Forest360 NZ log export market update

Last month I made the comment that there was some light at the end of the tunnel in terms of increased export log prices, but we weren’t quite sure what that light was. As it stands now, that light started shining very brightly and the tunnel got much shorter in September as export prices rose around $NZ10/m3 across the board. It appears though that the tunnel length wasn’t the problem and that now we are barreling down the tracks with a full head of steam, the bridge has washed out, we’re overloaded, oh and the brakes are dodgy.

The lift in export prices has absolutely zero to do with increased demand in China, it is purely a reflection of reduced shipping costs and foreign exchange. There has been a push by some exporters to increase the CFR (sales price in China in $US) price up for September deliveries but this has been met with a firm and resounding ‘are you serious?’ by the market.

And to be fair there isn’t much basis for a price lift as in-market log inventories are only marginally down on August and demand has flatlined. NZ has just come out of the wettest winter with the highest fuel prices in memory and log prices that are well below the three-year average resulting in a reasonable drop in log supply. We were hoping that this would result in a sharp reduction in Chinese log inventories and trigger an increase in demand and hence price, but it looks like those hopes are flushed well past the S bend now.

The outlook for the Chinese construction sector is about as rosy as Rotorua’s motel strip with house sales down around 30% on this time last year and stalled projects country wide. There’s much talk of government stimulus to boost the construction sector but this is likely going to be in the form of assistance to complete half built projects rather than start new ones.

Announcements were made last week by China’s housing and finance ministries that $US23.9 billion will be provided in ‘special loans’ to complete unfinished residential housing projects. There’s still an abundance of empty housing throughout China and the ability for the government to continue to use residential construction to falsely project economic growth is starting to wane.

To top it all off, with covid now spreading to most major cities the Chinese govt is still using lockdowns as a covid control, doing nothing for economic growth or productivity. This week, China’s 6th largest city, Chengdu, home to 21 million people, is the latest lucky lockdown recipient in covid roulette. As of last week, around 65 million people in China were under lockdown in one form or another. Maybe Xi Jinping should have a read of Jacinda’s covid playbook to see how well that worked out economically.

To read this week’s full commentary, click here.

Marcus Musson, Forest360

Source: Forest360