New Zealand's timber processing sector has been dealt another blow with the planned closure of Carter Holt Harvey's (CHH) Tokoroa plywood plant. This marks the fourth major factory shutdown in the country's timber industry within a 12-month period, highlighting the severe pressures the sector is facing from both a sluggish domestic economy and international trade tensions.
Economic Headwinds and Shrinking GDP
Hopes for a revival in the construction sector, spurred by last year and early this year's interest rate cuts, have been significantly dampened by broader economic difficulties. The country's second-quarter GDP recorded a change of -0.9%, a figure much worse than the market expectation of -0.3%-1.
U.S. Tariffs Intensify Pressure
The industry is also grappling with the impact of overseas trade disputes. A recently concluded U.S. investigation into wood imports has resulted in new tariffs: a 10% duty on softwood and a 25% duty on various wooden furniture and cabinets-1. These products previously entered the U.S. market duty-free. This move is significant, as the U.S. is the largest buyer of New Zealand sawn timber by value, accounting for 32% of the market share over the past 12 months-1.
Industry Consolidation and Market Stability
Amid these challenges, New Zealand's domestic log prices remained largely stable in the third quarter. However, the dynamics within the domestic market are shifting. The closure of the Kinleith pulp mill has reduced demand for pulp logs in the central North Island. Concurrently, CHH is consolidating its structural wood production at its Kawerau site following the closure of its Eves Valley plant near Nelson, which is expected to increase demand for structural logs-1.
Log export sales were relatively stable recently. A slight, unexpected dip in CFR prices to China occurred, attributed to temporary difficulties buyers faced in securing letters of credit rather than a fundamental market shift. The outlook for the rest of the year remains cautiously optimistic, with a favorable exchange rate and stable shipping costs helping to keep prices at New Zealand ports steady, despite a rise in freight costs in the latter half of September-1.
Carbon Market Remains subdued
The carbon market has shown little recent movement. The government's third-quarter auction results were as anticipated, with no units sold and no participants registered. Over the past four weeks, secondary market prices have mostly fluctuated between NZ$56.50 and NZ$58-1.
