Margules Groome’s quarterly harvest and haulage cost index for Australian plantation operations is based on price indexation mechanisms used by industry, weighted by volume harvested (Figure 1). The previous index published in March for December 2021 showed a continued recovery in fuel prices as economic growth returned post-COVID-19 pandemic. The advent of the Russia-Ukraine war, subsequent trade sanctions on Russia, and ensuing impact of global energy prices have seen fuel prices go higher as predicted. The average diesel terminal gate prices (TGP) were being reported as ~2.10/L in June 2022. They have never been this high in nominal terms. Unfortunately, fuel prices will likely go higher still as the war drags on, Russian trade sanctions continue, and the Federal Government re-imposes the full fuel excise from late September.
Margules Groome’s Australian Softwood Residual Log Price Index measures domestic softwood plantation residual log prices (excluding exports). The index measures the residual log value to the forest owner once harvest and haulage costs are subtracted from mill door log prices. It is a measure of the forest owners’ log margins or the spread between log prices and logistics (delivery) costs. It should be noted that there is no time lag between the indexes as shown.
Log trade in the Asia-Pacific region is dominated by imports to China. Over 20 years, log imports to China have increased four-fold and now account for 44% of total global log imports (Figure 1). Meanwhile sawn timber imports to China peaked at 22 million m3 in 2019, an increase of 17 times since the early 2000s (Figure 5). The Russia-Ukraine war could impact the forest products trade in several ways:
– Pivot of Russian exports of logs and timber from Europe to China.
– Place cost pressures on supply chains from Europe to China as European producers look to more attractive markets closer to home reducing their exposure to China.
– Rising bunker fuel costs could side-line marginal log exporters (particularly south-east US, Brazil and Uruguay) to the Asia-Pacific.
Between June 2015 and June 2017, Australian MGP10 prices trended down in real terms in the middle of the most recent and prolonged construction boom. This trend apparently bucked conventional wisdom where prices increase in times of high demand. Three trends in the market were apparent which may explain this unusual event. They are:
– The increase in total DUA and DUC was being driven by apartment construction alone, as DUA and DUC in housing construction had shown a flat trend since the end of 2014 (Figure 1). Housing construction, not apartments, is where most timber is consumed.
– Fuel prices also declined significantly during the same period, reducing transport costs and allowing timber traders to decrease prices while still maintaining unit margins (Figure 1).
– Softwood timber imports declined in the same period, down 21% to mid-2017 (Figure 2). Lower prices would have pushed imports out of the market. As prices recovered, so did imports.
Vietnam, with a land area of 331 236 km2, has a growing population of 97.3 million and has managed impressive economic growth in the challenging pandemic climate. Between 2015 and 2019, Vietnam posted consistent GDP growth figures of approximately 7%. In 2020, while the global economy contracted in the face of COVID-19, Vietnam achieved 3% economic growth. Vietnam’s economic growth rate exceeds its 1% per annum population growth resulting in an increasing GDP per capita. With 70% of Vietnam’s population currently of working age, this trend is predicted to continue until 2045. Experts expect that Vietnam’s ‘golden demographics’ will ensure its continued economic prosperity into the foreseeable future.