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Opportunities in wood processing

Regional wood supplies

In the year to 30 September 2000 estimated roundwood removals from New Zealand’s planted forests totalled 18 489 000 cubic metres. Projections in the National Exotic Forest Description National and Regional Wood Supply Forecasts 2000 estimate that planted forest production will increase to 31 million cubic metres by 2010, and 34.4 million cubic metres by 2020. Figure 4 charts the projected increases by region.

Figure 4: Projected wood supplies by region (base cut scenario)

Source: NEFD

Figure 4 shows that, during the next decade, the areas with potentially the greatest increases in wood production above current levels will be Northland (2.8 million m³), the East Coast (2.0 million m³) and the Central North Island (1.7 million m³). Significant increases will also be recorded in Hawkes Bay (1.6 million m³), Southern North Island (1.7 million m³) and Nelson/Marlborough (1.4 million m³). In percentage terms, production in Canterbury and Nelson/Marlborough will increase by 100 percent. Production in Hawkes Bay, Southern North Island and Northland will increase by more than 200 percent, and production on the East Coast will potentially increase by more than 300 percent. The "wall of wood" clearly has major development implications for a number of regions.

Table 6 estimates current roundwood processing capacities within each wood supply region. The estimate is derived by treating processing capacity as the residual of regional wood production less log exports (and ignoring transfers between wood supply regions). Table 6 suggests that only the Central North Island (7.7 million cubic metres), Nelson/Marlborough, and Otago/Southland have greater than 1 million cubic metres of roundwood processing capacity.

Table 6: Estimated regional wood production and derived processing capacities in 2000

Wood supply region	Estimated wood production (000 m3)	Port	Volume of log exports (000 m3)	Estimated volume of wood processed (000 m3)
Northland	1238	Whangarei	695	543
Auckland	657	Auckland	3	654
Central N.I.	10317	Tauranga	3022	7295
East Coast	656	Gisborne	446	210
Hawke Bay	800	Napier	333	467
Southern N.I.	648	New Plymouth	4	517
		Wellington	127
Nelson/Marlborough	1423	Nelson	638	1279
		Picton	86
West Coast	240	Lyttleton	58	753
Canterbury	604
		Timaru	33
Otago/Southland	1800	Dunedin	262	1396
		Bluff	142
Total				12534

Source: MAF Statistics, NEFD

Future processing opportunities

The "wall of wood" provides a raw material resource to support significant investment in first-stage wood processing facilities in New Zealand. It should, however, be noted at the outset that fibre-availability in itself does not constitute an "investment opportunity". Rather, an opportunity requires a favourable coincidence of many of the factors supporting competitive advantage that are discussed throughout this report. Nonetheless, it is useful to provide rough estimates of wood and fibre availability by region to highlight areas where major challenges to attract investment exist.

Table 7 provides initial estimates of future availability of roundwood for processing by wood supply region. In this table, the baseline estimate of existing processing capacity derived in Table 6, is subtracted from base case projections of regional wood supply volumes estimated in the National Exotic Forest Description National and Regional Wood Supply Forecasts 2000. The Residual Wood Production columns consequently provide a broad estimate of future regional wood production surpluses to current processing capacity. Thus, New Zealand presently produces a roundwood surplus of 5.8 million cubic metres (exported as logs). This surplus over current capacity is projected to increase to 16.2 million cubic metres by 2005, in line with an NEFD forecast base cut harvest of 28.8 million cubic metres.

Table 7: Regional processing capacities and surplus wood production (000 m³)

	Existing processing capacity	Residual Wood Production
		2000	2005	2010	2015	2020	2040
Northland	543	695	3492	3509	3552	3485	3452
Auckland	654	3	301	286	281	336	335
Central N.I.	7295	3022	2954	4727	4036	5086	3876
East Coast	210	446	1968	2466	3042	3199	3311
Hawkes Bay	467	333	1823	1988	1922	2301	2243
Southern N.I.	517	131	2081	1856	1823	2871	2774
Nelson/Marlborough	1279	144	1386	1533	1630	1775	1764
Canterbury/West Coast	753	91	824	835	856	991	1166
Otago/Southland	1396	404	823	926	1164	1336	1873
Total	12534	5849	16232	18706	18886	21960	21374

Source: NEFD, authors

The simple analysis presented in Table 7 is expanded in Table 8 to show projections of the types of logs that will be produced in each region in 2010 (drawn from the NEFD National and Regional Wood Supply Forecasts 2000), compared against a broad approximation of current regional consumption for solidwood and fibre-based applications. In very general terms, production of pulp logs and thinnings are likely to be best suited to fibre-based processing, while pruned and unpruned logs are likely to yield greatest value when used in solidwood or engineered solidwood products.

Table 8: Regional log type outturns compared with approximate processing capacity type (000 m3)

	Current processing capacity		Outturn by log type in 2010
	Solid wood	Fibre	Pruned	Un- pruned	Pulp	Thinnings
Northland	415	127	554	2456	891	151
Auckland	586	67	58	684	180	19
Central N.I.	3483	3812	2010	6344	2758	911
East Coast	210	0	409	1500	737	31
Hawke Bay	n.a.	770	474	1215	518	248
Southern N.I.	85	431	455	1515	304	99
Nelson/ Marlborough	679	600	283	1858	638	33
Canterbury/ West Coast	423	330	201	927	415	45
Otago/Southland	1216	180	373	1276	569	104
Total	6215	6318	4817	17775	7010	10641

Table 8 shows in greater detail the types of processing "opportunities" arising in each region. For example, in the Central North Island, Hawkes Bay and Nelson/Marlborough current fibre-based processing capacity is of similar magnitude to projected regional production of pulp logs and thinnings, while pruned and unpruned log production will run well ahead of solidwood processing capacity. Conversely, in Otago and Southland the greater deficiency is in fibre-based processing.

A very important point is that there is a significant difference between the pruned and unpruned resources. While clearwood is suitable for a range of purposes, both structural and appearance, markets for sawnwood from unpruned logs (both butt logs and top logs) have tended to be limited – for example much has been exported into Australian markets for mouldings and facias. At present, there appear to be few obvious markets for expansion. Thus, there may need to be significant investment in mills producing engineered wood products – as well as in market development. Conversely, there is currently strong demand (by processors) for clearwood, which is creating some difficulties in accessing supplies, and providing an incentive to harvest in lower age classes meaning smaller and lower quality logs.

The magnitude of wood supply surpluses provides a fairly clear indication of the resource-based potential for new processing. It is a simple arithmetic task to develop broad scenarios for processing development from here and a number of studies have estimated this potential. For example, the 1992 New Zealand Forest Industries Strategy Study calculated a variety of potential scenarios based on available wood supplies. At that time, the Study showed the potential for New Zealand sawn timber production to reach 4.25 million cubic metres by 1995 and 6.3 million cubic metres by 2005. Achievement of this capacity was expected to require the construction of around 30 sawmills of varying sizes throughout New Zealand and increased utilisation of existing capacity. It is evident that New Zealand was some distance from having developed this capacity in 1995 and, based on growth performance during the past few years, expected difficulties in export markets and very limited announcements of new capacity over the next few years, it seems unlikely that the 1992 Strategy Study scenarios will be realised.

The Strategy Study also identified mutually exclusive production scenarios encompassing the potential for 10 new fibreboard lines to be installed between 1992 and 2005, or equivalent pulp and paper capacity. To date, New Zealand has tracked the fibreboard scenario quite closely with 4 lines having been established by 2000, but little prospect of having the remainder materialise by 2005.

The pulp and paper industry in New Zealand is entering a transitional phase. Obviously more wood-fibre is becoming available for pulping, but the increases are too dispersed to provide material for new Kraft pulp mills. Areas which could potentially support a CTMP facility are instead building fibreboard plants. The New Zealand Forest Industries Strategy Study saw fibreboard mills and CTMP mills as mutually exclusive options in the development of New Zealand's forestry sector. At present, there appears to be little prospect of greenfields expansion in pulping capacity, though there is likely to be continuing and significant investment at existing sites.

Contact for Enquiries

Rural Affairs Coordinator
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND

Phone: +64 4 894 0675
Fax: +64 4 4 894 0745
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