Laurie Forestry - Monthly Market Reports

Allan Laurie writes a monthly forestry market report which keeps readers up-to-date with forestry developments nationally and internationally, offers a unique perspective and investigates new products and services.

February 2018

February is a month of uncertainty across the log export part of our business and we watch with baited breath how Chinese New Year (CNY) will play out in terms of demand and inventory. 

Basically China closes down for about 2 weeks in February as does NZ during our Christmas break.  A high percentage of the China population work way from their homelands and return for CNY thus adding somewhat to traffic congestion.  But this also means manufacturing basically grinds to a halt.  For sawmills, the log intake basically started to drift down 3 – 4 weeks ago and by mid February total consumption across the eastern seaboard to be less than 25,000 cubic metres per day.  This is half what it was in the 1st week of February and well below the 70,000 per day, on average, in October/November 2017.

Meanwhile in NZ, sawmills continue at a busy pace with strong demand across the construction and outdoors sectors.  Most sawmills appear to be in better balance getting the logs they need but at times also running close to the wind.  Log prices for Q1 have increased slightly keeping in trend with general market comparatives.

There is some general speak in the market that domestic lumber prices are coming under upward pressure.  This is good news indeed with log prices continuing to increase over the last 2 years whilst Lumber prices have remained largely flat.  Whilst high log prices are a great outcome for forest owners, if sawmills cannot make profits that reflect their levels of investment and risk then something is going to break.  Long term forest owners do not want to go there.

For the Canterbury region, a sign of reduced harvest volumes and total demand is reflected in the fuel and energy sector, essential chip and firewood logs which are often bundled in to a segment called residues.  Residue demand is currently exceeding supply and prices are on the increase.  In fact, since Christmas, I have seen a $5 to $7 per tonne lift which is quite extraordinary in this sector.  

Meanwhile back in China, as at mid February Log inventory across the eastern seaboard has lifted to 4.38 million cubic metres and is expected to rise to 5.5 million by end of February.  At any other time of year this would have everyone running to their panic stations but all current data is about exactly what everyone was expecting.

When China sawmill owners return to work, port uptake will be a pace as yards look to restock.  The big question mark will be around how this plays out.  Right now we do not see anything outside what most would term “normal”.

India is continuing the upward demand trend following a post GST economic recovery. Log inventories in the 2 main ports of Kandla and Mundra  are very low and speculation is rife as can be the way of India.  Most commentators are indicating they believe log price increases are on the horizon which will take this market ahead of China in wharf gate NZ terms.

The improving strength of the US dollar against the Kiwi is taking all the fun out of the game at present.  Indeed the NZ$4 - $6 per cubic metre decrease in wharf gate prices in February is the direct consequence of exchange rate.  In earning terms in one month and a $5 per cubic metre drop, equates to about NZ$6.5mil out of NZ forest grower pockets.

Recent announcements of the Governments plans to grow our forest estate through a range of lease and or JV mechanisms with land owners, is fantastic news indeed.  It is a huge opportunity for land owners to step into a very profitable land use at virtually zero cost meanwhile creating a potential carbon off set and receiving regular income off land that might otherwise have been low producing.  Do give us a call if this is you.    

Thus it remains as always fundamentally important , the only way forward for climate, country and the planet is to get out there and plant more trees! 

Allan Laurie, MNZIF

Laurie Forestry