Log market roundup
SHIPPING CONGESTION HAS CLEARED IN CHINA AND THE
backlog of log vessels has been discharged without log inventory increasing. Reduced supply in December and January should lead to reduced inventory levels heading into the Chinese Lunar New Year at the start of this month. At the time of going to print, prices had risen by about 20% on November, however log demand in 2022 is still uncertain.
The At Wharf Gate (AWG) prices for export logs remained unchanged in December, although there were price increases in a couple of ports where exporters managed to secure favourable spot deals for shipping. The CFR sale price in China bottomed at 130-135 USD per JASm3 for A grade.
The PF Olsen Log Price Index remained at $110 for December, $12 below the two-year average, $13 below the three yearaverage and $14 below the five-year average.
Domestic log market
Log supply and pricing
Log pricing generally remained flat towards the end of Quarter 4. Many harvesting crews took a three-to-four-week break over the festive season with sawmills taking this time to catch up on maintenance, so builders expecting a surge of stock to greet them in the new year will be disappointed.
Sawn timber markets
You don’t have to read too many papers in New Zealand to understand there is a shortage of building materials and builders as developers and homeowners grapple with rising costs. Sawmillers continue to report demand exceeds supply for sawn timber. There is plenty of demand from clearwood and structural to post and poles for infrastructure demands.
On the export side, the Asia markets that buy the fall-down grades from framing production are oversupplied. The core larger size dimension sawn timber grades have held prices better.
Export Log Market
AWG prices
While the AWG price range between exporters and ports remains varied there was some reduction in the range as exporters that had better shipping deals have seen those deals end and there is a more level playing field. A couple of exporters also managed to secure good spot deals on vessels which allowed them to increase AWG prices at certain ports. The drop in sales price in China was countered by the fall in freight costs and the NZD weakening against the USD.
China
The price for logs in China bottomed at 130-135 USD per JAS m3 for A grade logs.
Softwood inventory levels dropped slightly to 4.5m m3 and daily offtake for December remained steady at 75k per day. This inventory level is about 40% higher than normal for this time of the year.
Reduced log supply in December and into Quarter 1 is due to: • The New Zealand Forest Industry Contractors Association says that in a recent survey of members only about 35% were operating at normal capacity.
• Many harvesting crews stopped work for three to four weeks
over the Christmas/New Year period.
• Germany’s logging of bark beetle damaged wood is forecast to
decrease from 60m m3 in 2021 to 43m m3 in 2022. Increasing domestic demand will further reduce the volume available for export to China.
Log demand usually reduces heading into the Chinese Lunar New Year, then increases rapidly until construction activity is at full production until the hot sticky weather arrives in China in June and July.
While we know log supply will reduce we don’t know how much construction productivity and log demand will increase after the Chinese New Year. This will depend on how successfully the Chinese Government restructures the property development sector while avoiding large scale sustained disruption to an industry that contributes a quarter of its GDP. The Chinese Government wants to see property development, but reduced speculation and the fact that President Xi is personally involved in real estate policies, means ministers won’t consider easing policies without his approval.
Most economists predict a 10% decline in new housing starts in 2022 in China. This is a combination of falling house prices reducing demand, reduced credit, and the introduction of new taxes to curb speculation. Beijing is concerned about social stability if developers are unable to complete pre-sold projects (common in China) so officials will try to ensure existing projects are finished. In many of these projects the local government made significant sums of money by acquiring land to then on-sell the user rights to developers at a healthy margin, so they are motivated to see projects completed.
India
The South American logs sitting unsold at port, bonded warehouses, and on inbound vessels to Kandla has fallen from over 400,000m3 to an estimated 250,000 m3. Sentiment remains subdued in Gandhidham with lukewarm demand. The price of sawn timber from Uruguay logs is flat at INR 521 per CFT. The price for radiata sawn timber has fallen from INR 571 to INR 561 per CFT. Market sentiment is likely to remain subdued over the next couple of months as the unsold South American volume is sold off. Indian export remains constrained due to a lack of containers.
Tuticorin had a good rainy season and log demand is limping back to normalcy. The local pine sawn timber price is about INR 651 per CFT.
From January 1st, 2022, the use of methyl bromide for fumigation in ship holds will require a buffer zone of 900m and log exporters have said this is operationally impossible to ship logs from New Zealand to India. The Indian Phytosanitary Authority is likely to permit Ethanedinitrile and Sulfuryl Fluoride to fumigate logs and lumber. But given the regulatory procedures involved, it may take months, or even years, to get the necessary regulatory approvals at both ends.