Forestry fac­ing head­winds in 2018

New Zealand Logger - - Forest Talk -

THE NEW ZEALAND FORESTRY IN­DUS­TRY is likely to face some head­winds go­ing into next year, ac­cord­ing to a lead­ing econ­o­mist.

With log prices hit­ting records in re­cent weeks and ex­port vol­umes boosted by on­go­ing de­mand from China, helped along by low shipping rates, 2017 has been a stel­lar year for most forestry par­tic­i­pants.

But don’t ex­pect the good times to be quite so good in 2018, says ASB Bank ru­ral econ­o­mist, Nathan Penny.

In a re­port on the out­look for the com­modi­ties mar­ket, Mr Penny says “forestry’s ban­ner 2017 year is un­likely to re­peat”.

Mr Penny says 2017 has been a year “out of the box” for forestry, with log prices at or near record highs in New Zealand dol­lar terms for most of the year, but he then goes on to say: “The ques­tion then is: can it last? In short, prob­a­bly no.”

There are three crit­i­cal ar­eas of con­cern look­ing ahead, he ex­plains; cur­rency move­ment, risks in the Chi­nese mar­ket and firm­ing shipping rates.

Al­though our dol­lar has been rel­a­tively steady, af­ter fall­ing against other ma­jor cur­ren­cies ear­lier in the year, Mr Penny be­lieves it will head up again.

“First up, we ex­pect the NZD to rise to US$0.75 by mid-2018 and then US$0.77 by the end of 2018, from around US$0.72 cur­rently,” he says.

“Sec­ondly, Chi­nese de­mand has been con­sis­tently firm, but there are risks that Chi­nese de­mand may soften. In par­tic­u­lar, fall­ing house price growth may trans­late into less con­struc­tion ac­tiv­ity.

“Thirdly, shipping rates con­tinue to rise off last year’s lows. For ex­am­ple, Baltic Dry In­dex prices for Septem­ber (2017) are some 63% higher than in Septem­ber 2016.

“On the pos­i­tive side, lo­cal de­mand is likely to re­main firm. The con­struc­tion back­log is long and likely to con­tinue to drive ac­tiv­ity and de­mand for logs and tim­ber for years to come. In­deed, the main ques­tion for lo­cal con­struc­tion cen­tres not on de­mand, but on the ca­pac­ity of the con­struc­tion in­dus­try to carry out the work.

“All up, we ex­pect forestry prices to ease over 2018. That said, prices are likely to re­main high by his­tor­i­cal stan­dards, with lo­cal con­struc­tion still un­der­pin­ning prices.”

New Zealand struc­tural log prices edged up to the high­est level in more than two decades at the end of Septem­ber, as mills com­peted with the ex­port mar­ket to se­cure sup­ply for the lo­cal con­struc­tion mar­ket.

AgirHQ re­ported that the price for struc­tural S1 logs lifted to $128 per tonne over the pre­vi­ous month, which was 11% above last year’s level and 21% higher than the five-year av­er­age. The S1 struc­tural log price reached its high­est level since April 1994.


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