August prices are down from July for log exports. Photo / Alex Cairns
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THREE KEY FACTS:
Marcus Musson is the director of Forest 360.
OPINION
Double dips are great when we’re talking about chocolate dip, chip and dip and Lotto, but not so good when talking export log prices, but here we are.
Quarter three kicked off with August prices down about $4/cu m from July after a very slight rally from the low in April.
Prices vary between ports, but for the southern North Island and northern South Island, you’re looking near $113/cu m for A-grade shorts with Tauranga up a few on that, Lyttleton breaking into triple figures at $101/cu m, and similar numbers for the more southern ports.
Interestingly, the three-year average price has dipped into the sub-$120/cu m range for the first time since May 2018.
Depending on whether you’re a glass-half-full or empty person, you could argue either way that the stickiness is a supply or demand problem, and to be fair, you’d be right on both counts.
Demand has reduced primarily due to the Chinese construction implosion, but this has been exacerbated by the traditional off season plus heavy rain and severe flooding in northern China restricting uplift.
Meanwhile, supply has dutifully carried on near 55,000cu m a day, even in the face of ugly pricing, resulting in only a very small reduction in China on port inventory of 50,000cu m, taking the total inventory position to 3.15 million cu m.
This is basically a Mexican stand-off, but the difference is we are pointing our own guns to our heads.
Until we can get inventory well under 3 million cu m, we’re unlikely to see much in the way of price increases.
At the present run rate, we’re delivering about 20 million cu m annualised into China where real demand going forward is probably in the teens.
There’s talk of increased interest from India, but there are complexities around supply, and the demand is only a few vessels a month, so no silver bullet there.
The scenario in New Zealand isn’t a whole lot rosier in the construction space, with framing lumber demand looking decidedly average.
There is a glimmer of hope with the talk of OCR reductions, but there will need to be a significant change in sentiment before housing starts to return to 2023 levels.
Pruned log demand remains stable with a large portion of the resulting clear lumber heading to the US and European markets, although those markets have also seen issues with demand.
The value of pruned logs in the forest grade mix has created a resurgence in pruning as forest owners see this as a good return on investment.
Domestic sawmills have been hitting the papers lately with several sawmills and pulp mills temporarily closing, while spot electricity prices leap higher than Hamish Kerr.
WPI shut both its sawmill and pulp mills, Oji closed its Penrose mill, Panpac shut its Napier mill and Donnelly’s shut its Reporoa sawmill.
Shutting a sawmill or pulp mill takes a lot of consideration because it’s not a case of flicking the switch off.
There’s a massive cost to shutting down and restarting these assets.
With the Government’s push towards decarbonisation (noting that Huntly is now burning coal by the shipful) it must surely be plainly obvious that we can’t rely on electricity to be the vehicle for the fossil fuel divorce.
So, with electricity and gas supply and price instability, it doesn’t take a rocket scientist to figure out that we need another form of fuel to keep all manner of industries in operation.
Don’t Stress NZ, we’ve got this.
Woodfibre-based biofuel is the future of large-scale industrial fuel.
Unlike electricity, it won’t hold you to ransom in a dry, windless winter and doesn’t carry the same level of sovereign supply risk that brought an end to gas exploration under the previous Government.
Long-term supply is easy to see — it’s growing in every forest.
Thankfully, at the recent biofuel conference in Rotorua, the discussion pivoted from utilising slash and residues for biofuel to using lower-value export grades.
This is a win-win in the present environment as China moves to a more mature market where log demand is in better quality, longer log lengths for furniture markets and less in the lower industrial grades.
The supply of an “energy log” will allow for a more stable pricing mechanism, reduce harvest and infrastructure costs, increase recoverable volumes and reduce waste left in the forest.
The supply of this is not unlimited, however, and those industrial heat users that switch first will be the winners, with those slow off the mark likely to be left out in the cold — literally.
Planting season has gone well, although it was off to a slow start in most regions due to drier-than-usual conditions.
This year’s seedlings are a vast improvement on last year due to a better growing season and less disease in nurseries.
The carbon price has remained relatively flat over the past six months and sits at slightly under $54/NZU at the time of writing.
This instability has created a lack of confidence among investors that is now manifesting in lower numbers of establishment contracts for 2025.
In summary, there’s not a lot of positivity in the game at the moment, but things will change.
Summer’s coming, inventory is slowly tracking down and at some stage, we’ll see prices starting to lift again, albeit it’s doubtful we’ll get to the highs of previous years.
In the meantime, we can all do our bit to help, print more, wipe more, build more and burn more — every little bit helps.
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