Log lag puts forest jobs at risk

JAMES WEIR
Last updated 05:00 18/06/2014

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Export log prices are falling fast and could knock smaller and more remote forests out of the market, putting hundreds of forestry jobs at risk, industry sources say.

In the past couple of months log prices have plunged 20 per cent after credit became harder to get in China, reducing demand for housing.

Chinese ports are now swamped with logs. It may take months for the market to clear and prices to steady.

The price for New Zealand radiata pine logs delivered to China has fallen from a high of US$162 (NZ$187) a cubic metre for A grade logs to around US$140, a source said.

Lower prices mean that in many regions harvesting and transport now cost more than forest owners could get at the wharf. That will force some smaller forest owners or those in more remote areas to stop harvesting, industry sources say.

Forestry Industry Contractors Association chief executive John Stulen said 10 to 15 per cent of about 6000 people working in forestry could lose their jobs. "Around the bush network, a lot of contractors are being laid off."

It would probably take till August for the market to clear.

"There is an awful lot of wood in the supply chain and it is going to be a tough time for contractors," he said.

The period of demand since 2009 had come to an end.

"Our contractors are going to feel the hurt, at least till August," Stulen said.

Another source said big forestry block owners would continue to harvest, though with smaller profits.

PF Olsen chief executive Peter Clark said there was an oversupply of logs in the months leading up to the price drop, and typically a lag in the supply response of three to four months, with all the wood on the water or at the port in New Zealand.

It also took time to stop and start harvesting, with existing contracts lined up. Clark expected to see fewer logs shipped in July.

"Then we'll see a drop in supply, inventory levels will fall [in China] and prices will start to rise again," Clark said, probably by the end of the year.

That was because there had not been a collapse in the housing market in China, but rather in the availability of credit. But prices had already come back so far that it made some harvesting uneconomic, which led to slower supply.

"The more remote, steeper country, difficult harvesting, small woodlots will be uneconomic," and would be most affected, he said.

Log sales in China were closely linked to construction. The government in China wanted to avoid a hard landing on its housing bubble so had tightened up on credit, so the market had slowed.

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"But equally, they won't want a hard landing [for construction] so they will play that lever on and off," he said. "It can slow down quickly and speed up quickly."

But Clark said forest owners would have to be careful about laying off logging crews given the price fall was expected to be relatively short-lived. "They might not get them [workers] back."

Forest Owners Association senior policy analyst Glen Mackie said the fall in prices in China was not unexpected and was seen as a significant "correction".

"We don't think this is necessarily a structural change, but log supply has got ahead of log demand and a correction was widely expected and has occurred," he said. It remained unclear how long that correction would last - it could be two months or take till the end of the year.

Despite high inventories on the wharves in China, demand was still high so stockpiles could be cleared quickly.

"It is not possible to pull the plug on harvest operations when prices fall. There are [harvest] contracts, shipping arranged, so there is always a lag effect," he said.

Mackie said supply was being pulled back to be more in line with demand.

LOG EXPORTS

Logs and wood are a top export, worth more than $4.1 billion in the year to April, up almost 26 per cent on the year before.

Forest products are the third-largest export behind dairy and meat.

About $1.7 billion worth of logs were sent to China last year, 2013.

About 6000 people work in forestry-related jobs.

- Stuff

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