LOG PRICE UPDATE FOR NOVEMBER

Log prices have continued to track northwards for November. Export A grade log prices in Napier are now averaging around $125.

Our exporters feel the market will stay very similar to this over the next two or three months. Some are suggesting the prices will not change much over the next 12 to 18 months.

In July (when log prices dropped sharply), we reduced all our harvest crews to 75% of their winter harvest volumes. This has in many cases caused financial hardship with some of the crews now advising us they cannot continue under the harvest caps.
None of the other forest companies operating in the Napier area are constraining harvest volumes any longer and this is also creating issues with our own crews who perceive the grass to be greener with the other companies.

The combination of increased log prices and the difficulties the harvest constraints are placing on our crews has led to our decision to lift the caps and allow our harvest crews to operate at their normal capacity with no constraints.

We are optimistic the log prices will hold up as we know that one of the triggers of the July log price fall was the Chinese Holiday season (the increased socio economic status of Chinese leads to a longer summer holiday season). Traditionally the Chinese New Year has led to a decrease in log off take at Chinese ports which has meant a buildup in volume at the ports—not good for log prices.

Chinese New Year in 2020 is 25th January and fortunately this should dovetail nicely with our own reduced volume created by the Christmas/New Year break. Lead time is about six weeks, which should mean reduced log supply in early February.

Towards the end of October one of our log exporters took our Forest Manager, Steve Bell to China (and later to Japan) to visit log purchasing clients. They took Steve to Chongqing which is the largest city by population in the world with about 32 million people. It is on the Yangtse river and is 2,200 km from the ocean port (close to Shanghai) where our logs are offloaded onto barges of about 5,000 to 8,000 tonnes for the trip up the Yangtse.

Steve met the largest log buyer in Chongqing (Mr Wong), he was very bullish about our radiata logs. The sawmills enjoy the consistency of the product and the reliability of log supply. Mr Wong purchases about 700,000 Jas per annum. This is about half the supply of radiata sent up the river and around 3% of total New Zealand log exports.

Steve visited a mill site using very old technology and discovered the head rig operator was paid US $1,600 plus per month. This is about a 300% increase since Steve was last in China, four years ago.

We have also visited mills in China that are modernising because of the dramatic increase in wage costs. The good thing about this for us is that wood consumption worldwide relates directly to socio-economic status, so we anticipate per head, the wood consumption will remain strong in China.

Steve said he got the message quite clearly that radiata was not going to lose its market share to the European volume of spruce. The Chinese see the European volume as being inconsistent, the supply is not going to be long lasting and their sawmills require retooling to efficiently handle it.

We can now look forward to a busy summer on the harvest front and hope the positive market information from our exporters and their buyers is resilient and we continue to see small increases over the next months.