TPT Forests export market report

With their recent burst of enthusiasm Chinese buyers are now feeling more positive about 2013 prospects, with the common perception that the newly announced Government Leaders have little choice but to modestly stimulate the economy while new policy is put in place. It will take 4-6 months for the new administration to put their people in place at a provincial, local and municipal governmental level; which is required to fully implement any major policy changes.

In Korea, there has been little change in the log markets or wider economy over the last month. Manufacturing industries continue to nervously watch the global economy as the value of their exports increased only minimally from the same period last year; the first in 4 months. Major construction companies continue to suffer from slow residential housing markets and tough competition for offshore building projects. The operating profits of the 6 major building and construction companies in Korea dropped over 40% in Q3 compared to Q3 2011. The prolonged residential housing market slump has resulted in construction companies building and completing unsold apartments rather than pre- selling off plans. This has meant that construction companies are largely funding the construction process rather than securing a large proportion of the construction costs prior to building. Actual sale prices of Seoul apartments dropped 4.6% YoY in October which continues to hamper any pre-sale of apartments.

In Korea, there has been little change in the log markets or wider economy over the last month. Manufacturing industries continue to nervously watch the global economy as the value of their exports increased only minimally from the same period last year; the first in 4 months. Major construction companies continue to suffer from slow residential housing markets and tough competition for offshore building projects. The operating profits of the 6 major building and construction companies in Korea dropped over 40% in Q3 compared to Q3 2011. The prolonged residential housing market slump has resulted in construction companies building and completing unsold apartments rather than pre- selling off plans. This has meant that construction companies are largely funding the construction process rather than securing a large proportion of the construction costs prior to building. Actual sale prices of Seoul apartments dropped 4.6% YoY in October which continues to hamper any pre-sale of apartments.

Japan remains in lacklustre mode with industrial output tracking south. As a result the packaging lumber sector is facing declining demand and as with Korea downward price pressure exists from softwood lumber importers. The housing sector continues to perform slightly better with a combination of post Tsunami rebuild, and the expected pre consumption tax increase activity lift, creating some positive momentum. Housing starts continued to improve with September starts recording a 15.5% improvement on the same period last year.
In India the bold economic reform measures announced in September, including increasing the price of diesel and opening up areas of the retail sector to foreign companies, have been followed up this month with a 5 year plan to reign in the ballooning deficit. The Rupee/USD rate has risen back to the 55 level again as the markets absorb a continuing run of unfavourable news. This is once again tipping sawmills back into the red based on current log and lumber level, with negative returns not helping buyers staying focused on developing regular buying patterns.

In the freight market the Baltic Dry Index has largely held the gains it made in October with day on day gains since mid November. Contrary to the Indices the New Zealand log fixtures in recent weeks for mid December voyages have been as low as they have been all year, with rates being fixed below $30/jas. The PNW fixtures have been more resilient and in line with the indices and rates are trading flat. Fuel (bunker) prices now represent more than 60% of freight unit rates, with owners slow-steaming vessels to minimise fuel burn with returns struggling to cover costs. At current daily hire many owners are choosing to lay up ships rather than work vessels.

Short term freight forecasts remain unchanged and look set to hold these levels or thereabouts until after Chinese New Year in February.