Sawn softwood imports softening as prices hold to fundamentals

Sawn softwood imports softening as prices hold to fundamentals

Despite being significantly lower than a year earlier, Australia’s imports of sawn softwood products recovered ground in July compared with June’s decadal low import volume. At 45,589 m3, July’s imports were almost exactly 50% higher than June’s long-term monthly low of 30,413 m3. However, annualised imports were 4.4% lower in July 2019 than for the prior month, falling to 747,649 m3. Import prices appear to be making an orderly adjustment to the reduced import volumes.

The first chart shows the experience of monthly and annualised sawn softwood sales over the last decade. It is plain to see both of the recent features – the very large lift in imports on the one side and the very steep fall in imports on the other side.

 

Fig 11

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Demonstrating that the last year still includes the peak of imports (917,578 m3 year-ended December 2018), annualised imports were just 3.6% lower in July 2019 than they were a year earlier.

Notably, the value trend is very similar, as the chart below shows. But, there are differences, reflecting the realities that it takes both volumes and prices to calculate the import values shown below.

 Fig 12

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Average pricing for the total volume of imported sawn softwood products is useful for this analysis, before we focus in on just one main grade. This data, and similar data and charts for other main grades of sawn softwood, is available to FWPA members in a special Dashboard on the FWPA Data Dashboard.

The chart below shows monthly import volumes and average prices (AUDFob/m3) over the last decade.

 

Fig 13

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In July 2019, the average import price for all sawn softwood products was AUDFob534.41/m3, down 9.6% on the prior month, but still 4.2% higher than in July 2018. So, what occurred in June 2019 was total imports fell, but the total average price increased to a record AUDFob591.33/m3, but as soon as volumes recovered some ground in the most recent month, prices returned to their (more or less) trend position.

For a domestic market that has often been beset by import volume changes being price driven, this may be further evidence of the greater internationalisation of the domestic market. That is, where global price signals (reflected through imports) are as significant as local price signals.

That situation warrants more detailed examination, by a focus on some main import grades. In doing that, it is impossible to go past imports of Structural (Dressed) Sawn Softwood, excl. Radiata Pine. This is the single largest import line and includes a large proportion of total sawn softwood imports.

As the chart shows, over the decade, the annual import volume (shown in red) has gone through two cycles and appears to be in its third. Imports of this key structural grade totalled 291,598 m3 over the year-ended July 2019. Though clearly falling (down 4.7% on the prior month on an annualised basis), imports were actually 12.4% higher than for the year-ended July 2018.

At the top of the cycle at the end of 2010, the average import price (shown in black) had not grown as much as the import volume, but stepped down at the same pace, plunging to decadal lows. We might assert that is a period where price competition was very strong.

 

Fig 14

To go straight to the dashboard and take a closer look at the data, click here.

 

 

It was a different situation in late 2013, as the housing boom began. Average import prices tracked up before volumes began to increase, but despite some evident market signals, the average import price did not move up as much as the volume increased. In this case, we should note that the Australian dollar was trading with the US dollar at more or less parity, and was very high to the Euro also. The implication being that importers were probably satisfied with their prices and returns in their preferred currency and rode out the peak of the market pursuing marginal volume at satisfactory average prices.

The third, largest and steepest rise in import volumes and prices sees something of a symmetrical movement. That is, as import volumes rose to record levels at the end of 2018, average prices went with them, and right to the peak. With a weaker Australian dollar, for importers that makes sense, as they would have sought to maintain the delicate balance between their volumes and margins.

It is true that the average import price for this key structural grade has backed off relatively steeply in recent months, but it is doing so as monthly volumes and annual volumes fall very sharply. At AUDFob358.43/m3 in July 2019, the average import price was 8.5% lower than a year earlier, but then, the import volume was almost 46% lower in July 2019.

That is the sort of situation that accounts for some price deterioration.