Unfortunately, as the softwood inventory in China is north of 5 million cubic metres, it will take a while to get the inventory back to levels that support significant increases. The majority of New Zealand forestry companies are taking longer than usual shutdowns over the Christmas period which will help bring supply and demand back into some form of balance.
The most significant factor in the price reductions between July and November was the massive increase in shipping costs globally. Much of this increase was based around demurrage from vessels sitting at anchor waiting for a berth.
This largely rectified itself with shipping rates down from the high $US70 a cubic metre in October to a more palatable $US40 a cubic metre in late November. Many companies still
have a few vessel contracts in the higher end of this bracket and the full effect of the lower rates will likely not be felt until January.
It's unlikely these rates will reduce any further as there are still plenty of other options for cargo with commodities out of Australia at higher rates than can be obtained with logs.
Unfortunately, as shipping rates have eased, the actual sales price in China has slipped
below $US140 a cubic metre and is likely to hit $US130 a cubic metre during December, effectively offsetting the shipping savings. Thankfully the exchange rate is playing ball with a reduction of $0.02 to see it sitting in the low $US0.68 bracket which has given us an additional $6 a cubic metre on the bottom line.
There is some light on the horizon, albeit a very short person holding an almost flat torch in a leaky dingy. The Russian log ban is supposed to come into effect at the beginning of next year which has been predicated by the closing of the Russia/China rail due to Covid issues.
We can throw some new batteries in the torch with news of a significant increase in domestic lumber demand in the US and Canada which will further reduce incoming log supply.
Uplift from Chinese ports seems to be in the order of 75,000 a cubic metre per day with supply at around 50,000 a cubic metre, so a deficit of around 750,000 a cubic metre per month, which, although not enough to drastically change sentiment with buyers, may be enough to plug the hole in the dingy.
The wider issues with indebted Chinese construction companies haven't gone away and the expectation is that construction activity may be down 20 per cent from 2021 levels. You'd tie yourselves up in knots if you tried to figure out what the Chinese Government's position was on assisting the construction sector as every commentator seems to have a different opinion.
There have recently been some positive signals from steelmakers which have led to an increase in iron ore spot and futures pricing which will hopefully create some positive sentiment in the market.
The latest carbon auction has seen another record with current spot carbon prices climbing to $68.70 per tonne from $64.80 pre-auction. Using the MPI lookup tables that's a shade under $55,000/ha or around $2000/ha a year for a 28-year radiata rotation in the southern North Island.
All in all, 2021 is going to be known as the biggest rollercoaster in memory. Many forest owners are sitting nervously waiting to see how Q1 2022 will play out. If history was anything to go by, things will turn relatively quickly in Q1 2022.
Chinese New Year is in early February 2022 which effectively results in nil usage for a month. All going well the slowdown in Q4 2021 and the longer than usual Christmas shutdown will see the inventory position in relatively good fettle and prevent a dead-cat
bounce similar to 2015 and 2019.
So, let's take a few more cement pills, wash away 2021 with a good whiskey and enjoy our new socks – Merry Christmas everyone.
