Monthly Reports May
The export log market continues to be extremely challenging and uncertain, whilst our domestic sawmills continue to enjoy high demand, albeit with a few mutterings of the heat starting to go out of the fire.
The most likely reason impacting the sawmill segment is the constraints around other building supplies, with seemingly many projects stalled, awaiting products to be delivered. This is locking timber in yards in the meantime.
The combination if the Ukraine invasion by the insane dictator and COVID lock downs in China are really starting to bite on wood supply globally. China daily usage of softwood logs has been holding up at 60,000+ cubic metres per day but things are looking increasingly grim.
Lockdowns were expected to ease mid-May but for most, the status quo remains and no sign of change. I thought readers might be interested in what lockdown means for a person in China. Eric Cai is a NZ citizen and my main go to for sales in China via China Forestry Group Ltd. He went back to visit family at Christmas time and has not been able to get back to NZ.
For Eric, lockdown means in Dang Dong, a city of about 4 million people, up next the North Korea border, you stay in your apartment. You go down to the common area to be tested every day, food is ordered on line from the Supermarket and delivered to your door by the Army.
I asked Eric what would happen if he didn’t go down for the daily test, his response, “Allan, don’t be silly”. In Dang Dong the initial cases numbered 5 and as at two weeks ago there 80 reported cases. There have been no reported new cases in 5 days and the city remains locked down.
This small example emphasises there are significant trade winds ahead. We expect to see inventory across the eastern seaboard to climb back over 5mil cubic metres whilst there are growing negative gaps between wholesale and retail prices. Most commentators are suggesting CFR prices will fall at least US$10 per m3 in June.
Meanwhile, ship owners remain bullish, with shipping rates as at mid-May up US$5 per m3 on April fixtures. Ports across the planet are congested with vessels waiting to load or discharge, so demurrage costs are being loaded in to Charter rates. NZ is no exception.
My quick and dirty add up suggests there are over 50 vessels parked off NZ ports waiting to load or waiting to discharge. That is roughly 1.7+ million tonnes of cargo not going somewhere but it does also explain why supply lines in NZ are problematic.
Despite some relief in the US$/KIWI$ exchange rate, the combination of Shipping cost and reduced sale prices is destined to put the NZ export log trade in to a pretty dark place in June. This will be very much premised on if the Shipping companies come to heal before the end of May. This is not one you would want to hold your breath on.
In the overall picture, a significant correction in June should be short lived. Russia has typically been 25% of world softwood Log and Lumber trade and every nation has pretty much put the big white gloved hand up to Putin. An example is Europe where lumber sales purchases were 5mil cubic meters in 2021. That in effect represents 65% of all the logs NZ exported to China last year. At the moment the Russia/Europe trade is limited to sales the Boss doesn’t know about, a bare trickle at best.
NZ sits very well poised as the friend of most, ample forests to harvest, and an ability to ramp production up pretty quickly. In fact, NZ in the longer terms stands to gain potentially huge markets in non-traditional countries as long as they don’t go crawling back to Russia when someone puts Putin out of his misery.
As always People, please remember the thoroughly important message, “It remains, as always, fundamentally important, no matter the challenges, the only way forward for climate, country and the planet, is to get out there and plant more trees”!