Friday Offcuts – 13 November 2009

This week we have for you:

• Future Forestry Finance 2010 attracting keen interest
• Australian forest products' tough year confirmed
• Gunns outline pulp-mill progress at AGM
• Wind-up of Great Southern recommended
• Good News on the harvesting research front
• ETS changes put 84% of Kyoto Bill on future taxpayers
• Bio-fuel levy the last straw for NZ forest owners
• ERMA wants public input on methyl bromide review
• Forestry Plantations Queensland sold by Christmas?
• Global MDF - rising capacity, declining operating rates
• Pulpmills reducing production worldwide
• US$2B joint venture pulp mill for Uruguay
• Norske Skog ranked No. 1 in Nordic climate report
• The log driver's waltz - out of Canada
• Jobs
• Used Eqt
• Buy and Sell
• ...and one to end the week on...Irish burial at sea

Future Forestry Finance 2010 attracting keen interest

So, how does post-recession forestry in Australasia stack up financially? The timing is right and the pre-programme interest is already very high. This new programme is now being designed by leading forestry companies and financiers and is going to be run in Sydney, Australia on 1-2 March 2010 and again in Auckland, New Zealand on 4-5 March 2010.

Registrations are now open on www.forestryfinanceevents.com and advance materials on the programme content and format can be found in the attached pdf. Some early keynote presenters confirmed for the March Australasian series already include;

Eva Greger, Managing Parter, GMO Renewable Resources, Boston, USA. Over a twelve year period Eva has completed purchases involving US$1 billion of forestry assets in three countries, as well as analyzing single transactions valued up to US$1 billion. She founded GMO's timber group along with Eric Oddleifson.

Russell Taylor, President, International Wood Markets Group, Vancouver, Canada. Russell's twenty five year background in the forest industry encompasses forestry, manufacturing, marketing and consulting positions. International WOOD Markets Group has for many years been providing high quality research, analysis and strategic planning to the international wood products community.

Bob Flynn, Director, International, Timber, RISI, USA. RISI is a leading information provider for the global forest products industry. Bob has more than 30 years experience in the forest industry as a forester for Champion International in Oregon and the past 20+ years as a consultant to the industry, with a focus on analysis of timber supply and demand trends outside of North America; international trade of logs, woodchips, and biomass; and trends in international timberland investment.

More detailed information on Future Forestry Finance 2010 will follow. Registrations as mentioned are open to this forestry financial event of 2010 and early-bird registrations close on Friday 18 December.

Australian forest products' tough year confirmed

""The release of the Australian Forest and Wood Products Statistics, March and June quarters 2009 by ABARE this week documents the tough trading conditions experienced by the forest and wood products industry in 2008/09," said A3P CEO Richard Stanton. "Thankfully some sections of the industry are reporting improved markets for their products in the first half of 2009/10 as a result of continued strengthening of the housing and construction sectors in response to the new home owners grant, improving consumer sentiment, and other Government stimulus measures," he said.

Mr Stanton believes new house construction is still well below the level required to meet the long-term underlying demand for new dwellings in Australia and feels the Federal and State Governments should not be complacent about the need to continue to address the housing shortage. "While conditions are now improving, Australian wood products and paper manufacturers are once again facing the challenges of a very strong Australian dollar impacting competitiveness in both the domestic and export markets," he added.

Key statistics for 2008/09 shown in the ABARE data include:

- A 17% fall in housing starts to 131,000 units;

- Major declines in export volumes of some products including sawnwood (20%), wood-based panels (15%) and paper and paperboard by (10%);

- 5.2% fall in the value of Australia's forest product exports to AU$2.3 billion, mainly driven by a significant drop in the value of both woodchips and packaging and industrial paper exports;

- 1.1% increase in the overall value of imported forest products to AU$4.5 billion. The increase was due to rises in the value of imports of paper manufactures, miscellaneous forest products and paper and paperboard. The value of sawnwood and pulp imports fell in 2008-09.

The forest and wood product statistics such as these released by ABARE are a very important resource and calls on the Government to continue to underpin and financially support the collection and dissemination of this information with the support of the various companies and associations who provide the data.

This bi-annual publication released by ABARE provides quarterly and annual data on the consumption, production, import and exports of wood and paper products. Copies of the report can be found on www.abare.gov.au. Source: A3P

"

Gunns outline pulp-mill progress at AGM

Gunns Ltd is in talks with Swedish forest products company S

Wind-up of Great Southern recommended

Ferrier Hodgson, the administrators of failed agricultural projects operator Great Southern group have recommended that the companies within the group be wound up. They can't say how much unsecured creditors could receive though in the event of liquidation. Administrators said in a report released this week that each of the companies within the Great Southern group was insolvent and that there had been no acceptable proposal to continue to operate the group. The future of the Great Southern group of companies would be determined at a second meeting of creditors scheduled for next Thursday in Melbourne.

Good News on the harvesting research front

Future Forests Research (FFR) were advised last week that their application to the new Primary Growth Partnership (PGP) fund for NZ Government funding support to carry out harvesting research has been accepted by the investment advisory panel. A full business plan for the project for final approval and recommendation is to be submitted to MAF by 1 February 2010.

The total project is for NZ$6.5m over 6.5 years with PGP providing funding on a joint dollar for dollar basis over the project life. The industry contribution of NZ$3.25m includes NZ$0.5m of in kind contributions. The objective of the programme is to improve the competitiveness of the supply chain through significant improvements in harvesting productivity on steep country. Source: Future Forests Research

ETS changes put 84% of Kyoto Bill on future taxpayers

Proposed changes to the emissions trading scheme (ETS) in New Zealand would result in 84% or more of the nation's multi-billion dollar Kyoto liability being put on to future taxpayers said the Sustainability Council in a release this week. Today's polluters will pay nothing like today's emissions bill.

After all the delayed start dates, exemptions, rebates and compensation payments are totted up, the Government would receive just 12 million emission units net under the new ETS, with each unit accounting for a tonne of greenhouse gas emissions. When compared to the Kyoto liability of 76 megatonnes, the amended ETS could not reduce this by more than 16% (12/76 Mt) during the Kyoto period from 2008 to 2012.

84% or more of the Kyoto liability would be transferred to future taxpayers under the proposed new ETS, unless current taxes are raised to fund this. On current plans, a future generation in the 2020s will pay when the forests now earning credits are cut down and the same number of credits will need to be purchased elsewhere to replace them. This is equivalent to putting the bulk of the Kyoto bill on the credit card and would make it a massive intergenerational wealth transfer. For infomration on the full report click here

Bio-fuel levy the last straw for NZ forest owners

A NZ Government decision to make big companies pay for some of their greenhouse gas emissions when using wood pellets and other biofuels is seen as the last straw by many in the forest industry. "The rest of the developed world is desperately trying to reduce its use of fossil fuels like coal and oil. Sustainable biofuels like wood pellets are being strongly encouraged," says Forest Owners Association chief executive David Rhodes.

"In New Zealand, our government is going to make some users of sustainable biofuels measure and pay for the tiny traces of methane and nitrous oxide they emit from their boilers. Yet these make up only 0.3% of the country's energy emissions and 0.13% of its total emissions." Mr Rhodes acknowledges that the proposed 5000 tonne threshold means only a handful of very large emitters - such as the big pulp and paper mills - will have to buy carbon credits to cover these emissions, but he says the message sent by the policy comes across loud and clear.

"Forest owners see the government on behalf of taxpayers picking up the tab for the 1.2 million tonnes of methane generated by livestock each year. Then they hear the same government demanding payment from users of biofuels for generating relatively trivial amounts of the gas."

"The message that comes across to forest owners is that the government cannot be relied upon to develop an emissions trading scheme that is fair and rational; one that rewards good behaviour and makes polluters pay. Forestry is clearly one of the good guys of climate change. But it is little wonder that many in our sector have lost confidence in the ETS."

He says the decision to set an emission charge for biofuels follows hard on the heels of a signal from government that NZ carbon credits may not be tradable outside Australasia if the government aligns its emission trading scheme with Australia's. "If forest owners are limited to selling their credits on the Australasian market, emitting industries in Australia and New Zealand will be the only buyers. Given that our major emitters are being featherbedded for the foreseeable future, there will be little demand for the credits and their value will be well below the world carbon price."

"Since forest owners at harvest will have to repay at the full world price for the credits they earned while their trees were growing, why would they accept anything less than the full market price if they sell? Unless this changes, new forests won't get planted and forest credits won't be offered for sale." Source: NZ Forest Owners Association

ERMA wants public input on methyl bromide review

ERMA New Zealand is calling for public submissions on its reassessment of the fumigant methyl bromide. The application for reassessment was released last week for public submission and includes a preliminary recommendation for tighter controls on the use of the substance.

A final decision will be made in mid-late 2010 once the application, public submissions and any other information relevant to the reassessment has been considered by the Environmental Risk Management Authority.

Methyl bromide is an ozone-depleting gas used primarily for the quarantine and pre-shipment treatment of timber, logs and other produce, both for export and import, to kill a wide range of pests. More >>

Forestry Plantations Queensland sold by Christmas?

Media reports this week have revealed the Bligh government has confirmed Forestry Plantations Queensland is scheduled to go on sale within weeks, as a part of Premier Anna Blighs AU$15 billion asset privatisation program. The sale could occur sooner than the original proposed timeframe of three to five years, with the potential of completing the forestry asset's sale before Christmas.

Global MDF - rising capacity, declining operating rates

The global economic crisis has created more uncertainty and led to reduced consumption in 2009 for the global MDF industry. There continue to be lower output and slower growth trends in the more established North American and European regions (limited to just 20% of global growth in the last three years), with more dynamic supply/demand and growth trends being seen in the rest of the world.

Global MDF capacity increased by an estimated 12.9% (+7.4 million m3), moving from 2008 to 64.9 million m3 (36.7 billion sf) in 2009 despite the global slowdown. However, reduced demand in all corners of the world also impaired operating rates and led to lower prices (in many cases to near cost levels). With rising cost pressures - from input costs to meeting regulatory requirements (air quality and formaldehyde emissions) to logistics expenditures - many regions were facing negative operating margins, while others clung to razor-thin profits. New capacity is scheduled to come on-line in 2010 that could potentially push global capacity to more than 68 million m3 - lots of capacity, with limited prospects for increased demand.

There continues to be a shift of new production away from traditional regions to countries such as China, Russia, Turkey, Southeast Asia and South America. The catalyst varies - from low-cost fibre and/or labour to fast-growing consumer markets to large-scale furniture/flooring centres.

China persists in adding capacity and building on its position as the world's largest MDF-producing country. In 2009, capacity is estimated by WBPI to rise by up to 3.3 million m3 (to 22.1 million m3) from 32 new lines, raising its share of global capacity to 34%. Despite the small decline in China's furniture and laminated flooring exports, Chinese domestic demand remains strong. As a result, Chinese MDF panel producers' have closed higher-cost plants and continue to service the domestic market through remaining plants. At the same time, China's growth in export markets has been underpinned by it becoming the largest foreign supplier of MDF to Russia (replacing Germany), accounting for 29% of MDF imports.

Europe increased its capacity by 1.6 million m3 (to about 20.0 million m3, in 2009; +9.0%) in 21 countries, with all of the planned expansion taking place in Russia (1.9 million m3), Turkey (795,000 m3) and Poland (200,000 m3). As in 2008, no new lines were installed in the EU15, and three lines (415,000 m3) were closed in Germany and France. Looking out to 2010, European capacity is projected to gain 400,000 m3 through projects in Russia and the Ukraine, to reach almost 20.5 million m3.

The North American situation is still being affected by ongoing weak domestic market conditions. In 2009, total capacity was 5.55 million m3 (up 4.0% from 2008), with one U.S. mill closed permanently and one new U.S. mill (Kronotex) finally scheduled to come on stream. U.S. production declined by 11.6% in 2008 to 2.95 million m3, and is forecast to be at similar levels in 2009. Canada's fortunes have been worse: production plunged by 22% in 2008 to 1.09 million m3, and is projected to be lower in 2009 by 10%.

There continue to be new developments in South American MDF. With 1.5 million m3 of new capacity expected to come on-line in 2009, capacity is projected to reach 6.6 million m3; Brazil is likely to add all of this incremental capacity through six new production lines. The other region showing growth is Southeast Asia (excluding China), led by South Korea, Malaysia, Thailand and Vietnam. MDF capacity is projected to reach 7.2 million m3 in 2009, a gain of 400,000 m3, through expansions in Thailand and South Korea.

Source: International Wood Markets Group www.woodmarkets.com

Pulpmills reducing production worldwide

The international financial crisis has put a damper on global trade of wood chips used for pulp manufacturing in 2009, reports Wood Resources International. The biggest decline has been in shipments from Australia, South Africa and Uruguay to Japan.

Global trade of wood chips has increased on average four percent per year from 2004 to 2008 reaching a record 32 million tons last year. This upward trend was broken in 2009 with trade being down 26% during the first half of the year as compared to 2008. The drop in shipments was the direct result of the global financial crises and the reduced demand for paper products worldwide.

This year, only an estimated 25 million tons of wood chips will be shipped worldwide, which is the lowest volume since 2002. Japanese pulp mills are still the major destination for the world's chips vessels; the country imported 53% of globally traded hardwood chips and 15% of softwood chips. Other countries in Asia, including China, Taiwan and South Korea, accounted for 12% of global imports, while the Nordic Countries have imported 14% of traded chips this year.

The biggest plunge in shipments has been that of wood chips to Japan. During the first six months, the country imported 34% less chips than the same period last year, with the biggest decline being that of softwood chips. The countries that have reduced exports the most in 2009 are Australia, South Africa, Vietnam and Uruguay.

Australia, the world's largest exporter, has reduced shipments from 3.1 million tons the 1H last year to 2.3 million tons during the same period this year, reports the market report the Wood Resource Quarterly. Uruguay has cut back exports
65% this year, while shipments from South Africa have declined 40%.

With pulp production slowly increasing this fall and energy companies in Europe searching for additional sources of woody biomass, it is likely that trade with wood chips will increase in the coming year.

Source: Wood Resources International LLC, www.woodprices.com

US$2B joint venture pulp mill for Uruguay

Swedish-Finnish Stora Enso Oyj and Chilean company Celulosa Arauco y Constitucion SA (Arauco) has confirmed in a recent meeting with the Uruguayan government that the companies intend to invest approximately US$2 billion in a pulp mill in Uruguay, according to daily Ultimas Noticias, MercoPress reported on 2 November.

The exact location of the future mill was not confirmed, MercoPress reported. The investment is expected to generate at least 3,000 new jobs, according to the report. The investment is also expected to boost Uruguay's gross domestic product (GDP) by the equivalent of 2%, according to the report.

Months earlier, pulp and papermaker Stora Enso and pulp and forest products company Arauco became Uruguay's largest private owners of land, with a total of 250,000 hectares (617,760 acres). They acquired a majority stake in the Uruguayan interests of Spain's Grupo Empresarial ENCE SA, including 136,000 hectares of eucalyptus and a project to build a pulp mill in Punta Pereira, along the River Plate, for US$344 million, reported MercoPress. Source: www.forestweb.com

Norske Skog ranked No. 1 in Nordic climate report

Norske Skog has been ranked the best company in the Nordic region in terms of climate reporting and openness about the climate challenges facing the company.

Norske Skog was named best in class by the Carbon Disclosure Project's (CDP) 2009 Nordic report ranking companies based on their climate change strategy and reporting of greenhouse gas emissions. CDP, which has evaluated environmental data from 200 Nordic companies, represents 475 institutional investors worldwide. Norske Skog has set a target to reduce greenhouse gas emissions by 25 percent by 2020.

Norske Skog's emissions and climate reporting have been compared with 200 leading companies in the Nordic region. "The ranking is an important recognition of our efforts to demonstrate openness in terms of emissions as targets for further emission reductions," said Christian Rynning-T

The log driver's waltz - out of Canada

For a bit of light relief, attached is a link to a lighthearted, animated short video based on the song "The Log Driver's Waltz" by Wade Hemsworth. This canadian vignette was released in 1979 by the National Film Board of Canada. Most people don't know is that this song is a very old folk song that goes back to the days of log driving.

It's easily one of the most often-requested films in the NFB collection. In it, Kate and Anna McGarrigle sing along to the tale of a young girl who loves to dance and chooses to marry a log driver over his more well-to-do competitor. Driving logs down the river has made the young man the best dancing partner to be found. Source: Tree Frog Daily Forestry News

Jobs

Used Equipment

Buy and Sell

...and one to end the week on...Irish burial at sea

This photo recently sent in by a reader shows you that in forest products, we always think BIG.



And one more for the week. Mick and Paddy had promised their uncle Seamus, who had been a seafaring gent all his life, to bury him at sea when he died. Of course, in due time, he did pass away and the boys kept their promise.

They set off with Uncle Seamus all stitched up in a burial bag and loaded onto their rowboat. After a while Mick says, 'Do yer tink dis is fer enuff out, Paddy?'

Without a word Paddy slips over the side, only to find himself standing in water up to his knees. 'Dis'll neva do, Mick. Let's row some more.'

After a bit more rowing Paddy slips over the side again, but the water is only up to his belly, so they row on.

Again Mick asks Paddy, 'Do yer tink dis is fer enuff out, Paddy?' Once again Paddy slips over the side and almost immediately says, 'No, dis'll neva do.' The water was only up to his chest.

So on they row and row and row and finally Paddy slips over the side and disappears. Quite a bit of time goes by and poor Mick is really getting himself into a state when suddenly Paddy breaks the surface, gasping for breath. 'Well is it deep enuff yet, Paddy?'

'Aye 'tis', says Paddy. 'Hand me da shovel.'

And on that note, have a great weekend. Cheers.

Brent Apthorp
Innovatek
PO Box 904
Level Two, 2 Dowling Street
Dunedin, New Zealand
Ph: +64 3 470 1902
Fax: +64 3 470 1904
Web page: www.innovatek.co.nz


This week's extended issue, along with back issues, can be viewed at www.fridayoffcuts.com