Forestry Market Update: Positive Signals, But Contractors Still Face Margin Pressure
There is a noticeably more positive tone emerging across export log markets as we move through the final quarter of 2026. While global headlines continue to create uncertainty, particularly around geopolitical tensions and slowing international growth, the underlying fundamentals supporting New Zealand forestry remain reasonably solid.
The most encouraging sign for the sector is continued demand from China. Softwood log inventories have fallen from approximately 2.5 million cubic metres in October to around 2.23 million cubic metres in early November, while daily offtake remains strong at approximately 65,000m³ per day. These are levels generally consistent with a balanced market and indicate logs continue to flow through the Chinese supply chain at a healthy pace.
Market sentiment is, however, mixed. Chinese manufacturing activity slipped back into contraction during October, with the PMI falling below 50. That has contributed to more cautious buying behaviour and a widening gap between buyer and seller expectations. Exporters report that some October cargoes remain unresolved and buyers continue to resist price increases despite improving inventory positions.
A-Grade Prices Remain Stable
For contractors, the most closely watched indicator remains AWG pricing.
Current November export schedules show:
A Grade 3.9m: $134/JAS
A Grade 5.9m: $137/JAS
AO Grade 3.9m: $137/JAS
AO Grade 5.9m: $140/JAS
These prices reflect a market that is holding together rather than accelerating. Exporters continue to describe the most achievable outcome as broadly unchanged prices, with neither buyers nor sellers currently having sufficient leverage to drive significant movement.
Strong Demand for Higher Value Grades
One feature of the current market is the stronger performance of logs destined for finger-joint and appearance-grade applications. Demand for F/J grades remains firm across several Chinese regions, while construction-grade demand is generally weaker and in some cases prices have softened slightly. This divergence reinforces the importance of quality recovery, log specifications and minimising damage throughout the harvesting and transport process. Higher-value grades continue to attract stronger demand and better returns.
The Challenge Nobody Can Ignore: Diesel Costs
Perhaps the most relevant issue for FICA members remains operating costs.
Recent analysis highlighted that New Zealand's harvesting and log transport fleet collectively consumes more than 300 million litres of diesel annually. With diesel prices significantly higher than a year ago, the industry is estimated to be paying more than $400 million per annum in additional fuel costs compared with October 2025.
These cost increases are being absorbed throughout the supply chain and continue to place pressure on contractor profitability. While log prices have remained relatively firm, they have not increased sufficiently to offset all of the additional operating costs being experienced by harvesting and haulage businesses.
India Emerging as an Opportunity
The New Zealand-India Free Trade Agreement has now come into effect, removing a tariff disadvantage that previously affected New Zealand log exports.
Most market commentators expect the biggest impact to be increased market share and export volumes rather than higher prices. New Zealand radiata pine remains well regarded by Indian processors, and the removal of the tariff barrier should make New Zealand suppliers more competitive against Australian and South American exporters. Over time this provides an important diversification opportunity away from an overreliance on China.
Outlook
The current market can best be described as cautiously positive. Chinese inventory levels are manageable, daily consumption remains healthy, freight costs are relatively supportive and alternative markets such as India continue to develop.
Against this, contractors continue to face significant cost pressure from fuel, labour, compliance and equipment costs. The challenge for many businesses remains converting acceptable market conditions into sustainable profitability.
For now, export log markets appear stable, harvest programmes are continuing and there are no obvious signs of the severe downturns experienced in previous cycles. While few expect dramatic price increases in the near future, the underlying fundamentals suggest the sector is ending 2026 in better shape than many would have predicted earlier in the year.
