Jul 17 2019
The New Zealand export price of timber has fallen by as much as 20% over the month of June due to an oversupply in China. This drop is anticipated to reduce revenue for New Zealand’s forestry industries.
The PF Olsen Log price index, which measures timber volumes by the Japanese Agricultural Standard (JAS), indicates that the price of grade A logs has fallen from roughly US$130 per JAS m3 to about US$105.
“While prices appear to have bottomed out, the current price is still slightly lower than the five-year average. Prior to last month’s rapid fall, timber prices had been growing steadily due to record domestic and foreign demand. As a result, the current market price is significantly lower than that of a year ago,” said IBISWorld Senior Industry Analyst, Michael Youren.
An oversupply of timber in China is the primary driver behind the fall in timber prices. China is the largest market for New Zealand’s timber exports and is expected to account for 70.7% of export revenue. Tariffs between the United States and China have reduced Chinese demand for raw wood, as manufacturers have started to produce fewer goods for US markets.
“Tariffs have reduced demand for timber used as an input in manufacturing processes, with consumers in the US likely to demand fewer goods manufactured in China as they seek to avoid higher prices. In addition, a widespread spruce beetle outbreak has changed forestry conditions in Europe, with the market being flooded with cheap timber as a result. This trend has compounded the effects of reduced Chinese demand on timber prices,” said Mr Youren.
Due to the damage spruce beetles can cause, plantation operators in Europe have sought to harvest trees earlier than usual, before they can become infested. These methods have led to greater amounts of wood becoming available than would previously have been planned, which has contributed to widespread price cuts.
Increased availability of timber from South America has further reduced timber prices. Significant shipments of wood from countries such as Uruguay have become available in China.
“This wood has been of slightly lower quality than is usually available in the marketplace, and is being sold at lower prices due to low demand from South American markets. Consequently, many South American plantation operators are looking to minimize losses on timber that would otherwise have been disposed of and are selling at discounted prices,” said Mr Youren.
Falling timber prices will most directly affect the Forestry and Logging industry. Timber is New Zealand’s third largest export, and is largely driven by plantation forestry due to numerous government restrictions on native forestry.
Associated industries, such as the Timber Resawing and Dressing industry, will also be affected by lower timber prices. As falling prices generally lead to smaller harvests, lower volumes of dressed and undressed timber will likely be produced for both domestic and export markets, reducing industry revenue.
The fall in export prices is expected to reduce revenue for forestry and associated industries over the short and medium term. IBISWorld anticipates that exports will make up 50.3% of Forestry and Logging industry revenue, making the industry’s performance highly sensitive to changes in export prices.
“In an effort to curb falling profits, many operators will likely reduce harvest volumes significantly and seek to minimise wage expenses by either reducing the number of staff employed or hours worked,” said Mr Youren.
Price conditions are not expected to lift significantly for a few months, as current stocks must be worked through by export and domestic markets.
“New Zealand-based operators could benefit from increasing timber exports to other countries, such as South Korea and India. However, prices are likely to remain low globally as oversupply conditions prevail in multiple markets,” said Mr Youren.
The glut of wood from Europe and South America is anticipated to cease over the long term. The ongoing effects of spruce beetle infestation and early harvests will likely benefit New Zealand producers, as the long lag time between fresh plantations hitting maturity is forecast to significantly reduce European timber production. While South American imports into China are likely to be ongoing, current oversupply conditions in countries such as Uruguay will be slowly worked through. However, uncertainty regarding US tariff implementation represents an ongoing concern for exporters, as tariffs could continue to reduce Chinese demand for timber over the long term.
IBISWorld reports used to develop this release:
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