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The rate of increase in log prices has slowed with some mills in China now struggling with the higher log prices. Chinese peeling factories are struggling to afford imported logs and are either changing to domestic eucalypt or poplar species, or in some cases smaller factories are shutting down production.

Softwood log inventory has stabilised at around 4.2-4.3m which is positive as many expected stocks to increase as China had the May Day holidays. Daily port off-take is around 70-80k m3 per day.

New bank loans in China fell more than expected in April and money supply growth slowed to a 21- month low.  The State Council (China’s cabinet) announced on 12th May that it would monitor changes in overseas and domestic markets and effectively cope with the fast increases in commodity prices. China will step up coordination between monetary and other policies to maintain stable economic operations.

While the heat may be taken out of the log market there is unlikely to be a crash in log prices as supply is still constrained. There is unlikely to be an increase in log supply from Europe until more containers become available. North America is in a building boom and has it’s own shortage of logs and sawn timber. In the short-to-medium term, there is little chance of supply relief from Australia following their recent withdrawal from the Belt and Road deal with China.  That deal was intended to (amongst other things) encourage Chinese infrastructure companies to invest in Australia. The withdrawal will further damage an already fractured relationship.

Construction activity generally slows down in China from June as they enter the hotter months. This will be partially offset with reduced harvest volumes in the New Zealand winter. The price for New Zealand A grade logs at the start of May was about 183 USD per JASm3. In mid-May the prices are now around 185 USD per JASm3.

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