ANZ AgriFocus: Forestry
Wednesday 24 Jun 2020
Tree felling, hauling logs and the export of logs ground to a halt during the Level 4 lockdown period. The reduction in logs arriving into Chinese ports from New Zealand and other exporting regions provided an opportunity to clear the backlog of logs on wharves, prompting a lift in prices on offer.
Jump in Wharf log prices - The combined lift in pricing now means returns at the wharf here in New Zealand reached record levels in early May. Unpruned logs are trading a relatively wide band either side of NZ$150/JASm3 depending on sales channel and location.
China continues to be the main market for logs. Prices in this market have lifted but are still lower than they were at this time last year. It is really just the lower NZD and the reduction in shipping costs that is fuelling current wharf- gate prices. The cost of moving logs to China has fallen about 40% over the past six months.
The partial lift in prices in China has been driven primarily by the reduction in the supply of logs. Exports from New Zealand ground to a halt in April’s Level 4 lockdown as forestry was not deemed an essential service. New Zealand supplies more logs into China that any other country so the dearth of supply from here certainly didn’t go unnoticed.
Supply of logs from other regions to China has also slowed. Seasonally there is always a reduction in supply when the Chinese New Year holiday occurs, as there is less labour available at this time to unload ships. This year the Chinese New Year break was extended for many workers due to measures put in place to reduce the spread of COVID-19. This meant the volume of logs imported by China in January and February was much lower than normal. In March volumes picked up again, but by April it was just the ships already on the water that were able to deliver logs into China.
The reduction in prices on offer earlier this year also helped crimp the supply of logs into China from Russia and North America. However, the volume of logs coming in from Eastern Europe continued at elevated levels, as price is not the driving factor of supply from this market. Large tracts of forest are being cleared in Eastern Europe to combat a bark beetle infection that is threatening to decimate entire forests. Selling the fallen timber to markets such as China helps recover some of the costs of felling but is not driving the rate which trees are being felled.
High prices not sustainable - The increase in in-market log prices has not been driven by a lift in end-user demand. Rather, it has been disruptions to supply that have prompted the lift in pricing. Therefore once supply returns to normal levels then some easing in pricing is expected to occur.
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