Farm Forestry New ZealandFebruary, 2020
NZ log exporters bracing themselves for supply chain problems
It is a difficult time and no one knows how this is going to play out. At this stage we are trying to gather facts. China is trying to keep trade open and as far as we are aware are still unloading ships. However inventories are at the high end of what is normal at China ports so what happens next depends on whether the Chinese sawmills come back on line after the end of the extended New Year. We are seeing some but not all companies taking a precautionary approach to try to avoid an excessive build up of inventory in China and the subsequent downside impact on log prices.
Key messages:
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The situation is very fluid but has the potential to become very serious. More time and information will be needed before we know.
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The port inventory level in China is very high (5-6 million m3) and growing as supply exceeds demand.
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The impact of the Coronavirus is coming on top of market disruption caused by the significant increase in supply of wood (larch) from Europe as a result of the beetle infestation. Supply and demand have also been affected by the Chinese New Year being extended (9 February).
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The Chinese ports are currently open despite some rumours to the contrary. Ship crews are being quarantined while they work. The Chinese government has an obvious interest in keeping the port trade functioning and that extends well beyond forestry.
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Some parties have already taken action. All forest owners are prepared to cut back production at some point. Some have already reached that point. Others are monitoring but still trading and with contingency plans. PFP has advised they will not be accepting any more wood. This has affected Gisborne and Southland ports in particular. On the back of this a number of corporate members have ceased harvesting in the Gisborne region immediately. This adds to the cutback already taken by smaller and medium sized players and means the reduction in supply will be significant.
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The domestic market will also be impacted. Reduction in export logs will also mean a reduction in domestic logs. Furthermore, the export market for processed product, particularly pulp, may compound the issue.
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The end of the extended Chinese New Year period (Sunday, 9 February) may provide some greater clarity as workers officially return to work. Further virus spread and/or on-going travel restrictions are likely to mean that not all businesses will be operating as normal.
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Industry leadership is closely working with MPI and Te Uru Rākau, supported by the New Zealand embassy in Beijing on the rapidly evolving situation.
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