Otago and Southland forest owners are expected to reap the
benefits of China's demand for logs this year, in the face of
record prices and following last year's 50% boost in overall
However, the forest owners' boon is a sawmillers' bane and
millers are finding it increasingly difficult to maintain
profit margins from the more expensive logs.
For the fourth year, Port Otago is targeting more than
700,000cu m of logs across its wharves, with 40 to 50 ship
visits, and is ahead of budget. Bluff's South Port moved a
record 195,000 tonnes of logs during the past six months.
While the forestry sector's fortunes are cyclical, China's
ongoing demand and the lack of competition from Russia,
Canada and United States, appear set to provide New Zealand
growers with a relatively stable market in the short to
Southern Wood Council chairman Grant Dodson, who is also
chief executive of Dunedin City Council-owned City Forests,
believes the present Chinese demand was not creating a
''bubble'', which in past years has resulted in boom, then
bust, years for the sector.
''I don't believe it's a bubble. The news out of the markets
is that we are not getting significant competition,'' Mr
Log prices, for a combination of unpruned grades, were at
present about $103 a cu m, having risen from $88 a year ago,
and $94 six months ago.
Winton-based Craigpine Timber, which exports about 90% of its
sawn timber to Asian markets, is having to maintain a
''sinking lid'' policy on non-critical staff and is turning
to technology to boost productivity.
Craigpine forestry manager Brett Armour said, when contacted,
many southern mills were ''struggling with profitability''.
The milling sector had been hard hit during the past two to
three years, and up to 10 ''medium sized mills'' around the
country had ''gone under''.
While sawn timber prices were up, and demand from Auckland
and Christchurch was ''really strong'' and Queenstown was
''improving'', the domestic prices did not match the 20%-25%
increase in log prices.
He said Craigpine's profitability this financial year would
be dependent on China, and whether sawn timber demand from
the US picked up.
Mr Armour estimated most sawmillers in the South would not
have broken even last year.
Mr Dodson said last year's New Zealand log exports of about
15 million tonnes was equivalent to ''one and a-half log
ships daily'' of exports.
The ANZ commodity price index noted that forestry reached a
new high in January, underpinned by a 20-year high in log
prices, and two-year high for wood pulp.
Mr Dodson said Russian and Canadian exports were down, the
United States was diverting more timber from export to
domestic construction, while China was holding smaller log
Because of the ongoing demand and outlook of lack of
competition, Mr Dodson said that in the medium term - three
to five years - there could be a ''prolonged positive
cycle''; albeit with some volatility.
''[However,] forestry is a commodity and the market
continually balances on a knife-edge'', he cautioned.
City Forests' was about 10% ahead on its target of cutting
265,000cu m of timber this year, and Mr Dodson emphasised
that it was ''maintaining its commitment'' to local sawmills
to deliver 45% of logs to them, while exporting 55%.
He was aware sawmillers were struggling under the pressure of
high log prices.
Domestic prices for sawn timber had risen recently, but not
as much as the 20% increase in log prices, Mr Dodson said.
''While it's tight for the domestic mills, most are able to
survive, but they're not happy about the [log] price,'' Mr
Mr Armour said Craigpine has had to move from now-expensive
low quality logs to higher quality, and get more logs from
Otago and Southland.
Mr Dodson had a caution for southern forest owners, in that
radiata in the south matured at 26 to 30 years old, but China
was happy to pay the same price at present for forests in the
unmatured 20 to 25-year-old bracket, largely because they
were being used in China for industrial and packaging
''There is the temptation that the woodlot is there, and
available now,'' Mr Dodson said. The demand was also creating
pressure on the availability of harvesting crews, land
transport and ships, and market newcomers ''may find it
difficult'' to secure harvesting crews, Mr Dodson said.
Although City Forests was ''slightly ahead'' of its
sustainable cutting levels, it was not cutting large volumes
now in order to ''take a holiday'' with less harvesting in
the future, he said.