editorial

IT’S VERY TEMPTING TO DESCRIBE THE SUDDEN DROP IN EXPORT LOG prices as a collapse and to start battening down the hatches in anticipation of a long, drawn-out depression hitting the harvesting sector in New Zealand. It certainly feels like that if you are one of the scores of loggers who have been laid off or put on short hours over the past few weeks as forest owners react to the over supply in China that caused prices to tumble.

But are we over-reacting?

Thing is, we’ve been here before. We had similar sharp price drops in 2011, 2013 and 2015 at exactly the same time of year.

The reason was a big build up in log stocks at Chinese ports that coincided with the mid-summer slow-down in that country’s construction activity when it becomes too hot to work. With logs coming out of their ears, mills were spoiled for choice and importers found themselves with surplus shipments on top of bloated inventories. Prices dropped as they tried to quit their logs. Fresh orders shrank until inventories came back into balance. And, in turn, our harvesting activities took a dip as some woodlot crews were laid off.

In all three of those years, the situation righted itself by late Spring, harvesting resumed and continued to build to even higher levels.

Effectively, those three events were corrections.

Is the latest situation any different? That’s hard to say.

The main contributors – a big inventory build-up and the seasonal slowdown in construction activity – are the same, but there’s a disturbing factor that is complicating things.

Buyers in China now have a new source from which to draw wood; via rail the

Belt & Road initiative. The new rail connections from China through to Europe see manufactured goods flowing west and then wood and other commodities filling the empty wagons on the way back. That wood is coming in way cheaper than timber being produced from logs being shipped from New Zealand and faster, too.

And there’s lot of it due to ramped up harvesting of trees killed by beetles in a plague that is sweeping across some European forests.

We’ve been shipping ever-increasing amounts of logs to China for so long – to date this year we’ve sent 19% more logs than the same time last year – we were lulled into thinking it was a bottomless pit. But it isn’t. Saturation point has been reached and it will take a while for the market to reset.

We just don’t know what level it will reset to.

The good news is that the beetle-damaged wood from Europe is a finite supply. It will run down at some point, just like it has in Canada. Hopefully it won’t have caused too much damage to our log trade in the meantime.

In any case, the Belt & Road link has changed the equation in the China log trade, regardless of the current surge in beetle damaged wood, and we’ll have to learn how to compete with future rail shipments. As well as competition from other sources.

What hasn’t changed is the fact that worldwide demand for wood is going to increase in the future and we still have lots of fast-maturing trees to meet it.

Optimistically, I’ll predict that the oversupply – and with it, our export log trade – will have picked up again by mid-to-late Spring.