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Home / The Country

Export log prices take yet another hike

Marcus Musson
By Marcus Musson
Director of Forest 360·Whanganui Chronicle·
9 Jun, 2021 05:00 PM5 mins to read

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When transport and roading costs are taken out of the equation there is a net return of $35,000 to $40,000 a hectare for an average pruned hill country forest 180km from port. Photo / NZME
When transport and roading costs are taken out of the equation there is a net return of $35,000 to $40,000 a hectare for an average pruned hill country forest 180km from port. Photo / NZME

When transport and roading costs are taken out of the equation there is a net return of $35,000 to $40,000 a hectare for an average pruned hill country forest 180km from port. Photo / NZME

Comment:

Another month, another set of record export prices. June has seen A-grade export logs increase a further $8/JAS to about $170/JAS, a level that pruned logs were at not so long ago.

With improved genetics and season factors, the conversion from JAS (the sale unit of export logs) to tonnes for A-grade logs is generally more than 100 per cent, meaning the actual price is more like $177/tonne.

If we take the harvesting, transport and roading costs out of these figures, you would be looking at a net return between $35,000 and $40,000 a hectare for an average pruned hill country forest with a distance to the port of 180km.

If that forest were flat to rolling and only 100km to the port then the net increases to
over $50,000 a hectare, or $2,000 a hectare a year.

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Nothing has changed in the global log supply dynamic in that China and Australia are still pulling faces at each other across the playground, the Europeans can't find containers to put their logs in, the United States and Canada are using all their supply domestically as US President Joe Biden's stimulus package has created a building boom, and Russia has signalled a total log export ban from the start of 2022.

To put the global log supply into perspective, China's imported softwood demand sits near 60 million cubic metres annually, of which about 22 million comes from New Zealand, 12.5 million from Europe, 6.5 million from Russia, 5.5 million from Australia and 3 million from the Pacific Northwest.

The rest comes from smaller suppliers. New Zealand is the single largest supplier of softwoods into China, dwarfing all other suppliers by a significant magnitude.

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While we are only about 35 per cent of the total imported softwood supply into China, China is about 60 per cent of our total log market. It's easy to see that if our government leaders ake a similar line to Australia in criticising the Chinese regime, the effect of a log ban on NZ logs would be catastrophic.

Having said that, China is still happily importing iron ore from Australia that makes up about two-thirds of the total iron ore imports into China. Steel is obviously a key component of the Chinese construction and manufacturing industry and, as there is no other country able to supply at the quality and levels of Australia, China cannot ban this valuable product – especially if it wants to reach the GDP target of 8.4 per cent in 2021.

New Zealand radiata is in a similar situation, there is no other alternative supply that can match the volume and delivery performance of our export market. As with steel, lumber is an important ingredient in construction and therefore a consistent supply is vital. This is somewhat comforting because, should we decide to join Australia and pull faces across the playground, the log supply might just keep flowing.

It's not just logs and lumber that are having a dream run as most of the major globally traded commodities are seeing record pricing as well. So much so that the Chinese government recently expressed concern at record prices being a factor of speculation in the iron ore market.

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While there hasn't been any talk of their eyes being cast over the log market, it will only be a matter of time if prices continue to increase at the present rates.

In-market log and lumber inventories have continued to track down slowly with no easing in demand and no upside in supply. While it is expected that construction activity in China will decrease slightly over the hotter months, it will take a significant drop to cause any worrying inventory build.

We generally see a reduction in NZ supply during winter months as wet weather slows harvesting crews, especially in the private woodlot and forest sector. This may not be as significant as in previous years because, at present pricing levels, you can afford to spend more on road construction and maintenance to keep the log volumes moving.

While the harvesting sector is enjoying what has been a much longer run than usual, domestic sawmillers have been sweating bullets each time the monthly export prices have been released.

Because many sawmills are locked into medium-term lumber price contracts, it is hard for them to pass on additional costs of raw materials as they occur.

The last time we saw a sustained log price increase such as this was in 2012-14 when increases were in the magnitude of $30/JAS. Although there were a couple of significant crashes in the 18 months following that period, the market rebounded quickly and continued to increase, albeit slowly, through to mid-2019. Fingers crossed we may have now taken another leap in long-term price levels.

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