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Clarky's Comment - December 2010

The mothballing of Prime sawmill in Gisborne (see article below), the loss of 26 jobs at the CHH Kawerau sawmill and the loss of 80 jobs at WPI's Tangiwai's mill near Ohakune illustrates just how vulnerable our wood processing industry is. A strong NZ Dollar relative to the US Dollar and the weak property and construction markets in New Zealand and the US are presumed to be the primary cause. The Prime pruned mill closure is of particular concern to East Coast forest owners.

Harvest on the East Coast is set to rise by 1.0 million m³ or more over the next few years with 25% of that being pruned logs. Most is off steep hill country using cable hauler logging that cannot get to the debark/anti-sapstain unit at the Eastland Port within the prescribed 48 hours (summer requirement). It is only when we can get pruned logs to such a treatment unit within the required time period that we can get the best premium for the clear wood as export logs – but even this market segment is relatively fragile at present.

This pruned wood has no local processor home to go to. Without new wood processing, investment this pruned log (sold with bark on and inevitably sapstained when it arrives at its destination port in Asia) gets a premium over the unpruned A-grade price, but not enough to justify the investment costs of pruning.

The NZ forest owning, wood processing, research and central government economic development leaders must work together urgently to identify and unblock constraints to profitable wood processing in this country.

Exporting more and more logs on bulk ships to distant markets is working for forest owners right now but is a very risky long-term strategy; vulnerable to higher shipping costs, currency volatility and port infrastructure constraints.

Meanwhile, US President Obama's policy to print money is holding the value of the US Dollar down. This policy is not yet flowing through to increased house construction in the U.S, but it is making US exporters more competitive. US and Canadian exports of both logs and lumber into China are increasing rapidly, adding to high volumes from NZ leading into the Chinese New Year. This is likely to cause a price decline, for a short period at least.

 

PF Olsen wishes all our WoodMatters subscribers a Merry Christmas and a Prosperous New Year.