Log prices drop – should we worry?
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.