Asia drives strong forest returns

The demand for logs in China is set to ramp up prices for the long term.

The country's forestry sector can expect to see the current strong market continuing long term, fuelled by the ongoing demand from Asia.

New Zealand export log prices rose for a third straight month in November, pushed along by low shipping rates and demand from China, the country's largest export market.

An AgriHQ survey of exporters, forest owners and sawmillers said the forestry industry was continuing to enjoy a spell which has regularly been described as the strongest in at least 20 years.

And the data has been backed up by Marcus Musson, a director of Forest Owners Marketing Service Ltd (FOMS).

Mr Musson's company provides harvesting and marketing services to private forest owners across the North Island and he said the returns for owners had been the most stable the market had seen since 2013.

He said historically there was a sharp price correction following Chinese New Year celebrations in February when log inventory levels in China reached levels exceeding 4 million cubic metres.

Usually there was something like 50,000 cubic metres of logs and lumber landing in China each day during the holiday period, "a time which basically has zero demand for between two and four weeks".

But this year there were fewer logs and less lumber entering Chinese ports during the holiday period and, as a result, there wasn't the usual over-supply.

Prices had also been bolstered by continued low shipping rates over the past 12 months and a foreign exchange rate that favoured New Zealand.

"This is also coupled with a reduction in Chinese domestic harvest due to continued issues with erosion and water quality as a result of deforestation across the country. The Chinese domestic harvest supplies about 60 per cent of the 66 million cubic metres used in China annually," Mr Musson said.

"We expect some further increases in cost of freight rates in December in response to the recent earthquake and the damage to the Wellington port. The earthquake was front-page news in China and buyers are worried about supply stability from the region," he said.

Prices had been kicked on by a buoyant construction market with most sawmills experiencing low log inventories.

"This isn't so much an issue of a supply reduction to these mills but rather an increase in their production in response to demand for lumber."

Mr Musson expected the forest sector to continue to provide forest owners with healthy returns.

He said it was a view supported by the number of Chinese buyers looking for forest investments here.

"Many of these buyers are looking for a stable fibre source which has a very wide range of uses from packaging to furniture. Our radiata pine is well received in China due to its versatility and consistency of quality and supply," he said.

Forest products are New Zealand's third-largest commodity export group behind dairy and meat.