The 2022-23 outlook for Australian woodchip exports remains strong. This applies to hardwood chips and softwood chips. The prognosis for softwood chip exports could change rapidly if Australian log exports are allowed to re-enter China. Source: IndustryEdge
In January, the Bleached Eucalypt Kraft (BEK) pulp price fell around 7% to USD750/t in China, finally correcting by USD55/t with further declines locked in through February and into March. The Bleached Softwood Kraft (BSK) price was stable at USD890/t, seeing the spread push out to USD140/t.
While pulp prices are falling, the BSK price is still 11% higher than one year ago and the BEK price is more than 27% higher over the year. For BSK, we could argue the price differential over the year is linked to inflation, to some extent, but the BEK price increase is more than that.
Alongside supply stability returning, it is difficult to by-pass demand dynamics when considering the pulp price trajectory. It certainly appears the price of bleached hardwood pulp will fall further, but that is mostly a supply-side correction.
Stability is returning to demand for tissue grades and as printing paper demand declines, it is being replaced by a greater uplift in packaging demand. The packaging sector is now – in our view – driving the future of the pulp market. Long the domain of the softwood sector, hardwood pulps are making their presence felt in the packaging sector, in South America, but also in China.
Recent research published by the Technical Association of the Pulp and Paper Industry (TAPPI) makes plain the advantages eucalypt pulps can have in packaging grades. The question for the pulp market will be whether there is sufficient eucalypt supply globally to meet all the requirements being heaped upon its shoulders.
Softwood chip will remain in short supply, while there is a high level of integration between plantation and forestry activity and wood processing for solid wood, as well as for pulp and paper production. Any significant disruption to vertical integration at a regional level appears decades away.
Taiwan of more than passing interest
Given the general topical relevance of Taiwan right now, the following analysis of its recent hardwood chip imports may be of interest.
As a senior industry observer commented recently – its all too easy to dismiss Taiwan because its volumes are small compared with China or Japan. That is very true, with the country’s intake totalling less than 1.0 million bdmt per annum. However, as the industry luminary was alluding, Taiwan’s imports are very stable, as the chart below demonstrates.
Taiwanese Hardwood Woodchip Imports by Country: YE Nov ‘20 – YE Nov ‘22 (bdmt)
Source: GTIS & IndustryEdge
Importantly for Australia, demand from Taiwan remains elevated and Australia is the major supplier, accounting for almost 47% of all imports in 2022. Other countries pop in and out, but it is Australian supply that dominates.
It has long been held – and for the most part it is true – that exporting to Taiwan involves lower prices than to other countries.
This chart shows the average monthly prices for Australia, Vietnam and the total weighted average price in USDCif/bdmt. There is more than a little to consider in so simple a chart.
First, we can see the average price (black dotted line) tracked up during the pandemic as freight costs exploded. Though those freight costs have begun to moderate, the cost of delivered hardwood chips has barely diminished. Could that be the price of heightened tensions in the sea lanes around Taiwan?
Second, as befits the dominant supplier, Australia leads the price over most time periods.
Taiwanese Hardwood Woodchip Imports by Country: Jan ’20 – Nov ‘22 (USDCif/bdmt)
Source: GTIS & IndustryEdge
In the third chart, it is worth examining the Australian average hardwood chip export price into each of China, Japan and Taiwan. Effectively, though mainly eucalypt chip, the majority of the supply to Taiwan has been derived from native forests. That goes some way to explain the price differential, though not the full journey. As the chart shows, the differential between Taiwan and China is routinely between USD130-150/bdmt on delivered basis. In almost all situations, Taiwan pays about 40% of the China price for hardwood chips from Australia.
Australian Hardwood Chip Export Price by Main Country: Jan ’20 – Nov ’22 (USDCif/bdmt)
Source: GTIS & IndustryEdge
The charts and tables were assembled from the Asian Woodchip Deliveries data file distributed to IndustryEdge subscribers with this monthly report.
For more information visit www.industryedge.com.au
