Brian Mahoney monthly forestry market report which keeps Industry informed on current trends within the Export Market Internationally
China market for export log product from NZ has turned the spot log market into crisis with many operators cutting Contracts in jeopardy. In the space of a month, US$20+ per cubic metre has been wiped off the CIF price for bulk shipping on NZ Log product on its main Grade A Product line.
This reduction in sales price is certainly stands out as an isolated event currently in the China trade. Such a quick drop has massive impacts, not the least being a dramatic downturn in the harvest rate in NZ. This has huge consequences for all involved.
The market has been overinflated for some time and is exactly what is an overdue correction. The CFR price is the value per cubic metre landed in China. In US dollar terms this has dropped for a standard A grade log from an average circa of $140 to $110 per m3.
Some Exporters have suggested as low as US$100 is being offered in small volumes. However the market dynamic is changing daily and is one that’s hard to predict.
Here are some of the basics as to what is happening right now
- China and US tariff regime started to decay impacting sales from China to the US.
- There has been a significant increase in supply of lumber from multiple sources, primarily Europe and Russia
- The demand for timber has been slowing and with the oversupply, prices are falling
- China wholesaler returns have been negative for some time at the same time when construction has been hampered by a very hot summer.
- Major NZ suppliers have ignored the market intel since late 2018 trying to drive up price when it needed to go down
- NZ, has for some time which has harvested forests way younger than optimum and has been a contributor to excess supply
The change in the market changed to a tipping point which came when one large NZ supplier sent several vessels to China without sales and LC’s locked down.
Consumption levels has been pretty good for this time of year at around 70,000-75000 cubic metres per day. Inventory of logs has been climbing to over 4 million cubic metres, close to 10 weeks supply, which is part of the problem.
India and Korea have been following the trend line downward currently not offering price points in NZ substantially different to China.
Domestic Prices have remained stable and likely to remain so as it presents a very reasonable return to forest growers. If the domestic prices however I feel that tis will also take a correction as supply and demand stabilizes with the China market dwindling
