The timber industry can expect a slow but tentative, domestic market led recovery from this springtime. By the end of summer quite significant shortages in some lines will emerge, which will push prices up by an average of 10%, enough to return the industry to profitability.

Recent stats indicate we are starting to bounce off the bottom.

Timber exports are lifting and building industry demand, measured by consents, is firming nicely.

Sales to the domestic market have been hovering at all time lows with the March quarter still 40% down on 2007 levels.

The timber industry can expect a slow but tentative, domestic market led recovery from this springtime. By the end of summer quite significant shortages in some lines will emerge, which will push prices up by an average of 10%, enough to return the industry to profitability.

Recent stats indicate we are starting to bounce off the bottom.

Timber exports are lifting and building industry demand, measured by consents, is firming nicely.

Sales to the domestic market have been hovering at all time lows with the March quarter still 40% down on 2007 levels.

Stock levels mills at the end of March were extremely low. Any recovery in demand will feed straight into production.

In the 4 months to July sawn timber exports were up 7% on the year before, almost solely thanks to a bounce back from China and some signs of growth in the US. Worryingly Australia is still in negative territory.

Short term, Australia is looking horrible with volumes for the year to June down 5%pa and average price down 6%. When compared against 2005 levels volumes to Australia are down 40%.

The good news for timber producers is that the building industry is poised for a very strong recovery.

The Banks have cash coming out their ears.

Risk averse investors are piling into relatively secure bank deposits now offering attractive real rates of interest.

Nominal retail rates have lifted and inflation has dropped sharply to the bottom of the Reserve Banks comfort zone .

So, friendly fund managers and deposit takers. You have got bucketfuls of the stuff but what do you do now? You are so risk averse with your commercial lending you are back to pleading with home owners to take some it off your hands.

Mortgage rates have tumbled, but still borrowers are gun shy. After being harangued to death about their profligacy by mouthy economists, we shouldn’t be surprised.

The upshot is that the growth in lending to households in real terms is negative, a far cry from the average 15% pa of the last decade.

Add the pent up demand for new houses in the Christchurch rebuild plus easy money and it’s not hard to pick a very strong, though lagged domestic recovery.

What’s needed now is an economy wide confidence boost. Serious taxation reform [extending the taxation of value added across the whole economy] which would balance the books, albeit at a lower exchange rate which is just the sort of master stroke needed.

The export sector generally is running into the head winds of a flagging world economy, and our terms of trade will fall, and the exchange with it.

Costs are stabilizing. Log costs are unlikely to increase over the next year and there is a good case for reductions.

In the June quarter Log export prices were 22% lower than the year before and back to where they were 3 years ago.

The prices of logs exported to China were down 20%.

Log export sales in that quarter were a thumping 18% down on the year before.

China took 70% of our log exports in the month of July. That’s a scary dependency.

 

 

Categories: NZTIF