timber market survey€¦ · weakness reported by several sawn timber manufacturers, with some...

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MARCH QUARTER 2009

Contents

Economic & construction updateThe past 18 months has proved a difficult period for the Australian economy as the effects of theglobal financial crisis have been felt. Economic growth has fallen steadily since September 2007.Figure 1 illustrates the quarterly change in Gross Domestic Product (GDP) over the last twodecades. GDP growth decreased to 0.1% in September 2008 and -0.5% in December 2008.International trade has slowed particularly in the resources sector which accounts for around halfof the value of Australia’s exported goods and services. In the manufacturing sector, theAustralian Industry Group’s Performance of Manufacturing Index (PMI) reported a fall of 35% indomestic manufacturing activity over the 12 months to March 2009. Also, in the Decemberquarter 2008 manufacturing sector gross operating profits fell 18% from the previous quarter.

Key movements . . . . . . . . . . . . . . 1

Economic & construction update . . 1

Imports and exports . . . . . . . . . . . 3

Price changes – March quarter 2009 . . . . . . . . . . . 4

Long term price indexes . . . . . . . . . 5

References . . . . . . . . . . . . . . . . . . 6

Timber Market Survey

About the Timber Market SurveyThis is the first edition of the quarterlyTimber Market Survey report. The TimberMarket Survey (TMS) provides comprehen -sive information on timber price movementsand market trends in Australia. The TMSreport is published quarterly. It containsnational price indexes for a range of timberproducts, as well as an update on economicconditions influencing wood product marketsand the latest trade data. TMS price dataare collected through quarterly surveys of arepresentative sample of timber marketparticipants in eastern Australia. The TMSreports for the March and Septemberquarters contain pricing information forsoftwood timber, panel and engineered woodproducts. The June and December quarterreports also include hardwood timberproducts.

Figure 1: Quarterly Australian GDP change

Key movements• Softwood timber prices generally fell in the March quarter 2009. Panel

products generally increased in price.

• Housing commencements were down for the December quarter 2008but approvals and lending data indicate a possible strengthening in theconstruction sector later in 2009.

• Import volumes of major softwood products decreased in the Marchquarter 2009.

A tightening in the availability of credit, particularly commercial credit, has impacted on domesticbusiness investment, where since January 2008 monthly commercial finance approvals havefallen 40%. This has had a particularly noticeable effect on the property development industry,which combined with declining property prices and lower turnover of existing properties, hasexperienced sharp falls in approvals for office and warehouse construction.

Source: ABS

MARCH QUARTER 2009TIMBER MARKET SURVEY

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Figure 4: Quarterly total (private and public) dwelling commencements by states andterritories

The impact on the Australian forest sector is evident in the decline ofshare prices of publicly listed forest product companies since thebeginning of 2008. Figure 2 illustrates that compared to the All OrdinariesIndex, Australian listed forest product companies have generallyexperienced greater declines in share prices over the past 12 months.

Figure 3: National private dwelling approvals and commencements

Source: ABS

Source: ABS

Figure 2: Daily share price index for publicly listed forest products companies

Source: Trading RoomNB: Timbercorp and Great Southern Limited ceased trading in April/May 2009 and have not beenincluded in this graph.

Australia’s housing construction market has also been impacted heavilyby the deteriorating economic conditions. Dwelling commencementsshowed a sharp downward trend throughout 2008, falling by about 20%over the 12 months to December 2008 (Figure 3). Dwelling approvalsdata is released more regularly than commencements data and as Figure3 indicates, approvals continued to fall in January 2009 but increased inFebruary and March.

The drop in dwelling commencements in the latter half of 2008 was drivenby a fall in activity in several states, most notably Queensland (Figure 4).The NSW housing market has been in a poor state for a number of years,while activity levels in Victoria and South Australia have been relativelysteady. Tasmania, the Northern Territory and ACT were the only states orterritories to experience growth in commencements over the Decemberquarter 2008.

The decline in housing commencements is consistent with the marketweakness reported by several sawn timber manufacturers, with somecompanies taking extended breaks over Easter and some laying off staff.

While it appears likely that there will be a further slowing of economicactivity, the combined effect of declining interest rates and governmenteconomic stimulus is expected to improve activity in the constructionsector in coming months. In particular, the Federal government’s FirstHome Owner’s Grant scheme appears to be acting as a meaningfulstimulus to the sector. Housing lending data released by the AustralianBureau of Statistics (ABS) in May 2009 reported that the number of firsthome buyers in the March quarter 2009 increased by 23% from theprevious quarter, with the number of owner-occupier loans for newconstruction increasing 13.9%. This change is now becoming apparent inthe recovering level of dwelling approvals.

Economic & construction update continued

The combined effect of low interest

rates and government economic

stimulus is expected to improve

activity in the construction sector.


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Imports and exportsInternational trade in forest products has declined significantly with theglobal economic downturn. The slowdown in international forest productstrade can be illustrated in the declining price of hardwood log exportswhere demand has reduced substantially. Figure 5 shows the recent pricehistory of Malaysian tropical hardwood log exports.

Between the March and December quarters 2008 softwood sawn timberexports increased in volume. The December quarter 2008 exports of85,000 m3 were only a marginal increase on the previous quarter (81,000 m3). Since 2004, export volumes have generally increasedhowever an interruption between June 2007 and March 2008 – aroundthe time that import volumes increased – saw volumes drop by almost50%.

Figure 7 shows trends in Australian trade of hardwood sawn timber. InAustralia, hardwood sawn timber products are traded in smaller volumesthan softwood sawn timber and are more commonly used for higher value,decorative and heavy structural applications. The volume of hardwoodsawn timber imported into Australia has declined steadily since 2004.This trend continued in the March quarter 2009 with a drop of 24% fromthe previous quarter. Although exports have been volatile they have beengrowing over time, however volumes are relatively small.

The strong domestic focus of Australia’s forest industry offers someprotection from declining international forest products markets. Thedepreciation of the Australian dollar relative to the US dollar over theSeptember quarter 2008 to the March quarter 2009 provided furtherprotection by making imported goods more expensive and exported goodsrelatively cheaper.

The volume of Australian timber imports has decreased over the past 9-12 months. Softwood sawn timber is one of Australia’s most significantwood product imports. Figure 6 shows Australian trade in this product. Inthe 12 months to the June quarter 2008 softwood sawn timber importsincreased to a quarterly peak of 180,000 m3. The Australian dollarappreciated relative to the US dollar over this period. From the Junequarter 2008, the slowing of the Australian economy combined with aweakening Australian dollar contributed to a rapid decrease in importvolumes of around 55% by the March quarter 2009. The largest sourcesof imported softwood timber were from New Zealand, the Czech Republicand Canada.

Figure 5: Fortnightly Free on Board price of Malaysian log exports

Source: ITTO

Figure 7: Quarterly Australian trade in hardwood sawn timber by volume

Source: Imports: GTIS, Exports: ABARE

Figure 8: Quarterly Australian trade in plywood and veneer sheets by volume

Figure 6: Quarterly Australian trade in softwood sawn timber by volume


Australian imports of plywood and veneer decreased sharply, falling byaround 40% since the September quarter 2008 (Figure 8). Exportsshowed a sharp rise in volume in 2008. Much of this growth can beattributed to the commissioning of two new veneer mills in Tasmania bythe Ta Ann Group, a Malaysian based forest products company. The firstof two hardwood rotary veneer mills was commissioned in May 2007 inthe Huon district, followed by a second mill at Smithton in November2008. The majority of the mill’s production is exported, predominantly toMalaysia for plywood manufacture.



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Prices presented in the Timber Market Survey (TMS) represent domesticprices paid by timber wholesalers for timber products, inclusive of deliveryto the wholesale yard. Timber prices are collected on a quarterly basisfrom a representative sample of companies across Queensland, NewSouth Wales and Victoria. Price changes for softwood timber, panel andengineered wood products are reported every quarter. Price changes forhardwood timber products are reported in the June and Decemberquarters only.

Prices for softwood timber products generally showed a downward trendin the March quarter 2009. This is consistent with recent economicconditions and lowering construction activity which forms the demandbase for these softwood products.

Table 1 shows March quarter 2009 price changes for structural softwoodtimber products. MGP-10, MGP-12 and Utility grade products all showedprice decreases. Radiata F7 showed the smallest decrease of thestructural timber products, with wide F7 boards being reported asincreasing in price.

Table 1: March quarter 2009 structural softwood timber nominal price changes

Price changes – March quarter 2009

Product Dimensions Price change mm from Dec-08

Radiata F7 140 x 45 x 4.8 -0.04%

Radiata F7 240 x 45 x 4.8 1.49%

Radiata MGP 10 70 x 35 x 4.8 -2.41%

Radiata MGP 10 90 x 35 x 4.8 -1.06%

Radiata MGP 12 70 x 35 x 4.8 -3.98%

Radiata MGP 12 90 x 35 x 4.8 -0.97%

Utility grade 70 x 35 -3.90%

Utility grade 90 x 35 -2.74%

Radiata F7 - H3 treated 70 x 35 x 4.8 -0.84%

Radiata F7 - H3 treated 90 x 45 x 4.8 -0.78%


Plywood C/D Grade 2400 x 1200 x 12 1.49%

Plywood C/D Grade 2400 x 1200 x 17 2.62%

Particleboard T&G 3600 x 900 x 19 0.35%

Particleboard T&G 3600 x 900 x 22 1.14%

Particleboard Plain 2400 x 1200 x 16 -0.14%

Particleboard Plain 2400 x 1200 x 18 -0.20%

MDF 2400 x 1200 x 16 1.34%

MDF 2400 x 1200 x 18 1.31%


Treated timber 90 x 20 random -2.41%

Treated sleepers 200 x 75 x 2.4 -1.21%

Case grade 90 x 35 -7.97%

Fencing timber 100 x 15 x 1.8 -0.23%

Fencing rails 100 x 50 x 5.4 0.00%


Wood I-joist/I-beam 240 x 47 -0.22%

Wood I-joist/I-beam 300 x 63 -1.19%

LVL 200 x 36 -0.53%

LVL 300 x 45 -1.43%

Table 2 shows the range of green sawn timber products surveyed andrelevant price changes for the March quarter 2009. Price decreases werereported for treated decking and sleepers, case grade and fencing timber.No price change was reported for fencing rails. Case grade timber, whichis used for pallet production and bulk packaging, was reported to haveexperienced a large downward movement in price of -7.97%. Demand forcase grade timber is closely linked to output in the manufacturing sector.Demand for case grade timber is closely linked to output in themanufacturing sector. As noted earlier, this sector experienced a fall inactivity over the 12 months to March 2009.

Table 2: March quarter 2009 green softwood sawn timber nominal price changes

Table 3 shows the March quarter 2009 price changes for panel products.In contrast to sawn timber products, respondents reported an increase inprice for four of the five wood based panel product types surveyed.Plywood increased by the largest margin, followed by MDF and tongue andgroove (T&G) particleboard.

Table 3: March quarter 2009 wood based panel nominal price changes

The prices for engineered wood products trended down in the Marchquarter 2009. Table 4 shows the price changes reported for wood I-joist/I-beam and Laminated Veneer Lumber (LVL). LVL experienced a largerdecrease in price than I-joist/I-beam products in the March quarter. Both products are used in heavy structural applications in buildingconstruction.

Table 4: March quarter 2009 engineered wood products nominal price changes

Softwood timber prices

generally fell in the March quarter.

Panel products generally

increased in price.


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Figure 11 shows the historic quarterly price trend of LVL and wood I-joists/I-beams. The price trends of these products have generally trackedvery closely over time, reflecting their similar applications in the buildingindustry. Survey results reported a downward price trend from Marchquarter 2005 to June quarter 2006.

Longer term softwood sawn timber prices have held up reasonably well inthe face of the domestic housing decline. Prices have fallen over the lasttwo quarters, but were coming off a high base following two years ofsustained price growth since mid-2006. Figure 9 shows an index ofsoftwood timber price trends since March 2004.

Long term price indexes

Figure 9: Historic quarterly nominal price index of key softwood timber products Figure 11: Historic quarterly nominal price index of engineered wood products

Figure 10: Historic quarterly nominal price index of key panel products

Figure 10 shows the historic price index of key panel products since theMarch 2004 quarter. Panel prices have maintained an increasing trendthroughout this period with plywood and MDF experiencing the largestprice increases.

The past 18 months have

proved a difficult period for the

Australian economy...

longer term softwood sawn timber

prices have held up

reasonably well.

References

Funding provided by:

ABARE (2009) Australian Forest and Wood Products Statistics - September & December quarters 2008. Published by the Australian Bureau ofAgricultural and Resource Economics, Canberra.

ABS (2009) 5206.0 - Australian National Accounts: National Income, Expenditure and Product, Dec 2008. Published by the Australian Bureau ofStatistics, Canberra.

ABS (2009) 8731.0 – Building Approvals, Australia, March 2009. Published by the Australian Bureau of Statistics, Canberra.

ABS (2009) 5676.0 – Business Indicators, Australia. December 2008. Published by the Australian Bureau of Statistics, Canberra.

ABS (2009) 5671.0 – Lending Finance, Australia, March 2009. Published by the Australian Bureau of Statistics, Canberra.

ABS (2009) 8750.0 - Dwelling Unit Commencements, Preliminary, Dec 2008. Published by the Australian Bureau of Statistics, Canberra.

ABS (2009) 5609.0 - Housing Finance, Australia, March 2009. Published by the Australian Bureau of Statistics, Canberra.

Forests NSW (2008) Historic TMS data provided by Forests NSW.

GTIS (2009) Global Trade Atlas. Global Trade Atlas database provided by Global Trade Information Service. Available at: http://www.gtis.com/gta/default.cfm?msg=1

HIA (2009) National Outlook – December quarter 2008. Quarterly economics research report published by the Housing Industry Association, Canberra.

ITTO (2009) Tropical Timber Market Report. Fortnightly report of the Market Information Service of the International Tropical Timber Organization,Tokyo.

PWC (2009) Australian Performance of Manufacturing Index. Monthly report prepared for the Australian Industry Group by PricewaterhouseCoopers.

RBA (2009) Statement on Monetary Policy, 8 May 2009. Published by the Reserve Bank of Australia, Sydney.

RBA (2009) Conditions and Prospects in the Housing Sector. Presentation by Anthony Richards to the 4th Annual Housing Congress, Sydney, 26 March2009.

Trading Room (2009) Online market data provided by Trading Room, a division of Fairfax Digital. Available at: http://tradingroom.com.au/apps/index.ac

URS Forestry (2007) Timber Market Survey 2006. Annual report on the Timber Market Survey by URS Forestry, Melbourne.

The Timber Market Survey (TMS) was prepared with funding from Forest and Wood Products Australia, Forests NSW, Timber Queensland, VicForests, HVP Plantations, Forest Plantations Queensland,the Department of Environment and Resource Management Queensland, Forestry Tasmania, ForestrySA and the Forest Products Commission Western Australia ('the funding bodies').

URS Australia Pty Ltd (URS) has prepared this report in accordance with the usual care and thoroughness of the consulting profession for the use of the funding bodies. It is based on generallyaccepted practices and standards at the time it was prepared. No other warranty, expressed or implied, is made as to the professional advice included in this report. It is prepared in accordancewith the scope of work and for the purpose outlined in the Agreement for Provision of Consulting Services dated 1 March 2009. The methodology adopted and sources of information used by URSare outlined in this report. URS has made no independent verification of this information beyond the agreed scope of works and URS assumes no responsibility for any inaccuracies or omissions.No indications were found during our investigations that information contained in this report as provided to URS was false.

This report was prepared between 1 March and 31 May 2009 and is based on the conditions encountered and information reviewed at the time of preparation. URS disclaims responsibility for anychanges that may have occurred after this time. This report should be read in full. No responsibility is accepted for use of any part of this report in any other context or for any other purpose or bythird parties.


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Next quarter...The June quarter 2009 TMS report will be available around mid-August 2009. It will include price change data for the productsreported in this report, as well as a range of hardwood timber products. The June quarter 2009 report will also take a closerlook at trends and effects of timber imports into Australia.

timber market survey€¦ · weakness reported by several sawn timber manufacturers, with some...

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