1 December 2014
Log prices in China are likely to be subdued next year but start climbing from 2016 as it places greater reliance on supplies from New Zealand, AgriHQ analyst Ivan Luketina says in the China Forestry Report 2015.
There was likely to be a further price rise towards the end of 2017 as Canada's exports declined, but the immediate outlook was for prices to remain down.
"The outlook for demand from China is mostly flat for construction during 2015, as the slowdown in China's real estate sector is likely to continue," Luketina said. Supply from NZ's competitors Canada and the United States was unlikely to be significantly affected by growth in demand for construction materials in the US and so subdued prices were likely to be needed to keep supply at current levels.
Prices next year were likely to remain between US$125-$140/ JAS cubic metre, which at current exchange rates would return about $90-$105/tonne at the wharf-gate in NZ.
Luketina predicted demand for construction in China would start to climb again after 2015 and there was also likely to have been greater recovery in the US construction market. Canada was forecast to have peak sawn timber output in 2016 but then declining production. "This means there is a strong likelihood for higher prices in 2016- 17.
"Prices in China over US$135/ JAS should be required to ensure consistent supply during that period but peaks of over US$150/JAS are unlikely to be sustainable in this period as they will draw excess supply from marginal suppliers. This suggests a normal range between NZ$95-$110/t in NZ returns.
Luketina said China was likely from mid-2017 onwards to have greater dependence on NZ and marginal suppliers, such as Ukraine, Australia and the southern US. Production in NZ would increase then and prices of about $140/JAS would be required for consistent supply. Prices might need to be above US$150/JAS at times to ensure greater supply from the marginal sources.
Current shipping prices and exchange rates suggested a range of NZ$100-$110/t for wharf-gate prices in NZ. However, one of the hallmarks of supply to China had been price volatility.
"It has been shown in the past that once prices climb much higher than the US$150-$155/JAS mark they become unsustainable. "Prices this high have meant oversupply and large corrections. "
There has also been a long period of reasonably low shipping costs. If there is greater global recovery over the coming five years, the increases in trade around the world will put higher demand on shipping and start to bring those prices back up by as much as $10/t, reducing returns to exporters in NZ."
Source: Stephen Bell article, NZ Farmers Weekly. To read the full article >> Copies of the DNS Forest Products AgriHQ China Forestry Report 2015 can be obtained free from the AgriHQ website