Axe likely falling on 2-year log export boom

New Zealand's forestry sector is facing bleak times again as China processes more sawn timber for itself at unbeatable production rates and as other log exporters elbow New Zealand aside.

After almost a decade of staggeringly poor global prices, New Zealand's forestry sector has experienced a log-export boom for almost two years, but it looks to be coming to an end.

Hundreds of contractors' and sawmill jobs have been lost across the country since the mid-2000s as companies have been forced to close because of dismal global prices, competition and foreign exchange volatility.

Two years ago saw the closure of major sawmiller Blue Mountain Lumber in Tapanui in West Otago, which went from a peak of 210 employees in 2003 to 45 in 2009, before the sawmill was closed in September that year.

The New Zealand Timber Industry Federation (TimberFed) says lean times are already upon the sector here, with log exports tailing off, the domestic market poor and margins slashed by the consistently strong New Zealand dollar, leaving the industry "clutching at straws".

A downturn in Russian log exports to China boosted New Zealand's volumes, but New Zealand logs are now being undercut in price by those from North American because of the sheer volume coming out of some of the world's largest sawmills.

In the four months to June, China increased its purchase of New Zealand logs by almost 60%, but reduced sawn timber imports by almost 20%.

China paid 21% more for the logs, but paid 19% less for our sawn timber.

During May and June timber exports declined 22% - the biggest and sharpest decline recorded by TimberFed - while in July and August log prices fell almost 20%, TimberFed chief executive Wayne Coffey said.

"Right now log exports have collapsed. Almost overnight prices have fallen by up to 30% and export ports at both ends are reportedly choked with logs," Mr Coffey said in a recent newsletter.

John Price, general manager of privately owned sawmiller Craigpine Timber Co in Winton, said, while was it "full steam ahead" for sawn timber exports, it remained a "battle" while the Kiwi dollar was in the US84c-US85c range.

"It's a battle right now, when the [New Zealand] dollar is not in the right space," he said when contacted yesterday.

Craigpine produced about 120,000cu m of sawn timber last year and hopes for the same volume this year. It exports to 14 countries, with Vietnam the main destination followed by China and Indonesia in second-equal place.

Mr Price returned from China four days ago, where he saw southern China "struggling" with its manufactured exports to the economic "basket-cases" of the euro-zone countries and the US, but in northern China its "thousands" of construction cranes suggested demand would continue.

Since hitting lows of around $US130 ($NZ155) recently, log prices had risen 10%-12% and the northern hemisphere winter may stymie supply from there to China, which could bode well for New Zealand log exports, he said.

However, "most distressing" for the sector was the increase in sawn timber processing operations in China.

"When China pulls the rug from under our log exports, as it is doing right now, we are left like a dying man clutching at straws," Mr Coffey said.

When contacted yesterday, TimberFed deputy director Kevin Hing said further undermining exports was the Chinese Government's efforts to rein in its economy.

"It is pretty lean out there [in New Zealand] right now. It's a poor domestic market and also suffering from a high New Zealand dollar," Mr Hing said.

Exporters could not be blamed for taking "a once-in-a-lifetime opportunity" in selling into the robust China market with its high prices, but that ploy "had a knock-on effect", he said.

Many in the industry were asking how China could pay so much for logs, single-handedly underpinning high global prices, while ramping up its sawn timber production, Mr Hing said.

He said low wages and overhead costs contributed "hugely" to China's competitiveness. Also, "slow-cut" sawmilling in China meant 70%-80% of a log was recovered, while in New Zealand faster production cutting meant only 55%-60% of a log was recovered as sawn timber.

He held out hope the ailing US market, once New Zealand's largest timber importer by value, would find its feet, and India also held opportunities with the Government negotiating a free-trade agreement.

"That market in India has the potential to be huge," he said.

simon.hartley@odt.co.nz

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