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Forestry returns were easing in the global market but remained strong locally. There was a strong demand in the domestic market for timber as house builds got back on track, but it was feared there would be an easing in the local housing market later in the year as the labour market weakened.
Export returns had eased now stocks had rebuilt in China, and global demand was expected to wane, as building, manufacturing and export activity was subdued due to the detrimental effect of Covid-19 on global economies.
Supply to China increased again once New Zealand’s forestry industry was able to resume work when restrictions moved to Alert Level 3 in late April. That resulted in a surge of logs being exported to China which quickly alleviated the previous shortfall, the report said.
However, the level of offtake of logs from China’s wharves had now eased, as had prices. That reduction in demand was a normal seasonal trend that occurred when construction activity slowed during the hot summer months.
The supply of logs to China from Eastern Europe remained strong; those spruce logs were being rapidly harvested to stop the spread of a spruce beetle infestation which had already devastated many forests.
The in-market log price had now fallen 12% below the five-year average. Pricing was no longer sufficient to attract logs from Uruguay and Argentina as the higher shipping costs from South America to China made the trade unprofitable.
Supply from New Zealand was also likely to be restricted a little due to harvesting slowing in the winter months, and some smaller lot owners electing to delay harvest until returns were higher.
Some landowners had contracted prices which would support felling in the near term, but once those deals expired, the bank expected to see further slowing in harvesting of small lots.
Harvesting of larger forests tended to continue regardless of the current spot market price, as those owners were large enough to manage the ups and downs, the report said.
Planting of replacement and new forests was occurring as winter was planting season. Expansion of forestry land was being driven by investors seeking to reap possible income streams from carbon, and companies looking for direct offsets.
The domestic market for posts and poles was strong. Pole demand was underpinned by growth in the kiwifruit industry, while demand for posts was expected to be strong over the next few years as more waterways on farms were fenced.