New Zealand forest growers, long overshadowed by booming returns from the dairy industry, look set to cash in on record prices for logs as they prepare to harvest trees planted in a flurry of activity two decades ago.
Forestry plantation activity in New Zealand jumped between 1992 and 1998, as a surge in Asian log prices lured investment to the sector. Radiata pine, which makes up about 90 per cent of the nation’s plantations, are typically felled between 26 and 32 years, meaning the “wall of wood” will start being harvested from about 2018, according to government figures.
Rising prices for forestry products, the nation’s third-largest commodity export, have been overshadowed in the past year by a rapid rise in the fortune of dairy products.
Still, forestry has been the quiet achiever, with the ASB New Zealand forestry index and the forestry sub-group of the ANZ Commodity Price Index touching record highs in January.
China is underpinning New Zealand commodity price strength as Asia’s largest economy undergoes urbanisation, growing incomes and demand for better housing, says ASB rural economist Nathan Penny.
Forestry exports to China rose more than 50 per cent in 2013, putting New Zealand ahead of Russia as the biggest seller of logs into that market.
“There’s a structural lift in demand from China which on average will mean prices will be higher than they have been over history,” Mr Penny said.
“China’s own housing market is really starting to accelerate with their housing construction at record levels and they haven’t got many places to go for supply so they have turned to us.”
Increased demand in New Zealand from the rebuilding of earthquake damaged Christchurch and a surging Auckland housing market are also adding to wood demand and supporting prices, he said.
New Zealand exports of logs and wood surged 22 per cent last year to $3.86 billion. In comparison, meat exports rose just 2.2 per cent to $5.28b and dairy exports increased 17 per cent to $13.4b. The Wood Council of New Zealand, which represents forestry and wood processors, aims to triple export earnings to $12b by 2022.
Forestry overtook meat as the nation’s second-largest commodity export to China in 2013 and it is likely to also overtake it in New Zealand’s main export figures, Mr Penny said.
However, Chinese demand for logs is hurting the local sawmilling industry as forest owners send their logs overseas rather than sell them to local processors, according to the New Zealand Timber Industry Federation.
Some 40 sawmills have closed since 2003, according to the New Zealand Forest Owners Association.