Stability and consistency have not really been ideals that our industry has conformed to, and this year is no different.rur
Although the May at wharf gate (AWG) export prices are very similar to those offered in April (mid to high $120s/m3 for A grade), the underlying variables that make up those prices are vastly different.
The variable that has had the biggest influence on the AWG price in the last 12 months has been shipping with freight costs ranging from $US40/m3 to $US85/m3. It would be easy to point the finger squarely at fuel cost but it's not the whole picture.
A log ship will take about 17 days to steam to China and burn around 425 tonnes of fuel. At current fuel costs of $US933 per tonne, that's around $NZ620,000 for the one-way trip. Average payload is around 33,000 tonnes of logs so quick calculations show it costs $NZ18.80/m3 for fuel alone.
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As vessels are generally paid for on a time basis, any non-productive wait times outside of loading or unloading increase the m3 unit cost. As NZ ports grapple with Covid absenteeism and a general lack of staff anyway, the ability to unload and load vessels has been affected, creating wait times around the country.
In addition, the EPA has effectively ruled out the use of methyl bromide, the only fumigant accepted by China for the top deck cargo (around one-third of the vessel's cargo) which has resulted in the industry moving to debarking of all deck stowed logs as a substitution. While debarking sounds like a better option, in reality you can't build one overnight and therefore exporters are scrambling to secure top deck cargos where they can. As the Port of Tauranga has the most available debarked volume, vessels are waiting up to two weeks at Tauranga for a load due to congestion - at $US35,000/day or $NZ1.65/m3/day.
Thankfully, the NZ dollar has been playing ball, with a drop not seen since the first round of Covid lockdowns which has helped offset some of the freight cost increases. This will be cold comfort to Finance Minister Grant Robertson as the depreciated dollar will keep the foot firmly on the inflation throttle.
The China Covid elimination strategy hasn't gone so well in recent weeks with hard lockdowns in busy cities. This has flowed through to weak demand as it's pretty hard to convert logs to lumber from your 30m2 apartment in Beijing.
We are expecting to see reasonably sharp increases in inventory if the lockdowns continue. Supply from NZ is down on previous months due to port constraints, subdued returns and a general level of unease by forest owners regarding global stability. Global supply is also lacklustre and is not expected to rise for the remainder of the year, which bodes well for NZ and the potential for price increases through Q3.
Increased fuel costs also are starting to bite harvesting and cartage contractors, and many are passing on this cost in the form of fuel adjustment factors (FAF). Your average harvesting crew will chew through around 4 litres of diesel per tonne of log and, with around $0.82/litre increase in the last 12 months, you're looking at harvest cost increases in the order of $3.28/tonne.
Trucks generally only get around 1.6km per litre on average which equates to 1.9 litres of fuel per tonne per 100km. With an average cartage distance of 150km from forest to mill or port, the actual increase is $2.33/tonne. Add these together and, over the last 12 months, you're contributing an additional $5.60 per tonne or around $3000/ha to the fuel producers' bottom line.
How long the increased fuel costs last is anyone's guess but, as long as Russia's war with Ukraine continues, we're more than likely stuck with it in the foreseeable future.
