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October 2023 NZ log market update

5 November 2023
Opinion: Marcus Musson, Forest360 Kiwibuild may be the best thing we can export to fix the housing crisis in China, lots of hui but not much doey. Since the early 2000’s, China has been flat-out doeying in the residential construction sector with an unfettered, mass urbanization plan that has seen a massive expansion in apartments throughout the country. During the US lead Global Financial Crisis (GFC), China propped up its economy through local government investment in infrastructure which saw Chinese construction companies such as Evergrande, Country Garden, Fantasia and Modern Land grow quickly.Following their ‘success’, many ‘diversified’ into other investments such as electric cars, energy and higher risk investments fuelled by eye watering levels of domestic and foreign debt. The Bank of America Research team estimate that Chinas outstanding mortgages now amount to 31% of GDP and around 60% of all household assets are in real estate.

Que 2021 and a number of these companies started having a few liquidity issues following Beijing’s introduction of the ‘three red lines’ rule after a realization of over speculation in the residential property market. Unfortunately, this might have been a bit like the current government’s ‘Tough on crime’ policy – too little too late. He Keng, the former deputy head of the statistics bureau has said that, at the extreme, there could now be enough empty homes to house 3 billion people, but more likely, there’s enough to easily house 1.4 billion, which co-incidentally matches the entire population of China. In hindsight, they should have had a bit more hui before all the doey and, unless the entire population wants to move into a new house tomorrow, new builds might stay subdued for a while.

What does this mean for us? Exports to China make up around half of our total NZ harvest level and the majority of what we send there goes into single use construction so it’s a reasonably important market. The old adage that ‘when China sneezes, we get the flu’ comes to mind and unfortunately at the moment the Chinese economy has a really good dose of pneumonia.

There is still underlying demand from China at the level of around 60,000m3 per day, which is around 2,000 truck and trailer loads, but it’s an unknown what that will look like going forward. October at wharf gate prices are down around $5/m3 on September to the $114/m3 level (A grade) which is $12/m3 lower than the 3 year rolling average and $14/m3 under this time last year. With current cost structures for harvesting and cartage, anything under the 3-year average is a bit marginal.

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Source: Forest360

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