NZ's log trade could take six months to recover from a price slump. Photo / File
NZ's log trade could take six months to recover from a price slump. Photo / File
New Zealand's log export trade to China could take four to six months to recover and it's unlikely prices will revisit recent highs any time soon, rural economists said.
Logs are piling up on Chinese wharves as a wave of cheap timber makes its way by train into China fromEastern Europe, toppling prices along the way.
At the same time, economic growth in China is cooling and the renminbi is weakening.
"A" grade log prices have gone from US$138/140 a tonne early in the year to US$110 a tonne, and could sink as low as US$100 to US$105/tonne.
Harvest activity in New Zealand has already slowed with some harvesting crews have been laid off.
ANZ rural economist Susan Kilsby said she expected the market to recover but achieving those very high prices seen over the last years may prove elusive.
"We are picking four to six months to recover and it depends on what prices get back to," she said. A near-term bounceback appeared unlikely, she said.
Prices have been strong for the last three years — a time when New Zealand has been increasing its market share to be the number one supplier to China - the world's biggest buyer.
Kilsby said much of recent forest harvesting was result of heavy planting in the 1990s when forestry was going through a strong spell.
Many small woodlots had been designed as retirement investments.
"Now that that has crashed, those returns may vary from woodlot to woodlot," she said.
"But certainly, for some of the more marginal ones on country that is harder to access may not be profitable while returns are so minimal," she said.
"While we are seeing some negative economic data out of China, I still see it as more of a temporary market glitch — being primarily due to the extra volume that's been going in there — rather than demand suddenly falling off a cliff in China," Kilsby said.
"If demand was going absolutely gangbusters in China, then they would have been able to absorb this extra supply that's coming in," Kilsby said.
Rural economists says it's unlikely prices will revisit recent highs any time soon. Photo / File
"So I do think they will recover but I think that its going to take time to work through the supplies that are there."
Russia has traditionally been the largest supplier of logs to China and its only in recent years that New Zealand has become number one.
ASB senior rural economist Nathan Penny said the market had been defying gravity for some time.
Global demand for forestry was flat or falling but prices had remained firm as New Zealand continued to take market share.
"So it really was not a case of strong demand, it was just the fact that were gobbling up market share while others were exporting less," Penny said.
"The underlying demand was not really supporting prices and it was only a matter of time before prices came off," he said.
In a market update, China Forests NZ chief operating officer Steve Walker, said the slump in prices was due to "cascading effects" of a number of factors, including cheap rail freight rates and plenty of supply coming out of Europe.
He said it might take until the third quarter for the market to stabilise.
"Some of these impacts are seasonal and some represent structural changes that have been building for the last few years," he said.
"The cascading impacts are hard to predict, which is why June and July pricing discussions have been so fraught," Walker said.
"Neither the customer, nor the supplier benefits from a massive price movement as has occurred in July," he said.
Walker said it was hard to blame any particular party in the current situation as "commodity cycles happen".
"But it is difficult not to wonder whether a different approach to marketing New Zealand pine could avoid these cycles having such hard landing," he said.
CFG, a forest products and management company, is ultimately owned by the state-owned enterprise - China Forestry Group Corporation.
