Exports largely stable, says report
FORESTRY EXPORT REVENUE INCREASED 1% TO $6.6 BILLION in the year to 30 June 2022, driven by record high pulp prices offsetting a drop in demand for logs, according to the latest Situation and Outlook for Primary Industries (SOPI) quarterly report (December 2022).
For the year to 30 June 2023, forestry export revenue is expected to remain flat at $6.6 billion, as a weak New Zealand dollar offsets reduced demand.
The report states that demand for New Zealand logs remains relatively stable despite decreased softwood log imports into China. Log export revenue fell 5.9% in the year to 30 June 2022. This is a better result than previously forecast, largely due to a depreciation of the NZD against the USD and stronger than expected demand from China. New Zealand’s market share in China has increased as supply from Europe decreases. China’s property market continues to decline due to policies aimed at curbing debt and financial risks. While construction has slowed, government-led infrastructure projects have continued, which is providing demand support for New Zealand logs. Reduced shipping costs and a weak NZD are currently supporting log prices. Looking forward, log demand is forecast to decrease as China’s economy slows down and global demand also weakens, resulting in reduced log prices and export volumes.
Domestic demand for sawn timber is forecast to decrease and export revenue to increase. As higher interest rates work their way into the New Zealand economy, house prices are expected to continue falling and construction is forecast to slow, putting downward pressure on domestic demand for wood. Demand is expected to slow in key export markets for similar reasons, as interest rates rise and the global economy cools. More New Zealand producers will be looking at export markets to divert products that would have otherwise been consumed domestically. Therefore, sawn timber production is forecast to decrease and export volumes to remain stable. Input costs for wood product manufacturing have increased 11%, and a weak exchange rate is causing shipping costs from New Zealand to be more expensive than from other countries, which puts some downward pressure on profit margins. However, sawn timber export prices reached highs of an average $739 per cubic metre in the September quarter of 2022, a 15% increase compared to a year ago. Prices have come down in USD terms, but a weak NZD is supporting export prices. Looking forward, prices are forecast to come down as export demand slows further.
Pulp prices are at highs. In the September quarter, average pulp prices reached NZ$1,093 per tonne, an 18.7% increase from a year ago. Global and domestic supply constraints are contributing to these higher prices, including project delays, mill closures and input cost increases. A weak NZD against the USD is currently supporting pulp prices, which are forecast to come off highs in 2023 as global supply increases and demand slows. Export quantities have declined but are predicted to be steady over the forecast period. Strong long term demand drivers such as a growing middle class in Asia continue to be relevant for the longerterm export outlook.