Situation and Outlook for New Zealand Agriculture and Forestry (August 2008)
14 Forestry
Overall forestry export receipts for the year ended 31 March 2008 decreased by 4.3 percent compared with the previous year. This was mainly the result of the strength of the New Zealand dollar against the US currency. Overall forestry volumes grew by 2.6 percent.
Aside from the strong New Zealand dollar, prices for forestry exports have also suffered from high shipping rates and weak housing markets in the US and other importing countries. However, amid this gloom, log prices in Asia have improved.
The high value of the New Zealand dollar more than wiped out all the gains in US dollar prices. Most forestry products are sold in US dollars. FOB prices for forestry products in US dollar terms increased by 8.0 percent over the year ended 31 March 2008. However, during the same period, the New Zealand dollar increased in value by 16 percent, and consequently New Zealand dollar FOB prices for forestry exports decreased by nearly 7 percent.
Bulk shipping rates
Bulk shipping rates more than doubled during the first 10 months of 2007, seriously affecting returns of log exports. Despite strong market indicators in Asia, higher shipping prices affected FOB prices for logs in US dollar terms, with these falling 20 percent between the first and the fourth quarter of 2007.
Shipping rates then took a huge dive in early February 2008 – 45 percent lower than the peak in October. This has contributed to a 22 percent gain in FOB log prices in US dollar terms over the March 2008 quarter.
Figure 14.1: Forestry shipping rates (Baltic Exchange Supramax Index1), 2005–2008
Note
1. The Baltic Exchange Supramax Index is the weighted average on five major time-charter routes. It is based on a 52 454 tonne bulk carrier carrying commodities such as timber.
Source Datastream.
Logs
Prices for logs in New Zealand’s major markets have been steady and fairly strong throughout 2007 and the beginning of 2008. In the South Korean market, for example, in-market US dollar prices for New Zealand logs increased by 49 percent between March 2006 and March 2007 and have remained at around this level.
The outlook for log prices in New Zealand’s main markets is positive. The continued phase-in of the Russian log export taxes, with a final large increase scheduled for January 2009, will put upward pressure on log prices in all New Zealand’s log markets. Furthermore, demand for New Zealand logs has been growing in the Chinese and Indian markets. This demand growth is expected to continue into the future as these economies continue to grow.
In New Zealand, log prices are forecast to increase with the assumed depreciation in the exchange rate and as prices for logs in New Zealand’s export markets improve. US dollar shipping rates are assumed to remain at fairly high levels; however, in New Zealand dollar terms they may rise.
Timber and panels
The housing slump across several markets was another feature of 2007. US housing starts have been on a downward trend since the June 2007 quarter and continued to decline toward the end of March 2008. As a result of this and the weak US dollar, US imports of forestry products have reduced considerably. All indicators for this market, such as housing starts, permits, sales, prices and inventory, are weak, which indicates a negative outlook throughout 2008 and possibly well in 2009.
For New Zealand products, the commodities mostly affected are timber, fibreboard and mouldings. Japanese housing starts were weak toward the end of 2007 and in the first quarter of 2008. This also affected the prices of panel products. In 2008, the New Zealand housing boom came to a screeching halt. Domestic demand for timber and panels is likely to weaken in 2008 and 2009.
New Zealand dollar prices for both timber and panels are forecast to drop in the year ending 31 March 2009 due to falling demand. After this time, the assumed weakening of the New Zealand dollar is forecast to drive steady improvements in prices.
Pulp and paper
Strong demand for pulp and paper has been the driver of an upward trend in global pulp and paper prices. For newsprint, a global tightening in supply has pushed prices upward. For the year ended 31 March 2008, FOB prices in US dollar terms have increased by nearly 11 percent for pulp and by 17 percent for paper.
In coming years, high fibre costs will still support high prices for both pulp and paper. However, the growth rate is expected to slow down.
Exports
Total log export values decreased by 1.7 percent for the year ended 31 March 2008. Despite export volumes rising, this decrease in value occurred due to falls in New Zealand dollar FOB prices. Growth in export volumes was mostly due to expansion in markets such as China and India (see Table 14.1).
Timber export prices and volumes both fell, causing the total timber export value to decrease by 9.6 percent by 31 March 2008. The weak US housing market hit export volumes harder than prices. Timber exports to the US declined by 30 percent at the end of 2007. Prices will possibly recover sooner than volumes, thanks to supply curtailments. Nevertheless, a decline in both prices and volumes is expected for the year ending 31 March 2009. Thereafter, it is expected that the market will recover, but this is likely to be slow.
Despite export prices of panels increasing, declining panel volumes caused the total value of panel exports to fall by 3.5 percent in the year ended 31 March 2008. The decrease in volumes reflected the weakness in both the US and Japanese housing markets. For the panel category, in Japan, the weak housing market had a particular impact on exports of plywood and particleboard; for the US, the impact was on fibreboard exports. Recent growth in exports of plywood and particleboard to Australia is expected to provide some offset to the decline in other export markets.
Pulp export volumes grew by 6.9 percent in the year ended 31 March 2008. Falls in price eroded some of the value of this. China is now New Zealand’s biggest market for chemical pulp. Japan remains the sole dominant market in mechanical pulp. Steady growth in both volumes and prices is expected for the outlook period.
Total forestry export value is expected to improve modestly at 1.1 percent in the year ending 31 March 2009, but will grow strongly at 11 percent per year in the next two years. This is mostly due to the depreciation of the New Zealand dollar (see Table 14.1).
Table 14.1: Forestry export prices, volumes and value, 2005–2012
| Year to 31 March |
Actual |
Forecast |
||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | |
| Logs and chips | ||||||||
| FOB1 price ($ per m3) | 78 | 84 | 104 | 95 | 103 | 112 | 121 | 128 |
| Export volume (000 m3) | 5 649 | 5 753 | 6 561 | 7 070 | 7 423 | 7 736 | 7 891 | 8 049 |
| Timber | ||||||||
| FOB price ($ per m3) | 438 | 396 | 415 | 410 | 390 | 415 | 454 | 488 |
| Export volume (000 m3) | 1 847 | 1 818 | 1 939 | 1 773 | 1 690 | 1 694 | 1 728 | 1 762 |
Panels |
||||||||
| FOB price ($ per m3) | 511 | 451 | 454 | 474 | 441 | 486 | 535 | 575 |
| Export volume (000 m3) | 1 132 | 1 125 | 994 | 920 | 904 | 920 | 929 | 938 |
Pulp |
||||||||
| FOB price ($/tonne) | 585 | 559 | 734 | 705 | 755 | 825 | 899 | 966 |
| Export volume (000 tonnes) | 839 | 854 | 810 | 866 | 901 | 919 | 928 | 937 |
| Total forestry export value ($ mil) | 3 255 | 3 164 | 3 548 | 3 397 | 3 434 | 3 810 | 4 220 | 4 580 |
Note
1. FOB – free on board: the value of the goods at the port of export and loaded onto a vessel for transportation out of the country of origin.
Sources Statistics New Zealand and MAF.
Production
The volume of logs harvested from New Zealand forests increased by 4.4 percent for the year ended 31 December 2007. This reflected the acceleration in harvesting as some owners sought to avoid the deforestation liabilities imposed by the Government’s plan to include forestry in the Emissions Trading Scheme as at 1 January 2008. Timber production increased by 4.7 percent, which also reflected the availability of logs for processing and the strong domestic construction market in 2007. Only paper and fibreboard showed reductions in production volumes (by nearly 4 percent and 13 percent respectively).
Forestry harvest volume is expected to gradually increase as the New Zealand dollar depreciates and prices for logs improve in Asia. Recent MAF wood availability forecasts show that harvestable volumes from most regions are either stable or steadily increasing over at least the next 10 years.
Timber production is expected to decrease in 2008 due to the weak domestic housing market and the struggling US market.
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