Belt tightening is ahead for the forestry sector after prices fell 25% in recent months. Photo by Gerard O'Brien.
The 25% plunge in international log prices foreshadows tough
times ahead for southern forestry contract crews as smaller
forestry lots are held back from sale.
The price of A-grade sawlog delivered to China has plunged
about 25% recently, from about $US160 ($NZ181) to $US120 a
cubic metre and no pricing improvement is expected until the
end of the year or into 2015.
With China paying a premium for logs previously, profit
margins for domestic sawmillers have been slashed, the worst
effects to date being the closure of Southern Cross Forest
Products, costing 180 southern jobs and about 70 in the North
With Chinese demand waning and low prices in force, smaller
''woodlot'' forest owners across the country are cancelling
harvesting plans, which is affecting logging crews not
contracted to major forest owners.
Mike Hurring, of Mike Hurring Logging and Contractors, said,
when contacted, times were ''getting tight'' for his six
crews and he might yet have to consider half days or short
weeks in the near future.
Mr Hurring's staff of more than 40 makes his company one of
the largest in Otago-Southland.
He said only 20%-30% of work was from smaller, farm-lot
''Smaller growers want to take the good with the good ...
fair-weather friends when the price is there,'' he said.
He had a buffer against the worst effects of the pricing
downturn, with up to 70% of work coming from large forestry
Mr Hurring emphasised that forestry had to be viewed as a
demand-based commodity, which was cyclical, and noted that
while prices were down, there was still good demand.
Council-owned City Forests chief executive Grant Dodson said
the high export log prices had brought about a ''significant
increase in [smaller] woodlot harvesting'' activity across
New Zealand during the past two years.
''[However], many woodlot owners have now decided to close
the gate, and this has reduced harvesting opportunities for
logging crews not contracted to major forest owners,'' he
Smaller woodlot harvesting did not affect City Forests and
the price correction had not prompted it to reduce staffing
or its contract workforce.
The company had reduced production in general in response to
its shipping schedule and poor winter weather, he said.
''The woodlot harvest in New Zealand has traditionally been
log price-dependent so this is nothing new, but it makes for
difficult times for those involved as they look to ride out
the downturn period.
''Although prices have fallen, they have been lower in the
past and [City Forest] returns are still positive.''
Mr Dodson said while the correction would be felt ''for some
months'', the underlying Chinese and Asian demand for logs
Port Otago booked a 9.7% increase in logs for the year to
June, up from 720,000cu m to 790,000cu m. Chief executive
Geoff Plunket said that despite the price plunge, there had
been no change to recent tonnage across Port Chalmers'
wharves. Mr Dodson said: ''We are optimistic that prices will
begin to improve again late in 2014 and into 2015. We are
monitoring the situation closely.''
In Hawkes Bay, where Rayonier has 18,000ha of the 135,000ha
forestry estate, its managing director Paul Nicholls said
many smaller operations had already shut down.
''We haven't got a good handle of how many crews have closed
around the country, though we're talking quite a few,'' he
told Hawkes Bay Today.
''Our company hasn't changed. We can still sell everything we
can produce and we are still making cash, though not always
''We have scale on our side, so we can do that.
''But if you are a single woodlot owner, depending on your
location and cost of harvesting, you may decide to close your
operation if you haven't already, especially going into
winter, when costs go up because of the weather,'' he said.
Our wood going there
• New Zealand log volumes in past five years almost doubled
to more than 16 million cu m in 2013.
• Log price doubled in value from four years ago; log export
value in 2013 almost $US2 billion ($NZ2.27 billion).
• About 11.9 million cu m to China, value $US1.7
• 2013 NZ shipments: 72% to China, followed by exports to
South Korea, India and Japan.
• 2013 global shipments of softwood logs: New Zealand 20%,
Russia and US 15% each.
SOURCE: WOOD RESOURCES INTERNATIONAL