Arbor Resources Blog Updates
New Zealand’s primary industry export revenue is forecast to reach $43.8 billion for the year to June 2019, an increase of 2.5 percent from 2018.
The Ministry for Primary Industries (MPI) has just released its Situation and Outlook report for September 2018.
“The latest update gives an encouraging assessment of our major primary sectors which continue to grow - up $1.1 billion from the previous year,” says Emma Taylor, a MAF policy director.
It’s a promising outlook and builds on the strong growth seen in 2018, when export revenue increased 11.8 percent. The year ended 30 June 2018 saw continued strong demand for logs in China bringing record export prices and volumes.
Forestry exports are expected to remain stable at $6.4 billion for 2019. Log prices are expected to remain near record levels as Chinese construction activity is forecast to remain strong.
Horticulture and dairy are the driving forces behind the increase forecast for 2019. Horticulture exports are forecast to rise 13.1 percent to $6.1 billion for the year ending June 2019. Dairy exports are forecast to rise 2.1 percent to $17.0 billion for the year ending June 2019, consolidating gains made in the last two years.
After an impressive gain in meat and wool exports in 2018, exports are forecast to decrease by 1.3 percent to $9.4 billion in 2019.
“Overall, the latest outlook for our primary industries gives plenty of positives as we work to sustainably reposition primary industries up the value chain and deepen sector partnerships,” say Taylor.
MPI’s Economic Intelligence Unit has published a new webpage designed to make MPI’s data and analysis more accessible. For more information see:www.mpi.govt.nz/EIU
The next Situation and Outlook for Primary Industries report is due to be released in mid December.
New Zealand's export log market took a hit from the trade dispute between the US and China as the declining value of the yuan crimps the buying power of the country's largest log market.
The average price for New Zealand A-grade export logs dropped to US$133/JAS from US$141/JAS in August, and US$145/JAS in July, and is now the lowest since June 2017, according to AgriHQ's Forestry Market Report for September.
"The Chinese log market has again dominated talk in the NZ forestry industry amid its sudden depreciation these past two months. Purely from a data perspective August and early September don’t make for pretty reading," AgriHQ analyst Reece Brick said in his report. "All of this weakness is directly related to the reduction in Chinese buying power, itself due to the depreciation of the CNY:USD."
The yuan has depreciated 7.5 percent since mid-June, recently trading at 6.8763 per US dollar. Still, Brick said that despite the fall, market sentiment has stayed "quite positive" as factors such as port-level inventories, offtake rates and shipping rates otherwise point towards healthy fundamentals for New Zealand log trading in China.
"Consensus among the majority of traders is that we’ve settled at the bottom of the market for at least the time being," he said. Chinese demand for New Zealand logs has been strong over recent years after Asia's largest economy clamped down on the harvesting of its own forests and reduced tariffs on imported logs to meet demand in its local market. However, trade tensions between the US and China have dented the value of the Chinese currency and traders fear rising tariffs will hurt economic growth and dampen demand.
"What the future looks like will largely be dictated by the actions of the Trump administration," Brick said. "The latest round of 10 percent tariffs covering US$200 billion of Chinese products is yet to be felt within the log industry. The main headache, however, is that there’s no end in sight for the trade war. It’s expected the latest tariffs will be lifted to 25 percent by Christmas, while Trump has threatened to extend these tariffs to another US$267 billion worth of Chinese products.
"Given log demand is so closely tied to economic growth, we can only hope these two power-houses can settle their differences sooner rather than later. Just don’t count on it," he said.
Brick noted that neither India nor South Korea, New Zealand's other major log markets, have provided any significant relief for exporters either. However, he noted the weaker New Zealand exchange rate against the US dollar had offered some protection for local export traders against the depreciation within China.
Southwest China to see investment in timber ports and processing zone – A cooperation and investment agreement was recently signed between China Forestry Group Corporation and the administration in Ba’nan district of Chongqing municipality. An investment of RMB23 billion will be used to build timber trade ports, a timber processing zone and a wood products demonstration and trading centre in Western China.
Currently in China the timber ports and industrial zones are mainly distributed in coastal areas and along the border areas and there is a gap in the southwestern regions of China.
The new infrastructure will result in large volumes of imported timber entering the southwestern regions and this will cut transportation costs for enterprises in the region and will also expand employment opportunities. It is forecast that demand for timber would expand to 100 million cubic metres in the southwestern region including Yunnan, Sichuan, Guizhou, Guangxi provinces, Xizang Autonomous Region and Chongqing municipality.
Chongqing municipality is the distribution centre in southwestern China and the technology for timber processing mills is well established and production costs are very competitive, say analysts.
Traders in China are complaining that the landed cost of imported North American logs has jumped by around 30% as a result of the depreciation of RMB and the trade frition between China and the United States.
Although shippers in the US have been lowering log prices to maintain market share in China the higher costs continue to be a major challenge to Chinese importers. The reason behind this is that, even with price reductions, landed costs are still higher than previously which means competitiveness in the domestic market is weakened and traders are losing out to alternative timbers.
At present, the price for grade A processing general materials (2-4m) North America hemlock and fir in the Guangdong market is between RMB1680-1760 per cubic metre. The price for grade A processing general material (2-4m) southern pine is between RMB1580-1660 yuan per cubic metre.
The operator of southern Tasmania's only direct freight service has announced it is pulling out of the state in two weeks, forcing customers to transport goods to northern ports by road or rail. Singapore-based company Swire Shipping has been operating out of Hobart every nine days since 2015, but are stopping the service due to charter and bunker costs making the service "commercially unviable".
The end of the service is expected to seriously affect the forestry sector, with one industry leader saying "a number of communities would be holding their collective breath knowing this will have a significant impact".
Chief executive of the Tasmanian Chamber of Commerce and Industry, Michael Bailey said the biggest loser from the move was the southern Tasmanian forest industry, which had been using Swire's service to export to international markets.
"We know that for our Southern forest industries, this is a really important way of getting their residues into a profitable market, so this is a problem," he said. "There's really no other option but for the southern industries to freight their products now north. We know the impact that has on their bottom line, and that's going to be a problem for them."
Forest Industries Association of Tasmania chief executive Craig Jones said the decision would be "a problem for the Swire's customers who are using that and then also the customers for the wood overseas". Mr Jones said the Tasmanian timber industry was sustainable into the future, but was in need of proper coordination. "It's another illustration of the issue around residues in the southern forestry estate. Unless we find a manageable solution for that, it's always going to be difficult," he said.
A State Government spokesperson said logs could still be exported from Hobart through bulk shipments, and the loss of Swire would only affect containerised shipping. She said the Government would work with Swire customers to discuss the impact and alternative freight solutions and had engaged Evan Rolley to examine all forest residue options as a priority.
But Labor's shadow minister David O'Byrne said forestry companies that relied on the Swire service to ship their product to Melbourne would be significantly affected. "It will mean they have significant extra costs to get their product to the northern ports or they'll need to seek another exporter to move their products," he said.
Data from China Customs shows that in 2017 total value of China’s wood products trade (imports and exports) rose 10% to US$156.4 billion. The growth in wood products imports rose 21% to US$ 52.6 billion, significantly higher than the growth in exports (1.3%).
The US is the main importer of China’s wood products but anti-dumping and anti- subsidy policies in the have resulted in a sharp fall in exports to the US.
China’s wood products enterprises are facing considerable challenges in the US market. The value of foreign trade in wood products between China and the US in 2017 was US$29 billion, accounting for 19% of China’s total wood products trade.
However, tensions between the United States and China are increasing over trade issues after tariffs on US$50 billion worth of Chinese goods were announced by the US.
The US recently released a list of tariffs on US$200 billion of Chinese goods and wood products are affected including wood chips, wood charcoal, logs, other wooden products, sleepers, sawnwood, veneer, wooden flooring, particleboard, fibreboard, plywood, laminated wood, wooden doors, wooden windows, bamboo and rattan, wood pulp and waste paper, paper and board, pulp and paper products and wooden furniture and seats.
In 2017 the value of China’s exports of wood products now included in the list attracting tariff was US$16.365 billion. The value of China’s imports wood products included in the list attracting US tariffs was $8.27 billion. China imports mainly waste paper, sawnwood, wood pulp, logs and paper products.
The changes to US tariffs, if implemented in full, will create a major challenge for Chinese enterprises. The tariffs will not immediately go into effect but will be subject to a two- month review process beginning in August.
In Papua New Guinea, Prime Minister Peter O’Neill says there will be a complete ban on round log exports by year 2020 so that we keep the jobs in our country.
In a statement to parliament last week, he said: “We will not be issuing timber permits for round log exports by 2020.
“There will be a complete ban on round log exports by year 2020, so that we keep the jobs in our country.
“We want to get the timber companies to go into downstream processing in our country and the fixed product can be exported overseas.
“That is well in line and there is a good understanding in the industry and Government about how we develop our forestry industry.”
O’Neill said in terms of fisheries, government had introduced a rebate system.
“That is because fishing companies, especially in the tuna industry, have taken all the catches overseas,” he said. “They are not coming onshore to get fuel, or supply or offload the fish on our shores .
“As a result, many of our fish end up in Thailand or the Philippines.
“What we have done is we have done a rebate system.
“But we are now telling every fishing company and every fishing boat that you will pay the full price.
“When you come onshore and unload the fish in PNG waters and factories, we will give you a rebate.
“Despite some initial doubts about that programme, the fishing companies have now realised that this is beneficial to them as well.
“This is more so for our factories that were running at 20 per cent to 30 per cent capacity. They were not running at 100 per cent. I think on
RD Tuna cannery in Madang was running on full capacity but the rest of the tuna factories were not.
“This has now increased production of canned tuna products of fish in our country.”
“As a result, we can export to the European market on favourable terms that we have with the European Union.
“Initiatives like that are starting to produce positive results. We are making headways in terms of our negotiations with the resource companies.
“They are starting to come on board where we have had agreements where we gave them concessions about parking export revenues in overseas accounts.
“Future projects agreements will come under and follow a stricter adherence to that kind of arrangement.”
NZ log market 'nervy' over US-China trade stoush, says AgriHQ- New Zealand's booming export log market is starting to catch the jitters as concerns mount about the impact of US President Donald Trump’s trade war.
Demand for New Zealand logs has been strong over recent years as local sawmills compete with the export market to source logs for local construction, at a time when demand in China has stepped up after Asia's largest economy clamped down on the harvesting of its own forests and reduced tariffs on imported logs to meet demand in its local market. However, trade tensions between the US and China are creating nervousness in the market, as traders fear tariffs will hurt economic growth and dampen demand.
"Positivity has permeated the industry, at least for those selling logs, for upwards of two years," AgriHQ analyst Reece Brick said in his latest monthly report on the forestry market. "However it’s getting a bit nervy all of the sudden. That’s not to say everyone’s panicking, but there are certainly more reasons to frown than we’ve seen for a long- while.
"The export scene, along with the rest of the world, is trying to figure out what the outcomes will be of the tiff between the US and China. Economic growth data, stock exchange indices and foreign exchange rates have all made unfavourable movements in the past month, and there’s little sign that the relations between the two countries is on the mend."
Brick's comments about nervousness in the log market echo similar concerns noted by industry watchers in the dairy and wool industries recently, where demand is said to have weakened as buyers are concerned that tariffs on end products will flow back to dent demand for New Zealand commodities.
"If there’s a common enemy for NZ log traders it’s President Trump," said AgriHQ's Brick. "Another month of the US and China passing tit-for-tat trade tariffs is creating global economic uncertainty, understandably causing some nerves given log values are highly reliant on macro-economic strength."
The US and China this month imposed tariffs of 25 percent on US$34 billion of each other's exports and US tariffs on an additional US$16 billion of Chinese goods are coming soon. The US government also said last week it was readying new tariffs on Chinese goods worth an additional US$200 billion.
Brick noted the latest set of economic data out of China indicates the trade war is already impacting China’s economy, with second-quarter growth slowing to 6.7 percent, its slowest rate of growth in almost two years, and expectations for a further decline in the third quarter.
"The consensus in the market place is that the trade tension between China and the United States could cause an economic downturn," Brick said. "The International Monetary Fund condemned President Trump’s trade policy and advised governments to bulk up savings. The escalating trade tension may hinder global growth and delay foreign investments worldwide.
"The main issue is the nervousness that is reverberating throughout the globe, slowly rippling into NZ. Sentiment within the NZ market is mixed – the more risk averse are preparing for a drop beyond the short-term, while quite a few others are thinking this is a temporary, storm-in-a-teacup situation. Either way, no-one can be certain."
Forest products are New Zealand's third-largest commodity export group behind dairy and meat products. AgriHQ's monthly survey of exporters, forest owners and saw millers showed the average price for structural S1 logs in the New Zealand market edged up to $136 a tonne this month, from $135 a tonne last month, and marking the highest level since 1993. The average price for New Zealand A-grade export logs held steady at a four-year high of US$145/JAS.
Huge growth potential and softwood opportunities – Softwood is gaining market share over hardwood in the Indian market, assisted in part by limited volumes of renewable or certified hardwood fibre. A variety of initiatives are pointing to huge future increases in Indian wood products demand, with the country poised to become the third- largest economy in the world by 2030.
India is a difficult market to access for most major log/lumber export-ing countries. New Zealand is its most dominant softwood country supplier, accounting for 70% of total softwood log and lumber imports; Malaysia is the country’s largest hardwood supplier. Rapidly depleting global hardwood supply and huge consumption growth anticipated in India mean that the demand for imported softwood will only expand. One forecast is for massive softwood expansion: from approximately 2.5 million m3 in 2017 to over 65 million m3 by 2027.
The Indian log market has reached China price parity with ‘A’ longs now selling for USD 159-160/JASm3. While volumes delivered to this market are 14% down year on year to May 2018, it has been a steady market and exporters still expect an increase in demand in Q4.
There is an increased schedule of ship arrivals from NZ over the next six weeks, so this will be a good test of this market. Containers of logs are also arriving from Germany, South Africa and southern yellow pine from the USA.
The labour shortage mentioned in previous Wood Matters continues, but some labour has returned to the mills from agricultural work. Log stocks are about 120,000m3 in Kandla and 30,000m3 in Tuticorin. The cash flow of log buyers is still tight after the introduction of GST and the increased scrutiny on bank lending compounding the weakening of the Indian Rupee against the US dollar.
Bonded areas could provide shelter for manufacturers hit by US tariffs – if China can convince its southern neighbour to get the plan moving.
A spiralling trade conflict between Beijing and Washington is an unwelcome development for China, but officials in Guangxi – where seven “cross-border trade zones” with Vietnam are planned – see an opportunity.
The border has sheltered Vietnamese nationalists trying to overthrow the French in the 1930s, and Ho Chi Minh’s guerilla soldiers fighting the US army in the ’60s. Parts of the 1,300km frontier became battlefields in a brief yet bloody war between China and Vietnam in 1979. Four decades on, it could be about to play a role in a very different kind of war.
Washington and Beijing on Friday fired the opening shots in a trade row that looks set to escalate, slapping 25 per cent tariffs on US$34 billion of each other’s goods.
In the Guangxi region, home to museums dedicated to late Vietnamese communist leader Ho, officials are now touting with renewed vigour the idea of the cross-border zones, where exporters from China could assemble products and label them as “made in Vietnam”. The bonded zones are part of a wider cooperation plan signed by Beijing and Hanoi last year, under China’s belt and road trade and infrastructure strategy. If they go ahead, they could provide shelter for manufacturers hit by US President Donald Trump’s tariffs.
One of the zones is in the border town of Pingxiang, administered by the city of Chongzuo. The city’s deputy mayor, Lu Hui, said they wanted to create a cooperation zone with Vietnam that had “a free flow of workers, capital and materials”. Lu, promoting the plan to media on a government-organised tour, said products made in the zone could be labelled either as “originating in Vietnam” or “originating in China”. Wang Fanghong, the Communist Party boss of Pingxiang, also said the dispute with Washington could give the trade zones plan a boost. It “could be a chance” for his small town to speed up development, Wang said.
Exporters trying to ship products made in China “will find it difficult to send them to the US directly, and some will be transported via Asean members”, he said. Wang suggested places on the border with Vietnam like Pingxiang could go the extra mile and turn this “transfer trade” into “local processing and manufacturing”.
Officials trying to sell the plan to export-oriented businesses in the country’s manufacturing heartland, Guangdong province, and the Yangtze River Delta say it will give them access to cheap labour from Vietnam and a wide range of preferential policies offered by both sides of the border. Those policies, according to the promotional materials for the zones plan, would reduce logistics, staffing and tax costs.
Significant savings could be made on wages, according to the Chinese officials, who said local manufacturing workers were paid about a third of the salary of those in the Pearl River Delta. Factory workers in Shenzhen and Guangdong are paid an average wage of 5,000 yuan a month (US$750), compared to a daily average of 80 to 100 yuan (US$12 to US$15) earned by those in northern Vietnam. Factories in the cross-border zones would also be shielded from the regular threat of protests and strikes faced by Chinese businesses operating in Vietnam, the officials said.
Last month, demonstrators set fire to police vehicles, defaced government buildings and brought Chinese-owned factories to a standstill across Vietnam. It was the worst flare-up of anti-Chinese sentiment since 2014, as workers protested over the government’s plan to set up three new special economic zones where investors will be able to lease land for up to 99 years. Demonstrators fear they will be dominated by Chinese interests. These zones are separate to the ones planned on the border with China, but this growing unease over the country’s powerful northern neighbour is one of many hurdles the Chinese officials will have to overcome. Another is convincing Beijing to give them greater autonomy in trade zones like the one in Pingxiang, under a “two countries, one free-trade zone” special administrative set-up.
“Even in very difficult political times with China, still we export to them. This is why there is a great need for officials from the neighbouring Chinese region of Guangxi and officials from Vietnam to sit down and talk more about how to cooperate, especially about trade and how it will benefit both sides,” Nguyen said.
Roger Chau also said there was opposition to the cross-border zones on the Vietnamese side. “Many Vietnamese are concerned about the growing number of Chinese investments in the country. They see Chinese factories as bringing serious pollution, they worry about bribes and problems with the land,” Chau said.
The cross-border zones could be a good testing ground for export-oriented businesses wanting to ship through other countries, or even to relocate their operations elsewhere in the region.
But the problem is, whether the Vietnamese government says yes.