Difficult outlook for the forestry export sector

17 December 2003

Difficult outlook for the forestry export sector

Shipping costs and a rising New Zealand dollar point to a gloomy outlook in the short to medium term for forestry exports, according to the latest MAF Situation and Outlook for New Zealand Agriculture and Forestry report.

But the situation should improve towards the end of the period covered by the 2003 SONZAF report, which goes out to 2007.

The report says the average price of logs fell by five percent in New Zealand dollar terms in the March 2003 year although prices in terms of US currency rose 13 percent. This demonstrates the effect that the strong New Zealand dollar has had on log exports.

However, due to increased export volumes in the March 2003 year, the total value of log exports was up by four percent on the previous year.

Lumber, or sawn timber, export volumes for the 2002/03 year grew by a healthy 14 percent.

The short-term outlook for export volumes of logs and lumber is, however, not very bright.

The log export sector is in the midst of a harsh market downturn, with sales plummeting. Also a number of sawmills are in financial difficulties. In both cases market difficulties are exacerbated on by a combination of the high New Zealand dollar, high energy prices and rising shipping costs.

Restructuring and reasonable market demand should see the situation improve through the middle of the outlook period.

Exports of wood products such as pulp and paper products, laminated veneer, lumber and mouldings also face challenges over the next three years.

The depressed world economy has constrained growth in international demand for paper-based packaging and printing materials, depressing the demand for pulp. A static domestic market and limited production capacity points to limited increases in production over the next five years.

Likewise, future production increases in paper and paperboard are expected to be only incremental. Export volume growth is expected grow by only by small year-on-year increases because of worldwide over-capacity. Until there is a genuine lift in the world economy, prices in US-dollar terms are unlikely to return to their highs of the mid-1990s.

Over the next three to four years, the prices of wood-based panels are expected to increase steadily by around two percent due to continuing demand in Japan, China and Australia. However the impact of the New Zealand-US exchange rates indicate that prices in New Zealand dollars may be five to six percent lower this year compared to last year.

The SONZAF report says continued growth in demand for laminated products has been at the expense of solid structural lumber, due to changes in building regulations in Japan. The report says it is likely this will continue and therefore offer opportunities, partially offset by losses, for New Zealand, which is a supplier of both types of product. However it says New Zealand laminated wood exporters also face aggressive competition from companies in Sweden, Germany, Austria and Finland.

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