14 June 2011

The Ministry of Ag & Forestry in its annual Situation & Outlook Report (SONZAF) predicts a continuing rise in prices for New Zealand logs, timber and other forest products.

The growing importance of log exports, largely driven by Chinese demand, has been the major feature of the last 18 months. In 2010, export logs rose to 44 percent of a 24.8 million cubic metre harvest -- demand that MAF expects to continue through 2011 and 2012.

Total export earnings for the year to 30 June 2011 are projected at $4.3 billion, with earnings for the June 2012 year forecast to rise to $4.7 billion. The increase is mainly due to increasing volumes and unit prices for logs and timber, driven by a relatively strong demand for sawn timber, limited growth in the New Zealand harvest, and supply restrictions from competitors such as Russia.

Seven countries – Australia, China, Japan, the Republic of Korea, the US, Indonesia and India – account for more than 80 per cent of the value of New Zealand’s forestry exports. The mix of product consists of logs, sawn timber, panels, pulp and paper and other products. Shipping costs dropped sharply in the latter part of 2010 and appear to be settling at a level that is around 30 per cent lower than the peak of May 2008.

Log export volumes were 10.9 million cubic metres in the year ended 31 December 2010, with over half this volume destined for China. Demand from China is expected to be maintained as 2011 progresses, owing mainly to strong economic growth, continued urbanization, and the effect of the Russian log export tax. The markets of India and Japan have the potential to grow because of strong economic growth in India and earthquake re-building in Japan.

Total production of roundwood in 2010 was 24.8 million cubic metres, which was above all scenarios in the New Zealand wood availability forecasts. There is potential to increase total harvesting from the current level to around 26 million cubic metres after 2015.

The outlook for sawn timber is improving, with both domestic and export demand rising under conditions of tight log supply. Log export demand is putting pressure on log supply for sawmilling, although timber production in the December 2010 quarter was 15 percent higher than for the previous year. As more timber will be used domestically, export volumes are expected to grow only slightly. Timber prices for 2011 are projected to be 10 per cent higher than for 2010, in New Zealand dollar terms.

China has been the largest importer of New Zealand timber in volume terms since 2008. In value terms, however, China still lags behind the Australia and US.

New Zealand timber exports to Australia and the US fell by 11 and 15 per cent respectively in 2009 in volume terms and then increased by 8.6 and 4.1 per cent respectively in 2010. Housing construction in Australia and the US was still at low levels.

Beyond 2012, the demand for New Zealand timber is expected to increase as the result of strong demand from China, the recovery in Australia and the US, and increased demand from Japan for earthquake re-building.

Export volumes of veneer rose by 43 per cent in 2010, while the price of veneer was 3.6 percent higher than in 2009. The increase was due mainly to the recovery of the Japanese and South Korean market and unexpected strong demand from Malaysia.

Particleboard export volumes in 2010 dropped by 22 percent. Japanese demand increased but Australian demand reduced significantly, mainly as a result of increased export prices. Modest improvement to the volume of panel exports is forecast during
2011 as a result of recovery in the Australian housing market and re-building in Japan.

Paper export volumes at the December quarter 2010 showed an increase of 10 percent on the previous year. The Australian market shows signs of recovery in terms of both volume and value. On the other hand, export volumes to the Chinese market decreased by 10 percent, while total pulp export volumes also declined. The strong New Zealand dollar is causing foreign buyers to seek alternative suppliers.

With limited scope to expand production within New Zealand, export volumes of pulp and paper are expected to be static, with gains in export revenue coming from improved prices in the international market.

Source: MAF SONZA 2011 report. To read the full report, click here.