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Clarky's Comment - December 2012, A Reflection on 2012 and What Lies Ahead

A Reflection on 2012 and What Lies Ahead in 2013?

As we finish 2012 we can reflect on a couple of features of the year impacting on the forest industries of NZ and Australia and report on some of the signs for 2013.

2012 log exports markets affecting NZ forest growers were considerably less volatile than in 2011. Steady and regular business in Japan, Korea and China, with a high but stable FX rate but offset in part by relatively low and stable shipping rates has produced some very credible results for those forest owners that were harvesting and shipping logs during the year. Indian trade has slowed during the year but the slack as been picked up by China, which for the first time ever imported more logs from NZ than from Russia. One feature of the Chinese market has been a strengthening of demand for pruned logs, and corresponding price lift. Most commentators are anticipating more of the same in the first half of 2013, although against this view, at a recent meeting of wholesalers importing logs into Lanshan, Chinese government officials forecasted a significant slowdown in demand for sawn timber following Chinese New Year.

In both NZ and Australia 2012 has been tough for log processors. In NZ Norske Skog has announced it will be closing down one paper machine at Kawerau. Bay Lumber and Ahead Lumber have folded and CHH announced it will be closing its mouldings plant at Rotorua, although since then negotiations have commenced for a trade sale on that facility. In Australia the non-mining economy remains sluggish and building activity very subdued. In November CHH announced the closure of two South Australian mills blaming high log prices. Meanwhile imports of framing timber from Europe, while down to half what they were in 2010 and 2011, have clearly been assisted by the high Australian dollar relative to the Euro. In the last half of 2012 imports of secondary processed timber products such as mouldings, flooring and weatherboards from the US have jumped up sharply, no doubt a reflection of the high Australian dollar.

Other significant events for 2012 have included:

  1. The collapse of Gunns, a 137 year-old timber industry giant in Australia, leaving debts of nearly A$500 million.
  2. The collapse of the international price of carbon units, and subsequent fall-off of new land planting intentions and renewed deforestation activity for conversion to dairy in New Zealand. The government's failure, in its review of the Climate Change Response Act, to require a 50% quota of domestically sourced units to decouple the price of the NZU from cheap imported units means we cannot expect much domestic interest in reducing emissions or offsetting emissions through forestry planting for several years at least. I thought that the description of economics commentator Brian Fallow that the NZ ETS was now in an induced coma was quite apt.
  3. A New Zealand Forest and Wood Products Industry Strategic Action Plan was developed, and good progress being made towards introduction of a Commodity Levy on logs to support the forest grower funding of that Plan in a sustainable way.

In the last quarter of 2012 we are seeing what appears to be a sustainable increase in housing activity and lumber demand in the US, increased demand for clearwood mouldings and boards from NZ mills selling into the US plus good construction activity in Auckland and Christchurch. Respected timber markets research group International Wood Markets issued a press release on 10th December suggesting that, subject to no global economic recession, timber prices globally are in for a 3-4 year steady price increase on the back of increased demand from the US and limited supplies to fill that demand. See: http://www.woodmarkets.com/pressreleases.html

As we break for a Summer holiday, my pick is that we can look forward to a more steady growth in demand for both logs and processed timber products in the first half of 2013. But with strife in the Middle East and the sovereign debt issues in Europe unresolved the outlook is a bit murky.