Wood-fibre exporter Midway Limited (ASX: MWY) has secured an increase in hardwood woodchip export prices from major Chinese customers which is set to boost the company’s second-half profits.
Favourable contract negotiations have led to major Chinese customers agreeing to an average price increase of 11% for Midway woodchip export volumes, with the higher price to be applied to export products in the first-half of 2019.
As a result, major Chinese customers will pay on average of $US182 per bone dry tonne for Eucalyptus globulus woodchips in 2019.
China has a growing appetite for higher quality eucalyptus wood-fibre, which produces higher yields, requires less chemicals, less energy inputs and reduced processing costs.
With two-thirds of total Midway woodchip volumes going to China, Midway expects the price hike to boost its second-half profits in the 2018-19 financial year.
Strong Asian demand set to continue
Midway managing director Tony Price said the latest price rise reflected tight wood-fibre supply in Asia and continuing strong demand for wood fibre in China for a range of paper products.
“RISI, a leading global forest products analytics company, has forecast continuing tight wood-fibre supply in Asia and buoyant demand conditions particularly in China for the next few years, so the Midway export price outlook continues to be positive,” he said.
“This price increase and expected future demand growth is a very positive sign for future plantation development in the areas in which we operate.”
With Chinese negotiations ending positively for Midway, the company, which owns hardwood processing and export facilities in Geelong, is setting its sights on price negotiations with Japanese customers.
Major Japanese customers paid an average of $US164.50 per bone dry tonne for eucalyptus globulus woodchips in 2018 – the company’s highest-grade product.
Midway will no doubt be looking to increase this figure when it heads to the negotiating table early next year.
Bluegum eucalyptus is only commercially grown in the Southern Hemisphere due to its specific climate requirements.
Given Midway is Australia’s largest wood-fibre processor and exporter, the company said it was well-positioned to secure new customers and additional volumes.
To cater for the strong market outlook, Midway is currently assessing plans to expand its wood-fibre business, with opportunities actively being assessed in Tasmania.
Midway generated sales revenue of $231.9 million in the 2018 financial year, up 10.8% on the previous year.
In afternoon trade, Midway shares had jumped 9.67% to sit at $3.40.