Softwood harvest booms as housing and log exports rise
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...