Corona-virus - economic conditions and current impact

Friday 13 Mar 2020

Although a fast moving landscape right now, please find attached an update relevant to NZ forestry operations on COVID19 provided by Te Uru Rakau late last week.

General economic effects

• Chinese firms are resuming work, and there appears to be an improvement over the last week. However, production has not returned to normal levels. The Chinese quarantines and associated slowdown will continue to result in impacts on the global supply chain for some time.

Situation in China

The summary of Chinese forestry news articles is:

• Work reportedly resumes in wood industry, including wood processing plants, although the market is yet to recover. In Shandong province (coastal province south-east of Beijing, population 100 million) has lifted the requirements for government approval for work resumption. Some factories started to receive orders.

• With more enterprises back to work, workers are gradually able to travel across provinces to work. It is mentioned in news that in Guangxi local city, 200 workers from other provinces are newly recruited to local factor wood industry factories. (Guangxi is west of Guangdong province, population 48 million.)

• Wood markets are generally expecting a downturn this year, but not everyone is pessimistic. Some still hold confidence toward the next half of this year.

• Chinese ports remain congested. Our estimate is that ports in China have about 6.5 million m3 of inventory, with space for the approximately 1 million m3 already in transit. This is significantly above usual volumes. Inventories are likely to remain elevated until Chinese manufactures resume taking significant amounts of product from the wharfs, although we are hearing that Chinese ports are making more space for log storage if required.

Other Markets

• South Korea is a major destination for export forestry products, taking a mixture of logs, lumber and pulp. The total value of forestry exports to South Korea is approximately $447 Million, making it New Zealand’s 3rd largest forestry export destination (after China and Australia).

• The USA is a smaller export market, but is important for some sub-sectors of the forestry industry. The USA is New Zealand’s largest destination for sawn lumber.

• COVID19 will continue to have impacts on New Zealand trading partners, and knock-on effects for the New Zealand economy. Government is continuing to monitor export markets to understand any potential implications for New Zealand exporters.

• We know that fire salvaged logs from Australia will have a short term impact on prices, but there may be long term impacts on their sector and log supply. Te Uru Rākau/MPI staff are working with our Australian counterparts, and will raise the issue in the next week.

Impacts on New Zealand

• New Zealand’s forestry industry continues to be impacted by COVID19 related disruption. Te Uru Rakau’s industry contacts, primarily those involved in scheduling and making exports, report that in their view it is likely to be 6 months before normal business can resume, assuming the international situation does not deteriorate.

• Provisional data from StatsNZ shows that forestry exports for the 4 weeks to 23 February are currently tracking below both 2019 and 2018. This is below forecast, and supports industry information that shows that harvesting and log exports have slowed.

Harvesting contractors

• Impact on harvesting contracts continues to be significant. Major forestry companies, including forest owners, are working to keep their contractors operating, but with reduced volumes. This will ensure these contractors remain sustainable for the moment, but this approach will not be sustainable for a long-term disruption.

• Independent or smaller contractors harvesting woodlots appear to be more affected. We continue to hear of independent contractors who have stopped work, or have little forward work.

The Processing Sector

• We have qualitative information direct from some exporters of processes timber that some domestic mills are being quoted higher prices for saw-logs to compensate for lower prices for other logs.

• Exporters are reporting problems securing containers and sailings. Exporters are paying a surcharge to access the few available empty containers, which may be adding 20% to transport costs for exporters.

• Lumber and processed product exporters are less exposed to China, as they export to a range of other markets, and these markets are generally still operating well. However, continued spread of COVID 19 remains an unknown risk.

Effects on workers and regions

• We continue to hear that Gisborne remains the most heavily affected region, given the relative importance of the forestry sector to the region.

• We are aware that some other communities may also be badly affected, but lack the resources or co-ordination to convey this message clearly to government. We’d be interested if there are areas that we should approach.

Links

COVID-19 Specific Information for Businesses:

• A collation of government information relating to coronavirus (COVID-19), how it may affect your business and how you can stay up to date as new information becomes available, can be found here.

IRD: • Full details about the tax relief options available are on the Inland Revenue website here or call Inland Revenue on 0800 473 566.

MSD:

• Financial support availability and advice for individuals and businesses, can be found here.

Health:

• Latest health updates, information and advice on COVID-19, including self-isolation information and mental wellbeing management, can be found on the Ministry of Health website.

MPI:

• Primary Industry related information, can be found on the Ministry for Primary Industries website here.

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