The combination of Chinese demand for homes, New Zealand’s pine forests and a Russian tax have been a boon amid an industry slump for Pacific Basin (2343) Shipping Ltd., Hong Kong’s largest dry-bulk carrier. Its biggest local rival has noticed.
New Zealand sold 8.6 million cubic meters of logs to China last year, more than tripling its market share to 23 percent in four years, according to the China Timber & Wood Products Distribution Association. In response, Pacific Basin has increased the number of ships that are log-fitted by 56 percent in the past five years.
Cosco Shipping Co. (600428), part of China’s biggest maritime company, plans to start services to New Zealand from China to join the trade. Hauling timber is attractive because the commodity-shipping industry is off to its worst start on record. The Baltic Dry Index (BDIY) averaged 774 since the start of the year, the lowest since at least 1985, according to the Baltic Exchange in London.
“This trade-flow shift from Russia to New Zealand is helping shipping companies when the whole commodity-shipping sector is in doldrums,” said Amos Zhang, a Shanghai-based analyst at Shenyin & Wanguo Securities Co. with a buy rating on Cosco. “The new demand is positive for shipping companies.”
Pacific Basin, which last month reported its first annual loss since listing in 2004, owns 56 vessels that are equipped with log-fitted facilities, up from 36 five years ago, the company said in an e-mail. Timber and other forest products accounted for 15 percent of the carrier’s cargo loads last year, the biggest after grains.
“Logs are very important cargo for us,” Mats Henrik Berglund, Pacific Basin’s chief executive officer, said in an interview. “We’ve seen good demand, continuing demand” for logs from New Zealand and Australia into China, he said.
Cosco Shipping, part of the state-owned China Ocean Shipping (Group) Co., plans services on the New Zealand-China route “in the near term” to capture a share of the timber trade, said Dong Yuhang, head of the company’s timber-carrying operations.
The carrier’s 13 ships are currently hauling hardwood, used to make furniture, from Africa to China. Supplies from New Zealand plantations are more sustainable than those from Africa’s natural forests, Dong said. STX Pan Ocean Co. (STX) also operates vessels in the China-New Zealand route to haul logs.
Pacific Basin fell 0.7 percent to HK$4.59 in Hong Kong trading today, trimming the gains this year to 5.5 percent. Cosco Shipping rose 2.8 percent, the most since Jan. 24, to 4.08 yuan in Shanghai trading. Pacific Basin declined to comment on the competition.
Operators are currently fetching more fees for transporting logs compared with iron ore and coal, Cosco Shipping’s Dong said without specifying the rates.
Cosco’s logs-carrying operations posted a profit of 84.5 million yuan ($14 million) in 2011, according to a stock exchange filing. China Cosco Holdings Co. (1919), the container and dry-bulk shipping unit of Cosco Group. had a 10.5 billion yuan loss in the period, the company said in its annual report.
Russian logs, transported by rail, fell to about 30 percent from 63 percent in 2008 after the country imposed a log export tax as high as 25 percent, according to the China Timber Association. Russia later lowered taxes for some products and introduced a quota system, according to the association.
The Kaingaroa forest, first planted in the early 1900s, is now growing its third crop of trees over 189,000 hectares. It’s located near tourist attractions Mount Ruapehu and Lake Taupo in a geothermal region of New Zealand’s North Island.
Kaingaroa forms just over 10 percent of plantation forests in New Zealand, which grows and harvests trees for commercial sale. The nation’s log exports almost doubled in four years to 12.8 million cubic meters in 2011, according to the New Zealand Forest Owners Association. China bought NZ$1.4 billion ($1.15 billion) of logs that year.
“We’ve got a happy coincidence,” David Rhodes, Chief Executive of the Forest Owners Association, said in an interview in Wellington. “We’ve got China looking to gobble up as much resource as they can and New Zealand is in a happy position of producing an increasing amount in the near term.”
New Zealand is in the midst of its most widespread drought in at least 30 years, which may cost the nation NZ$2 billion ($1.7 billion) as dry conditions across the North Island threaten economic growth, the government estimates.
Forestry is now New Zealand’s third largest exporter, behind meat and dairy. About 90 percent of the nation’s plantation forests are of Radiata Pine, the native Californian tree that grows as high as 60 meters.
Kaingaroa has a processing plant in the middle of the forest, which converts whole-tree stems into logs. The forest is served by the North Island’s Tauranga and Napier ports.
Global demand for logs moved by ships will expand at 7 percent annually from 2011 to 2017, faster than global trade, Cosco Shipping said in a December statement, citing estimates from Roland Berger Strategy Consultants.
China’s economic growth has spurred a housing boom. Total floor space of new constructed houses surged 73 percent to 1.77 billion square meters in 2012 from 2008. On March 1, the government came out with measures to cool the housing market.
“China’s market is so huge that imports are needed for about half of wood consumption,” said Xie Manhua, a researcher at the timber association. “Therefore, no matter how bleak the housing market could be, the total volume of wood needed would still be big.”
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