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Clarkys Comment - July

The closure of Lumbercube in Rotorua is a major blow to confidence in the forestry and wood processing sectors. Although we were all aware of the teething problems that this innovative processing plant had there was a sense in the forestry sector that at last we had some serious investment to add value to forestry exports to move us away from over-reliance on bark-on round logs. Success could possibly have led to one or more sister plants being established elsewhere. Lumbercube was also an important source of quality chip for Oji’s Kinleith pulp mill.

The closure got me thinking about the challenges the processing sector faces. Without a financially healthy processing sector, forest growing profitability will remain highly volatile. The reliance on log exports is set to increase as we face a decade of expanding harvest from the mid-1990s planting.

  1. In addition to Lumbercube, Panpac and Sequal Lumber have made significant recent investments in processing for export. But this is not enough. The Red Stag investment is also applauded but is targeting NZ and Australia structural markets, both of which are mature markets with limited growth potential. Most of Red Stag’s increased output will simply displace that of higher cost sawmills.
  2. Investments into the high-value, high volume engineered timber products offer great promise but domestic demand is hampered by slow specifier uptake for commercial and multi-story residential building. A good domestic market for engineered wood is a necessary pre-curser to an export industry based on these building systems. Domestic sales both de-risk the exchange rate volatility exposure and enable the pre-fabrication technology to be fine tuned. Accelerated education of engineers and architects, as well as a national Wood First policy to provide the incentive to upskill are needed.
  3. Pulp mills in NZ are sub-scale to remain internationally competitive, and in dire need of increased wood processing to give confidence in chip supply that is necessary to support large capital upgrades.
  4. In some regions, particularly Northland, there is real concern that a combination of lack of planting over the past decade and early harvest for log export is creating a serious hole in the wood supply from about 2030. This is hardly supportive of investment in wood processing. This a tricky one to solve but simply serves to illustrate the mutual connection between profitable forest growing and wood processing investment.

The forestry and wood processing sectors really matter to New Zealand. They create high paying jobs, generate export earnings similar to meat and horticulture, protect our precious topsoil on steeper hills and produce environmentally friendly building materials. They are too important to lose but the risk of that occurring looks to be increasing. I think it is time for a korero (round table discussion) with MPI and senior government ministers on a strategy for the sector.