High dollar could hurt timber gains
The forestry and timber industry may be poised for a recovery amid signs of improvement in the Kiwi and US construction markets, but industry players say it could be a delicate one.
According to industry figures, timber exports from New Zealand appear to have bottomed, with $774.5 million worth of cut lumber sold overseas in 2012, up from $770.4m in 2011, although more timber was sold at a lower unit price.
That's poised to pick up in the year ahead, according to forecasts from the Timber Industry Federation, as construction activity picks up due to the Christchurch earthquake rebuild and a rise in home building activity in Auckland.
Asian demand for New Zealand cut timber and logs is also expected to grow as North American timber supplies tighten due to a recovery in the United States home construction market.
Official figures show US builders started work on homes in December at the fastest pace since 2008, with pent up housing demand in the world's biggest economy boosting construction activity.
But Andres Katz, a forestry economist at Resource Management Services, warns that too much of a good thing could be bad for the cut timber side of the industry.
New Zealand's timber mills are already delicately balanced in terms of price, with much of the lumber already close to being too costly for developing economies in Asia due to high production costs and transport prices.
Katz said a sudden spike in demand out of China could lift the price of logs suddenly, and result in a knock-on effect for millers.
"We don't want to squeeze too hard," he said. "We want a strong construction market so they can pay our prices, but the worst thing that could happen is strong export log prices and a weak construction market here."
Katz said Australia traditionally balanced out blips in the Asian side of the equation, but the protracted slowdown in the trans-Tasman economy was ratcheting up New Zealand's exposure to price risks.
Mike King, chief executive at forestry and timber consultancy Interpine, said the other elephant in the room was the New Zealand dollar, which was currently trading at over US84 cents - its highest level in 16 months.
"Any gain we might make in the actual payments or in the value of the export commodity is often eroded by the high value dollar and shipping costs," he said. "Those could be the killers of any boom." He said the timber industry was also vulnerable to timing issues in the domestic economy, warning that while building consents may have picked up in recent months, timber prices only moved once physical work on those consents started.