Opinion: We’re getting good at adapting to change

Marcus Musson, Director Forest360

Spring has sprung and with it a much-welcomed improvement in demeanor for most people. While winter will be missed, we are all well aware of the fierce rain events and subsequent carnage that spring can deliver so we are not out of the ‘woods’ yet.

There’re generally a few key changes in the forest industry that come into play during spring. Firstly, the Chinese log demand starts increasing as the hot season dissipates and workers start to return to construction projects and, secondly, New Zealand supply also increases relatively quickly as things dry out and prices improve both in domestic and export markets. This historically plays out with reasonable export price increases towards the back end of spring that carry through summer until a supply/demand imbalance sees prices drop around Chinese New Year holidays.

What, if anything’s different this year? Production. Annual exports to China from NZ totaled a shade over 20 million m3 each year between 2022 and 2024 following a peak of 23 million in 2021. If you plot out NZ’s current run rate, we will be looking at total NZ log exports of around 16.8 million in 2025 of which only 15 million will be China bound (1.1M to Korea, 400K to India and 300K to Japan).

The last time we exported volumes as low as 15 million m3 to China was in 2013. Where has that production gone one would ask? You only have to scan ‘logging equipment’ on Trademe or drive past a machinery sales yard to see that a significant number of harvesting contractors are no longer in business. Successive years of tough trading and increased pressure from councils, making it almost impossible to practically harvest in some regions, have forced many to the wall wiof which only 15 million will be China bound (1.1M to Korea, 400K to India and 300K to Japan). The last time we exported volumes as low as 15 million m3 to China was in 2013. Where has that production gone one would ask? You only have to scan ‘logging equipment’ on Trademe or drive past a machinery sales yard to see that a significant number of harvesting contractors are no longer in business.

Successive years of tough trading and increased pressure from councils, making it almost impossible to practically harvest in some regions, have forced many to the wall with others only just hanging in there by the grace of their finance companies and the IRD.

Having said that, when prices increase above the $125/m3 level and the sun shines, we generally see an increase in harvest activity, and it’s surprising where volume can come from. However, with around 8 weeks from stump to China, the reaction to increased deliveries is slow to be felt in the market.

Back to the ‘what’s different this year’ question is the higher than usual winter export prices. Generally, winter prices are well below what we have experienced this year which results in a reasonable amount of harvesting gear parked up waiting for better times. Although winter prices weren’t great this year, they were at a level that allowed much of that machinery that would usually be idle to tick over, albeit slowly.

This all adds up to the inability/unlikelihood of NZ reacting at previous levels to the traditional stimuli which gives rise to the distinct potential of a reasonable undersupply going forward should China come out of the blocks with increased demand. Current in-market inventory levels are still reducing and sit around the 2.7 million m3 mark, down 150k from August which doesn’t give a very large buffer if demand spikes even marginally.

September export prices are largely flat with lower foreign exchange offsetting increased shipping costs and slightly lower CFR sales prices. Many were expecting increased CFR and at wharf gate prices for September, however a slight wrinkle emerged in the form of an inventory issue in China which has put the jitters around traders. This wrinkle involves a discrepancy between the actual inventory on the port and the volume recorded on the balance sheet of a large LC (letter of credit) company. There are a number of theories around how this has eventuated but suffice to say it’s a big enough problem that many LC companies have tightened their criteria and some have stopped issuing LC’s until it is resolved. It’s not the first time this kind of jiggery pokery has occurred and it’s likely the wrinkle will get unwrinkled, and the market will return to normal trading conditions (whatever they are).

As wrinkles go, there’s a potentially larger one brewing in the form of Trumps tariffs. NZ timber exports to the USA are currently exempt from tariffs, but there is widespread belief that the Don will announce a tariff on NZ timber products in early to mid-October. This will specifically affect those sawmills that saw pruned logs with the US market being the largest for clear lumber exported from NZ, currently worth NZ$400M annually. Trade Minister, Todd McLay has recently been in Washington spreading the good word with US trade representatives (although Leo Malloy may have more appealed to Trumps negotiating persona) and it is hoped they will see the importance of NZ timber to their construction industry. If a tariff is imposed, it is unknown what level it will be set, but it will likely be the single most significant decision that will affect the NZ sawmilling industry, ever.

The decision to close the Eves Valley Sawmill in Nelson came as a huge surprise to most and, although it is part of a consolidation strategy into the Carter Holt Harvey Kawerau site, it is cold comfort to those that have lost their jobs. The announcement is a double blow for those forest owners that have been affected by the recent windthrow event in the region, and it is hoped that the mill will continue to operate for a period to assist with the salvage.

So, a few dark clouds for us wood folk this month but we’re a resilient bunch and used to getting punched on the nose. We’re getting good at adapting to change, whether it’s regulatory, weather or market related and tend to come out firing on all 8 cylinders once the dust settles. Let’s just hope the tariffs aren’t an uppercut.