It now appears certain that when the formal trade data is released in early May, Australia’s woodchip exports for MQ’15 will approximate 1,530 kbdmt, just above the record set in DQ’14.
At an estimated 640.8 kbdmt, March 2015 will see the highest ever level of monthly woodchip exports from Australia. This is just 11 kbdmt less than our early projection for the month, made last month.
Aided by the depreciation of the Australian Dollar, Australia’s exports of woodchips are almost at full speed. Any faster and the risk of delivery failures would be relatively high.
Shipments of woodchips from Australia remain dominated by hardwoods. In March, hardwood supplies accounted for 92.1% of total supply. Doubtless there are some ports that could export more, but in other ports, shipments are almost literally at their limit.
Underscoring this, of the twenty-three vessel departures in March, seven were from Portland and five each left Bell Bay and Bunbury. The major export facilities are, simply put, nearing full capacity. Evidence of this can be seen by avid woodchip ship watchers, who will have noticed several ships sitting out of port waiting for days at a time, for their turn to fill their holds with cheap Australian woodchips.
In March, our estimates suggest exports to Japan will total 290.7 kbdmt, to China, 271.1 kbdmt and to Taiwan, 79.0 kbdmt. Our rough estimate is that softwood exports will account for approximately 10% of the total, all of which will make their way to Japan.
Ultimately, the robust position of the export market can be explained in part by many factors, including low sovereign risk, sound logistics and management and of course, fibre yield and quality of the Eucalyptus chip compared with the Asian competitor, Acacia. However, there is only one real explanation for the strength of the market – the depreciation of the Australian Dollar is fundamental.
Australian hardwood chips in particular are entering the international market at ever-lower prices, while at the same time, hardwood pulp prices are on the rise. At the same time, paper prices are at best stable and in some cases are in decline.
Our colleagues at Hawkins Wright in the United Kingdom report that paper producer margins have collapsed and in some cases are negative. Their capacity, especially in Europe, to pay more for pulp is limited and that will flow through to global pricing.
On face, the pulp producers are making money at both ends of the transaction, both from paying lower woodchip prices and being paid higher prices for their pulp. There are implications for suppliers of pulp wood, especially if the pulp producers seek to maintain their own margins into the future.
Right now, the capacity to supply from Australia, at a price that ensures the competitiveness of the mountain of woodchips leaving the country, is driven by the depreciated Australian Dollar and little else.
First appeared in Wood Market Edge in April 2015. Contact email@example.com for subscription and other service enquiries.