The issues around Evergrande and the wider issues in the Chinese construction industry seem to be worrying, however demand is still reasonably solid. The conequences in terms of demand trends will appear over the next few weeks as the manufacturing sector kicks back into gear following the Chinese New Year holidays. Global supply into China remains subdued and, at present, demand appears to be outstripping supply with sales prices (CFR) increasing $US30\/m3 in the past 3 weeks.<\/p>\n
Freight rates are increasing at a similar rate to sales prices. Some of this is attributed to fuel as barrel prices climb out the gate. To compound issues, the EPA introduced a host of new rules in January this year that all but prevent the use of Methyl Bromide for fumigation. Methyl Bromide is a key fumigant for cargos bound for China which is used on port to fumigate the logs that are stowed on the top deck of a vessel. Now that this is all but impossible, exporters have had to move to debarking deck stowed logs or finding vessels that carry full under deck cargos, further increasing costs and port congestion.<\/p>\n
The effect of the Ukraine invasion on freight rates is yet to be fully understood. Putin\u2019s navy conveniently lobbed a missile into the side of a Bangladeshi cargo vessel last week in the Black Sea which has put the frighteners up the shipping industry. This, and the threat of excluding Russia from the Swift payment system, is seeing many of the vessels operating in the Atlantic now headed south to the Pacific which will hopefully free up some capacity and counter some of the increased fuel costs.<\/p>\n
March at wharf gate (AWG) New Zealand log export prices surprised many with solid increases from a number of exporters but a very wide spread of around $15\/JAS between either end of the spectrum. A grade in most ports (excluding Gisborne) is in the early $140\u2019s\/JAS which is $10\/JAS over the 3-year average. The disparity between exporters is primarily due to the rapidly increasing freight costs with some having been smart\/lucky enough to fix March rates earlier than others.<\/p>\n
It is likely that the CFR price will continue to climb over the next few months and the ability to see this in AWG prices will rely solely on how far the shipping companies can push their rates. To compound matters, the $NZ:USD has climbed $NZ0.02 over the past few days which has the net effect of removing $NZ5\/JAS from sales prices.<\/p>\n
NZ log supply is usually peaking during March but Covid will probably pull the handbrake on as it infiltrates the supply chain. The biggest issue will be at the ports with marshalling companies already signalling reduced hours in reaction to staff illness. Port congestion is generally an issue at this time of year anyway but, as every log needs to be measured and bar coded before it\u2019s loaded on a ship, absenteeism is likely to put a stranglehold on the NZ supply in the short to medium term.<\/p>","protected":false},"excerpt":{"rendered":"
The issues around Evergrande and the wider issues in the Chinese construction industry seem to be worrying, however demand is still reasonably solid. The conequences in terms of demand trends will appear over the next few weeks as the manufacturing … Continue reading