Stable log prices, unstable ETS: Forestry heads into election season – Marcus Musson

Unsurprisingly, the ETS looks like it’s going to be the political football for this year’s election, with differing views by each party on how they are going to deal with the only real and effective carbon offset New Zealand has in the toolbox.

Labour has seen some potential rural votes and in my view jumped on the Federated Farmers bandwagon by announcing yet another review of the ETS with the intention of raising carbon prices and stopping whole farm conversions.

They’re a wee bit late to the plate with this, as National’s land use changes last election effectively stopped whole farm conversions.

However, the rhetoric will appeal to farmers.

Conversely, the Nats want ETS stability and don’t want higher carbon prices as they fear inflationary repercussions.

NZ First is proposing to withdraw from the Paris Agreement altogether, which would make the ETS irrelevant.

The Greens want to stop emissions rather than use forestry offsets (good luck with that), and Act wants to lift our emissions caps in line with other countries while scrapping the Climate Change Commission, net zero targets and, as with NZ First, back out of the Paris Accord.

Depending on which way the cards fall come election day, ETS-related coalition talks will be very interesting.

Unsurprisingly, with the potential for more Government fiddling, the spot NZU price has lost 10% of its value in the past week, dropping under $50/NZU for the first time in three months.

The ETS has proven to be an effective tool when left alone and, until we see some significant tech change and capital availability, offsets are the knight in shining armour when it comes to dealing to carbon.

Talk around replacing radiata with native might sound nice, but it’s eye-wateringly expensive, slow and renders the land basically unproductive for future generations.

One of the biggest emission reduction step changes we could make as a country is to embrace biofuel to replace the dwindling gas supplies for industrial process heat users.

Building an LNG import facility is not the change we need, and redeploying that level of capital would have a real impact in gas-to-biofuel conversions.

September wharf gate prices were relatively stable given the Iran issues and the effect this is having on shipping costs.

Prices in the SNI ports are down around $2/Japanese Agricultural Standard (JAS) on August numbers at $122/JAS for A grade shorts.

Shipping rates are currently sitting at around US$47/JAS, which is around 50% higher than 12 months ago.

Most exporters tried for small sales price increases in September; however, this fell on deaf ears as many Chinese traders are facing losses at present cost and freight (CFR) spot prices.

On a positive note, current offtake from Chinese ports is around 60,000 sq m per day, and the in-market log inventory has fallen to a shade under 2.4 million sq m.

This is a drop of around 90,000 sq m since July, and this number is expected to reduce further as China enters the historic purchasing peak in September.

Although there’s nothing stellar on the horizon in terms of Chinese demand, things are looking either more positive or less negative depending on which way you look at the metrics.

August Purchasing Managers’ Index (PMI) rose from 49.2 in July to 49.8 in August, and although still in slight contraction, it is an improvement.

GDP for the second quarter was 4.3%, less than the 5.0% of Q1, but growth nonetheless.

The FTA between New Zealand and India is expected to kick off in October, and all eyes will be on what the level of log and lumber demand looks like going forward.

Currently, the Indian market is subdued due to the monsoon season, an excess of log inventory and poor sawn timber demand.

Even if the FTA kicks off demand for New Zealand logs and lumber, there’s a fair bit of water to go under the bridge before we can start sending any significant volumes through Indian ports, as their port infrastructure is decidedly average and the requirement of Methyl Bromide fumigation for logs adds high cost and complexity.

Back home, the demand for sawn timber remains relatively solid, with sawmills producing framing and outdoor-grade products reporting consistent demand.

This falls in line with the 21% increase in residential consents to the year ended July 2026 and shows a reasonable level of confidence from consumers.

Summer generally sees an increase in demand for outdoor products as we all get a head of steam and get carried away with DIY projects.

Pruned mills aren’t exactly having a ball with clearwood demand falling away in some US markets and returns impacted by higher shipping costs.

Pruned log demand is, however, strong as the overall supply of pruned forests reduces over time and sawmills are having to expand their purchasing regions to secure supply.

So, it looks like more of the same for log prices coming into the pointy end of the year.

Prices have only moved a few dollars either side of the median for the past 14 months, continuing the most stable period in memory.

Fuel will continue to erode forest owner returns until we see some resolution in the Middle East, which looks increasingly unlikely as long as Trump has his hand on the tiller.

All we can do for the time being is sit back, relax and hope that the political geniuses vying for our votes don’t score an own goal with ETS reform.