Christmas tidings might be a bit skinny for us tree huggers this year with subdued export pricing and a general feeling of unease going into 2023.
We might, however, be a bit tempted to tip a bit more bourbon into the eggnog as news has broken that China is relaxing Covid restrictions and throwing cash at developers, which may see a bit more action in manufacturing and construction sectors.
December A-grade export prices of around $123/m3 are reasonably flat from November and, although shipping has eased into the low US$30/m3 range, the strengthening of the NZ dollar has taken any chance of an increase in forest owner returns for the short term, a bit like potential first-home buyers celebrating as house prices plummet, but the OCR puts them back in the same position.
There are expectations that in mid- to late-Q1 2023 returns may increase as conditions improve.
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The South China Morning Post recently reported that several major Chinese banks have adopted a government-led 16-point rescue plan to extend billions to struggling private developers to assist liquidity in the residential construction sector.
Because of Covid lockdowns, this stimulus has not resulted in demand increases, however, stocks in major developers jumped following the announcement and, once lockdowns ease and people can return to work, it is expected that there will be a resulting demand increase.
It is estimated that around 20 per cent of the economy is under some form of lockdown and while you can operate a computer from your 30m2 apartment, it makes it pretty challenging to feed logs into a sawmill.
Chinese in-market log inventories have increased slightly over the past month and are sitting in the mid 3 million cubic metres range which, although not high, isn't at the point that makes buyers pucker.
It is expected that most of the large forests in the Central North Island will take a longer-than-usual Christmas break (around three weeks) which will result in a decent reduction in NZ supply. Supply over the late December/early January period arrives in China in mid-February and therefore this drop in supply will coincide with the Chinese New Year holidays.
Assuming that all goes to plan with Covid restrictions easing, stimulus injections working and subdued NZ supply, we would expect a positive pressure on sales prices - but we all know how best-laid plans work.
Stimulus packages and an easing of restrictions don't really change the underlying fundamentals of the Chinese economy and all they are really doing is kicking the can down the road - at some stage the road will run out and the can will still be a problem. The desire for the Chinese government to continue building housing as a method of keeping GDP numbers up is about as flawed as the Three Waters legislation and it's becoming obvious to our sector that this isn't a long-term strategy for the current levels of NZ log supply.
Even though NZ is likely past "peak harvest" levels, we still produce a bucket load more wood fibre that we can consume domestically and therefore rely on an export solution for the lower-grade logs.
No matter how much we wipe on it or write on it, we will never consume the approximately 6.2 tonnes of log per man, woman and child required annually to match our available harvest level. This is where investment in domestic processing, biofuels and other export markets is becoming very important.
The Forestry Hub at the Mystery Creek Fieldays was the platform for the launch of the Forestry and Wood Processing Industry Transformation Plan (ITP) by Minister Stuart Nash.
This is an ambitious plan devised by Te Uru Rakau and industry towards significant investment in domestic processing, to enable more resilience in the industry and assist towards achieving the country's climate change goals.
The Fieldays Forestry Hub was an industry first and the result of collaboration by Te Uru Rakau and industry partners and was very well received by the public. It was great to see so much innovation, technology and expertise showcased under one roof and I don't remember a time when the whole industry was as aligned as we are now.
Fuel is tracking in the right direction, which is helping the cost structure somewhat, but you can be sure Michael Wood will have his finger hovering over the excise tax reinstatement button ready for January.
In the next few weeks we will be parking the trucks up and putting the saws away as we slide into a welcome Christmas break with a pessimistically optimistic market view to the start 2023.
Although it seems a bit early for Christmas cheer, I wish you all a big hohoho, and hope the jolly rotund man brings you something nice for Christmas.
