June 2024 NZ market update

Friday 14 Jun 2024

Opinion Piece: Marcus Musson, Director, Forest360

Brace yourself folks, we’re entering new territory. June export prices have come out with only a very slight rise on May, which was only a very slight rise on April, so basically flat at the bottom of the cycle. This is the first time in the last 15 years that we haven’t seen a price bounce once the bottom of the market is hit. Sure, there have been instances where it was a dead cat bounce which resulted in a double dip, but this time Fluffy’s stayed flat on the deck. Fortunately, the bottom of this cycle (which it hopefully is) is around $15/m3 higher than any of the dips in the last 8 years but, nevertheless, it’s still painful.

There has been positive movement in the CFR price (sales price in China) with a lift of around $US10/m3 over the past three months but increases in shipping and FOREX have taken the fun out of the party. Chinese on-port inventory has moved lower in June and currently sits around the 3.4Mm3 mark, down 600K/m3 from May. Uplift from ports is running at around 70K/m3 per day, although this is expected to drop as China enters its hot season and some of the workforce return to home to harvest crops during June. In addition, construction sites must cease work for a few days in early June during the high school exams to reduce noise pollution – imagine trying that in NZ!

As expected, the NZ supply is starting to wind back as the Taupo windthrow salvage finishes and what’s left of the woodlot sector slows as the rains start. There are still some older cargos in China that will need to be worked through, but with reduced supply we would expect to see inventories continue on a downward trajectory. It may not be heading down as fast as Synlait’s share price, but any movement is good for potential price increases.

There has been some good news on the Chinese construction front with the Government putting their ‘Three Major Projects’ development plan into action. This plan includes construction of affordable housing, renovation of urban villages and construction of recreational facilities that can be converted into emergency hospitals or accommodation. 

NZ will see three vessels’ head to India in June and there is the potential that demand may increase somewhat in that market. It’s still only early days with supply back into India, and volumes are pale in comparison with China’s monthly tally of 40 odd vessels, but from a supply perspective, anything that’s not heading to China will have a positive effect in the long term.

Domestic sawmills continue to wade through a softening market with NZ residential construction spending reducing from 6.1 billion to 5.3 billion over the past three quarters. This softness is likely to continue as long as our esteemed Reserve Bank Governor keeps the OCR in top gear, and it doesn’t look like the clutch will start slipping until we’re well into 2025. Domestic pruned log supply remains higher than expected as export pruned prices stay subdued and sales that would normally go over the wharf are diverted into the domestic market. This trend will turn quickly once export prices regain some momentum.

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Source: Forest360

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