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The age-old adage ‘what goes up must come down’ has played out as expected with the New Zealand export log market in recent weeks.

Export sales prices during May were the highest since the global financial crisis and were basically an anomaly with low shipping costs and foreign exchange rates reducing the costs of getting the logs to market. This was expected to be short-lived — and was.

New Zealand A-grade export logs have dropped from around $153/m3 in May to $117/m3 in July, with the potential for further downward price pressure in August.

The reasons for the reduction are twofold.

Firstly, a reduction in global demand for products — if the world isn’t buying things, the Chinese production machine isn’t making things, and therefore doesn’t need raw materials with which to make things out of.

Secondly, the European markets are awash with logs due to the harvesting of their forests infested by bark beetles.

The bark beetle crisis is rampant in Europe and will result in an annual production surplus of 30 million cubic metres. While the Europeans are flat out trying to build sawmills to deal with this additional volume, the end market is still likely to be China. Whether the product arrives in China in log or lumber form, it will displace volume from New Zealand.

One advantage of New Zealand is the ability to deliver logs by ship to China, whereas the volume from Europe has been arriving in containers via the rail network. As Europe hasn’t been buying products from China, very few containers are heading to Europe with which to back-load logs, so this has kept the supply largely under control.

However, in recent weeks, there has been a break bulk vessel loaded out of Germany, which means European exporters no longer need to rely on containers to supply logs to China.

How long the export market stays subdued for New Zealand is hard to guess. From a macro-economic viewpoint, taking into account the European volume, it could be three to four years.

While the export market has been fickle over the past 12 months, the New Zealand domestic market has remained buoyant and demand for quality logs is high. This always brings people to question, ‘why don’t we keep the export logs in NZ and process them here?’

Basically, NZ’s industry is the opposite to the fruit and meat industries, with the best quality products retained in the country (pruned and sawlog grades) and the lower arising grades exported.

There are very few, if any, sawmills around the country that have a diet of low-quality logs and remain competitive.

From a labour-input perspective, the disparity between domestic processed logs and exported logs is not what most people think. Many of the domestic sawmills are fully automated with minimal labour input per cubic metre.

Export logs don’t just magic themselves onto a vessel. Each log is manually measured at the port, then put into rows, taken out of those rows, and loaded onto a vessel.

The post New Zealand log prices down and have potential to fall further this summer appeared first on Timber Industry News.