31 January 2014

With one exception, sectors of the New Zealand Forest Industry have faced challenging times over the last 5-10 years. These have included:

• New land tree planting, which not only evaporated from the huge new land plantation expansion experienced in the 1990’s but net plantation areas are now actually reducing in the face of buoyant farming land prices and demand. New land planting IRR expectations are half of what they were 20 years ago.
• A sawmilling industry which has seen at least 40 sawmills closing since 2003 with lost annual lumber capacity of around 40% of total 2013 production.
• A veneer/plywood industry which has shrunk by the closure of some mills.
• A reconstituted panel industry which has lost one big mill and with two others changing hands at reported losses.
• A kraft pulp sector which, while reasonably efficient, has been unable to measurably increase capacity for a decade.
• A paper industry with shrinking capacity, particularly in the publication paper sector, which has lost two of its three paper machines between 2006 and 2013.
• A wood pellet industry which started off with a hiss and a roar but has since crashed and burned.
• A tree carbon industry which promised so much in 2008, when New Zealand signed up for the world’s first government legislated Kyoto compliant emissions trading scheme that allowed trading in tree based carbon offsets, has also fallen from grace so heavily that it is now treated as a sad joke by most in the industry.

But according to Dennis Neilson, a Director of independent forestry advisor, DANA Ltd, one group of players has been having a ball recently. Neilson comments, “The single exception has been the much publicised log export industry which is riding on an ever expanding crest of the China log demand wave. Total log export volumes in 2013 were more than 16 million cubic metres, up almost 200% from 2006. New Zealand is now the world’s largest log exporter to China: beating even Russia which held this mantle for decades.” Log prices continue to increase -- and increase -- and increase. Neilson notes, “Even as this release was being written, March prices were expected to be up yet again”.

This phenomena Neilson notes is causing increasing tensions within the wood processing sector especially in sawmilling. One of New Zealand’s major sawmills failed in late 2013: an alleged victim of the giant Chinese log vacuum cleaner. Others promise to struggle if trends continue. The surge in China log export driven harvest is also being blamed by some for a very unfortunate surge in logging accident rates recently; and the surge has enabled some “protectionist” New Zealanders to complain that overseas companies own most of the New Zealand tree plantation assets.

But is it all bad?

Veteran observer of the industry, Neilson does see a few green shoots which may yet bear fruit to improve the situation. Two biochemical plants are under construction and a major biofuels initiative is under way. Swedish giant SCA opened a $60 million tissue packaging plant in January. A number of international wood processing players are reportedly checking out opportunities, although no announcements had been made by early February.

In addition, developments in multi-storey wooden buildings will fuel demand for LVL and new CLT products; and a massive surge in Korean wood pellet imports may allow the New Zealand industry a second bite at the cherry.

DANA has just published the ninth edition of its Review of the New Zealand Forest Products Industry. It is also organising a major conference on the industry on August 11 & 12, 2014 in Rotorua, the national centre of the forest industry. To subscribe, or to register see the relevant tabs on the DANA website: www.dana.co.nz

Contact Julie at This email address is being protected from spambots. You need JavaScript enabled to view it.