Sawmiller’s sales hopes lie with China

Slowing construction in Australasia is expected to result in Waipa-based Red Stag Timber moving to boost its sales to China.

The country's third-largest sawmill operator, citing that building approvals in February were down 10 per cent in Australia and 15 per cent in New Zealand, makes 90 per cent of its sales in Australasia, but also supplies appearance-grade lumber to Tianjin-based Markor Furniture International in China.

"We expect the New Zealand and Australian housing markets to soften quite rapidly," said Red Stag chairman Phil Verry.

"In a year or two, we may be very glad to have" contacts in China.

Approvals to build or renovate homes and apartments in Australia fell to a three-year low in October. The February decline in approvals was the first in four months.

New Zealand timber companies, such as Carter Holt, which has just cut its first-quarter earnings forecast, have relied on buoyant home construction locally and in Australia for the past two years, as their other exports have been hit by high freight costs and a 30 per cent gain by the New Zealand dollar.

Red Stag sells to Markor in partnership with Pan Pacific, a venture between Oji Paper and Nippon Paper.

Verry said the company's sales to China were "break even or slightly loss making" because of the strong dollar and higher freight costs.

He said timber suppliers might have to weather unprofitable sales to China if they were to build a market there. Chinese customers "want a long-term relationship. They expect you to be there in good times and bad. Don't think you can go there for a few years and pull out when the exchange rate goes against you."

Red Stag wanted to raise Waipa's production by 50 per cent to 300,000 cu m next year as part of a plan to be the country's most cost-efficient mill by the time the domestic construction market bottomed.

- BLOOMBERG