Bruce's Blog

What is happening in the structural timber market?

How could the Timber Manufacturing Industry be so short of timber in June 2022 that suppliers were rationing it, then three months later sawmills were over-stocked and begging merchants to increase purchases? Over the last few months many timber producers have taken extended breaks. In some cases work hours are being tightly controlled, as businesses big and small struggle to manage stock levels and working capital issues.

Although there is an abundance of structural timber available, the Government’s Forestry and Timber Manufacturing Industry Transformation (ITP) plan calls for significant increases in total timber production over the next ten years. Tree planting is often noted as an important part of our response to climate change and it is well recognised that, even after harvest, much of the carbon from the tree remains ‘locked up’ within the resulting timber products – continuing the sequestration of carbon within buildings. 

However, we now also have a slowing house-building environment – further reducing timber demand – but many families still have inadequate housing. Consequently, builders and construction companies face lower volumes of work in front of them and potential job losses, and much of the North Island has significant storm damage to deal with urgently.

Forestry is in the spotlight for perceived poor land use practices on the East Coast. The sight of ‘slash’ all around the Gisborne and Hawkes Bay regions has been difficult to look at – and undoubtedly something needs to be done – but what?  While there are thousands of tonnes of highly visible slash, the media seems to be overlooking the damage done by even larger volumes of silt and soil. No attention is being placed on how much greater the erosion and consequent destruction of landscape and infrastructure may have been if the land had still been predominantly in farming. While the idea of converting the whole region back to native forests seems compelling, serious thought should be given to how communities will survive and flourish if the land is not ‘worked’ in some manner. 

Much of the forest land was established after Cyclone Bola (March 1988). The devastation was so bad that forestry was seen as both an economic and environmental answer – but it has its risks. Many years ago, when I was a young forester, we used fire as a tool to manage slash and debris. The careful use of broadcast burning, where appropriate, and certainly the burning of slash around landing sites (known as birds nests), was an effective way of reducing the woody mass and weight of timber on these vulnerable areas. However, fire was deemed to be environmentally detrimental, so the practice was largely abandoned. I believe that now we are likely to see this forestry slash burned on the beaches of Tairawhiti after it has caused destruction and mayhem – I’m not sure that is progress.

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What does all this mean for structural timber?

First, it is likely log prices will increase. There will be a significant reduction in log supply from New Zealand. The worst affected areas on the East Coast of the North Island contain the ports of Gisborne and Napier, which account for about 25% of our log exports. These ports have effectively been closed for two weeks. Log production in this area is very unlikely to be above 50% short term. Some operations are also slow in Tauranga due to wet weather, and have stopped in Northland because of damage to public roading infrastructure. There is also significant storm damage to forest areas in the Taupo and CNI regions which will need to be cleared and dealt with. This is likely to create disruption, short and long term, if age class structures are impacted.

There have been plenty of building consents recently but they are not translating into projects starting – a result of poor weather, high interest rates and business uncertainty. And it’s Election year 

Demand for timber is unlikely to increase in the short term, while the cost of production will – especially the cost of the raw material. So it would seem sensible that timber manufacturers either limit production to what they can sell, look for new markets, or develop new products. Price reductions in the face of increasing costs will not ‘grow the market’. 

Will the Government’s proposed ITP assist with market and product development? Will NZ timber processors be able to work together to grow the industry? These initiatives often look for cooperation, consensus and contribution, forgetting that these industry players are all competitors who will only contribute to what they see as good for them. The idea of doing ‘good for the industry’ often doesn’t tick the boxes of managers’ KPIs, and project development timeframes are often quite long – so they won’t reward the incumbent. Therefore, Government-backed initiatives face strong headwinds. 

Right now, there is also the doubt about the ‘social licence’ of the industry. Is Forestry a significant part of New Zealand’s global warming response, or an extractive industry that degrades the environment and risks devastation to infrastructure?

If New Zealand is to make use of the commercial forest resource it has available, both for climate mitigation and economic growth, the Government needs to lead the way – the industry by itself will never reach consensus. 

Te Uru Rakau needs to consult and get the different opinions, but expecting the various different players to agree and contribute to projects that don’t directly benefit them will likely fail.  One possible solution to the funding issue would be for the Government to ‘release’ the carbon credits that it claims from the ‘harvested wood’ (ie carbon embedded in sawn timber) to the industry on the proviso that a proportion is used for implementation of the ITP. This move would improve the profitability of timber processors and likely drive the price of timber lower, but the Government insists that it must be part of the current Emissions Trading Scheme. This is proving to have problems perceived to be insurmountable. 

In summary, in my opinion it is unlikely we will see any significant growth or diversification within the NZ Timber market in the short term. Most likely we will see a continuation of the cyclical boom-bust market. At the moment we are surely heading into the bust cycle. Expect structural timber to get cheaper and businesses throughout the supply chain to struggle.

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This article was recently published in Building Today magazine. Download the article below