Well it has been quite a year with log markets on the up and up, NZU prices reaching the highest point since 2011, and a change of Government that is committing to re-establish the NZ Forest Service and plant 1,000,000,000 trees over the next 10 years. Another major issue affecting the forest industry this year has been domestic log processors facing rising log prices, and in some regions log shortages.
One billion trees
The major forestry organisations such as the Farm Forestry Assn, Forest Owners Assn and the NZ Institute of Forestry have all come out in support of this ambitious planting plan. Bear in mind that around 50,000 ha is replanted every year following harvesting so it "only" means another 50,000 ha of new planting that is required. During the 1990's the new planting area peaked at 100,000 ha with six of the 10 years in this decade with new planting over 50,000ha.
However there have been significant changes in the industry since then. Most notably is that land prices have increased significantly and skilled labour prepared to do the hard physical work is becoming scarce. Increasing costs of environmental and H&S compliance have also added to the overall cost of getting forests planted. On the plus side the combination of high log prices and additional revenue from carbon means the overall economics of forest investment is about the best it has ever been.
My own view is that while the "Billion Trees" is an admirable target, the market is the best determinant of how much land can and should be planted. Government's role should only be to facilitate forest investment with consistent business friendly policies, a commitment to bring all industries (including agriculture that makes up 50% of emissions) into the Emissions Trading Scheme, and pro-active support of companies and individuals that wish to invest in forests. The establishment of regional forestry offices staffed by skilled advisors as proposed would be a good start.
China holds key to future log demand In 2016, China's total wood consumption was 570 million m3, as follows:
• 420 million m3 used in industrial and construction
• 100 million m3 converted to wood-based products (such as furniture) and exported;
• 50 million m3 used for other purposes
• 270 million m3 imported — about half of China's consumption
By 2020, it is estimated that China's wood consumption will grow to at least 700 million m3-a total expansion of 50 million m3 per year.
China has developed plantations in an attempt to help offset its wood fibre deficit but most of these are hardwood (eucalyptus etc). There will be an even greater demand for imported softwoods going forward for use in the furniture sector, as well as for construction and industrial purposes.
The One Belt/One Road initiative will speed up China's investments into overseas forestry and wood processing to meet the shortage in domestic wood and timber availability.
The Chinese government has a number of new projects underway that should raise the country's wood products consumption. Some of these will be green energy-related projects that utilize wood. The government is beginning to promote prefabricated construction with the target being up to 15% wood use in new buildings by 2020.
With China's environmental standards and harvesting ban on natural forests many closures of old plywood and sawmills are occurring, and this could mean a slower rate of log consumption. The will mean more log imports over time — at least until Chinese factories receive the necessary environmental upgrades.
With NZ's current annual log exports to China of 12 million m3 we supply barely supply the entrée to satisfy their hunger for wood.
Log prices reach giddying heights
New Zealand structural log prices rose to the highest level in 24 years and A-grade export logs hit a record as local mills compete with the export market to secure supply for the domestic construction market amid strong demand from China.
The price for domestic structural S1 logs increased to $130 a tonne this month, from $128 a tonne last month, marking the highest level since 1993. Export log prices lifted between $2-to-$5 a tonne for the majority of grades, with the price for A-Grade logs touching $128 a tonne, up from $127 a tonne last month. (source: AgriHQ)
NZU price rises strongly
The latest price at $19.50/NZU (the unit of trading in the Emissions Trading Scheme or ETS) is up from last month's price of $18.95. This is the highest price since mid-2011 when prices reached around $21 before falling precipitously to $2.50/tonne mid-2013.