In a period when price corrections are expected, export log markets to China appear with a degree of trepidation. Chinese in-market softwood inventories are at the lowest level since late 2016 (1.2Mm3 less than this time last year), zero supply from Australia and a relatively high exchange rate.
As Chinese Lunar Celebrations started, we have seen daily sales drop to around 60Km3 from 85Km3 in early January. It is expected that this usage will drop to minuscule volumes for February before returning at reasonable levels in March following the almost month-long holiday. However, as we are heading into the Chinese holiday period at a very low inventory position, we don’t expect to see any negative price pressure in the short term.
The Chinese market remains very strong with continued government stimulus pushing China’s GDP forecast to 8.2% for 2021 from 2.3% in 2020. The Chinese real estate market has rebounded post Covid and is showing positive signs for 2021 although the government has hinted at a crackdown on speculation.
Other supply points have not had any impact on inventory levels with Australia being shown the door (9% of total supply) and supply from USA and Canada approximately half of their peak in 2018.
Europe comes with a significant volume of wood available due to widespread bark beetle infestation. This volume has been more subdued than expected as container freight cost has increased markedly and supply reduced thanks to Covid. Russia has proposed a ban on log exports from the beginning of next year and buyers are already looking to secure supply from other sources.
The CFR price is forecast to rise post February although sentiment varies between many of the export companies as to the degree of this.
Whatever gains are made will likely be wiped out with rising shipping costs. Strong commodity demand and higher oil prices are pushing shipping costs north and shipping companies are currently advantaged by a freight market is traditionally soft.
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