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Sawmills report increased sale prices for lumber in Asian markets. These increases were agreed relatively quickly by the buyers which is unusual, so this may be an indication wholesaler in China are preparing for a busy construction season.

The CFR prices have increased for New Zealand pine logs due to increasing demand as China enters the peak construction season. The price for A grade New Zealand pine logs has reached 120 USD which is commonly viewed as the price point where supply from Uruguay becomes viable. The logs from Uruguay are usually sold at a discount of 10 USD per m3 compared to New Zealand radiata logs.

The supply of spruce from Europe is likely to slow in the European winter months, but suppliers have benefited from a reduction in transportation costs.

Daily log use in China is now around 80k m3 which is a very healthy increase from an average of 70k m3 last month. For the reasons mentioned below we expect log demand to remain high for the rest of the year.

Log inventory in China is around 4.3m m3, but this may be a misleading figure due to port congestion causing a backlog of vessels waiting to unload.

The price of iron ore has increased by over 40% this year and has reached a six-year high as the Chinese construction and manufacturing sectors experience levels of activity not seen in almost a decade. China imported 100.4mt of iron ore in August which was a 10.9% drop from July, but this was mainly due to port congestion and Covid-19 issues in the supply chain. This was still an increase of 5.4% on the previous year. September is usually a peak for iron steel consumption in China before mill activity starts to decline due to local government restrictions on sintering operations and shaft furnaces to improve air quality in steel producing hubs.

Since the Covid-19 pandemic the Chinese central and local governments has released 683b USD for infrastructure projects.

The CAIXIN manufacturing PMI index rose from 52.8 in July to 53.1 in August. This increase was above expectations as August is usually a relatively slow month for industrial production in China. A PMI above 50 indicates expansion and the August number was the highest since January 2011.

While a strong construction season is expected, the increased supply from South America and the continuing spruce supply, will likely effect price negotiations.

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