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Hardwood chip prices at top of market – must come down

Australia’s hardwood chip export price averaged a record AUDFob238.27/bdmt (bone dried metric tonne) in May 2019. Up 22.0% in Australian dollar terms over the last year, exports were on average 11.5% higher priced in US dollars (USDFob164.80/bdmt). These impressive average prices were however, bested by new records in China.Source: Timberbiz

In May, hardwood chip export prices to China averaged AUDFob257.37/bdmt (up 26.1% on a year earlier). In US dollar terms, the average price was a neat USDFob178.00/bdmt (up 15.3%).

Happiness among exporters at their moment in the sun, may well be tempered by the near certain knowledge that prices have peaked in their current cycle. Expectations in the market are that after following pulp prices up, it will shortly be the turn of woodchip prices to turn down.

Though it is not immediately evident that shipments delivered in June and July will see some lower prices, IndustryEdge is aware that the decline in pulp prices has been on the table in recent exchanges between major Chinese pulp producers and hardwood chip exporters.

That comes as no surprise because as our monthly Pulp Market Briefing demonstrates, we are recording Bleached Eucalypt Kraft (BEK) pulp prices as averaging around USD565/t. Our model shows that for the marginal Chinese pulp mills, with the hardwood chip price at USDFob178.00/bdmt, the cost of manufacturing pulp is something close to USD700/t.

Chinese paper producers are required to pay a differential upwards of USD135/t to secure local supply, buy pulp imported primarily from Brazil, or force the marginal producers to lower their prices to unsustainable levels.

The current situation may be disastrous for the highest cost pulp manufacturers, but it is little better for other pulp producers in China, whose hand has already been forced on price. That must flow on to the hardwood chip price.

Demonstrating that demand and supply dynamics are never simple, the price peak has been reached at a point where the export volume continues to punch out new records. On an annualized basis, hardwood chip exports totalled 6.852 million bdmt over the year-ended May 2019, recording their sixth successive month of annualised records.

Exports are up 9.2% compared with the prior year, but all of the indications are that some softening will occur over the coming months. It could come to pass that May 2019 will become known as the ‘best ever’ month on price and the 2018-19 financial year, the ‘best ever’ year on volume.

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