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NZ log exports hit new monthly record in March - Further strength forecast BusinessDesk) - New Zealand exported a record volume of softwood logs in March, as shipments to most major markets increased, with further strength forecast through the rest of the year, according to AgriHQ, NZX's agricultural analysis business.
The country shipped a record 1.975 million cubic metres of softwood logs overseas in March, up 22 percent from both the February level and from March last year, AgriHQ said in its latest monthly forestry market report. That beat the previous monthly record set in October last year and puts first quarter log exports 22 percent above last year's levels.
All major destinations for New Zealand logs were up in March, except Japan due to timing issues, although Indian shipments had been volatile as regulators clamp down on the Indian banking system and South Korea was subdued due to a sluggish economy, the report said.
"A stellar March for exports of NZ softwood logs broke previous records," AgriHQ analyst Reece Brick said under a section of the report titled 'Only direction upwards'. "Expectations are for the strength in this market to continue throughout 2018, with demand expected to pick up from India in the second half of the year."
The latest gains come after New Zealand shipped a record 18.8 million cubic metres of softwood logs overseas last year, up 18 percent on 2016, with exports to China jumping 29 percent and accounting for three-quarters of the total. AgriHQ said exports to China continued to grow in March, up 20 percent on year-earlier levels and marking 14 straight months of gains. He noted China's log imports in March were "incredibly strong" this year as Chinese New Year celebrations, which typically lead to a slowdown, occurred in February.
"Any worries around a post-Chinese New Year log slump have been put to bed," Brick said. "In fact the past few weeks have been among the most encouraging in at least the past twelve months, arguably longer."
Log offtake levels at Chinese ports have rushed above previous record rates, with periods where more than 100,000 cubic metres a day has come off, with the average rate sitting around 90,000-95,000 cubic metres a day, he said. That has pulled port-level inventories down to 3.8-4.2 million cubic metres and it’s very likely these figures will be even lower by this time next month, he said.
The combination of higher in-market pricing and the falling value of the New Zealand dollar against the greenback had pushed log export returns further towards record territory, although rising shipping rates had held back values a little, Brick said.
The average price for New Zealand A-grade export logs over the past month had lifted to US$144/JAS from US$143/JAS, and was ahead of US$130/JAS a year ago, and US$113/JAS two years ago, according to AgriHQ's monthly survey of exporters, forest owners and saw millers.
Shipping rates were firmer through April and there were mixed views on where shipping rates will track with some saying elevated oil prices pointed towards a lift while others believed there was enough spare shipping capacity across the globe to keep a lid on rates in the medium term, Brick said.
In the domestic market, the price for S1 logs lifted to $134 a tonne from $133 a tonne last month, according to AgriHQ's survey.
"As a whole, it is still one of the strongest periods ever to be a log trader," Brick said. "Export markets continue to keep domestic mills on their toes, making them pay near to what can be achieved overseas or simply miss out on supplies."
The softwood lumber and log imports by China have more than tripled over the past ten years. In particular, the imports volumes of lumber have outclassed those of log during the past two years. This is in accordance with the latest Wood Resource Quarterly (WRQ) Report published by the Wood Resources International.
The limited domestic resources continue to put China as a major importer of forest products including lumber, logs, chips, pulp and paper. The country’s import volumes of softwood lumber and logs touched new record in 2017, despite slowdown in house construction sector. According to WRQ, China emerged as the world’s top importer of logs during the previous year. Also, China is only next to the U.S. in terms of total softwood lumber imports.
Over the past two years, there has been a significant jump in imports of softwood lumber. The lumber import volumes during the year exceeded logs by nearly 36%. This is a major shift from the past, when there were more log shipments than lumber entering the country’s ports. The total imports of softwood lumber and logs have surged higher by 3.5 times in round wood equivalents (RWE).
WRQ Report notes that the supply sources have changed dramatically over the past five years. The softwood lumber shipments from Russia into China have more than doubled. The shipments from Nordic countries too have recorded notable jump. On the other hand, imports from North American region have declined during this period. With regards to log supplies, Australia became the major supplier, with volumes nearly tripling from 1.6 million cubic metres in 2013 to 4.2 million cubic metres in 2017. The U.S., Canada, Russia, New Zealand and Australia continued to remain as the top five log suppliers in 2017, accounting for nearly 92% of all log imports during the year.
New Zealand's export log market has picked up following a slowdown ahead of the Chinese New Year period. Traders are optimistic about the outlook for the year ahead, according to the latest AgriHQ forestry market report.
The country's log export volumes in February were 1.6 percent ahead of the three- month average and 18 percent up on the same time last year as weaker exports to India and South Korea were offset by strong exports to Japan and China, the report said. Lumber exports also picked up, with February export volumes up 25 percent on the same time last year, driven by strength in China and the US.
Overall, the log trade into China, New Zealand's largest log market, weakened in February with imports down 32 percent on the three-month average and 14 percent below the same time last year because of disruption due to Chinese New Year celebrations, AgriHQ said. A similar pattern occurred for lumber imports, down 18 percent on the same time last year and 34 percent below the three-month average.
Still, New Zealand's softwood log exports have picked back up following a slowing of the market prior to the Chinese New Year, AgriHQ analyst Reece Brick said in his April report under the heading '2018 log exports off to a good start'.
"Import levels witnessed in February hold very little credence for coming months. It is forecast for log and lumber inputs to remain strong or to increase further on past years," Brick said. "If the past month is any indication then 2018 should be another good year for the export log trade. Any post-Chinese New Year jitters have essentially disappeared as the port-level log offtake has risen to the level required to keep the market sturdy."
Brick noted buyers in China are becoming more selective about their logs based on the fairly large volume of logs still on port, with the AgriHQ Log Price Survey showing lower value logs held at levels near to a month ago while better quality logs trended upwards.
He said higher shipping rates and a higher local currency were weighing on the export log market through March and early April, although he noted these appeared to be short-term issues and overall the export log market remains in a "healthy position".
"Each of the main export markets are still showing positive levels of interest which has log traders optimistic that the highs of the past 12 months or so can be repeated again throughout 2018." Brick said competition with the export log market was still driving contract negotiations in New Zealand's domestic market and holding the market solid across the board.
"Mills hoping for a reduction in log prices look like they’ll be out of luck for at least the next few months," he said. "Domestic log demand remains solid, more so on pruned logs than unpruned, while overseas markets are continuing to absorb any product coming out of NZ with relative ease.