping rates have been consistently low for the past 6 months driven by low charter rates (see chart below) and reasonably steady bunker (fuel oil) prices. Most New Zealand log shippers are getting average rates in the low US$30s per JAS m³ for logs to Asia.

Ship Charter Rates

(Source: RS Platou)

Demand for Radiata pine logs in Japan and Korea is stable. Construction activity in Japan is strengthening, assisted by the rebuild of earthquake/tsunami damaged areas. However, as previously reported, this is having a more significant impact on the demand for Douglas fir from the Pacific North West of the US. Korean log demand is steady although subdued by the winter conditions and lack-lustre property market. This market is expected to continue to take around 2.0m JAS m³ of per year of Radiata logs mostly from New Zealand, with some small supply volumes from Australia.

The India market, which proved volatile last year, is showing signs of improvement. Log inventory is down and trade credit is generally more available. Steady improvement in this market is expected over the next few months.

Domestic Log Market

The BNZ is forecasting the New Zealand economy to grow at 2.5% this year. The high exchange rate is seen as the largest constraint to growth but there appears little the government or the Reserve Bank can realistically do about it. Manufacturing activity is expected to decline over 2013 with the exception of building materials.

(Source: BNZ)

Dwelling consents have continued to rise assisted largely by the Christchurch re-build gaining momentum. Nationally the housing market has gained strength (particularly Auckland and Christchurch) where both sales volumes and prices have risen strongly.

The BNZ reports that construction activity over the past 10 years on average accounted for 7.5% of GDP. Therefore, a forecast lift of 15% for 2013 would add about 1.5% to GDP.

Increased building activity in New Zealand and stronger demand and prices for wood products in the US, Europe and Asian are expected to be positive for New Zealand wood processing in 2013. However, the challenges are still there is the form of a relatively high exchange rate and a soft Australian market.

Along with an improving US housing market, lumber prices have been increasing strongly. The Crows Construction Material Index is now 54% higher than the same time last year. This market improvement continues to provide better opportunities for New Zealand suppliers.

Indicative Average Current Log Prices

Log Grade$/tonne at mill$/JAS m³ at wharf gate
Pruned (P40) 142 152
Structural (S30) 98  
Structural (S20) 91  
Export A   110
Export K   103
Export KI   95
Pulp 55  

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.