Forestry sector to ponder woes

This month's conference will discuss forestry issues. FILE

Rotorua will host a major conference this month on the future of the forest products sector, currently under pressure as a result of a collapse in export log prices because of the inventory build-up in key market China.

"There are plenty of forestry conferences in New Zealand," said Dennis Neilson, director and founder of Rotorua-based forestry consultants DANA Ltd, which is organising the New Zealand Forestry & Forest Product Sector Conference on August 11 and 12.

"But we felt the time was right for an overview conference covering everything from land use to New Zealand's place in the Pacific Rim industry. All sectors of the industry will be covered."

A total of 27 speakers and/or panellists have been confirmed, 17 from New Zealand and 10 from overseas, including experts from Canada, Australia, the UK, China, Malaysia and Chile. So far 120 people have registered and Mr Neilson, who has been involved in the sector for four decades, said he was hoping for 150.

"It must be a first, or close to a first, to have so many international specialists speak at a single conference on the New Zealand forest industry sector," he said.

The rapid deterioration in the export log market continued in July, according to data from Rotorua-based forestry consultants PF Olsen. Overall the PF Olsen log price index fell $8 to $87. Since its recent high of $117 in March 2014, the index has fallen 26 per cent in four months.

The problem has been stubbornly high log stocks in China, says Peter Weblin, PF Olsen's chief marketing manager, in his monthly analysis in the Wood Matters newsletter.

Credit restrictions in China have meant that log purchasers have found it difficult to get trade credit, which had triggered a downward spiral as entities that open letters of credit for purchasers see increased risk and demand bigger down-payments, which purchasers cannot afford.

"Consequently demand for logs reduces and prices fall further," said Wood Matters. "This has exacerbated the severity of the market downturn."

The NZ$ at-wharf-gate price of export "A" grade in July was 13 per cent below the 10-year average of $100, according to PF Olsen. That highlights underlying problems - that the recent boom times in China have been atypical and have failed to redress a long-term decline in forestry plantings and increased costs, said some analysts.

Martyn Craven, director of TelferYoung in Rotorua which specialises in the valuation of forestry assets, will be addressing the conference on the theme of whether forestry can ever compete with agriculture in New Zealand.

"Over the last 15 years or so, log prices on average have not gone anywhere," said Mr Craven. "The troughs have outweighed the peaks, productivity has possibly improved, but harvesting and growing costs have increased considerably and overall profitability has been declining."

The sector's performance needed to be judged, in land use terms, against the massive productivity gains and increased returns seen in agricultural sectors, said Mr Craven.

"It's still our third biggest industry nationally, and as such it's scary that over a number of years it's declining and we don't appear to have the level of support from government that agriculture and tourism have received."