With most of the New Zealand log-producing regions back into action at level 3, it's good to see log trucks back on the road, crews back to work and the tail end of planting season
Primary growers are bearing the brunt of costly log loading delays at port
As top-deck cargo must be fumigated (or debarked) on port before loading, there are only a limited number of ports where this can be carried out on. This shifted the top-deck problem onto Tauranga, which in turn led to wait times there of about 14 days.
When vessels are parked in a queue, they are basically out of the supply chain - not helpful when you're running at full throttle on the supply side and vessel supply is tight. As we require a smaller class of vessel in NZ due to the draft and berth limitations of many of our ports, we quickly become price takers when vessel supply dries up as these "Handy-class" vessels are in limited supply and are in hot demand globally.
If we hadn't already created enough problems for ourselves with vessel wait times in NZ, some China port regions started seeing significant outbreaks of Delta and ports were shut down without warning, specifically in the Yangtze basin.
This has created congestion issues at the delivery end as available berthage has reduced about 30 per cent, resulting in about 10-day wait times there too. If you're chartering a vessel at the moment, it's a bit like sitting in Auckland traffic in a taxi watching the fare tick over as you go nowhere.
On the flip side, it's good times to own a bulk carrier because you're getting paid while bobbing around at anchor playing cards.
What does this mean for forest owners? Unfortunately, with commodities, it's the primary grower that generally ends up owning most of the supply chain cost increases, and this situation is no different.
September At Wharf Gate (AWG) prices are reasonably flat with August in the mid-to-high $120s/cu m for A-grade, down from about $170/cu m in June. While some of that is a reduction of in-market sales prices (CFR) courtesy of price regulation by the Chinese government, a large chunk is the freight costs. While CFR prices are down to about $US170/cu m from about $US195/cu m in June, this is still about $US35/cu m higher than the three-year average.
These price fluctuations pretty much mirror what has happened in other commodity markets such as iron ore and copper, but it is important to note that prior to the recent price spike, CFR prices have broken through $US160/cu m for only two months in the past quarter century.
There's plenty of hand wringing happening with forest owners at present over current AWG pricing levels as many still have the eye-watering June and July numbers firmly burnt in their mind.
There's a reasonable belief this is the bottom of the cycle, and we will expect to see some increases in AWG numbers, albeit subdued, heading into late 2021 and early 2022. Current AWG numbers are close to the three-year average and if three years ago you had said we'd be worrying about A grade in the $NZ120s AWG being the bottom of the cycle, you'd have wondered what the fuss was all about.
If you're a forest owner that's going down the carbon route, the hand wringing would have been hand rubbing late last week as the spot carbon price hit $60/NZU following the Government auction at which all units were sold at $53.85 from the cost containment reserve.
This auction saw all of the 11.75 million carbon tonnes allocated being sold and a further 7 million tonnes of bids going unfilled. This will be making James Shaw pucker somewhat as it is likely there is a fair degree of speculation in carbon rather than pure demand from emitters.