KEY POINTS:
The plight of the forestry industry is highlighted in a new survey which indicates a general slight contraction in manufacturing activity.
The Bank of New Zealand - Business NZ performance of manufacturing index dropped 2.2 points from April to a seasonally adjusted 49.3 in May, although still higher than the March result.
Business NZ chief executive Phil O'Reilly said the reversal to a sub-50 result for May indicated the tough times manufacturers were facing.
A reading above 50 indicates manufacturing is generally expanding, below 50 that it is declining.
BNZ senior markets economist Craig Ebert said forestry was looking as poorly as any sector. That included the more widely noted, and severely squeezed, household sector.
Wood and paper product sectors had registered 37.8 on the index in May, which was the second-worst on record and "very deep" into the contraction zone.
Among major headwinds hitting forestry was a construction downturn in this country, Mr Ebert said.
Added to that were housing and construction in New Zealand's traditional forestry export markets of Australia, north Asia and the United States, which were weak already or about to become so.
China would be the notable exception among the traditional markets.
Another factor was the hangover from harvesting that happened last year to beat Kyoto protocol deforestation charges that kicked in at the start of this year.
It had been little surprise to see total - roundwood equivalent - harvesting in the March quarter down 11 per cent on a year ago, Mr Ebert said.
Forestry product prices had also, in the main, "completely sidestepped" the global commodity boom, although the industry was hoping for better returns later in the year as fundamental demand-supply factors tightened up.
"We are also conscious of the potential for domestic prices to come under downward pressure, in line with the way housing demand has dried up, leaving builders under pressure to reassess their margins in order to get contracts and make sales," Mr Ebert said.
At the same time, input costs for forestry were continuing to rise, with one of the more noticeable being fuel.
It was easy to see how difficult business had become in the forestry industry, he said.
"It looks as though we're in for a period of pruning."
- NZPA
