MAF predicts the harvest from New Zealand plantation forests will be relatively stable at between 26 to 28 million cubic metres a year until 2016. Thereafter, there will be the potential to increase the harvest from maturing plantations by an additional 10 million cubic metres a year.

In its 2012 Situation and Outlook Report, it says the future for the sector will depend on how it responds to this situation. A business-as-usual strategy will likely see continued heavy reliance on the export of logs which already account for nearly half of all production.

“A move to a value-added pathway will require the sector to change from its traditional “supply push” strategy to one driven by market “demand pull”. That will require rigorous market analysis, coupled with consideration of radiata pine’s wood properties, to establish what products have the best chances of competing successfully in the domestic and export markets,” the report opines.

A complicating factor is the ability for some forest owners to earn carbon credits through the ETS. However, investment in new plantings may be hampered by the 64 per cent decrease in  the carbon price from April 2011 to April 2012 – from $20.24 per tonne to $7.20 per tonne.

Total forestry exports (excluding newsprint) reached $4.3 billion in the year ending 31 March 2012 – a period characterised by strong demand for logs and weak demand for sawn timber. Seven countries – Australia, China, Japan, the Republic of Korea, the US, Indonesia and India – accounted for around 86 percent of the value of New Zealand’s forestry exports.

Strong log demand from China and India is expected to continue as a result of continuing economic growth in these countries.  High domestic log prices have increased manufacturing costs for New Zealand saw mills, making our sawn timber export prices less competitive than those of other timber exporters.

The European debt crisis and the weak housing market performance in the US also contributed to the weak export demand for sawn timber.  The March 2011 earthquake in Japan bolstered some New Zealand forestry exports, boosting purchases of plywood, mechanical pulp and softwood chips, but these export volumes are expected to return to normal over 2012.

Logs

Log export volumes in the year ending 30 June 2012 are estimated to increase by 0.4 percent on 2011 results.

Demand from China was particularly strong in the second and third quarters of 2011, which drove log export prices and volumes to historically high levels. However, the current high log inventory level in Chinese ports is expected to slow down the demand for New Zealand logs in the June quarter 2012, leading to the low volume growth rate of the year ending June 2012.

South Korea was the second largest overseas market for New Zealand logs in the year ended 31 December 2011, followed by India and Japan. India imported about 12 percent of total New Zealand export logs for low-value applications such as concrete formwork, packing cases and pallets.

The March 2011 Japanese earthquake did not have a significant impact on New Zealand log exports to Japan, since most of the logs were purchased by Chinese, Korean and Indian buyers, with only limited volumes going to Japanese buyers.

China will remain the key market for New Zealand log exports for the foreseeable future. However, this market is not without uncertainty. Chinese policies to control property prices will continue in some cities in 2012 and possibly in 2013 and beyond. This may slow down the demand for New Zealand logs for Chinese construction uses.

Moreover, the Russian log export quota system will add uncertainties to New Zealand log exports to China. The key questions are when this will take effect and how big an impact it will have. The impact is not expected to be significant in the short term, at least not for the 2012 and 2013 years.

Trends in urbanisation and improvements in living standards indicate demand from China for New Zealand logs will remain strong. Demand from India is also expected to grow over the medium to long term as its GDP is expanding at an average rate of about eight percent annually. Demand from Korea is forecast to be relatively stable, but demand from Japan is expected to decrease.

Sawn timber

Timber export volumes and values in the year ending 30 June 2012 are estimated to decrease by 1.0 and 1.5 percent respectively on 2011 results, mainly owing to decreased demand from Australia and the US.

The weak housing market in Australia is depressing Australian demand for New Zealand timber. Moreover, the European debt crisis is causing EU countries (particularly the Czech Republic, Estonia and Austria) to supply greater volumes of sawn timber to Australia. The EU as a group passed New Zealand to be the largest sawn timber exporter to Australia in 2008.

Although the demand from China has increased over past years, poor performance in the US housing market means that New Zealand timber exporters are facing competition from US and Canadian timber exporters. The accelerated harvesting made necessary by the massive mountain pine beetle epidemic in British Columbia’s forests is another reason for the significant increase in Canadian sawn timber exports to China.

Over the medium to long term, New Zealand sawn timber export prices are forecast to remain at current levels because of high domestic log prices. Even so, demand is expected to increase, mainly as a result of growth in China.

Once European economies recover and timber demand increases, EU timber exports to Australia may drop, giving New Zealand the opportunity to pick up market share there. Given the current debt crisis and weak economic conditions, however, it will likely be some time before economic growth in the EU recovers. In the meantime, New Zealand will continue to face stiff competition from EU exporters.