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Arbor Resources Blog Updates

​Chinese imports of softwood and hardwood wood products will be
significantly altered in 2022 if Russia’s log export ban is implemented
China is the world’s largest importer of softwood and hardwood logs, and for many decades,
Russia has been a significant log supplier for them. This relationship may change in 2022
if Russia implements their proposed ban on exports of softwood logs and valuable
hardwood logs, while also introducing export taxes on green lumber. All these policy
changes are designed to encourage increased domestic production of higher-valued forest
products.
The Russian parliament has not yet announced the final legislative proclamation, so it is
not clear if there will be a complete or phased-in ban, a significant export tax, or even the
possibility of a state-owned export monopoly. However, a signal has been sent to the
marketplace that Russia will no longer be a major supplier of softwood and hardwood logs.
One consequence of this decision is that Chinese wood manufacturers will need to explore
new long-term log supply regions.
In 2020, China imported almost 6.5 million m3 of logs from Russia, predominantly
softwood species. The trade was substantially less than in any year during the past two
decades. Nevertheless, Russia was still the largest supplier of hardwood logs to China in
2020 (more prominent than any other source of temperate or tropical logs) and the thirdlargest
supplier of softwood logs.
It is crucial to keep in mind that China has shifted from sourcing logs from Russia to
European suppliers the past few years as insect-infested timber in Central Europe has been
in temporary abundance. From 2018 to 2020, softwood log imports from Europe increased
from 1.3 million m3 to 12.3 million m3, while Russian-supplied logs fell from 7.8 million
m3 to 4.2 million m3. However, shipments from Europe are not sustainable long-term.
According to the just-released study by the consulting firms Wood Resources International
and O’Kelly Acumen (Russian Log Export Ban in 2022 - Implications for the Global
Forest Industry), China is expected to source more sawlogs from Oceania, Europe, and the
US short-term. Longer-term, the study anticipates that China is likely to shift further from
WRI Market Insights 2021
- a subscription service from Wood Resources International
Global Sawlog Markets
Wood Resources
International
importing logs to lumber, thus creating opportunities for lumber manufacturers, mainly in
Europe and Russia, to increase shipments to this growing market.
The excerpt above is from the just-released Focus Report “Russia Log Export Ban in 2022 –
Implications to the Global Forest Industry”, published by Wood Resources International LLC
and O’Kelly Acumen. For more information about the study or to inquire about purchasing the
60-page report in easy-to-read slide format, please contact either Hakan Ekstrom
(hakan@woodprices.com) or Glen O’Kelly (glen.okelly@okelly.se). A Table of Contents of the
report is available on our website. Click here!
Contact Information
Wood Resources International LLC
Hakan Ekstrom, Seattle, USA
info@WoodPrices.com

Log Price Reductions and Changes to Harvest Programme

11/7/2019

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What are the reasons for this?
There are a range of reasons. I have listed them below in no particular order.
     The Spruce Bark Beetle in Europe (now has two breeding seasons each year because of climate change) is overwhelming Spruce forests in Europe causing significant losses. As well massive windstorms in Europe have added to the volume of wood that needs to be salvaged. The outcome is a dramatically accelerated harvest and these low-priced salvaged logs are being exported by rail up to 8,000 km to China under the One Belt – One Road Policy, the freight is government subsidised. Apparently up to 30 trains per week arrive in Germany under the Belt and Road initiative, the train trip is 12 days vs shipping 45 days.
       Devaluation of the Chinese RMB related to the Trump Trade War.
     The Trump Trade war with China (25% tax on Chinese goods into USA) is bringing about a slow down in the Chinese Economy
       Wall of Wood supply chain infrastructure issues. The so called “Wall of Wood” is moderated in New Zealand by the lack of harvest and trucking infrastructure plant and labour availability. However, there are also supply chain infrastructure issues in China.
       The summer is traditionally the low season in China for construction and therefore demand as the weather is very hot in areas and warm and wet in other areas.
       Some sellers of logs in China have noticed under the present premier Mr Xi, there is more state involvement in log purchasing entities.
What is the effect of the log price decrease?
Export log prices are set monthly. On 1st July one large New Zealand exporter dropped prices for A grade logs (The bench mark price –which is then related to all log grades) from NZ $135/mᶾ at Wharf gate (AWG) to $97/mᶾ and $105/mᶾ (different North Island ports). Another exporter has dropped prices to $95/mᶾ and $100/mᶾ. 1 mᶾ approximately = 1 tonne.
 
As forest owners, we join the world of many other producers, where our profit margin is the money left after all other suppliers of services are paid.
An example of the effect of the price decrease is:
A forest located say 80 km from an export port before the prices dropped might have had an average gross income of NZ $130/tonne with average costs of say $80/tonne (90% plus of this is logging/loading, engineering and cartage). Logging, cartage and engineering costs have risen by almost 30% in the past 18 months due to demand and supply pressures, plus higher local wage costs. Some distant and lower yielding forests could have costs of closer to $100/tonne because of lower yields or much higher freight costs.
What this means is that if your costs were say $80/tonne, then under the June prices you would have had a cash surplus of say $50/tonne. Under the July export prices this could be $18/tonne (based on Napier July AWG prices).
Another way of putting this. Assuming 700 tonnes of logs are sold per ha, last month you would have had a cash surplus of say $35,000 per ha. Under the July pricing schedule, this could be reduced to $12,600 per ha.
This $22,400 per ha reduction in stumpage has drastically reduced the surplus to owners, and in some cases has pushed stumpages into negative territory.
What actions should we take in response to the log price decrease?
    Experienced producers and exporters agree we need to immediately shorten log supply to China. As the supply chain is six to eight weeks long, the market will not feel the shortfall for some time.
    If we stop harvest, this will quite quickly decimate the viability of many of our harvest operators. This will create significant medium term consequences as the re-establishment of the harvest crews and their plant and equipment will be hampered by the number of crews able to raise the necessary capital or be able to locate experienced staff to man the crews once they have moved on to other jobs.
    We have canvassed a large portion of the forest owning industry and it is evident that we, in line with the other foresters we have spoken with, should be taking immediate steps to reduce harvest.
    Accordingly, we have instructed our forest managers to reduce the harvest operations of their contractors by approximately 25% overall. This may vary slightly from forest to forest depending on their individual circumstances however, this action should help to shorten up the export supply chain while keeping the contractors alive until the prices recover. We will review the situation in two months.
   If a forest takes 24 or more months to harvest, then low log prices for a short period (i.e. three months) makes very little difference to the average stumpage.

Is there any good news?
Fortunately, there is:
   Chinese log buyers love New Zealand Radiata pine for its consistency, its evenness in quality and its ability to saw easily.
    We have had downturns in price at this time of year before, the last one in 2015 affected one of our forests but the prices quickly recovered.
     By shortening the market, our Chinese log salespeople say we could quite quickly bring about a change in the demand/supply ratio that will lift prices. Chinese buyers know that prices can rise quite quickly as well, and they will not want to be caught short of supply.
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    Author
    ​FRANK T DAVIS 

    A SURLY AND CYNICAL OLD CURMUDGEON WITH A JAUNDICED VIEW OF THE POLITICAL ELITE .

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