China's demand for wood products is forecast to continue growing faster than its own domestic production, New Zealand market data provider AgriHQ said.

The DNS Forest Products-AgriHQ China Forestry Report said the People's Republic's demand for construction would continue to be underpinned by migration from rural to urban areas.

The report also said small forest owners are expected to make up a growing proportion of New Zealand's harvest in the next five years.

AgriHQ analyst Ivan Luketina, said China's demand for construction materials is currently weak which has brought uncertainty to the New Zealand forestry industry.


However, the Chinese government's long term plan for urban migration means another 120 million people will need to be housed in urban centres by 2020.

"This urban migration will support significant housing construction and social housing reform will stimulate demand for renovations of shanty houses during the next five years," Luketina said.

About 80 per cent of New Zealand's log exports to China are destined for the construction market.

Domestic production of timber in China can not keep pace with the growth in demand for wood products, Luketina said, adding that a growing need to set aside forests for ecological reasons, as well as historically poor management of plantations, meant output from China's large forests was well below global averages.

"In the long term, increased domestic production will be realised from China's investment in better management and increased planting of plantations for large trees but slow growth in timber production is expected for at least the next four to five years," he said.

New Zealand was China's largest supplier of imported softwood logs in 2013.

"Radiata pine is very versatile and popular in mills in China," Luketina said. The report said New Zealand is the only major supplier likely to be significantly increasing supply by 2020.

Meanwhile, log prices peaked at US$160 per JAS (Japan Agriculture Standard) cubic metre - at the wharf in China - in March, Luketina told NZME.


The slowdown in residential construction in China, which coincided with a period of high log supply, drove prices down to US$123 per JAS cubic metre.

Inventories rose rapidly from around 2 million tonnes on China's wharves early this year to close to 5 million tonnes but have since fallen back to around an estimated 3.5 million tonnes.

Prices have recovered to US$133 a JAS cubic metre over the last month or so.

"There was a residential construction slowdown and house prices have fallen back below where they were a year ago," Luketina said. "Developers are finding it hard to get access to credit, so they are now selling off inventory ," he told NZME.

"It's likely that there will need to be a turnaround in their housing market for demand to pick up again," he said.