FOREST TALK

CHH, China, Russia, the building boom and the FTA: A recipe for Domestic shortages; Log prices soaring; Help is on the way; Farm foresters have their say; A new era for Scion; A little mentoring goes a long way; Industry-first ‘right to plant’; Forestry scoops primary industry awards; Applications open for NZIF Foundation awards; 875 Logger advances to E-series; Dolling up the dozers; Last of the Redwood Loggers?; HarvestTECH 2021: How technology impacts business; Taking tech into the forest; Lessons learned from electronic log docketing; Linking NZ and Australian sawmills.

WITH THE WHANGAREI MILL BEING the latest casualty in the closure of up to 15 mills in recent years by the country’s largest structural timber supplier, Carter Holt Harvey (CHH), debate is raging over the true cause of domestic structural timber restrictions.

Grant Dodson, Chief Executive of City Forests and Chair of the Southern Wood Council, says while demand in Asian and other markets for New Zealand logs remains solid, domestic mills are now “flat out” due to escalated building sector demand.

In contrast to complaints by producers that the current supply issue stems from China’s inflated and subsidised prices for New Zealand logs, he says domestic use still represents about 43% of this market, indicating this is more than a simple export issue, with the root cause of supply restrictions of structural timber relating to chronic, long-term underinvestment in wood processing .

“This really starts with processors, who are limited by a lack of capacity,” he says.

Now CHH has cut supply to its smaller customers, prioritising Placemakers, owned by Fletcher Building, and Carters Building Supplies. This leaves building supplies cooperative ITM and Mitre 10 on the lookout for alternative supplies on the back of a residential building boom that saw building consents move up 5% to a record 39,725 dwellings for the year to February. The CHH move has sparked a Commerce Commission enquiry.

CHH issued a statement that the shortage was short-term and industrywide caused by a huge timber appetite as well as CHH’s difficulties with upgrading capacity at its Kawerau mill.

Red Stag Chief Executive, Marty Verry says there is a worldwide building boom and New Zealand is no exception with COVID and its construction aftermath.

Chief executive of the New Zealand Building Industry Federation, Julien Leys, explains that CHH only closed its Whangarei plant because the Northland region no longer has any more structural graded timber to make the sawmill economically viable. “Closure of the Whangarei plant has been planned for many years, so despite the unfortunate job losses, it had no impact on CHH’s manufacturing capacity or the structural timber supply for domestic housing,” he says. The total shortage of structural wood in the building supply chain is approximately 5 to 10 per cent – not ideal in the middle of a housing boom.

President of the New Zealand Institute of Forestry (NZIF), James Treadwell, emphasises that this short supply is not an export-related issue “as about 90% of logs that are exported don’t meet the structural specification for domestic mills anyway”.

“What we’re exporting is what the domestic mills don’t want in general,” he says.

The Wood Processors and Manufacturers’ Association’s (WPMA) Jon Tanner disagrees, saying the increase is because New Zealand is shipping an extraordinary amount of logs overseas.

“New Zealand wood processors pay the price that is being set at the wharf, so we’re paying the same prices as the people who are importing.”

Of all the logs New Zealand cuts down, more than half of them end up at the port to be shipped overseas. China is

our biggest buyer, purchasing the large majority – 85 percent of those raw log exports.

Mr Tanner says he’s been warning the Government about the impact of foreign buyers on prices here.

“What we’re saying is, let’s make sure the market for those logs is free and fair so that domestic processors can compete on the same footing as overseas processors.”

The New Zealand Forest Owners Association’s (FOA) Phil Taylor says the WPMA claim that the problem is log exports to China goes back to the drive to get the government to cross subsidise local production with exports, which was the aim of Shane Jones’ Log Bill last year.

“The WPMA was wrong then and it’s unfortunately wrong again now. Their colourful stories of Chinese buyers flying over forests to spot log supply from the air has nothing to do with this short-term problem.

“The WPMA is using a completely unrelated framing timber shortage to try to get Government support for intervening against exports which is the type of move the entire primary sector completely rejected last year.”

Mr Taylor says the volume of the New Zealand timber market has been remarkably stable for at least the past two decades.

“On top of that you can’t expect processors to have capacity on stand-by for extra sales at a level which hasn’t happened in the past 20 years.”

The NZIF’s Mr Treadwell says the cutting of supplies is most likely a commercial issue between a supplier and its customers, rather than a supply issue within the New Zealand Forest and Wood sector.

“Current domestic supply of logs is strong – there is a good supply of logs for domestic processing,” he says.

“This isn’t an export vs domestic supply issue. Most forest owners are more than happy to supply domestically and will continue to do so. Forum Members are well placed to keep the domestic supply chain well stocked with New Zealand logs,” he says.

Prue Younger, CEO of the New Zealand Forest Industry Contractors Association (FICA), says there have been some suggestions that there is not enough wood being harvested overall. She says there is pressure on the overall supply chain, rather than it being a specific harvesting issue.

“Rather than a specific wood supply issue, we’re seeing the whole supply chain under pressure, affecting the expediency of getting logs to processing and export,” she says.

Added to the mix is the new law proposed by Russia’s President to ban the exportation of softwood logs and highvalue hardwood logs as of 1st January, 2022. The Russian government is also considering new regulations aimed at reducing the exportation of green softwood lumber. This regulation is loosely planned to also commence in 2022 and is intended to incentivise investments in dry kilns to produce dried lumber for exports. From that country’s perspective, reducing log and green lumber exports will likely stimulate further value-added processing within Russia and better control illegal logging.

While the proposed ban is not yet law, it is widely expected to be implemented and passed into law in the second quarter of this year. Considering that Russia exported 15 million m3 of logs in 2020, which accounted for almost 12% of globally traded roundwood, if enacted, the law will have a significant impact as China looks to source more sawlogs from other regions of the world, such as Europe, the US and, of course, Oceania. The increased competition for logs in those markets will likely put upward pressure on sawlog prices. In time, China may change its focus from importation of roundwood to importation of lumber.

Added to this is New Zealand’s 2019 upgrade to its China Free Trade Agreement (FTA) which allows for tariff-free entry for almost all of New Zealand’s $3 billion wood and paper trade to China, and phased tariff elimination on additional wood and paper products worth $35 million.

None of this bodes well for the current domestic lumber shortage. “Not surprisingly, very few countries including New Zealand managed to successfully plan for the tremendous upswing in consumer housing demand that followed the viral curveball that turned all societal and economic norms upside down,” says Mr Leys, predicting that New Zealand’s shortage of structural building wood is likely to last until June 2021 until supplies catch up with demand, combined with a winter seasonal slowdown.

“Perhaps we will realise that investing consistently in increased wood production capacity needs to be matched to long-term procurement contracts from Government for the building supply chain irrespective of what the crystal ball economic forecasts say,” Mr Leys concludes.