Arbor Resources Blog Updates
Arbor Resources Blog Updates
3 November 2021
Log Price Update
This letter is being sent to all harvesting and near to harvest partnerships to provide an update on log prices. Our forests that are exporting logs will be significantly affected by a downwards shift in log prices.
Strong log prices have ensued through the middle part of the year as demand from China remained buoyant. Increased sea freight rates and demurrage (waiting to load or unload) have largely been offset by increased prices paid in China for logs. The ten-year average freight rate is US$26 per tonne, and exporters have recently been paying up to US$77 per tonne. This is an increase of NZD$80 per tonne or roughly $50,000 per hectare in extra freight that the forest owner covers!
All the major Chinese economy market indicators (GDP, industrial output, construction starts etc) are pointing to a slower economy. Log inventory in Chinese ports (4.77 million tonnes) and daily port offtakes (79k per day) are reasonable, but the backlog of ships waiting to offload in China and the slowing economy is expected to keep pressure on prices for the next few months.
Coupled with this slowing demand, China has had to ramp up its thermal coal production in response to higher energy demand (domestic coal production is 4 billion tonnes per year). Since they have stopped importing coal from Australia, they are now rationing power to cool demand for electricity, this has a flow on effect as mills and kiln drying capacity is restricted, further reducing log demand in the short term.
The immediate reduction in logs being harvested in New Zealand, and the forecast removal of supply of logs into China from Russia (estimated around 5-6 million JAS per year) at the end of the year due to Russian policy is expected to help recover demand in the medium term.
Shipping for Baltic Vessels has seen a 25% drop in rates in the last week. Handy size (used for logs) vessels have arrested any increases and Spot prices now sit around US$70/m3. Sentiment is that without goods being manufactured due to factory shutdowns from covid and delay of inventory/supplies then demand for shipping will reduce in the medium term.
The price of domestic logs is negotiated quarterly so the prices which were negotiated in a time of high log prices will stay steady until December when it will be re-negotiated for the new year. While the price is set, the logs that we will continue to harvest will be pushed towards the domestic market to try and optimise returns. The domestic market only takes about 25% of total harvest in our regions.
ROGER DICKIE (NEW ZEALAND) LTD, PO BOX 43, WAVERLEY 4544, NEW ZEALAND
TELEPHONE +64 6 3465329
Current Log Price Situation
Late yesterday (2nd November 2021), log exporters confirmed prices for the first two weeks of November. In Napier, At Wharf Gate (AWG) prices have dropped on average from $129/tonne to $109/tonne. In Gisborne prices have dropped from $113/tonne to $84/tonne. This log price decrease will materially affect returns to forest owners in the short term.
Effective immediately, all harvesting contractors have been instructed to reduce their cut to 60%. We are reviewing this weekly, or as more pricing information becomes available. Contractors have also been told that they will need to take 1 month’s holiday from the 17th of December until 17th of January over the Christmas period. This is in line with what other Forest Management companies are doing. If prices remain low, crews may be stopped before Christmas regardless.
As we have previously mentioned, we need to balance keeping harvest crews available to harvest when log prices are good vs. maximising returns to forest owners, who have waited 28 years to harvest. With the average forest harvesting less than 2% of the forest each month under the 60% restrictions, we can tolerate small periods of low prices, but ultimately, we will stop the harvesting contractors if the market doesn’t improve.
The situation remains very fluid, we are continuing to speak with exporters and are monitoring prices and rates regularly.
We will keep you updated as the situation develops.
Will Dickie and Roger Dickie