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In the wake of a significant export market crash just a month ago, the New Zealand timber industry found itself grappling with plummeting prices and a lack of demand from China, its major export partner. <\/span>However, as predicted by industry experts, the situation is slowly turning around with supply dropping as prices reached the critical $120\/m3 threshold. Recent developments have indicated a flicker of hope for the future, but uncertainties still loom.<\/p>\n The perceived oversupply situation from New Zealand, a short-term anomaly according to Chinese buyers, was the primary driver behind the drop in demand. However, this oversupply has been somewhat buoyed by the windthrow harvest in Taup\u014d and the temporary shutdown of the Pan Pac mill in Napier, both contributing to an artificially sustained supply.<\/p>\n Despite this temporary boost, the sentiment among exporters has shifted significantly, as supply dips below demand, and projections indicate that the industry may experience a prolonged period of low supply. Consequently, July deliveries have seen increased pricing, and exporters are positioning themselves to secure volumes.<\/p>\n In China, actual sales prices have only seen a slight increase, and the July wharf gate rise is attributed to lower shipping and demurrage costs. Although this signals a glimmer of hope, it does not imply a shift in the fundamentals of China's real estate market, which is currently in need of a serious upturn. Reports from the global steel industry suggest that China's building boom has likely run its course.<\/p>\n While baseline log demand is expected to continue, it is anticipated to remain below the levels experienced over the past 15 years, necessitating lower supply to maintain somewhat acceptable prices.<\/p>\n China is currently experiencing a slow construction season, resulting in port offtake rates in the 65,000 to 70,000m3 per day range. New Zealand accounts for about 80 per cent of China's total softwood supply, and on-port log inventory has been relatively stable in the high 3,000,000m3 range. However, it is expected to decrease as New Zealand's supply diminishes.<\/p>\n Despite the Chinese government injecting stimulus into its economy, a significant cut in lending rates is needed to stimulate the property market and revive the demand for raw materials, particularly in the real estate and construction sectors. At present, China's economic growth is centered around the service industry, which consumes fewer raw materials than the struggling construction sector.<\/p>\n Expectations that New Zealand domestic sawmills could increase production to offset poor export returns are not feasible due to their own issues with timber inventory buildup. Over-ordering by timber merchants in the tight supply market has led to framing lumber-based sawmills reducing hours to minimize stock buildup.<\/p>\n Furthermore, forest owners who were anticipating rewards from the Emissions Trading Scheme have been hit hard by a 60 per cent drop in carbon prices over the past seven months, largely due to uncertainty surrounding government policies.<\/p>\n The predicament has led to many harvesting contractors being out of work or going out of business. The prospects for re-entering the industry remain bleak, as lenders are reluctant to invest in machinery associated with tree-related activities.<\/p>\n Looking ahead, the timber industry in New Zealand may witness further price increases in the coming months. However, the industry aims to avoid drastic price hikes to prevent a race to the top, which historically has been followed by a race to the bottom. Although increasing supply rapidly is a challenge for New Zealand, doing so could open the door for supply from other countries, a scenario the industry hopes to avoid.<\/p>\n As uncertainties persist, the industry seeks a balanced path forward, hoping that the current glimmer of hope in the Chinese market doesn't turn into an intense blowtorch of challenges for New Zealand's timber exports.<\/p>","protected":false},"excerpt":{"rendered":" In the wake of a significant export market crash just a month ago, the New Zealand timber industry found itself grappling with plummeting prices and a lack of demand from China, its major export partner. However, as predicted by industry … Continue reading