Compared with 2014, in 2016, average global sawmills experienced improving lumber markets, but were unable to turn that to significant financial upside until Q2 2017 (on an EBITDA basis). The driver for improved performance was improving global lumber prices according to the eighth edition of FEA-Canada / WOOD MARKETS’ latest study. However, the report also finds that in USD terms, Australia and South Africa have the highest sawmilling costs, at least for mills in the ‘top quartile’.
The Global Timber/Sawmill/Lumber & Sawnwood Cost Benchmarking Report 2016 & 2017 Q2 is a very comprehensive, properly constructed and consistent report. One key feature is that to achieve its comparative benchmarking, data has been standardized and is presented in US dollars.
Even the summary report provides detailed comparative information on the Australian and New Zealand markets. We have adopted here the ‘average’ (or typical) data, but the report also provides top quartile sawmill data based on lowest cost/highest margin sawmills, which it suggests is data more likely to be meaningful to subscribers.
FWPA members are able to access a ‘”industry” summary by contacting Jim Houghton at FWPA.
Log costs
Because of stronger growth in lumber prices in North America, log costs in that region have remained low relative to other global regions through 2016 and into Q2, 2017. As a result, the report advises, North American mills, especially in the US South, were able to “…post strongly positive EBITDA margins.”, but that this had not been the case for mills in Ontario and Quebec in Canada where the combination of smaller logs and smaller mills resulted in EBITDA results that were the lowest for North America. Perhaps unsurprisingly, log prices in the British Columbia Interior are growing sharply “…as the beetle-killed timber gets older and drier and must be substituted with more expensive green timber to ensure mills operate at their optimum.”
Scandinavian and Western European logs, the price of which are regularly discussed in Statistics Count, are reported to be among the highest in the world, while those in the Baltic States are cheaper, providing a competitive advantage for the region.
Chinese mills are reported to be enjoying “…both the lowest sawmilling costs (US$20/m3) at average mill and the highest net wood costs (US$214/m3) in the world in 2016.” (sic.) The lumber price has in turn encouraged increased imports, especially from North America.
Harvesting and transport
Though not specifically linked to Australian mills alone, the report finds that:
“…average Southern Hemisphere sawmills have the lowest average logging and transportation costs to mills on a global basis (US$16/m3) – the average costs of the major global regions is US$25/m3, log basis.”
However, the report also found that New Zealand mills had the highest average Southern Hemisphere logging and transportation costs (USD29/m3) and South Africa the lowest (USD11/m3). It may be assumed therefore that the Australian average experience operates somewhere between the two, perhaps closer to the New Zealand experience than that of South Africa.
Delivered log costs
On a benchmarked basis, Southern Hemisphere delivered log costs in 2016 ranged from USD38-USD80/m3, averaging USD56/m3. The average was USD10/3 lower than the 2014 report’s findings, measured on a consistent basis.
The 2016 average delivered log cost was USD66/3 or USD10/m3 higher than the Southern Hemisphere average. Drilling into country level details a little more, the report also states that:
“Currency fluctuations and strong export demand for unpruned logs in China and Korea have kept log costs in Australia and New Zealand on a steady rise when expressed in U.S. currency.”
Australia and South Africa top sawmill costs when measured in USD
Recalculated to US dollars, among the ‘top quartile’ sawmills, overall, the Southern Hemisphere had the highest costs in 2016. Brazil was the lowest in the region, but Australia and South Africa were the highest cost countries.
European sawmills (ex-Russia) had the lowest regional average costs for top quartile producers, but the report advises much of this was riven by a depreciated Euro, relative to the US dollar in 2016. Regardless, in US dollar terms, Chinese top-quartile sawmills were by far the lowest cost in the world.
Australian and New Zealand experience summarised
The report also includes a special section summarizing Australia and New Zealand, focused on the ‘average’ mills. Again, the summary available to FWPA members includes useful data, much of which is clearly expanded upon in the full report.
We have observed New Zealand’s log costs increasing in recent years, and the report confirms this, attributing it primarily to strong log export markets, especially into China. New Zealand’s domestic log prices hit new records in late 2017.
The report suggests that Australian mills have battled against imported sawnwood, especially from Europe, and that has suppressed prices, especially in the period through 2015 when the Australian dollar was strong. This seems consistent with earlier commentary, but of course, there is an extent to which domestic producers drove prices, dictating lower prices into the market.
That may well be born out by the report’s contents, which find that within the Southern Hemisphere, Australia has the highest lumber revenues, but also the highest sawmill costs. Because of marginally lower log costs than in New Zealand, Australia’s total log and sawmill costs were second highest in the Southern Hemisphere, at USD231/m3 in 2016.
The eighth edition of this leading, biennial benchmark report, produced by FEA-Canada/WOOD MARKETS will be followed by annual editions in future.
The summary is available on request from FWPA. Contact Jim Houghton directly at jim.houghton@fwpa.com.au to receive a copy.
To purchase the full report more information can be found here
