NZTIF president: Structural timber sales volumes plummeting due to building activity downturn

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New Zealand Timber Industry Federation president Bruce Larsen is calling on the Government to provide investment-friendly initiatives so that timber processors can add more value to help improve the New Zealand economy, reduce unemployment, and significantly improve the boom-bust nature of forest harvesting and timber manufacturing.

It is ironic that I read all manner of “positive press” from government agencies and other organisations lauding timber manufacturing as a possible “get out of jail free” card for New Zealand’s climate change obligations at a time when the industry is facing a crisis.

Residential house construction is in a very poor state — actual building is much lower than the current reported statistics suggest — and it will take some time for the actual scale of the problem to flow through.

Some large group home builders — the powerhouses of the industry — are facing reductions in orders of 50% to 80% if the stories I’m hearing are anything to go by. Sales volumes of structural timber would support this view.

The timber shortage during the pandemic followed all the rules of a classic commodity shortage.

At every level of the supply chain, panic ordering and stockpiling conspired to make the shortages appear much greater than they actually were.

Significant downturn

Now, with a significant downturn in building activity (largely engineered by the Reserve Bank), New Zealand is awash with excess structural timber.

Sawmills, as the primary step in the supply chain, feel the heat first and longest as the merchants, traders, builders and others all reduce their stock holdings and “cash up” before reordering.

All this is happening while the Government is encouraging timber processors to invest in more capital and convert a greater proportion of logs into timber and reduce the dreaded “log exports”.

In theory, by adding more value we can improve the New Zealand economy, reduce unemployment, and significantly improve the boom-bust nature of forest harvesting and timber manufacturing.

But there are a few issues. Most large mills in New Zealand concentrate on cutting structural framing timber.

A large proportion of the logs exported are packaging grade (although if there is no domestic timber manufacturing in the local area, then the whole log must be exported).

Increasing the size and efficiency of large structural mills that predominantly supply an over-full domestic market may drive timber prices down and close some smaller, less efficient regional mills — which, in turn, will make more regions reliant on export logs, but may not increase the volume of logs processed.

Timber exporting is the answer but, apart from Australia and the Pacific Islands, pinus radiata is not a well-recognised structural timber.

Large structural mills only process suitable parts of the tree and, except for a few cases, New Zealand has not managed to produce large-scale packaging grade producers that can compete long-term in the Asian market.

Many structural mills ship off their low-grade products and accept the price, effectively subsidising the Asian packaging timber with their other, higher value products.

However, there is an opportunity to transform the timber manufacturing industry. It comes in the form of Harvested Wood Products (HWP).

This term recognises the “delayed emissions” benefit of long-lived harvested wood products.

Investment-friendy actions

If this was combined with some investment-friendly actions from Government — primarily, accelerated depreciation on capital investment — then New Zealand is likely to be globally competitive in packaging timber.

The Government currently accounts for HWPs as part of New Zealand’s nationally determined contribution calculation (which aims to reduce net greenhouse gas emissions to 50% below gross 2005 levels by 2030).

However, these carbon “credits” are not distributed to those who generate them (ie timber manufacturers).

If incentivised with these credits, wood processing could significantly expand to reduce embodied carbon, and de-risk forest owners’ reliance on the export log market.

However, as the wheels of bureaucracy slowly grind on, I fear we will only see more “boom and bust” commodity cycles, and foresters will need to look for additional export log markets once the current crisis is over.

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