Log prices drop – should we worry?

New Zealand Logger - - Forest Talk -

LOGS PRICES HAVE TAKEN A MA­JOR HIT OVER the past month as the Trump-in­sti­gated trade wars af­fect our big­gest ex­port mar­ket.

The dra­matic drop in At-Wharf-Gate (AWG) prices dur­ing Au­gust is a direct re­sult of the de­pre­ci­a­tion of the Chi­nese Yuan cur­rency against the US dol­lar, which has been fall­ing amid dis­rup­tion caused by the tar­iff spat be­tween the two su­per pow­ers.

That’s led to an 18% re­duc­tion in buy­ing power for Chi­nese log pur­chasers, which has caused a knock-on ef­fect on the prices they are pre­pared to pay for logs.

Even though the New Zealand dol­lar has also been fall­ing re­cently, PF Olsen re­ports that the AWG prices for un-pruned sawlogs have still dropped an av­er­age of NZ$12-to-13/JASm³. Pruned logs have been hit even harder, drop­ping on av­er­age NZ$18/JASm³ as the clear­wood prod­ucts man­u­fac­tured from th­ese logs have been hit with trade tar­iffs im­posed by the US.

Sur­pris­ingly, the vol­ume of logs be­ing shipped to China has not been af­fected by the un­cer­tain trade sit­u­a­tion, ac­cord­ing to PF Olsen’s Busi­ness Devel­op­ment Man­ager, Scott Downs, who says in the com­pany’s lat­est mar­ket re­port: “The met­rics still show the China log mar­ket to be buoy­ant.

“To­tal soft­wood log in­ven­tory has re­duced to ap­prox­i­mately 3.2Mm³ and daily port off-take is still very healthy for this time of year at over 70,000m³/day.”

The trade war has seen ship­ments of logs from US sources to China dry up and Mr Downs says this will help keep in­ven­tory down at Chi­nese ports. He thinks the sit­u­a­tion will sta­bilise soon and de­mand for logs in China should in­crease in Septem­ber.

Log prices in In­dia have also taken their lead from China and slipped. But all is not doom and gloom.

Mr Downs points out that in spite of the drop in AWG prices, the PF Olsen Log Price In­dex is cur­rently level with the two-year av­er­age, $3 above the three-year av­er­age and $10 higher than the five-year av­er­age.

The re­duc­tion in ex­port prices has in­evitably flowed on to the do­mes­tic log mar­ket, where prices have come back a sim­i­lar amount – maybe not good news for for­est own­ers, but a re­lief for sawmillers, who have swal­lowed a string of in­creases in re­cent years. Ex­pect some in­ter­est­ing ne­go­ti­a­tions be­tween mill and for­est own­ers around pric­ing for log sup­ply in the fourth quar­ter.

There ap­pears to be more volatil­ity in log prices in the South Is­land, ac­cord­ing to NZ Log­ger correspondent, Jim Childer­stone.

He re­ports that prin­ci­pal south­ern buy­ers such as Dunedin City Forests, Wenita For­est Prod­ucts, Ray­onier, Log Mar­ket­ing and South­ern For­est Man­age­ment have seen prices re­duce by be­tween $10 and $20 through the grades. The pruned grades tak­ing the big­gest hit.

He goes on to say Wenita is not look­ing for any new AWG log sup­pli­ers at the mo­ment and this is caus­ing wood­lot own­ers in the Otago re­gion to re­assess their har­vest­ing in­ten­tions.

“The big prob­lem for log­ging con­trac­tors at the mo­ment is if for­est own­ers put off due har­vest op­er­a­tions, hop­ing for bet­ter prices,” says Mr Childer­stone.


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