New Zealand logs are piling up on Chinese wharves as cheap, sawn timber makes its way by train into the People's Republic from Russia and Scandinavia and puts the skids under prices.
In just a few months, "A" grade log prices have gone from US$138/140 a tonne to US$110 a tonne, and could sink as low as US$100 to US$105/tonne.
NZ Forest Owners Association president Peter Weir said about five million tonnes of logs — mostly from New Zealand — are sitting on wharves in China, unsold.
"A comfortable level is about one million tonnes and there are quite a few boatloads on the water," Weir told the Herald.
Logs are our third biggest export by value and earned $5.2 billion last year.
Weir said the log harvest needs to go on hold for at least six months to allow prices to recover.
"We absolutely need the handbrake to go on harvesting here.
"This is a major re-set. It's not a minor bump in the road - this is big," he said.
"We have had a spectacularly good run for the past five years with really good prices, but I think the sun has stopped shining."
ANZ said, in a market commentary, some softening of prices is not unusual at this time of the year but that the scale of the correction was unexpected.
The drop in prices will make the harvest of some woodlots unprofitable, it said.
"Harvest activity in New Zealand is being slowed with some harvesting crews being laid off," the bank said.
Forestry Minister Shane Jones said latest developments in the sector had been "disruptive" and "tumultuous".
Jones said he planned to meet with industry leaders this week to "identify the things that the government can and can't do".
A number of factors have come in to play to shift the world market dynamic.
So called "block trains" — trains in which all the wagons carry the same commodity and are shipped from the same origin to the same destination, without being split up or stored en route, have emerged as a part of China's "belt and road" initiative.
Typically, trains arrive in Europe fully laden but are only partly loaded on the way back to China, which means cheaper "back hauling" freight rates for timber exporters.
Large volumes of manufactured goods leave China for Europe by train every day.
About 30 trains a week travel between Chongqing, China and Duisburg, Germany, fully loaded. The trip takes 12 days versus 45 by ship.
China Forestry Group, a forest products and management company, said in a log market update that a weakening Chinese currency and US taxes applied to Chinese manufactured goods had affected market sentiment.
It said the "belt and road" initiative had created an opportunity for the back haul of logs and lumber on trains across Europe and Russia into the middle of China.
"We are now seeing this lumber arriving by rail in coastal cities," it said.
Big windstorms, and drought stress in Germany, Finland, the Czech Republic, Italy and France across 2017 and 2018 have created vast areas of forest that are being accessed for timber production.
China Forestry said having access to lower cost freight opportunities has meant China is a viable market for sawn lumber and logs.
Beetle-damaged 150-year-old spruce has been heavily sold by governments and forest owners in order to avoid even more damage as ageing dead timber attracts more insects.
The global softwood log price is indexed against the amount of pinus radiata that sits on the wharf in China.
When log inventory sitting on China's wharves becomes less than a million tonnes, prices go up. When it goes over a million, the price goes down, Weir said.
"There is a new dynamic. There is a lot higher quality sawn, kiln-dried lumber coming from the Russian far east, the Russian northwest, and Finland, exported at essentially no cost.
"It's made it available at a really low cost, so it's made it tough for the Chinese sawmillers to compete," Weir said.
"As a consequence they have uplifted fewer logs off the ports," Weir said.
"This is a new phenomenon and it's quite a change," he said.
Chinese sawmillers can't compete against quality, old-growth spruce from Europe, Weir said.
"They can't afford to pay what has been a really healthy price for New Zealand radiata, so they have stopped buying it."