Woodchip price in Australia through the roof thanks to Asian demand

Forestry companies around Australia are enjoying record high woodchip prices, with demand from Asia — especially China — pushing the price for premium chips beyond $260 per bone-dry tonne.

Australia’s largest processor and exporter of wood fibre, Midway Limited, which has recently acquired a logging and haul business in Western Australia, expects demand will continue to grow and has been steadily investing in forestry projects around the nation, including in the Tiwi Islands in the Northern Territory.

Midway’s managing director Tony Price said it was a good time to be in woodchips.

“Over the last couple of years, we’ve enjoyed a couple of significant price increases, with the current price for Tasmanian blue gum [woodchip] in the order of US$182 (SGD $247) per bone-dry tonne and that’s the highest it’s ever been,” Mr Price said.

“Not so long ago we were down around US$150 [per bone-dry tonne] when there was a glut of blue gum on the market, which largely came about due to the MIS (Managed Investment Scheme) era.

Chinese woodchip demand building
Mr Price said demand from China had now exceeded Japan, and some mills in Indonesia were emerging as valued customers as well.

He said woodchips exported to China were going into three main product lines:

  • Kraft pulp, which produces fine paper such as tissues, etc
  • Dissolving pulp, used for making rayon, a natural fibre that competes against other fibres such as nylon, wool and cotton
  • Thermomechanical pulp (BCTMP), used for producing high quality cardboard and packaging

Mr Price said Tasmanian blue gum remained the premium woodchip in the market, but lesser-quality timber chips such as acacia mangium had all increased in price this year.

He expected the woodchip price would experience some “short-term softening” in the coming months, but overall the industry expected ongoing “modest price increases” over the next few years.

“There’s been plenty of ups and downs over the years, and post the global financial crisis for about five years it was pretty tough,” he said.

Price rise welcome on the Tiwis
The record price for woodchips has provided a boost to one of Australia’s most remote timber operations.

The Tiwi Islands in the Northern Territory are home to a 30,000-hectare plantation of acacia mangium trees, which were once managed by Great Southern before it, like many other managed investment schemes at the time, fell into administration in 2009.

The first shipment of Tiwi woodchips occurred in 2015 and the forestry project is expected to load up to seven ships this year.

General manager of Tiwi Plantations Roger Smith said the increasing price, coupled with significant investment by Midway Limited had transformed the Tiwi’s forestry project.

“This has meant an awful lot to the Tiwis,” Mr Price said.

“It’s not just the increased price of woodchip, but also the involvement of Midway … since Midway’s arrival about two years ago they’ve managed to achieve a 17-18 per cent increase of price for Tiwi woodchip.

“In addition to that, Midway has put in new equipment, increased the harvesting capability, increased our trucking capability and throughput capacity at Melville Port, so instead of getting five or six woodchip ships out a year, we should do seven ships this year and nine ships next year.”

He said the forestry project was creating jobs and wealth on the Tiwis, and that plans for the second rotation of trees was going well, with trials of eucalypt hybrids looking promising.

Log exports not so chipper
Woodchip prices might be through the roof, but the export market for logs and planks is not so great, according to Paul Heubner, the CEO of timber exporting company Pentarch Forestry.

Mr Heubner said there had been some significant changes to the Chinese market which had affected demand for solid wood.

“We are seeing that China is moving more to the west, away from its east coast in terms of construction,” he said.

“So, what’s happening there is Russian log and Russian lumber can actually access China’s west at cheaper rates than we traditionally could from the east coast via export, so we’re seeing a big [price] correction.”

Mr Heubner predicts the market could fundamentally lose $US10 to $US15 a cubic metre for softwood.

“If [construction in China] keeps moving towards the west we think solid softwood [prices] will stay pretty low, but the hardwood market has got a lot more upside to it.”