In aggregate, sales of softwood timber in early 2015 have been similar, but moderately lower, than sales in early 2014. Total reported sales for MQ’15 were 613.6 km3, down 5.8% from 651.3 km3 in MQ’14. With housing commencements booming, the data appears to be contradicting expectations, but there are some explanations that are worth considering.
The chart below, from the FWPA Data Dashboard, displays a large and sustained lift in reported sales that commenced in late 2013 and is continuing, although softening in early 2015.
Several months in 2014 recorded all time monthly sales records. These included the still all time record of 260.7 km3 in July, which does not look under threat on current trends, in 2015.
The build-up of sales over the last eighteen months, dominated as ever by Structural <120mm and the fast-growing H2F Treated grades, has been supplemented by imports that have become progressively more expensive as the Australian Dollar depreciated to the US Dollar.
Yet, at a time when housing commencements are at record levels and despite the fall in the Australian Dollar over the last year, there is softness in sales of domestically produced sawn softwood. Whether this reflects a peaking of capacity utilization is a question worth further consideration. The possibility is that all inventories are run down and the only supplies coming to market are very recently produced.
Some evidence of such a development includes the value of sawn softwood imports soaring to a new record for the year ended March 2015. Right at the point when market fundamentals should have pushed import prices up, making them less competitive and reducing demand for them, the opposite has occurred, with total imports hitting AUD1.639 billion for the year to the end of March 2015.
An interesting and subsidiary question in the market is whether almost inevitably higher import prices are being reflected in improved local prices, better margins and increased profitability.
Has growing demand, which is surely driving the market, also resulted in domestic producers topping out their capacity to supply? The evidence suggests so and it is an important strategic question for the industry and for policy makers to consider.
