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Pan Pac keeps watch on NZ log prices

A weather eye is being kept on escalating log prices by Japanese-owned Pan Pac Forest Products, whose Milburn sawmill is becoming one of the largest in Otago. Source: Otago Daily Times

Log demand from China, which has steadily pushed up prices for the past 24 months, is beginning to hurt local sawmillers across the country whose profit margins are being squeezed if they have to compete for a share of the pricier logs.

Some forestry sector organisations are concerned log shortages could prompt an increase of sawn lumber imports, from competitors such as Chile, to meet New Zealand’s large housing demands.

China has largely stopped felling its forests while Canada and Russia are not supplying China at present, prompting it to purchase more logs from New Zealand and Australia.

Pan Pac managing director Doug Ducker said when contacted while he was unaware of any contractors or sawmillers laying off staff, the ”significantly rising” log prices remained a concern; generally up 5% to 10% quarter on quarter.

”[Profit] margins are definitely being squeezed. There’s competition for logs; we’re coping but all sawmills are struggling with log prices,” he said.

However, following the interview with Mr Ducker, Gisborne wood processing company JNL announced it sought to shed 97 jobs from its 205-strong mill workforce.

JNL has proposed mothballing its LVL (plywood) production in Gisborne, not because of log prices but due to a decline in demand for its ply products in Japan.

Annually, about 3 million tonnes of raw logs leave Gisborne’s wharf.

Pan Pac’s Milburn site, recently redeveloped for $24 million, is processing close to 100,000cu m of logs a year, but its Hawke’s Bay mill processes up to 800,000cu m.

Milburn buys in 100% of its logs, while in the Hawke’s Bay Pan Pac has about 35,000ha of its own forests, supplying 50% to 60% of its own throughput.

The balance is sold and its processing balance comprises logs purchased from local forest owners.

Mr Ducker said Milburn had ”some vulnerability”, in not owning any forests, and that it was ”constrained” in only being able to mill logs less than 6m long, and to a maximum diameter.

”We have no issues whatsoever with the local supply chain,” he said.

”The point of difference for Milburn is the forests west and south [of the sawmill],” being closer to the mill than Port Chalmers. He maintained an optimistic outlook for Milburn.

Mr Ducker was asked why a forest owner would consider selling logs to a New Zealand sawmill, given the high prices being paid for export.

He said forest owners had to weigh up the extra cartage costs of getting logs to port, as opposed to selling to a local sawmill.

Mr Ducker said Milburn’s annual output was about 80% export, and 20% domestic, but more local markets ”are under development.”

”We’ve invested substantial capital at Milburn … we’re committed to being there,” he said.

At Hawke’s Bay, about 600,000cu m of green logs went into 280,000 tonnes of wood pulp and a further 500,000cu m went into sawn lumber for export including to China, the US and Middle East, and the 20% balance to New Zealand.

Mr Ducker understood Chilean imports to New Zealand had been under way for at least a decade.

Chile’s ability to compete and export to New Zealand was because many of the forest owners in the country were also the wood processors, so ”sidestepped” the need to have to buy logs.

The Wood Processors and Manufacturers Association said last week sawn lumber imports might yet have to be considered for supplying New Zealand house construction activity.

”Structural timber is well supported locally, so we shouldn’t have to go offshore,” Mr Ducker said.

Nevertheless, forest owners faced increasing costs, more machine harvesting was being done and freight rates were not getting any cheaper, he said.