Timber firms in for more trimming

It's not quite a case of being sawn off at the knees, but timber companies are battening down for another bout of belt-tightening.

After a rash of mill closures and cutbacks over recent years which Nelson had escaped largely unscathed from until Goldpine's recent restructuring, sawmillers had hoped the end of the recession would at last provide some relief.

But while export markets for sawn timber have been strong this year and there has been some bounce back in domestic sales, the signs for the next year or so are far from promising, although Saturday's big earthquake in Canterbury is predicted to provide a short-term boost.

Building consents for new homes have stalled at historically low levels, the outlook for commercial construction is bleak with Rugby World Cup projects coming to an end, log supplies have been tight and prices high and key export markets are softening.

Timber Industry Federation executive director Wayne Coffey said the "hard core" of companies left in the sector were having to "trim their sails" to cope with the domestic downturn, which he believed was sharper than official figures indicated.

"There's a lot of caution and a lack of confidence," he said. "The whole economy has fallen into a bit of a hole."

Sawn timber exports had grown by 27 per cent in the four months to June compared with the same period last year, but had peaked in Asia and Australia, "and are probably as good as it gets for a while".

He held out some hope that while house building was at a low ebb, homeowners would increase their spending on renovations.

"I think you will see people get back into DIY and spend more time in their backyards tidying up, and I think companies like Goldpine are very well placed to take hold of that."

While log supplies had eased as the export boom cooled, sales to the domestic market were down 39 per cent from five years ago, Mr Coffey said.

He was highly critical that largely foreign-owned forestry companies were exporting huge volumes to China, India and other markets while sawmills and "genuine value-added processing companies like Goldpine" were struggling to get enough logs at a fair price.

It was "appalling" that forestry companies paid so little in tax and the Government through its Emissions Trading Scheme was making things worse by paying them to leave trees in the ground for longer.

It was time the Government considered a tax on log exports to provide some support for the New Zealand timber industry, he said.

Goldpine, which last week laid off about a third of its workforce at its Golden Downs post mill after being hit by a downturn in the wine and farming sectors, said it could no longer go on producing more than it was selling in a declining market.

"We have moved to reduce throughput to match demand resulting in the removal of part of the night shift and the loss of 23 jobs in total," operations manager Roy Medlicott said.

"The environment we are operating in is very competitive, customer spending habits are cautious and demand is softer than expected. This has been exacerbated by difficulty in securing suitable log supplies and by increasing log costs in some grades," he said.

"Just as our competitors and other industries continue to make adjustments to their businesses to remain efficient, so must Goldpine and the current steps are part of the continual process of adjustment we have been in for the past 18 months ..."

Peter Crighton, the general manager of Southpine, which is one of Nelson's largest sawmills, said the tough trading conditions were likely to last for most of next year.

"There's no doubt things have slowed down and the feedback we're getting is that this isn't just a winter slowdown, but could be for a lot longer period."

The Government wasn't doing much to encourage house building, renovation work by itself didn't move much timber and net migration – which was one of the drivers of home starts – was falling, he said.

In response, Southpine had reduced its production by about 10 per cent to a more sustainable level after buoyant trading earlier in the year, Mr Crighton said. However, while some further trimming might be required, there were no plans to reduce staff numbers which numbered close to 100.

"While we've got no clear picture of where we will be in two, three or four months, we're backing ourselves to move our product with our diversified sales and marketing strategies and quality of product."

While strong demand and prices for exported timber this year – which made up about half of Southpine's production – had helped offset lower domestic sales and higher log prices, the softening Asian and Australian markets also made the company more cautious about the short-term prospects, said Mr Crighton, a former chairman of the NZ Pine Exporting Companies.

The high kiwi and limited and expensive shipping options out of Nelson continued to have a significant impact on export markets.

"The global recession has hit a lot of our international customers. An enormous number of furniture and packaging companies in China and Vietnam have closed for exactly the same reasons."

While the export sector was in better shape than the domestic market, "it is still not in good shape".

As a result, there had been a dramatic consolidation in the timber industry over the last two to three years, which had seen many mills close or cut production, others focus on exporting and profit margins under severe pressure, Mr Crighton said.

The rise in log exports and prices had made life very difficult but Southpine had always managed to secure enough logs to continue its operations.

In a market where the weak had been "weeded out", Southpine remained in a good position to benefit when the upturn came, Mr Crighton said.

Neville Sowry, site manager at Moutere Timber, which employs about 30 staff and specialises in douglas fir, said while there was "a lot of doom and gloom out there", demand for his company's wood was currently outstripping production.

"We can't get enough timber to sell."

Margins were tight and the market very competitive but the predicted slowdown had yet to happen, he said. Exports to Australia were holding up, but Moutere had stopped sending timber to Asia because there was no longer any money in it. The company, part of the Ranex group, had been cushioned after picking up the clients of two southern mills that had closed recently, he said.

- © Fairfax NZ News