PF Olsen NZ log market report – August 2024

Market Summary

August At Wharf Gate (AWG) prices around New Zealand decreased by an average of 2 NZD from July prices. A strengthening NZD against the USD means September AWG log prices in NZ will be under further pressure. There was further bad news for the New Zealand wood processing and fibre recycling industry, with three facilities closing operations. Sawn timber demand remains very low.

The August PF Olsen Log Price Index dropped back $2 to $116. This is $3 below the two-year average, and $4 below the five-year average.

Domestic Log Market

Many domestic mills have slowed down production as demand is still very weak. A higher proportion of their lower grade products are now having to be exported at lower returns than domestic sales. Sales in outdoor products such as fencing, retaining walls etc, is very low. Timber demand in an already subdued market is made even worse due to the recent wet weather in the North Island. Mills don’t expect a significant increase in demand come spring. Export sales of clear boards are okay but this supply line is also under pressure due to reducing demand in the US and Europe.

Mills in New Zealand are facing rising costs, with electricity costs in particular increasing rapidly. Months of dry weather in the South Island has led to low hydro storage levels, which along with falling gas reserves has meant rapidly escalating wholesale electricity prices.

Oji Fibre closed its Recycle Pulp Mill in Penrose and Winstone Pulp International (WPI) closed its Karioi Pulpmill and Tangiwai Sawmill. Both companies state soaring electricity costs were a significant factor in these decisions. This has flow-on effects to other mills, as sawmills sell their sawdust to Karioi Pulp Mill. This volume will now have to be sold at alternative markets that will likely incur more transportation cost.

Export Log Markets – China

China radiata pine log inventory is about 2.85m m³ with total softwood about 3.5m m³. Log demand has been just over 50k per day but has increased in the last week to 60k m³ per day. The CFR price range for A grade is currently 115-120 USD per JASm³ for A grade. This is 3-4 USD below July pricing. The CNY has strengthened against the USD so log exporters to China expect this will help to maintain pricing levels.

The China Caixin Manufacturing PMI slipped in July to 49.8 from 51.8 in June. (Any number above 50 signals manufacturing growth). This was the first drop in factory activity since October last year. Output grew at the slowest pace in nine months due to a slow-down in export orders.

The China property market remains very subdued. The government’s various attempts to stabilise the property market have not worked as hoped. Indeed, in June, the total 70-city average property price indicator declined 7.9% on a year-on-year basis. This was the biggest annual drop on record.

The government tried to introduce price controls to avoid falling house prices, but a growing number of mortgage holders have failed to fulfil their mortgage obligations. Therefore, banks have been forced to auction these properties at basement prices. This has undermined the government price control. Ironically, the banks are state owned.

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Source: PF Olsen