September 2023 NZ log market updateFriday 29 Sep 2023 Opinion Piece: Marcus Musson, Director, Forest360It’s amazing how a spell of fine weather and some increased temperatures improves the general fettle, especially those that haven’t really seen a decent summer for a few years. Unfortunately, the impending dry spell is about the only good news as most China-exposed primary markets are looking down the barrel of a medium-term period of queasiness thanks to reduced demand and hence pricing. Our meat and milk cousins are suffering from the same issues of lack-lustre global demand and increased costs resulting in red ink on most balance sheets that would make even the most steeled bank manager wince. If we thought the 2022 balance of payments was ugly, 2023 will probably knock it out of the park. It doesn’t matter which news feed you look at, there’s generally a story about China’s economic woes somewhere near the top. Country Garden is the latest Chinese property developer to get the wobbles and has only just managed to pay a $US22.5 million interest bill. There have so far been over 50 large Chinese development companies that have gone to the wall in recent years, and around 70% of the remaining large developers have missed debt payments over the same period. The worry is that if more of these bizarrely named developers tip over, China could be in for their very own Lehman moment which would mean anyone relying on China as a primary market would likely be in for a good dose of the trots. The Chinese government will most likely be chewing through herculean volumes of Quick-Eze as they try to figure a way out of the debt crisis in the property sector which accounts for around 25% of the economy. Beijing has started releasing some stimulus measures including a lowering of existing mortgage rates, reducing deposit ratios and providing preferential loans for first home buyers in larger cities. This easing has seen shares in property developers jump somewhat but it's very unlikely to quell the fiscal indigestion. September at wharf gate (AWG) prices have been published with a reasonable range between exporters and an average of around $NZ116/JAS for A grade for SNI ports. Actual sales prices in China (CFR) reached $US119/JAS on a rally during August but quickly dropped back below the $US113 level as Chinese wholesalers struggled to pass increases on to customers. Shipping costs increased over the same period due to reductions in inbound cargos putting further pressure on AWG numbers.
The general consensus for the rest of the year is that trying to lever any CFR price increase will be like eating miso soup with chopsticks – long and arduous. We are starting to see reductions in log inventory volumes on Chinese ports as a result of supply reductions rather than demand increases. We are already below the magic 3 million m3 inventory number that historically creates buyer panic, and this will keep dropping for the rest of the year. NZ supply will be reduced further as the Taupo windthrow salvage becomes unmerchantable and the Pan Pac mill in Napier restarts later this year. Domestic sawmills are seeing very average lumber demand as NZ construction bumbles along, however salesmen peddling exported lumber products are having to take pointers from the politicians on one-upmanship as competition gets tighter. Domestic demand for outdoor products should increase over the spring and summer as we all start building decks and fences with our newfound tax relief. Pruned sawmills in the central region are starting to get tight for supply as the windthrow in Taupo has taken out a number of years’ future supply. This, combined with the general price related reductions in harvest volume, will see significant shortages of pruned logs going forward, and, unlike the China conundrum, we will see some price increases with reduced supply. Carbon has been the favourite child lately as the price of NZU’s has steadily climbed following the high court ruling against the government’s fiddling which saw prices crash to a low of $35 in July. Current spot prices are in the mid $60’s, still short of the peak of $88 in late 2022 but, like the poll results, heading in the right direction. The latest NZU auction failed yet again (for the third successive time) as bids didn’t meet the reserve price. Bids were received for only 7.7 million of the 13 million on offer and as a result the government is now short around NZ$900 million in revenue which one would suspect would be reasonably handy. The interesting thing here is that if the fourth auction were to fail in December this year, the expected 18 million credits would be taken away from the market and the government would effectively lose out on over a billion in revenue. This will be seen as a positive for the carbon market which is currently viewed as being in an oversupply situation and expectations are that a fourth failure will give NZU values a Redbull rush. So, all in all its bloody hard to be positive at the moment. We had hoped that the All Blacks would clean up in the opening world cup game and that we would see wins for the Warriors, Black Caps and Israel Adesanya but none of them obviously got the memo. Having said that, we’ve got a fantastic product in our radiata resource and even though there’s a few potholes in the road and plenty of road cones, the future looks bright. Greater use of natural fibres domestically is the key to a strong primary industry so please build with wood, print your emails in triplicate, be generous with the purex and use wool carpet. Source: Forest360  |
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