America’s in a Forest Slump and New Zealand Log Prices Are on a Roll

Date: Friday, February 15, 2019
Source: The Wall Street Journal

New Zealand’s lumber industry is supported by Chinese demand

The U.S. lumber industry is in a rut, but halfway across the world, wood is still a hot commodity.

Forestry prices in New Zealand—one of the world’s largest timber exporters—are near record highs, thanks largely to strong Chinese demand for pine-tree logs.

A-grade logs for export were recently selling for 140 New Zealand dollars (US$95) a metric ton, up around 14% from September, according to market data provider AgriHQ.

In contrast, U.S. futures contracts for lumber—or planks of timber—fell sharply in the second half of last year. That drop was the result of a cooling U.S. housing market, slower construction activity as well as sharply lower U.S. wood exports to China. U.S. lumber prices have ticked higher this year, but are still down about 25% from May 2018.

New Zealand has been a big beneficiary of China’s construction and infrastructure projects. The pacific island nation exported $2.8 billion of logs and sawed products last year and about 70% went to the world’s second-largest economy.

New Zealand was the first developed country to sign a free-trade agreement with China back in 2008, and it benefits from lower tariffs than competitors on many goods.

U.S.-China trade tensions over the past year also contributed to China’s increased appetite for New Zealand’s logs. “Their normal channels out of the U.S. have not been there, and so we’ve been doing quite well,” said David Rhodes, chief executive of New Zealand’s Forestry Owners Association.

Some analysts are warning, however, that the good times may not last for long as China’s economic growth is slowing.

Global demand for logs is also flagging, because of weaker growth in housing starts and moderating global growth. “New Zealand is unlikely to be immune” from that broader trend for long, said Nathan Penny, a senior economist at ASB Bank in New Zealand.

Like in the U.S., farmers and forestry owners in New Zealand planted large numbers of trees in the 1990s in anticipation of higher global demand for wood. Many of those trees are now ready to be felled, raising concerns about oversupply and a collapse in prices, but China’s demand is helping to ease that worry, said Mr. Rhodes.

 

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