12 December 2012

The forestry sector will remain squeezed over the next few years, due to subdued demand from major export markets, says the Ministry for Primary Industries.  In the December update to its Situation and Outlook for Primary Industries, it says export volumes are expected to hold up, but some product prices will not.

The value of forest product exports for the year to June 2013 is forecast to fall slightly to $4.1 billion, from $4.4 billion forecast in June. This is due to a combination of lower prices for major products and a stronger NZD.

Export volumes are forecast to remain stable. Over the short-to-medium term, tree harvesting may increase slightly. The longer-term outlook for wood availability is a potential increase of 40% (equal to an additional 10 million cubic metres) late this decade. This increase is due to the afforestation that took place during the 1990s. Further analysis is required to better understand the economics of harvesting and utilisation of this new forest resource.

LOGS
The total value of log exports is expected to fall slightly in the year to June 2013, to $1.4 billion.

Export volumes are expected to remain stable, but prices are forecast to be slightly lower due to lower international log prices and short-term strengthening of the NZD.

A combination of historically low shipping costs and reduced imports from alternative
suppliers, has allowed New Zealand to continue growing its market share in China over recent years. New Zealand’s exports to China increased in the year to September 2012 despite total coniferous log imports to China declining eight percent. Prices for New Zealand logs in China are sufficiently lower than competitors’ logs to sustain their appeal to Chinese buyers.

These conditions are expected to continue into 2013, providing a ready alternative market for logs that cannot be absorbed by domestic wood processors.

SAWN TIMBER
Forecast sawn timber exports for the year to June 2013 have declined to $763 million since June (from $817 million). Export volumes to the US and Australia have decreased due to weak housing markets, but this has been offset by larger than expected volumes of timber going to Asia. However, Asian markets yield lower prices than Australia and the US.

Sustained growth in US home building has been recorded through 2012. But activity remains at less than 40 percent of the levels experienced prior to the global financial crisis. Further sustained growth in activity in this market will gradually divert global supply back into the US.

PANELS
Forecast export returns for panel products have increased to $505 million in 2012/13, from $462 million in June. Global panel prices have been relatively high since the Japanese earthquake and tsunami in March 2011. However weaker construction activity in Australia is now having a negative impact on returns for exporters of plywood to this market.

PULP, PAPER AND WOOD CHIPS
Forecast returns from pulp, paper and woodchips have decreased from the June 2012 forecasts. International prices are currently depressed due to an accumulation of wood fibre globally, as paper manufacturers seek to consolidate operations in key markets.

With the announced rationalisation of Norske Skog’s newsprint manufacturing in Australasia, the company is due to close one of its two newsprint lines at its Kawerau mill in the first quarter of 2013. This is expected to reduce annual pulp and paper exports by around $100 million from next year.

Source: Ministry for Primary Industries SOPI report update. To read the full report >>