Sentiment’s a funny thing. A month ago, we were staring down the barrel of a long and protracted export market ‘crash’ as prices plummeted to double digits courtesy of lack of demand from China and an oversupply, or perceived oversupply from NZ.
Most in the industry knew that the oversupply situation, perceived by Chinese buyers, was very short term and that once prices dropped below the magic $120/m3 level, supply would drop faster than the popularity of home-built submarines. This has played out as expected, however, supply from NZ has been artificially buoyed by the windthrow harvest in Taupo and the shutdown of the Pan Pac mill in Napier which are both short term anomalies.
Unsurprisingly, as port deliveries have reduced in the past month (especially in Gisborne and regions supplied by the woodlot sector), the sentiment of exporters has noticeably changed as supply dips under demand and looks to be low for a reasonable period. This is reflected in the increased pricing of July deliveries and the posturing for volume by exporters.
While July pricing is barely above $100/m3 on an at wharf gate basis, and about as appealing to forest owners as a Kardashian singing karaoke, it is a signal that there is some flickering light at the end of the tunnel. Actual sales prices in China have only increased very slightly, and the July wharf gate increase is a result of this combined with lower shipping and demurrage costs, but we’ll take any increase at this point.
This doesn’t signal a change to the fundamentals of the Chinese real estate market which needs a serious dose of Prozac. You only need to look to the negative reports from the global steel industry to see that the consensus is that the Chinese building boom has had its run, a bit like Phar Lap, great while it lasted and ended unexpectedly.
While there will be continued baseline log demand, it will very likely be below levels we have enjoyed for the last 15 years, which will necessitate lower supply to keep prices to acceptable (maybe not enjoyable) levels.
We are currently in the Chinese slow construction season and port offtake is in the 65 -70,000m3 per day range which isn’t horrible as NZ accounts for around 80% of total China softwood supply. On port log inventory has been reasonably static in the high 3Mm3 range and is expected to track down as NZ supply reduces.