China is heading into a week-long holiday this week which will effectively take out around half a million cubic metres of production and the month-long Chinese New Year (CNY) celebrations commence in the second week of February which will see an additional inventory build of around 2.1 million cubic metres.
Generally, post-CNY is the tipping point for price reductions as in-market log inventories rise through 5.5 million cubic metres. Other international markets are reasonably subdued with Covid taking its toll on demand from India and Korea continuing to be relatively static in terms of log demand.
Export log price volatility has always been an issue in our industry and many forest owners, contractors and forest management companies have felt the effect of sudden log price reductions.
This has historically had very detrimental effects on infrastructure and harvesting capacity, especially in the woodlot and private forest sector and has led to a boom bust type mentality.
It is fully understandable that forest owners would cease harvesting when returns are below expectations as for many this is a one-off investment and waiting for another 26 years for the next rotation is not an option.
There are some methods to combat the market forces and help ensure a more consistent return on your investment. Some export companies now offer the option of long-term fixed export prices which are locked in for either a fixed volume or length of time.
A forest owner can nominate what proportion of their export sales are subject to the fixed price depending on their risk profile as some may wish to only fix a portion of their volume and some may wish to fix the entire export component.
This has been a game-changer for forest owners and we have recently signed fixed price agreements for terms of between six and 24 months. This has not only given a level of certainty to the forest owner but also the contractors who have the confidence to purchase new machinery and re-invest in their business based on security of their work program.
This begs the question as to why the export company would take the risk on long-term pricing?
Many of these companies are reasonably well integrated in the manufacturing markets in China and therefore require a consistent volume of feedstock. In addition, fixed pricing secures a base line volume with which to plan vessel timing and ensures this volume is not bled off to their competitors.
Domestic markets continue to be buoyant with many sawmills struggling to keep up with domestic lumber demand. As many of us are now embarking on home DIY projects with our unspent overseas holiday money, sawmills that supply structural and outdoor products such as framing and decking lumber are looking at extending work hours and putting on additional shifts to meet demand from retailers.
Pruned log sawmills are currently awash with supply as the industry moves through the harvest of the mid 90s plantings that were primarily grown as pruned regimes. Many mills that were struggling for adequate supply are now becoming very discerning about pruned log quality and clearwood recovery.
The days of being able to force average to poor quality pruned logs into sawmills are gone and forest owners with lower quality pruned resource will likely see that reflected in their returns.
This highlights the importance of pruning your forest on time. If you cannot commit to complete the pruning on time to keep the defect core under 18-20cm you may as well not prune at all.
You may save a few dollars by using "a local bloke who has done some pruning before" but in the long run, unless its done on time and plotted properly to ensure the stocking and quality is correct, it may be a waste of money.
