Tree Talk with Peter Harington Woodmetrics Regional Manager

Events of the last few months have really shown what an intricate network the Pacific Rim log trade really is.

In 2008, when the world went into financial crisis, the tipping point was the United States housing market and credit issues relating to it. One of the first and most seriously affected victims was the housing market in the US itself. Construction firms went under at the rate of about 500 a month.

This flowed down the supply chain to building supply companies, timber companies and sawmills and forestry. Right along the building industry supply chain companies suffered or even disappeared as volumes and margins collapsed.

Meanwhile in Russia, government tariffs to restrain log exports in favour of processed lumber exports saw the supply of logs to the booming Chinese market slowing right down.

The New Zealand log market has had a buoyant two years filling the void left by Russia's withdraw from the Chinese market. The supply and demand equation worked in our favour and pushed log prices up steadily during the two years, peaking in April this year.

The struggling timber and logging industries in Canada and the United States looked across to China and saw an opportunity to take advantage of these high prices. In the last two years, the supply of logs from the United States and Canada has ramped up from nothing to 1.2 million tonnes per month. The value of lumber shipments from Canada has increased from just $55 million in 2005 to an estimated $1.2 billion dollars this year.

The result has been that the United States' log supply has largely replaced the Russian volume that was lost to the Chinese market. This resulted in a drop back in prices this winter and some further softening through the spring. Prices are expected to recover as the volumes being produced in New Zealand have been reduced and stocks are reported to be diminishing in China.

Most market analysts are saying that as soon as the domestic market in the United States picks up the Chinese option will be a lot less attractive and they are likely to largely withdraw from the market. In the meantime, we in New Zealand will have to accept that our prices in China are likely to be capped at a level which attracts wood in from the United States and Canada.