PF Olsen NZ log market update - October
Friday 4 Nov 2022Market Summary
At Wharf Gate Prices (AWG) prices for export logs reduced an average of 2 NZD per JASm3 across ports in New Zealand in October. The CFR log sale price in China has reduced as the CNY weakens against the USD. The weaker NZD against the USD had countered this lower sale price when determining AWG prices in New Zealand. The NZD has stabilised against the USD, while the CNY has continued to weaken against the USD. This variation in currency performance against the USD will likely cause some short-term AWG log price pain for New Zealand forest owners. While log demand is down in China, reduced log supply is maintaining a balance between supply and demand.
The PF Olsen Log Price Index decreased $2 in October to $123 which equals the two-year and five-year averages. The October index is $5 above the one-year average, so continues to show that log prices this year have been well below average.
Basis of Index: This Index is based on prices in the table below weighted in proportions that represent a broad average of log grades produced from a typical pruned forest with an approximate mix of 40% domestic and 60% export supply.
Domestic Log Market
In August 2022, 5457 new dwelling were consented. This comprised of 48% townhouses/flats/apartments and units, 42% stand-alone dwellings, and 10% retirement village units. The number of new dwellings consented to the end of August YTD is up 8.9% from the same period last year.
The annual value of non-residential building work was up 14% year-on-year ended August 2022. Auckland and Waikato continue to dominate the construction industry with 52% of the national consents this year coming from those two regions. Canterbury consents are also strong with 17% of the national consents. Canterbury consents had the biggest increase of major areas, up 23% year-on-year to the end of August. While West Coast consents are only 3% of Canterbury’s consents, they are up 58%!
Export Log Markets
China softwood log inventory remains below the 4m m3 despite China having the Golden Week holiday at the start of October. There is also a lot less spruce in China as arrivals from Europe has dropped dramatically. This inventory is now less than 500k m3. Daily port log volume off-take has not fully rebounded since the Golden Week and is only about 60k per day. (It was 70k per day before the holiday period). There is still a wide range of CFR sale prices in China depending upon vessel timing and sales strategies. The current sale prices for A grade logs range between 128-134 USD per JASm3. This is about a 10 USD drop over the last month.
The September Caixin China Manufacturing PMI declined further to 48.1 from 49.5 the previous month. Output fell for the first time in four months and new orders shrank the most since April. Of more concern is that export sales declined at the steepest rate in four months. Market sentiment is at its lowest point since November 2019. While log demand is down in China the reduced log supply is maintaining the supply demand balance.
High unemployment rates as well as low productivity means housing affordability will be a significant issue. Homebuyers have also lost confidence in the completion of new real estate projects and are refraining from buying new properties. Housing prices are falling in more than half of China’s cities. A survey by the People’s Bank of China in the second quarter of 2022 showed that only 16.2 per cent of households expect an increase in house prices. New home sales are also plummeting, dropping 23 per cent year-on-year as of August. A drop in pre-sales is important because they currently account for 86 per cent of Chinese developers’ funding.
Policymakers attempt to restore the confidence of homebuyers by financing developers with guarantees or have state-owned developers take over the assets of private developers. The structural changes to the Chinese real estate market are resulting in a larger market share for state-owned developers (deeper pockets and access to better funding) at the expense of private companies. it is estimated that only about 25% of private property developers will remain. This means the developers will tend to have healthier balance-sheets, be more stable and operate with smaller profit margins. Urbanisation of the population as well as upgrading housing standards means log demand will continue and should stabilise with less property speculation.
Scott Downs, Director Sales & Marketing, PF Olsen Ltd
Source: PF Olsen Ltd
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