NZ Log Exports May Face Squeeze due to Falling Demand from China
OREANDA-NEWS. February 13, 2012. New Zealand's forestry exports may be set for tougher ride over the next 12 months following two bumper years, as falling demand from China puts the sector under pressure, New Zealand Forest Owners Association said in a statement.
According to a report from Wood Resources International, a US-based forest industry consulting firm, the value of softwood logs and timber imported into China fell 14 per cent in the December quarter compared with the previous three months.
That comes as China's forestry imports peaked at a record high last year, topping out at USD 8 billion (USD 9.6 billion), making it the biggest buyer of logs and lumber in the world.
The decline was predominately driven by a tightening of monetary policy in China, with officials clamping down on lending conditions in an attempt to ease inflationary pressures in the world's second biggest economy.
The knock-on effect saw demand for both raw and finished timber fall as housing construction slowed down, with housing starts dropping 25 per cent in December compared with the same month last year, according to data from Societe Generale.
''It can be expected that the housing market will continue to face headwinds during the first half of 2012 unless the Chinese government steps in to ease the country's monetary policy,'' said president of Wood Resources, Hakan Ekstrom.
These pressures are already being felt by the local forestry sector.
According to the latest Overseas Merchandise Trade data from Statistics New Zealand, the value of log, wood and wood article exports fell by USD 44m, or 16 per cent, to USD 232m in December compared with the same month a year ago.
Glen Mackie, a senior policy analyst at the New Zealand Forest Owners Association, said the sector is likely to see exports fall as opposed to plummet, as China's economy continues to grow albeit at a slower rate.
''We have to be sensible [in] that we match supply to the demand,'' Mackie said. ''We get hit when we let supply get out of kilter, that's not just from New Zealand but globally.''
Ekstrom said China's import levels are likely to remain under pressure as so long as the centralised government continues to tighten monetary policy.
Even if the People's Bank of China suddenly eased up on policy, a spike in forestry demand was not a given due to the oversupply of housing in China, with over 20 months of unsold inventory in Beijing and Shanghai alone.
Mackie noted the Chinese exports and construction sectors have a more important influence on demand for New Zealand produced pinus radiata logs than housing starts, as they are used as concrete shuttering and in pallets.
''As long as some exports keep going, we should be okay,'' said Mackie.
Any shortfall in offshore demand is unlikely to be picked up by the local building sector, which continues to languish in the doldrums as the Christchurch rebuild gets pushed back further.
This week's building consents data for December showed building permissions dropped to their lowest level in 46 years, with 13,662 consents issued for new dwellings last year, down 12 per cent from a year earlier.