Log prices leap in lockdown
Demand from China will determine whether rebound lasts for NZ exports
Log prices rebounded strongly while New Zealand was in Covid-19 lockdown, but much will depend on demand from China as to whether the improvement will last.
Prices plummeted mid-way through last year as the market became flooded with wood from Europe.
The market was recovering before Covid-19 broke out in Wuhan in December, which proved to be another setback, but level 4 shutdown has allowed inventory in China to clear and for prices to rise.
Improved demand, a weaker New Zealand dollar, and sharply lower freight rates, have combined to drive the free on board (fob) log price up to $181 per JAS cubic metre from $130/m before the lockdown.
NZ Forest Owners Association president Phil Taylor said it was too early to tell if there had been a seismic shift in the market.
“There certainly is a good rebound,” Taylor said. “The unknown is, how long will it last?”
“All primary producers in New Zealand are susceptible to global markets and commodities pricing and the outlook for global growth is not great.
“While things are looking reasonably good at the moment, there is still a high degree of uncertainty.
“But certainly the price increases are welcome and they have been quite significant in New Zealand dollar terms.”
China is by far the biggest market for New Zealand logs. Taylor put the latest price lift down to China refilling its supply chain after it was depleted during New Zealand’s level 4 lockdown.
Forestry was not deemed as an essential service, so log production stopped during level 4, taking about 1.5 to 1.7cu m of supply out of the market. Wood is New Zealand’s third biggest export at 8.7 per cent of the total. Last year wood export receipts came to $3.3 billion.
Demand for New Zealand’s other key exports has also been strong during the Covid-19 crisis.
ASB Bank said since February, cumulative exportgood values have come in at about $17bn, marginally behind the same period in 2019.
Meanwhile, there are mixed views about the Government’s plan to to require forestry advisers, log traders and exporters to register and work to nationally agreed practice standards that will strengthen the integrity of New Zealand’s forestry supply chain.
The Forests Amendment Bill introduced last week in Parliament aims to support the “continuous, predictable, and long-term supply of timber for domestic processing and export” as well as improved economic performance and employment in the sector and wider environmental and climate change outcomes.
Wood Processors and Manufacturers Association of NZ said local wood processors cannot access local logs because of “massive” price distortions in the domestic log market that are being caused by overseas subsidies.
“This legislation will help to ensure that log traders treat New Zealand wood processors and manufacturers fairly — enabling our local processors to add value to NZ logs and provide local employment,’ chairman Brian Stanley said.
NZFOA’s Taylor said the bill was “kicking into touch” the issue of log procurement.
“The devil is in the detail but from what we have seen of the draft bill, we believe it actually makes no sense and that there is potential for significant unintended consequences,” he said.
He welcomed the Government’s Budget plan to spend $5 billion on building more social housing. “If it can be built in wood, then it’s a positive for domestic processors.”
The price increases are welcome and they have been quite significant.
Phil Taylor