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 will probably mean higher prices at harvest,” he said. “But it will be challenging for the New Zealand sawmill industry, which already faces quite 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.
Russia’s importance to China has declined since tariffs were first introduced in 2007 but it still accounts for 10 per cent of China’s softwood imports.
New Zealand log prices 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 are year as the economic impact of the Covid-19 pandemic 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.
“In saying that, shipping rates are sneaking up quite quickly so that’s something to keep an eye on,” Brick said.
Shipping costs have gone up to US$36 per JAS metre from the low US$20S that has been the norm over recent years, while log prices have risen in each of the past eight months.
Brick said a Russian ban would support log prices.
“But we are so much bigger than them now. Once upon a time they were bigger than us, but that has dropped off.”
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.
Hardwood sawlog markets will also be affected, as China seeks to increase imports of US hardwoods or eucalyptus.
“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.
“The Russian ban will be just another hit on the supply side.
“At the moment the domestic market for sawn timber is as good as it has ever been and the export log markets have not been too bad.”
However, Taylor said log exporters have been indirect casualties of worsening Australiachina trade relations, a result of political tension between the two nations.
Australian exports of thermal and coking coal to China have dwindled because of Beijing’s import restrictions.
China going elsewhere for raw materials has meant greater demand for smaller ships than the giant vessels used for the Australia-china trade.
This had meant increased demand for those smaller “handyclass” vessels, which in turn has put upward pressure on freight costs for the China log export trade.