Marcus Musson: Impact of Cyclone Gabrielle on forestry and building supplies yet to be quantified

OPINION:

You don’t have to look too far to find a negative report on our industry when it comes to the effects of the recent biblical rain events on the mobilisation of woody debris. While the damage to the communities on the coast is devastating and we all empathise with everyone involved, pointing the finger squarely at forestry as the sole source of “slash” is like referring to all utes in New Zealand as Hiluxes – they’re part of the fleet, but there’s plenty of other brands in the mix. However, that’s a story for another time.

The recent cyclones have obviously given the country a real hiding and, as our teams operate in the rural environment, there are plenty of harvesting crews around the traps that are unable to operate due to road damage. This has seen a significant drop in deliveries to the ports of Napier, Gisborne and Marsden, with many exporters in those regions being caught with cargo-less vessels, which is less than ideal when you charter these on a daily hire basis.

To complicate matters, Gabrielle also laid flat around 6000 hectares of forests in the Tūrangi/Taupō regions. Aerial photos show the destruction, which looks like God’s big mitt has been swept across the land, the trees broken off as if they were spaghetti sticks. This area equates to around 2.5 million tonnes of logs, and the clock is ticking for the salvage of this volume, as it gets pretty iffy past the four-month mark once the trees have been blown over. In this case, where the trees have been primarily snapped off rather than blown over with the roots on, the timeframe can be even shorter as, once bugs get under the bark, they are not suitable for any market other than pulp and firewood. The net effect of this windthrow is there will be crews mobilised from around the regions to deal with this wind damage, which will see a blip in the supply volumes from New Zealand. Whether this will be enough to offset the supply reduction from the other cyclone-affected areas is yet to be seen, as it’s likely there’ll be a lag of at least four weeks in this volume hitting the ports en masse.

The harvesting contractor workforce has been struggling with increased costs and erosion of working capital over the past few years with Covid lockdowns, severe market fluctuations and endless winters. The inability of some to return to work post-cyclone will, unfortunately, be the end for a reasonable number. This will undoubtedly reduce our harvest level going forward, especially in the Hawke’s Bay and East Coast regions. To top it off, there were at least 40 log trucks drowned in Hawke’s Bay during the flood, of which around 25 have been written off to date. This takes around 3600 tonnes per day of cartage out of the system in the region, which is difficult to replace.

March has seen a significant rise in At Wharf Gate (AWG) export prices as exporters scrap for volume and vessels. A grade now sits in the mid-to-high $140s/m3, up around $10/m3 on February and $15/m3 above the three-year average. We have higher sales prices and lower Forex to thank for the increase, but how much further the in-market sales can be pushed is a guessing game. There has been an increase in off-port sales since the return of the Chinese from the Lunar New Year holiday period and this, combined with reduced New Zealand deliveries, has started to reduce the inventory position across Chinese ports. The speed of this inventory reduction generally dictates the quantum of the increase in sales prices. The flipside of this is that shipping companies generally react to increases in sales prices with vigour, and we have already seen upward pressure on vessel rates which could have an impact on April AWG prices.

The domestic framing timber market will be looking to the post-cyclone rebuild as a bit of a lifeline in the face of slowing demand. It’s too early to quantify the size of the residential rebuild project, but one would imagine it would be significant. The wind damage mentioned above will have the pruned mills in the central North Island (CNI) feeling queasy. Much of this volume was a staple diet for these sawmills, and now the next four-odd years of supply is on the deck. This will create a shortage of pruned logs in the CNI following the salvage operation, and mills will look for supply further afield.

In summary, the next few months will probably see continued solid pricing as demand outstrips supply, primarily due to supply constraints rather than an increase in demand; however, the outlook past the end of quarter two is anyone’s guess. We had hoped that 2024 was going to bring some stability and better trading conditions compared to the previous two years but, at this point, it looks like more of the same, with most of us thinking, ‘Bloody hell, what’s next?’

* Marcus Musson is a director of Forest 360.