Although the housing market in Australia is declining, some key sawn softwood products are forecast to show solid growth over the next year, underscoring the importance of product-specific analysis and forecasting. In particular, treated structural pine products are forecast to grow 4.5% through to the September Quarter of 2018, building on solid growth over the last few years.
Actual sales of aggregate (all dimensions) of treated structural pine in the September 2017 quarter (213,622 m3) were 6 per cent higher than the September 2017 forecast for aggregate treated structural pine (201,076 m3) provided last quarter. In its quarterly forecast report to FWPA, ABARES notes that the actual sales for the September 2017 quarter fell well within the 95 per cent prediction intervals for all previous forecasts.
The chart below shows the forecast experience. As can be noted, the forecasts routinely end up being modestly lower than the forecast volumes, although it is not clear why this is the case or whether this a ‘moment in time’ or an emerging trend.
Looking forward, as the chart shows, the updated forecasts for treated structural pine products for the December 2017 quarter onwards have been revised upwards from last quarter with sales forecast to decrease in the December 2017 quarter by 2.3 per cent to 208,692 m3 and decrease in the March 2018 quarter by 0.5 per cent to 207,701 m3. Sales are forecast to increase in the June 2018 quarter by 3.7 per cent to 215,323 m3, before increasing again by 3.7 per cent in the September 2018 quarter to 223,242 m3.
That is, sales of treated structural products are forecast to grow 4.5%, from September quarter 2017 to September quarter 2018, albeit after slowing in the current and next quarters.
Sales of untreated structural pine under pressure
Actual sales of structural pine less than 120mm in the September 2017 quarter (208,935 m3) were stronger than expected, exceeding the July 2017 forecast for the September 2017 quarter (195,294 m3) by 7 per cent or 13,641 m3. ABARES notes that the actual sales for the September 2017 quarter were inside the 95 per cent prediction intervals presented in all previous ABARES forecasts.
The chart below shows the details.
Looking forward, the chart above shows the updated forecasts for the December 2017 quarter. Forecasts have been revised upwards from last quarter with sales forecast to decrease by 11 per cent to 185,953 m3 in the December 2017 quarter before falling by 5.8 per cent in the March 2018 quarter to 175,151 m3. Sales are forecast to increase in the June 2018 quarter to 187,367 m3 before increasing further in the September 2018 quarter to 198,620 m3.
Sales are forecast to decline 4.9% in the September quarter of 2018, compared with the September quarter just completed. As other data shows, we are on the cusp of – if it has not already happened – treated structural products supplanting their untreated cousins from the dominant position in the Australian market.
Larger dimension untreated structural to fall almost 12%
Relatively small volumes of structural pine >120 mm are reported and forecast separately from the smaller dimension <120 mm grade. Actual sales of structural pine greater than 120mm in the September 2017 quarter (18,332 m3) exceeded the July 2017 forecast for the September 2017 quarter (15,327 m3) by 19.6 per cent or 3,005 m3. This aside, the patchy experience for this grade is set to tumble over the next two quarters, before recovering some ground later in 2018.
Looking forward, the updated forecasts for the December 2017 quarter have been revised upwards from last quarter with sales forecast to fall in the December 2017 quarter by 16 per cent to 15,314 m3 before falling further to 14,366 m3 in the March 2018 quarter. Sales are forecast to recover in the June 2018 quarter by 6.5 per cent to 15,306 m3 before increasing further in the September quarter of 2018, increasing by 5.6 per cent to 16,159 m3.
Landscaping products set to continue growth
Actual sales of landscaping products in the September 2017 quarter (41,986 m3) were weaker than expected, falling below the April 2017 forecast (44,322 m3) by 5.3 per cent or 2,336 m3. The chart below provides the details.
Looking forward, the updated forecasts for the December 2017 quarter onwards are broadly consistent with those provided previously. Sales are forecast to increase in the December quarter of 2017 by 12 per cent to 46,875 m3 before falling in the March 2018 quarter by 19 per cent to 37,976 m3. Sales of landscape products are forecast to increase by 5.1 per cent to 39,905 m3 in the June quarter 2018 quarter before increasing a further 22 per cent to 48,838 m3 in the September quarter 2018.
Forecasts hitting targets and prediction intervals
Importantly, the ABARES econometric forecasts continue to fall within the standard 95% prediction intervals in nearly all cases. This includes comparing the forecasts for the September quarter, from a year ago.
The reason this is important for industry is that it provides increasing confidence that the forecasts will be broadly accurate and can thus, within limits, be relied upon.
Leveraging forecasts into decision-making
These short-term outlooks and forecasts aside, the fundamental drivers of demand – population, economic growth and income growth – all point towards growing demand for fibre resources. Although abundant and uniquely renewable, fibre is still a finite resource. Classically, it is price that will regulate demand and dictate supply. So as demand rises, we can anticipate prices will follow suit.
We do need to be mindful that prices aside, these products operate to different drivers. Some – the structural products are clearly in this camp – are directed by housing approvals and commencements. But others, landscaping is the example, lag the new housing market in general, and are far more discretionary in nature. You cannot have a framed house without framing timbers, but once its built, the gardens can wait and life can go on.
Over time, the forecasts should begin to show up these distinctions.
The next item in this edition of Statistics Count addresses the pricing dynamic and outlines how it may evolve in Australia, in the next few years.
