Log price drop has flow-on effect

Tumbling log prices have caused many forestry owners to stop harvesting wood - hurting transport operators and harvesting businesses.

Aowhanui Wood Limited chief executive Peter Weblin, who runs one of the largest forestry exporters out of Picton, says transport and harvesting companies have found themselves with a lot less work.

Freight costs and a housing development slow-down in China has resulted in a falling market, Peter says. Log prices have nearly halved since the middle of the year.

“We’re hoping that November is a trough,” he says.

“We’re not absolutely sure, but there are signs the market will pick up Q1 [in the first quarter] of next year.”

The PF Olsen Log Price Index for November has the price of wood $12 below the two-year average.

He says price volatility is a characteristic of a commodity trade and a reality of business.

“You have to plan for resiliency in your business until the market becomes more buoyant.

“People have to be prepared for it and build it in their business plans.

“We’ll have to see how it unfolds in the New Year.”

Peter says a strong market in the middle of the year means a lot of companies would have bought new gear and equipment.

“There weren’t enough trucks to move the wood fast enough,” he says.

Heagney Brothers chief executive Mickayla Heagney says the drop in wood prices has hurt her business.

“Log prices have been very high for a long time,” she says.

“But shipping costs were offsetting some of that.”

Peter says there’s a lot of uncertainty surrounding the cost of shipping.

He says freight costs at the start of the year were about $30 per JAS metre. By the middle of the year, those costs had skyrocketed to $75 and dropped in a trough in November to about $45.

Now, he says they’ve bounced back to $55.

“We don’t know where they’re going to go,” he says.

Mickayla says they have a lot less trucks on the road, and the lack of work means employees are getting a longer Christmas holiday – up to four weeks for some.

“It’s a significant time for us to be shut,” she says.

“It has impacted our business. There’s some hurt out there now.”

She says prices go up and down; that’s the way logging is. But she worries there’s more hurt on the way.

“There’s still stuff going on in the China market that we might not see until January,” Mickayla says.

“A lot of wood on the wharf gate isn’t a good sign for prices.”

She says wet weather isn’t helping either.

“The wood we can cart, we can’t get to.

“It’s a pretty tough environment for business to be working in at the moment.

“We just want to get through to the end of the day with all our staff, so when prices do go up we can get right back into it again.”

Marlborough Forestry Industry Association executive officer Vern Harris says China’s inventory is probably sitting at around five million cubic metres, and as the inventory drops further prices will start to climb as demand increases.

“It does show the difficulty of being tied to one major customer.”

Vern says there is a lot of competition for China’s market from Europe and Russia.

“We don’t quite know what December is going to bring yet.

“I don’t think anybody would be comfortable making predictions.”

He says forestry is still profitable, albeit less so than what it was.

“It’s not as good as it has been, but it’s better than it was.

“It had been pretty good up until a couple months ago.”