Risk Adjusted Log Pricing

The supply and price of logs is central to sawmilling and the production of timber.  Certainty of supply and certainty of price are critical to successful sawmilling activity.  Uncertainty of log supply and log price creates huge negative pressures on sawmilling as businesses.

For many years New Zealand sawmillers have had to conduct business in a climate of uncertainty of log supply and price.  External factors, in particular log export, especially to China have been at the core of the log problem.  These factors have been the cause of much angst amongst sawmillers as supply has been cut short or prices increased with only days’ notice.  We have heard many anecdotes over the years about sudden, unexpected price increases due to a booming market in China, inability to supply a contracted volume because a log boat is in port, inability to supply because the China market has collapsed, prices have fallen and growers can’t afford to keep harvesting crews employed.

This is no way to create confidence in the forestry sector and to attract badly needed investment.

That is why NZTIF is hopeful that the Industry Transformation Plan will arrive at conclusions that will convince the government to introduce policy settings that will materially contribute to a more vibrant forestry sector and a sawmilling industry that is attractive to investors with long term goals and aspirations.

Central to this is a log market that is stable and provides certainty and predictability in pricing and supply.  That is why we are paying close attention to work being commissioned by the Forestry Minister’s Advisory Group on a risk adjusted log pricing model.  Dr Rob Radics from Lincoln University has developed some preliminary modelling on this and is gathering more data before reporting to FMAG in March.

Early in 2020 we proposed a log pricing formula that would achieve the same goals but faced push back from others in the sector. The proposals this time will emanate from a neutral organisation that has direct access to the Minister of Forests and so we hope there will be greater acceptance and that we will at last see log pricing that will encourage growth in the New Zealand sawmilling industry.

25 February 2021