A forestry contractor in Northland has laid off all staff and other smaller companies are following suit as plummeting international log prices because of an oversupply to China starts to bite.
Export prices for A-grade unpruned logs fell from $171 per cu m in June to $108 last month. To make matters worse for New Zealand log exporters, only about 50 per cent of trees are suitable for Kiwi sawmills.
About six million tonnes of logs are at ports in China and the upcoming Winter Olympics means the Chinese Government will close down factories within a 300km radius, which is likely to have a knock-on effect.
Tai Tokerau Māori Forestry Collective chairman and owner of Fusion Logging, Ernest Morton, said he reduced his workforce from 27 to eight and now he has had to let everyone go.
"We stopped work before Christmas. Costs of carting logs from the Far North as well as shipping costs have gone up quite a lot. It's all those impossibles. That's the nature of the logging industry, it's up and down."
Morton said other smaller contractors were in a similar situation, and although there has been talk of the forestry sector recovering next month, companies were hesitant about working forestry crew because of the uncertainty around Covid.
"Work needs to be done, trees need to be cut. I have no doubt prices will come back up again. It's a question of when. When the market is up, it's good but when it's not, it's not good at all," he said.
Morton said a similar situation arose in the early 1990s when 30 forestry contractors in Northland went out of business because of a glut in log supplies overseas.
Ngati Hine Forestry Trust chairman Pita Tipene said luckily, their first rotation of logs was completed before Christmas last year and the next lot would be ready in the next 10 to 12 years.
"The bigger forestry contractors are able to better sustain the losses but smaller ones are put under pressure and are being forced to either lay off their workers or send them on extended leave.
"This has been happening since the last quarter of 2021. The log market has been quite buoyant for some time so it was only a matter of time before international prices dropped," Tipene said.
Manulife Forest Management NZ Ltd general manager Kerry Ellem said at this stage the first quarter of 2022 would remain very difficult in relation to Chinese market conditions.
Production in Northland would remain steady, but he said the company would continue to review market conditions.
Manulife is also known as Hancock Forestry and exports most of its logs to China but also has markets in India, Japan, Taiwan and South Korea.
Ellem said Manulife's first priority was to supply New Zealand sawmills with good-quality logs and the residue unsuitable for the domestic market was exported.
"Unlike smaller contractors, we supply to multiple overseas markets to try and remove our reliance to one market."
When export prices fell, he said small forest owners tended to reduce production or stop and that would affect harvesting contractors.
Northport forestry manager Ken Andrews said log supplies that began coming in on Monday have been slow, as was normal in the first week of the year.
"Market conditions and sentiment indicate we will have a very light January throughput of logs and February will also be light due to current stocks in China and a predicted long Chinese New Year," he said.
Northport has a total log capacity of 250,000 tonnes.
China is the biggest export market for New Zealand logs, followed by India and South Korea.