Massive resource exports – Softwood log and Hardwood chip exports explode

Australia’s GDP is always impacted by the nation’s resource exports. Although smaller than iron ore and coal exports for example, Australia’s exports of Softwood logs and Hardwood chips have been very strong over the last year. Exports of Softwood logs have topped the 4 million m3 per annum mark in recent months and Hardwood chip exports remain above 6 million bone dry metric tonnes.

For the year-ended July 2017, Australia’s Softwood log exports totaled 4,057,046 m3, up a very strong 19.8% on the prior year. Hardwood chip exports totaled 6,092 560 bone dry metric tonnes.

As the chart below shows, growth in Australia’s Softwood log exports has been continuous and little short of stellar. From the beginning of 2017, operating under new global Harmonised Trade System codes, Softwood log exports are broken down into Treated logs (shown in blue), Pine logs >15 cm diameter, (shown in red), Pine logs <15 cm diameter (shown in green) and Other species > 15 cm.

The charts are extracted from FWPA’s new data portal, which is in beta testing and will soon be launched, in use and available for FWPA members.

fig 9

While the chart shows that Softwood logs >15 cm continue to dominate exports, the real story is that the growth in exports is continuing and remarkably, in recent months, has accelerated.

There is no doubt these Softwood log exports earn Australia, as a nation, significant export income. As the chart below shows, that income reached an annualized AUDFob527 million for the year-ended July 2017. That is nothing to be sneezed at, but the question remains, what is the opportunity cost of exporting logs that in many cases have utility in Australia?

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It is important to note that Hardwood log exports have also been growing, but the data – since the start of 2017 – have been confused by what appears to be misclassification of some exports. It is evident that some 629,710 tonnes of (likely) hardwood logs have been exported from January to July under the Fuelwood codes (AHECC 4401.12.00). When this situation is resolved, further details will be provided of what seems to be growing Australian hardwood log exports.

The next chart shows Australia’s woodchip exports by country, displaying both Softwood chip exports (blue) and Hardwood chip exports (yellow). 

The chart shows that for the year-ended July 2017, total woodchip exports amounted to 6,744,628 bone dry metric tonnes. Of this, 89.9% or 6,092 560 bdmt was hardwood chips.

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When examined on a country of destination basis, over a shorter timeframe, hardwood chip exports are essentially to three countries – China, Japan and Taiwan. The thin purple line at the top of the chart shows very small volumes shipped to other countries, most notably Korea and India. This can be observed in the chart below.

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While on an annualized basis they have been stable over the last year, Australia’s hardwood chip exports have sustained their position at, or just above, 6 million bdmt per annum over that period. They are indeed booming, with China the main recipient, receiving 3,830,552 bdmt or 60.9% of the total.

There is much to remark upon in such strong export growth, especially over a year in which the Australian dollar’s exchange rate was – for the most part – relatively stable. 

It is difficult to avoid the ‘all roads lead to China’ conclusion, which does underscore the potential fragility of these exports. If China sneezes, Australia’s exporters will catch a cold. There are other markets, but is it really conceivable that any could take the place of the Middle Kingdom?

Probably not, which does present something of a ‘key customer’ risk in the medium term.

Closer to home, while there seems little prospect of significant domestic transformation of Hardwood chips, there is mounting disquiet at the volume of Softwood log exports. It is true that plenty of the volume is smaller diameter and harder to process in Australia. However, the vast bulk is larger diameter (>15 cm) and the looming Softwood log shortage exercises the mind of all but the most cavalier.

The microscope is increasingly focused on Australia’s fibre exports, in a manner that may be less economy wide, but is nonetheless quiet similar to the current debate about one of Australia’s other resource exports: natural gas.