Russia ban to boost demand for Kiwi logs

New Zealand forest owners look set to benefit if Russia goes ahead with a ban on log exports, but for local sawmillers it could be a different story. Russia exported 15 million cubic metres of logs last year, accounting for almost 12 per cent of globally traded roundwood, but much of this trade may come to a halt next year if a proposed ban goes ahead.

A ban would be the culmination of efforts by Russia to discourage the export of logs, through tariffs, to promote local industry.

Forestry economist Glen O’kelly, who heads Sweden-based consultancy O’kelly Acumen, said Russia had been a leading log exporter for decades but this could come to an end in 2022.

He said a ban would have immediate impact on global trade flows of logs and lumber, and China will be forced to explore new supply regions.

Russia — home to 15 per cent of global wood resources — will strive to process the logs domestically into lumber and other forest products.

O’kelly, a Kiwi and a New Zealand forestry owner, said a ban was likely to result in more competition on the New Zealand domestic sawlog market, as Chinese buyers need to replace the logs they will no longer be able to import from Russia.

“New Zealand is already the largest supplier of sawlogs to China, and will be one of the first places Chinese importers look to replace those volumes,” O’kelly said. “More competition on the New Zealand sawlog market is good for forest owners because it will probably mean higher prices at harvest,” he said. “But it will be challenging for the New Zealand sawmill industry, which already faces tight margins.”

China — which imports about 8 million cubic metres of logs a year, mostly softwood — will be the most directly affected by the ban.

New Zealand log prices are already close to record highs.

At the wharf, A-grade logs go for about $147 per JAS metre — up from $100/metre or so when China turned the tap off in February last year as the economic impact of Covid-19 began to bite.

Agrihq forestry analyst Reece Brick said the New Zealand export log market was already looking very strong and China was leading the charge. Brick said a Russian ban would support log prices. Meanwhile, Brick said the New Zealand domestic timber market had been supported by strong demand, driven by the construction sector.

O’kelly says that Russia can still become an increasingly competitive player in global markets.

In a report, he said the proposed ban will have broader repercussions in other regions, including tighter log and lumber markets.

In the short term, China will look to source softwood sawlogs elsewhere, driving more competitive log regions such as New Zealand and the Western US.

“In the longer term, if Russia is successful in growing its wood processing industry and improving the quality and sustainability profile of those products, it will be an increasingly competitive player in global markets,” he said.

NZ Forest Owners Association chief executive Phil Taylor said a Russian log export ban would follow years of progressive tariff increases aimed at promoting the country’s local production.

At the same time, Russia has provided subsidies and concessionary financing for investors to build wood processing plant there.

Taylor said Russia’s incremental move away from log exports had already made New Zealand assume the mantle of being China’s biggest supplier of softwood logs by quite some margin.

At the same time, Russia has replaced Canada as the largest supplier of lumber into China.

“To the extent that there are processors in China who want to process logs rather than purchase lumber, this [ban] is good news from a New Zealand log export perspective,” Taylor said.

“It remains to be seen as to what it might mean for New Zealand domestic processors because it potentially increases the demand for logs from China at the cost of New Zealand domestic processors.”

Taylor said the outlook for forestry was improving. “From a forest owner’s perspective, global supply isn’t reducing.

“On the demand side, we have seen a real shift towards more renewable and sustainable products, and new technology around engineered wood products, let alone global population growth.

“At the moment the domestic market for sawn timber is as good as it has ever been.”