The Evolving Opportunity Set in New Zealand Forestry
New Zealand plantations have experienced steady returns since 2000, albeit with some short-term volatility. As log exports to China started to surge in 2008, margins increased, and New Zealand assets showed substantial value growth. During this time period, the New Zealand timberland market experienced an influx of investors and a significant compression of discount rates down to, and we would argue below, US timberland discount rates.
For many New Zealand forest investors, a price correction in recent years, driven by a number of factors, is a sharp shock. And while some participants will maintain the long term discipline required when investing in plantation timberland assets, we believe some investments – especially those made by relative new-comers investing at high assumed export log prices – will experience significant stress, a situation that is likely to persist and perhaps even worsen for a number of years
As a result of these dynamics, we expect the correction in New Zealand’s timberland markets to create buying opportunities for the next two-to-three years, while simultaneously supporting the longer-term supply/demand scenario that is likely to remain very positive for the industry.
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