ANZ Sums up Impending "Wall of Wood"

The term "wall of wood" conjures up graphic images of a "tsunami-like" wave of wood rolling inevitably and menacingly into our lives and economy. Between 1992 and 1997 a massive 432,000 hectares of mainly Radiata pine was planted across New Zealand, mostly by investment syndicates. Based on a fixed age for harvesting this projects into an equally massive increase in harvesting volumes in some 25-30 years (2018 to 2028). In reality, however, port and harvesting contractor constraints and the state of the wood market will greatly influence volumes actually harvested and it is more likely we will see gradual increases in year-on-year volumes; annual changes in volume are unlikely to exceed 15-20%.

However, with new planting levels now drifting back towards zero and deforestation reinvigorated as a function of the government putting the Emissions Trading Scheme into an "induced coma", an issue for long-term planning is that harvesting levels could drop significantly after the elevated levels in the 2018 to 2028 period. Whilst this may not be as big an issue for log exports, it will be a big issue for the sustainability of any new large-scale domestic processing investment. Just as volatility in harvesting levels is value-destroying in the short-term, so it will also be in the long-term and is something that industry participants and policy-makers would do well to reflect upon.

See the full article here.