The domestic demand for sawn timber in New Zealand remains well below production capacity. Mills have reduced orders for logs, so forest owners have to export a higher percentage of their production. Fortunately, At Wharf Gate (AWG) prices for export logs increased by an average of +NZ$9 in October. The CFR log prices in China have risen steadily over the last couple of months. A strengthening USD against the NZD along with a relatively stable market in China means these AWG price increases should be consolidated in November. However, this pricing is still fragile, especially if there is significant increased log supply through New Zealand’s summer months.
The PF Olsen Log Price Index increased $4 in October to $120. The Index is now $1 above the two-year average, and level with the five-year average.
Domestic Log Market
Sawmill managers report that sawn timber sales are still very slow with high inventory levels of sawn timber in the supply chain. It is estimated there is over 40% of sawmilling capacity not being used in New Zealand as mills slow down production. Spring has arrived in New Zealand and there has been little increase in demand for timber from DIY projects. This is the time of year when these projects begin, but it seems many households are controlling their spend and in the current economic slowdown. These sales are usually the higher margin sales as well.
Many mills continue to reduce orders of logs. With some harvest jobs starting as the weather improves in New Zealand there is more supply than local mills can handle.
Export Log Markets
China
China softwood log inventory is about 2.7m m3 and the inventory levels fluctuated along with supply levels, as log demand has remained steady at 60k m3 per day. The CFR price range for A grade is currently 124-128 USD per JASm3 for A grade. This has increased steadily over the month and now appears to be stable. However, wholesale log prices have recently dropped slightly (10-20 RMD per m3), as sawmill inventory levels have increased. The furniture and MDF markets are faring better than the construction market. Therefore, the higher-grade logs such as pruned and A grade, are easier to sell than the lower-grade logs. The smaller KIS grade logs are easier to sell than the larger KI grade logs as KIS (along with K grade) is used by MDF manufacturers.
The China Caixin Manufacturing PMI slipped in September to 49.3 from 50.4 in August. (Any number above 50 signals manufacturing growth). This is the lowest level since July 2023. In general, supply edged up while demand dropped. The log market was a contrast to this though as log supply dropped over this period.
Prices for new homes in China decreased 5.7% in September compared to the previous year. This is the 15th consecutive month of declining house prices. Despite the prolonged and well-documented troubles in the construction industry, there are some green shoots of recovery. In August the inventory of unfinished homes decreased by 12.7% from the previous year and sales of new homes were higher than new construction starts.
Repeated Government efforts to stimulate the construction industry have underwhelmed the market and had minimal impact. One concrete outcome is the Government will renovate 1 million homes in the older rundown dwellings in larger cities.
India
Approximately ten to twelve vessels are forecast to arrive in Kandla Port in November. These vessels are from Uruguay, New Zealand and Australia. Some logs have arrived unsold at Kandla Port and are now sitting in bonded storage yards for sale. Domestic logs are also available in Gandhidham at significantly lower prices. The A grade (before usance financing costs) sale price range around 140 USD is under pressure.
The sale price of green-sawn timber in Gandhidham has fallen by 50 INR per CFT. The price range is now 491-501 INR per CFT. Buyers anticipate further drops in sale prices. Production and demand should increase after the Diwali festival.
Tuticorin log demand has weakened as well with the onset of the Northeast monsoon rains. Most log supply in Tuticorin is coming from South Africa with high container costs affecting shipments from elsewhere. Demand may increase again in mid-January 2025 with the Indian winter harvest season.
The price for sawn timber in Tuticorin is around 601-625 INR per CFT.
Exchange rates
The USD has strengthened against all currencies through October. This will have a positive impact on AWG calculations in November when log sales in USD are converted to NZD.
NZD:USD
CNY:USD
Ocean Freight
Shipping costs which had reduced in the last month have now risen again slightly in October.
The BDI below is a composite of three sub-indices, each covering a different carrier size: Capsize (40%), Panamax (30%), and Supramax (30%). It displays an index of the daily USD hire rates across 20 ocean shipping routes. Whilst most of the NZ log trade is shipped in Handysize vessels, this segment is strongly influenced by the BDI.
Baltic Dry Index (BDI)
Source: TradingEconomics.com
Singapore Bunker Price (VLSO) (red line) versus Brent Oil Price (grey line)
Source: Ship & Bunker
PF Olsen Log Price Index - October 2024
The PF Olsen Log Price Index increased $4 in October to $120. The Index is now $1 above the two-year average, and level with the five-year average.
Basis of Index: This Index is based on prices in the table below weighted in proportions that represent
a broad average of log grades produced from a typical pruned forest with an
approximate mix of 40% domestic and 60% export supply.
Indicative Average Current Log Prices – October 2024
| Log Grade | $/tonne at mill | $/JAS m3 at wharf | ||||||||||
| Oct-24 | Aug-24 | Jul-24 | Jun-24 | May-24 | Apr-24 | Oct-24 | Aug-24 | Jul-24 | Jun-24 | May-24 | Apr-24 | |
| Pruned (P40) | 175-200 | 175-200 | 175-200 | 175-200 | 175-200 | 175-200 | 180 | 175 | 175 | 180 | 170 | 170 |
| Structural (S30) | 120-145 | 120-145 | 120-145 | 120-145 | 120-145 | 120-145 | ||||||
| Structural (S20) | 93-100 | 93-100 | 93-100 | 93-100 | 93-100 | 93-100 | ||||||
| Export A | 125 | 118 | 118 | 114 | 108 | 108 | ||||||
| Export K | 116 | 107 | 109 | 105 | 99 | 99 | ||||||
| Export KI | 106 | 98 | 100 | 96 | 90 | 90 | ||||||
| Export KIS | 97 | 89 | 91 | 87 | 81 | 81 | ||||||
| Pulp | 46 | 46 | 46 | 46 | 46 | 46 | ||||||
Note: Actual prices will vary according to regional supply/demand balances, varying cost structures and grade variation. These prices should be used as a guide only.
A longer series of these prices is available here.
Log Prices
Select chart tabs
This article is reproduced from PF Olsen's Wood Matters, with permission.
1 Comments
NZ voters need to wise up and realise the boom/bust cycles - mostly instigated by the RBNZ but also by government doing nothing helpful - is absolutely decimating local industry, especially the construction industry which makes up ~25% of NZ's GDP (depending on them booming or busting!).
It is extremely difficult to grow a business when revenues are beyond lumpy! Further, offshore interests buy up local industries in dips resulting in yet more rentier behaviour and lower R&D spending. And further - every bust sees an exit of skilled labor which only serves to decrease productivity as new workers gain the skills that were lost offshore.
The boom / bust cycles must stop! Government must do better! As must voters!
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