What a Russian log export ban could mean for NZ forestry

Demand for New Zealand logs is expected to lift if Russia goes ahead with a ban on log exports. Photo / NZ Herald

New Zealand forest owners look set to benefit if Russia goes ahead with its ban on log exports but, for local sawmillers, it could be a different story.

Russia exported 15 million cubic metres of logs in 2020, accounting for almost 12 per cent of globally traded roundwood, but much of this trade may come to a halt in 2022 if a proposed ban goes ahead.

A ban would be the culmination of efforts by Russia to disincentivise the export of logs, through tariffs, to promote local industry.

Forestry economist Glen O'Kelly, who heads up Sweden-based consultancy O'Kelly Acumen, said Russia had been a leading log exporter for decades but that this could come to an end in 2022.

He said a ban would have immediate impact on global trade flows of logs and lumber and China will be forced to explore new supply regions.

Russia - which is home to 15 per cent of global wood resources - will strive to process the logs domestically into lumber and other forest products.

O'Kelly, a Kiwi and New Zealand forestry owner, said a ban was likely to result in more competition on the New Zealand domestic sawlog market, as Chinese buyers need to replace the logs they will no longer be able to import from Russia.

"New Zealand is already the largest supplier of sawlogs to China, and will be one of the first places Chinese imports look to replace those volumes," O'Kelly said.

"More competition on New Zealand sawlog market is good for forest owners because will probably mean higher prices at harvest," he said.

"But it will be challenging for the New Zealand sawmill industry, which already faces quite tight margins," he said.

New Zealand forest owners stand to benefit if Russia goes ahead with a log export ban in 2022. Photo / NZ Herald

China - which imports about 8 million cubic metres of logs a year - mostly softwood - will be the most directly affected by the ban.

Russia's importance to China has declined since tariffs were first introduced in 2007 but it still represents 10 per cent of the PRC's softwood imports.

New Zealand log prices are already close to record highs.

Rising log prices

At the wharf, A-grade logs go for about $147 per JAS metre - up from $100/metre or so when China turned the tap off in February last year when the economic impact of Covid-19 pandemic was starting to bite.

AgriHQ forestry analyst Reece Brick said New Zealand export log market is already looking very strong and China is leading the charge.

"In saying that, shipping rates are sneaking up quite quickly so that's something to keep an eye on," Brick said.

Shipping costs have gone up to US$36 per JAS metre from the low US$20s been the norm over recent years, while log prices have risen in each of the last eight months.

Brick said a Russian ban would be supportive of log prices.

"But we are so much bigger than them now. Once upon a time they were bigger than us, but that has dropped off."

Meanwhile, Brick said the New Zealand domestic timber market had been supported by strong demand, driven by the construction sector.

O'Kelly says that Russia can still become an increasingly competitive player in global markets.

In a report, he said the proposed ban will have broader repercussions in other regions, including tighter log and lumber markets.

In the short term, China will look to source softwood sawlogs elsewhere, driving more competitive log regions such as New Zealand and Western US.

Hardwood sawlog markets will also be impacted, as China seeks to increase imports of US hardwoods or eucalyptus.

"In the longer term, if Russia is successful in growing its wood processing industry and improving the quality and sustainability profile of those products, it will be an increasingly competitive player in global markets," he said.

NZ Forest Owners Association chief executive Phil Taylor said a Russian log export ban would follow years of progressive tariff increases aimed at promoting local production.

At the same time, Russia has provided subsidies and concessionary financing for investors to build wood processing plant there.

Shipping costs

Taylor said Russia's incremental move away from log exports had already made New Zealand assume the mantle as being China's biggest supplier of softwood logs by quite some margin.

At the same time Russia, has replaced Canada as the largest supplier of lumber into China.

"To the extent that there are processors in China who want to process logs rather than purchase lumber, this (ban) is good news from a New Zealand from a log export perspective," Taylor said.

"It remains to be seen as to what it might mean for New Zealand domestic processors because it potentially increases the demand for logs from China at the cost of New Zealand domestic processors," Taylor said.

Taylor said the outlook for forestry was improving.

"From a forest owner's perspective, global supply isn't reducing.

"On the demand side, we have seen a real shift towards more renewable and sustainable products, and new technology around engineered wood products, let alone global population growth," he said.

"The Russian ban will be just another hit on the supply side."

"At the moment the domestic market for sawn timber is as good as it has ever been and the export log markets have not been too bad," he said.

However, Taylor said log exporters have been indirect casualties of worsening Australia-China trade relations.

Australian exports of thermal and coking coal to China have dwindled because of Beijing's import restrictions.

China going elsewhere for raw materials has put greater demand for smaller ships than the giant vessels used for the Australia-China trade.

This had put increased demand for those smaller "handyclass" vessels, which in turn has put upward pressure on freight costs for the China log export trade.