The Indian market continues to face the after effects of the demonetization (of large value currency notes) in November 2016. This move, done with the salubrious objective of reigning in black money and curbing an enormous parallel economy, affected almost all sectors of the Indian economy. It brought economic and business transactions in many sectors to a virtual standstill from November 2016 to January 2017.
Fearing a dull demand, most NZ exporters did not ship any log vessels to India for a couple of months. The largest affected segment was the Indian tropical hardwood logs trade, while pine demand suffered a decline in this period by 20-30%. However this lack of shipment from NZ created a gap in supply (Editor’s note: Logs exported from NZ to India by value in December 2016 were 62% down on December 2015), increasing sawn timber prices and the Indian NZ Radiata pine logs import market quickly played catchup with the strong China prices in February.
Another significant change in this period was the imposition of a service tax on the ocean freight component of all imports to India. India imposed a 4.5% service tax over freight on cargoes imported on a delivered or CFR basis on January 22nd 2017. This service tax was already being levied since June last year on cargoes that were imported on a FOB basis and ships chartered by importers domiciled in India. The move is significant because it will make cargoes of commodities such as timber, oil and coal costlier since ship owners will pass on the service tax to Indian importers.
The Reserve Bank of India (RBI) cut the economic growth forecast to 6.9% for the current fiscal year from the 7.1% estimated earlier, and predicted that the economy will bounce back to 7.4 per cent rate next fiscal year. The RBI is keeping key interest rates unchanged, saying it wants to assess how the transitory effects of demonetization on inflation and the output gap play out.
For Feb–March 2017 NZ Radiata pine A grade log prices are in the region of US$141-143 and ocean freight from NZ to India depending upon the NZ load port sequence varies from US$28/JAS to US$32/JAS. The freight market is expected to gradually firm up over the next few months.
It is expected that FY2017 annual volumes for NZ Logs for the Indian market will remain around 2 million m3and we may see a 15-20% growth in the following year.
Ocean freight has firmed slightly in the handy-size sector. Exporters are picking freight increases over the next couple of months mainly due to an increase in fuel prices. Current freight rates are in the range USD18-21 per JASm3 to China, and USD28-32 per JASm3 to India. Lloyds List intelligence Baltic Indices chart can be found here.
The greenback strengthened after US President Donald Trump hinted last week that he will soon announce tax cuts in the US, which helped drive US equity benchmarks to new highs. Reports of positive talks between Trump and leaders of China and Japan have also helped underpin the US dollar. But you won’t get any predictions here on where this will end up, as the Trump administration does seem to prefer a lower USD to reduce imports and boost export sales.