FOREST TALK

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THE BIG HIT ON LOG EXPORT PRICES OVER THE WINTER COULD wipe as much as $1billion from forestry income over the next year, according to the Ministry of Primary Industries.

In its latest Situation & Outlook Report, MPI believes the knock-on effects from the sudden price drop in July will cause some smaller forest and woodlot owners to back off harvesting their trees for some time, until they feel confident in the market.

That would reduce the total harvest, which had hit record numbers in May, adding to the reduction in income from the price drop.

Ministry figures show that log export prices dropped 20% from February to July, including 17% just from May to July, as increased volumes of log and timber imports arrived in China from New Zealand, Russia and Europe over the first six months of this year.

This created a backlog of supplies in China that will take some time to work through before prices can recover, says MPI, causing harvest volumes to fall in response to lower prices, especially for more pricesensitive small woodlots.

As a result, MPI says forestry export revenue has been revised down from the previous forecast by $1.0 billion for the year ending June 2020. This would take total forestry export revenue down from $6.382 billion at June 30 this June down to a forecast $5.81 billion at June 30 in 2020. Then rising again in 2021 to reach a forecast $6.35 billion – still below this year’s level.

Whilst this is a blow to an industry that has been booming in recent years MPI says it’s not all doom and gloom. It does acknowledge that China’s manufacturing sectors, including furniture, are showing signs of falling demand, but this is not likely to have a direct impact on demand for New Zealand logs. Importantly, Chinese demand in the construction sector, where most of New Zealand’s logs are used, does not show any significant reduction so far as a result of the US-China trade dispute.

Chinese end use demand for logs remains robust with real estate starts for the year-to-date in 2019 showing a 10% increase on the previous year.

Given the current oversupply at Chinese ports, MPI believes log prices are expected to remain at lower levels over the next several months while high log inventories at Chinese ports gradually dissipate.

Harvest volumes in New Zealand have been extremely high in response to previously elevated log prices, with some small woodlots being harvested early to capitalise on strong returns.

Now that prices are much lower, MPI expects harvest volumes to fall by around 5% from the previous year, as smaller forest owners (who currently represent around 40% of harvestable volumes) delay harvesting. As a result, log export volumes are expected to fall 9.2% in the year ending June 2020.

In contrast to logs, sawn timber export revenue is expected to rise again over the next 12 months after ending the June 2019 year with a 5% increase over the previous year, although the rate of increase is likely to slow. Decreases in exports to Australia were offset by growth in the US and other countries.

Likewise, the value of panel export is also expected to increase over the coming years after recording a 3% improvement this year.

MPI is also upbeat about wood chips after a small increase in revenue this year and it expects a similar performance next year. But pulp, paper and paperboard products are expected to fall. NZL