Domestic demand for logs and sawn timber remains strong as wood processors around the country struggle to keep up with demand for sawn timber. Most log processors received price increases for domestic sawn timber products in February.    

Log demand in China is strong due to a busy construction season, while supply has been constrained. Since December there has been a 15% increase in CFR sale prices for logs in China. Increases in ocean freight costs of up to 40% in this same time and the strengthening NZD against the USD has partially offset the benefit of the higher log sale prices for forest owners in New Zealand. The AWG prices for export grade logs increased by $5-$8 per JASm³ in January and by $5 per JASm³ in February.

Due to the increase in AWG export log prices the PF Olsen Log Price Index increased by $4 in January and $2 in February to $130.  The index is currently $9 above the two-year average, $6 above the three-year average, and $6 above the five-year average.  

Domestic Log Market

Prices for domestic logs have increased by $2-$6 per tonne for structural and industrial grade logs. Pruned log prices have remained relatively stable. Harvest levels are high in New Zealand and mills are well supplied. Some mills are now targeting more FSC certified logs.   

The domestic market for sawn timber across all product ranges continues to be very strong.  Most mills report they are struggling to supply all the orders requested, and many report sales books are full for the next two to three months. This demand is mainly driven by the residential housing market. Consents for new dwellings in New Zealand was up 4.8% from December 2019. The annual value of non-residential building work consented was down 5.5% from the 2019 year.

Mills received a 2-5% increase for sawn timber from the retailers in February. The price increase was generally highest in the clearwood grades. 

The Australian and US housing and construction markets are also booming with the US housing starts hitting a 14-year high in December 2020. Sawn timber is in demand around the world. China reduced tariffs on over 100 timber and board products in January.  

Export Log Market

China

The CFR prices for New Zealand pine logs in China has continued to increase.  The range for A grade logs was 130USD per JASm³ for early December shipments but is now 152-154USD per JASm³ for late February shipments.

Softwood log inventory in China has increased as expected over the Chinese New Year period to 4.5m m³. The percentage of spruce within the total softwood inventory levels has increased. Approximately 1.5m m³ of spruce arrived in January, but the China log buyers expect spruce supply to be constrained for the next few months due to a lack of containers, and heavy snowfalls in Europe.

There is also no indication the ban on Australian logs will be lifted. The increase in log supply from South America has filled the gap left by the Australian log volume. Suppliers of this volume, however, will suffer from the increase in ocean freight costs more than the New Zealand suppliers.

Daily log use in China had dropped to just over 60k prior to the Chinese New Year. Many Chinese were unable to travel for the Chinese New Year, so the disruption to productivity is likely to be less than normal, and we expect productivity to increase faster than usual after the Chinese New Year period.

The Bank of China’s Economic and Financial Outlook annual report bodes well for log demand in China. “Looking into 2021, infrastructure and real estate investment will keep growing fast to drive a continuous economic recovery. Driven by infrastructure and real estate investment, investment will continue to accelerate in 2021 and become the main engine of economic growth for the year”.

Log demand in China is expected to remain strong until productivity drops in their very hot summer period. 

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