The price of export logs have slumped sending shockwaves through the forestry industry. Photo / NZME
The price of export logs have slumped sending shockwaves through the forestry industry. Photo / NZME
The forestry industry has been hit by a "perfect storm" as it grapples with the effects of the worst export market in decades.
Export prices for A-grade unpruned logs plummeted from $171 a cubic metre in June to $108 last month.
Prices are falling because of an oversupply oflogs to China, where about six million tonnes of logs are sitting at ports. Construction company collapses, the country's power crisis, the impact of Covid-19 and the upcoming Winter Olympics — which could make the Chinese Government close down factories within a 300km radius — have also had a knock-on effect, experts say.
The situation has already resulted in Kiwi job losses in the harvesting sector as some forestry owners opt to leave their trees standing and fears are growing for New Zealand's booming domestic market and building.
Most logs are exported and only 50 per cent of a tree is suitable for New Zealand sawmills so any reduction in harvesting could have an impact.
Forest Industry Contractors Association chief executive Prue Younger. Photo / Supplied
Forest Industry Contractors Association chief executive Prue Younger said the export market had been hit by a "perfect storm" and harvesting contractors were "hurting" as a result.
Traditionally the New Zealand market slowed in February because of the 15-day Chinese New Year holidays but that slowdown had already happened.
A survey of the Industry Contractors Association members and Log Transport Safety Council members showed 65 per cent were on reduced volumes and variations of shutdowns as a result of the fall in prices.
Manulife Forest Management NZ Ltd general manager Kerry Ellem said when export prices fell, small forest owners tended to reduce production or stop and that would impact harvesting contractors.
"They [forest owners] are all export-focused ... and when prices are bad they can't make any money out of it."
Manulife, alongside other large corporate players, was able to ride out the slump due to a strong domestic market and supply contracts, he said.
Ellem said forestry was prone to cycles "so we've experienced this before but it's probably as tough as we've had it right now in the export market".
Forest Owners Association president Phil Taylor said he remained optimistic but acknowledged there was uncertainty around China.
Domestic sawmills were in good shape but they could struggle to get their proportion of wood if the export market did not pick up.
"The reality is, if it's a prolonged correction then the bigger forest owners will have to start re-evaluating their strategies. They might look to reduce harvesting even more and then it becomes this trade-off of supporting the production capacity and protecting asset value for their shareholders."
However, if demand in China did increase the situation could improve quickly.
In a recent column, director of Forest 360 Marcus Musson said the scariest part was the magnitude of the at wharf gate export price slide, which was the largest in percentage and dollar terms since the Asian economic crisis of the 1990s.
"It's ugly - and it's probably going to remain so until February [2022] at least."
He said although December's prices were up on November they were still around $20 a cubic metre below the magic number of $125 for A-grade, which was the point most forest owners were prepared to let the light turn green and export.
PF Olsen sales and marketing director Scott Downs. Photo / Supplied
PF Olsen sales and marketing director Scott Downs said the price of shipping had also increased "horrendously", which had reduced returns to growers.
Forest growers' price expectations had also changed as prices per cubic metre hit $171 in June compared to $103 in March last year and $108 last month.
Many would ride out the market.
PukePine general manager Jeff Tanner said the domestic market was stable but there were dynamics "that have made it quite lumpy".
PukePine general manager Jeff Tanner. Photo / NZME
He said in the short term plenty of logs were available for sawmills but if the crisis in China did not improve by the second quarter of this year there could be a problem.
"You could find that we get shortened up on the logs available for us and that's happened before."
He felt for the harvesting sector as crews ground to a halt and some lost their jobs.
Demand had outweighed supply at his sawmill but "overall this has been an emotional year in terms of lockdowns and the stresses that brings for people".
"So I guess we are expecting more of the same regardless. I think the only good thing is that the construction sector still needs to build houses."
Inta-Wood Forestry director Nathan Fogden. Photo / NZME
Inta-Wood Forestry director Nathan Fogden agreed people would lose their jobs in harvesting or go on to reduced hours.
He said the industry as a whole was facing a raft of issues and silviculture contractors could not keep up.
Last year his team planted 1000 hectares of forestry and this year he already had 2000 ha booked in.
He had 20 jobs up for grabs and was moving starting rates to the living wage.
"I'm telling customers you've either got to pay or find someone else."
There was no business without staff and Fogden was an advocate for better pay: his top workers were on more than $30 an hour.
