New Zealand 2010: Timber shortage expected to bump up prices by 10%

The cost of building timber will rise by up to 10 per cent from next month due to a severe supply shortage and booming international demand for New Zealand pine.

Shortages are developing across a wide range of product lines, the Timber Industry Federation says in its latest newsletter.

Big reductions in production due to plant closures and reduced work times have more than offset the downturn in domestic construction, the federation says.

In the year to June sawn timber production was down 19 per cent taking mills' stocks down a third from normal levels, forcing lumber buyers to compete to secure supply.

"Prices in both the domestic and export markets are now rising steadily with a number of price increases in the range of 5 per cent to 10 per cent already announced for the domestic market in February and March.

"Although export prices and margins have been squeezed by the exchange rate, export volumes have actually lifted by about 10 per cent as firms have chased cash to ease liquidity pressures." Lifting production would be difficult in the face of log shortages and expected tough economic conditions in the first half of this year, the federation says.

A massive surge in log exports, mainly to China, has compounded shortages for the domestic market.

China took an extra one million cubic metres of logs in the June quarter, accounting for the entire one-third increase in exports on a year earlier.

"There is now a huge reliance on, and vulnerability to, China as a result of the biggest and fastest restructuring of our forestry trade in its entire statistical history," the federation says.

Two years ago 14 per cent of New Zealand logs went to China. It has grown to 60 per cent and at the same time, lumber exports to China have nearly doubled to 28 per cent, nearly three times the volume sent to the next biggest market, Australia.

Asia now accounted for 80 per cent of all log exports. Six years ago it was a little over half that amount.

However, the average price paid by Asian buyers is about a third of that paid by Australia, the federation says.