Soft­wood har­vest booms as hous­ing and log ex­ports rise

Australasian Timber - - INDUSTRY EDGE -

From Tim Woods HE NA­TIONAL soft­wood plan­ta­tion har­vest is boom­ing and is po­ten­tially at the lim­its of its ca­pac­ity. Driven by the record boom in the Aus­tralian hous­ing mar­ket and the con­tin­ual rise in soft­wood log ex­ports, the soft­wood har­vest has grown dra­mat­i­cally and ap­pears to be con­tin­u­ing, de­spite the hous­ing boom start­ing to slow.

In the year-ended July 2016, we have cal­cu­lated that Aus­tralia’s to­tal con­sump­tion of sawn soft­wood was more than 3.44 mil­lion cu­bic me­tres, up 7.5% from the year-ended July 2015.

Aus­tralia’s soft­wood sawmills re­ported sales (used here as a proxy for pro­duc­tion) that to­taled 2.93 mil­lion cu­bic me­tres or more than 12% higher than the prior year. This was likely a lit­tle lower than this, tak­ing into ac­count im­proved re­port­ing and re­duced in­ven­to­ries, but in any event, pro­duc­tion ex­panded sub­stan­tially.

Over the same pe­riod, al­ways small, Aus­tralia’s ex­ports of sawn soft­wood de­clined more than 18%, while im­ports fell by al­most 16% for the year-ended July, to­tal­ing just 0.77 mil­lion cu­bic me­tres.

As the chart shows ev­ery month in in our in­de­pen­dent trade and mar­ket in­tel­li­gence re­port Wood Mar­ket Edge, for most months since the be­gin­ning of 2014, Aus­tralia’s sawn soft­wood con­sump­tion has risen, with some sea­sonal vari­a­tions and a few short dips, along the way.

TTo give the monthly fla­vor to Aus­tralia’s boom­ing de­mand for sawn soft­wood prod­ucts, in July 2016, sales/ pro­duc­tion was re­ported to to­tal 0.26 mil­lion cu­bic me­tres, fall­ing just short of the ap­par­ent record set in May. Ex­ports were 0.02 mil­lion cu­bic me­tres and im­ports to­taled a sta­ble 0.06 mil­lion cu­bic me­tres. The month’s ap­par­ent con­sump­tion rose just above 0.3 mil­l­lion cu­bic me­tres.

If sawn soft­wood con­sump­tion con­tin­ued at that monthly level for a full year – it will not – an­nual con­sump­tion would rise above 3.60 mil­lion cu­bic me­tres.

Log ex­ports also boom­ing

Adding to the data that in­di­cates a boom­ing soft­wood har­vest, Aus­tralia’s soft­wood log ex­ports con­tinue to grow. A pic­ture tells the story best – so the chart be­low is worth cast­ing an eye over.

It shows that for the year-ended June 2016, ex­ports of soft­wood logs to­taled 3.23 mil­lion cu­bic me­tres, record­ing a 27.5% increase on the prior year and record­ing growth for the ninth of the last ten years.

So com­bined, Aus­tralian sawn soft­wood pro­duc­tion and soft­wood log ex­ports (with­out even ad­dress­ing par­ti­cle­board, ply­wood and MDF, which are cov­ered each month in Wood Mar­ket Edge) mean the Aus­tralian soft­wood har­vest has never been larger. It may re­main at th­ese highs for some time, but the driv­ers of de­mand are start­ing to demon­strate at least a lit­tle soft­ness.

Hous­ing slows, but not by much

Sawn­wood con­sump­tion will not rise much more than is al­ready the case, at least not in the cur­rent cy­cle, be­cause de­spite the in­cred­i­ble hous­ing boom of the last three and a half years, the ev­i­dence points to what is now a slow­down.

That is good news for Aus­tralia and for the soft­wood pro­cess­ing and har­vest sec­tors, be­cause in the past, the hous­ing mar­ket’s usu­ally short-lived booms were fol­lowed by im­me­di­ate busts. The ev­i­dence sug­gests that is not oc­cur­ring now.

Aus­tralia is ex­pe­ri­enc­ing, as the chart be­low shows, its long­est sus­tained hous­ing boom. For the year-ended July 2016, Aus­tralia’s to­tal new dwelling ap­provals was 231,472, of which more than 95% will be built. This was just 0.7% higher than for the year-ended July 2015, mean­ing that the boom sus­tained it­self at more or less the same level for the last two years. The big rise in to­tal ap­provals is ev­i­dent in the chart.

The boom, fu­elled by un­met de­mand for new hous­ing, as well as pop­u­la­tion growth, has how­ever not fol­lowed typ­i­cal pat­terns. In large part, this is be­cause the mix of Aus­tralia’s hous­ing types has changed so dra­mat­i­cally. We can see this eas­ily in the chart above, where the por­tion of flats, apart­ments and town­houses has grown strongly from the year-ended July 2012 (37.1%) to July 2016 (49.9%).

Free-stand­ing houses are still the largest share of the to­tal mar­ket, and ap­provals have been grow­ing over­all, but dipped by 1.8% in the year-ended July 2016, com­pared with the prior year. So, grow­ing con­sump­tion of sawn soft­wood can­not be fu­eled en­tirely by free­stand­ing houses.

When think­ing about Aus­tralian hous­ing, the temp­ta­tion is to think of all build­ings other than houses as be­ing mas­sive tower apart­ment blocks, side by side in Syd­ney and Mel­bourne. Its true there are plenty of those - and we can see them in the chart be­low. How­ever, they use very lit­tle wood com­pared to a house or a block of sub­ur­ban flats or an in­ner-ur­ban medium den­sity town­house de­vel­op­ment, so they haven’t contributed over much to the boom in sawn soft­wood con­sump­tion.

Lower-rise, multi-res­i­den­tial blocks 4 storeys, flats and town­houses are also play­ing a part in the hous­ing boom and will likely pro­vide the long tail that will de­liver a soft land­ing rather than a hard fall.

All the ev­i­dence shows that ap­provals of four plus storey apart­ment build­ings is slow­ing, al­though it will not stop com­pletely. That is not the case for the lower-rise multi-res­i­den­tial dwellings, ap­provals of which are sta­ble and con­tin­u­ally im­prov­ing.

Cou­pled with free-stand­ing houses, th­ese lower rise apart­ments rep­re­sent the pri­mary de­mand driver for Aus­tralia’s sawn soft­wood sup­plies. When put to­gether, those more tra­di­tional dwelling types and a few ‘mid-rise’ tim­ber build­ings of up to per­haps eight storeys, ap­pear set to pro­vide sus­tained de­mand for sawn soft­wood.

Strong har­vest, but what hap­pens next?

While the very strong har­vest sug­gested by this data is wel­come news, there is also ev­i­dence that sawn soft­wood pro­duc­tion has peaked. More sig­nif­i­cantly, there is ev­i­dence that pro­duc­tion is at, or near, ca­pac­ity.

That gives rise to two is­sues of con­cern. Fu­ture de­mand growth, driven by hous­ing de­mand and fu­elled by pop­u­la­tion growth must be sup­plied from some­where. If that is to be in Aus­tralia, more trees are re­quired in soft­wood plan­ta­tions and sawmills and other pro­cess­ing fa­cil­i­ties need to increase their ca­pac­ity.

Calls for ac­tion on plan­ta­tion es­tab­lish­ment from or­gan­i­sa­tions such as the Aus­tralian For­est Prod­ucts As­so­ci­a­tion (AFPA) and the For­est In­dus­tries Ad­vi­sory Coun­cil (FIAC) em­pha­sise the im­por­tance of grow­ing the na­tional plan­ta­tion es­tate.

Meanwhile, record hous­ing, sawn­wood con­sump­tion and pro­duc­tion and soft­wood log ex­ports con­tinue, with all the re­gional eco­nomic ac­tiv­ity that brings.

Tim Woods is Man­ag­ing Di­rec­tor of Aus­tralia’s lead­ing mar­ket anal­y­sis firm in the forestry and wood prod­ucts sec­tor. The firm is pub­lisher of the monthly Wood Mar­ket Edge and the bian­nual For­est & Wood Strate­gic Re­view. The 2015 edi­tion of the...

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