Friday Offcuts 25 June 2010
In this week's story updating NZ log and lumber pricing/trends, what we've all known but haven't been able to quantify, is the dramatic increase in logs heading across the country's wharves. April was a record month with log exports reaching the 1 million m3 mark. This returns annual export volumes to levels last seen in 2003. China was the obvious destination for the bulk of the logs.
What's probably less well known is the volumes now destined to that other economic powerhouse, India. Over the January to April 2010 period, log exports jumped a staggering 68% c.f. the same period last year. Newswire AFP reports Indian Trade Minister Anand Sharma as saying that India's accelerating economy is expected to grow at a rate of between 8.5 percent to 9.0 percent this year. They're also optimistic that they could reach double-digit growth in the next two years, by 2013. Check out the trends in the story below.
Stories this week also cover major changes within Australia and New Zealand's principal forestry research organisations. The Chief Executive of New Zealand's Crown Research Institute Scion, Tom Richardson, is resigning to take up the Chief Executive Officer's role at AgResearch Limited and in Australia, a corporate banker, Simon McKeon has just been appointed by the Federal Government as CSIRO's new chairman.
Finally - check out this week's lead story. This will get you revved up for the remainder of the day. Feel free to add your comments below and we'd be interested in your suggestions on how we (and just as importantly, who within the industry) should in situations like this be countering these very public attacks on the forestry sector.
This week we have for you:
Hillsides being scarred by poor forest harvestingOn the 18 June the NZ Herald ran a story with the theme of "Forest plantation harvesting is in desperate need of improvement". Written by Emeritus Professor Dick Bellamy, formerly Dean of Science at the University of Auckland, it details how he had just spent four days driving around the top of the South Island. He really got stuck into New Zealand's forest harvesting and forest management practices.
A couple of choice quotes from the piece;
"All panoramas are now backed, in almost every direction, with hillsides that look like tilted battle scenes taken from old photographs of the Somme or Vietnam. I refer to the methods used by forest harvesters to remove the logs from the hillside. These methods have been refined in recent years into an appalling destructive exercise in clear felling. Logs, tree tops and stumps are left covering the slopes and filling the valleys."
"What seems to occur in forest harvesting appears to proceed like this. First a bulldozer carves access tracks as a series of ugly zig-zags up the hillside, pouring earth and silt into the valleys in the process. Then the cableways are mounted on platforms cut into the ridges and the men with chainsaws go to work. The logs are then cabled down to the bottom, the waste being simply discarded where it falls.
Then the waste wood begins to rot and bleach and the weeds emerge. At some stage new trees are planted or seeds germinate, but meanwhile the trashed slopes are bare and stark for about the next 10 years depending on planting densities and growth rates. Meanwhile, the access tracks erode and further scar the hillsides. The end result is an absolute mess and it provides a terrible commentary on our inability to manage the New Zealand environment."
The full article can be read here. Source: NZ Herald
New Zealand Log Prices - June 2010April 2010 was a month where record volumes of pinus radiata logs were shipped out of New Zealand. The vast majority were headed for Asia where other suppliers such as the USA and Canada, are also ramping up supply. The ability of Asia and in particular China, to absorb the increased supply, is being tested.
However, it appears that despite the influx, inventories in China have been reduced. In-market (CFR) prices for KS and KI logs to China and Korea have softened a little in the past month to be at US$134/JASm3 and US$129/JASm3 respectively. The lower prices are a result of the increased supply, and these price adjustments have flowed through to prices at the wharf gate (AWG), where exports logs are now priced NZ$2/T to NZ$3/T lower.
Exports to China moved upwards during the month as New Zealand log supplies swelled. However, the biggest jump in supply volumes, were those to India, which jumped 68% in the January to April 2010 period from a year ago. In April, over 160 000m3 of logs were shipped to India, making the country the third biggest destination for New Zealand logs for the calendar year so far, behind China and Korea and ahead of Japan.
In the lumber markets, for the first quarter of 2010, New Zealand exported 30% more lumber into the US than a year ago. This would appear to be partly due to a recovery in the US building industry from the doldrums of 2009. However, it would seem that New Zealand also filled gaps in supply left by the Chilean earthquake affecting supply from that region. Chilean exports to the US for the first quarter of 2010 declined 12% from 2009.
Housing data out of the US for May 2010 showed that privately owned housing starts increased to a level that hasnt been seen in over a year, but the shine was taken off this figure by a decline in housing permits which fell close to 2009 monthly levels. There are reports from the US that there is a housing surplus due to the volume of recent foreclosures and the shortage of credit available. However, this will assist keeping US interest rates low for the time being.
China still remains the largest single destination for New Zealand lumber in quantity, taking 22% for the calendar year so far. However, the highest value markets for New Zealand pinus radiata lumber remain Australia and USA who account for 45% of New Zealand lumber exports by value, with China making up just 16%.
Domestic log prices in New Zealand have remained firm this month, with some of the structural grades edging up a little further. Logs have been in good supply despite the strong export demand. However, supplies may dwindle as the recent rain across the country takes effect on logging activities in some parts of the country.
The NZX Agrifax Combined Log Price Index, which measures returns from the whole forest, eased NZ$1/T to NZ$87/T. Domestic log prices have remained firm, however, prices for export logs have softened as increased supply to New Zealand's major markets takes effect.
Log price changes:
For more detailed reports contact Agri-Fax at: www.agri-fax.co.nz/enquiries.cfm
Elders' earnings hit by forestry MIS salesThe rural company this week brought forward a trading update, which had earlier been promised in July, after the close of the June quarter, and The Australian reported it as a tale of woe. The paper said Elders has been a serial underperformer, but this was supposed to be a turnaround year after AU$700 million worth of asset sales and a AU$550m recapitalisation late last year to reduce debt and repair the balance sheet.
With their forestry interests, the company had recently modified their forecast after reduced sales of their Forestry MIS schemes after the collapse of Timbercorp and Great Southern and the issues surrounding the administration of Forest Enterprises Australia. This forced Elders to write down its 13.5 per cent shareholding by AU$32.4m to zero. Compounding its difficulties, Elders Forestry was unable to secure finance from Rural Bank for its MIS projects, for which it previously had an in-principle agreement, and as a result reduced the forecast EBIT for Elders Forestry by AU$11m, to AU$3.1m.
Last month shareholders were told that everything was on track, with a sharp turnaround in earnings and cash generation for the March half year. But this week the company said the earnings guidance had been brought forward because it was apparent from results to May that insufficient revenue was being earned from the key rural services sale to achieve guidance, especially after the downgrade to the forestry MIS sales forecast.
The company is now expecting an underlying loss of between AU$8m and AU$14m for the year to September compared with the prospectus forecast of $55.7m, and the underlying profit of AU$1.1m for the first half. As a consequence of this position, Elders has decided to slash costs by AU$45m, or 11 per cent, including a 10 per cent reduction in the workforce through natural attrition and "leaner" management.
The market responded to the latest downgrade by almost halving the share price. It plunged 38c, or 46 per cent, to 44c on hefty turnover of 94.4 million shares, or more than 20 per cent of the capital.
NZ mapping resource still causing plenty of interest
As outlined, this new resource is still is the only map containing forest information and wood processing and manufacturing plant locations - along with sawmill production information for every mill cutting in excess of 2500m3- produced for the New Zealand forest products industry.
Changes through industry consolidation, mill closures, drop-offs in production and changes to owenership have since the last map was produced in 2008 been significant. Something like 85 changes have been built into the new 995 x 690mm map.
For those who weren't quick enough to get your complimentary copies of the maps from the recent issues of NZ Logger or International Forest Industries magazines, folded or flat laminated copies of the new maps can still be ordered for your office by filling in the attached order form.
Largest shiplift in southern hemisphere constructed
The impressive shiplift weighs 3,000 tonnes and required a workforce of up to 200 people to build it. The 155.8m x 34m lift sits at ground level and can be lowered to 18.5m below sea level to allow vessels to float on and off.
Appointed to design and install the shiplift, Rolls Royce Marine awarded Boral Timber the contract to supply the substantial 564m3 of hardwood timber. Blackbutt and Spotted Gum species were specified due to their hardness and crushing strength, providing the modulus elasticity, shear parallel to grain, compression perpendicular to grain and bending perpendicular to grain required.
The timber subframe sits over a steel platform consisting of 18 individual sections. The subframe is fixed onto the steel joists using lag screws. The shiplift project was commissioned in late February and forms part of the South Australian government's AU$400 million commitment to infrastructure at Techport Australia, supporting the Navy's Warfare Destroyer Programme.
Forestry roading courses for NZ and AustraliaIn September, Forme Consulting Group and Forestry Solutions (South Africa) are running a number of courses on Forest Roads Construction in New Zealand and Australia. The Forest Roads Construction course is a follow up from last year's tactical planning courses, which were successfully run in four different locations in New Zealand and Australia.
The course is led by Andrew McEwan, a forest roads expert from Forestry Solutions and supported by Chris Carlaw, a forest engineer from Forme Consulting Group. The course is timely for New Zealanders with mass limits increasing. This will mean road design solutions that have been found through trial and error will be redundant with longer and larger loads meaning these sorts of roads are likely fail under the increased mass.
The course will also explore what effects different transport configurations have on road design, such as long semi trailers and B double configurations, as used in Australia. The course has an operational focus with a practical component and is targeted towards staff who are responsible for forest road construction. The course is also relevant to forestry consultants, woodlot harvesting managers and territorial and state authorities. The outcome of the course is to have participants able to design a road and have it constructed fit for purpose.
Courses will be held in Australia in Brisbane, Melbourne and possibly Western Australia. Courses in New Zealand will be held in Rotorua and Nelson. For further information contact Chris Carlaw +64 (0)27 430 1736 or firstname.lastname@example.org
Scion Chief Executive announces resignationThe Chief Executive of New Zealand's Crown Research Institute Scion, Dr Tom Richardson, has announced he will be resigning after 5 years in the role. Dr Richardson leaves Scion in August to take up the Chief Executive Officer role at Crown Research Institute, AgResearch Limited. Scion Chairman, Dr Russ Ballard, has advised that the Board will initiate a recruitment process for a new Chief Executive and will announce this in due course. Dr Ballard commended Dr Richardson on his leadership of Scion.
Eucalyptus log prices in Brazil jumped 25%
Five years ago, Brazil had some of the lowest wood fibre costs in the world in US dollar terms, but since that time the Real has appreciated against the dollar with the result that costs for pulpwood traded in the open market in Brazil now are close to the global average hardwood fibre price index (HFPI). Eucalyptus fibre prices in the 1Q/10 were about 25% higher in US dollar terms than the same quarter last year, and 60 percent higher than five years ago.
Demand for Eucalyptus logs has increased in some regions of Brazil not only from pulp and panel manufacturers, but also from some sawmills that are producing lumber from both pine and Eucalyptus for the construction market. The increased demand for logs has not changed stumpage prices much in the local currency, and it is not expected that they will increase much in the coming years because of the additional supply of wood that will be available from recently established plantations.
During the past five years, the area of Eucalyptus plantations has expanded by over seven percent annually. The pulp industry consumes about 45% of harvested Eucalyptus logs, while an estimated 48% is used for fuel wood and for making charcoal for the steel industry. A growing, but still small consumer of Eucalyptus is the sawmilling sector that last year used approximately four percent of the total harvest of logs.
There is still not much interest in utilizing Eucalyptus fibre for the manufacturing of wood pellets in Brazil, neither for domestic nor for export markets. Investments in pellet plants have been limited and are not likely to grow unless prices for wood pellets in the major export markets in Europe improves.
Source: Wood Resources International LLC, www.woodprices.com
Macquarie boss gets CSIRO top jobThe Federal Government has appointed a corporate banker as the CSIRO's new chairman. Simon McKeon is executive chairman of Macquarie Bank's Melbourne office, specialising in mergers and acquisitions. Despite admitting he has "no scientific pedigree", Mr McKeon says he wants to see the issue of climate change elevated to the top of the political and public agenda. Source: ABC News
Nightmare - could this happen downunder?A goodwill gesture by the mayor of Port Alberni to connect potential foreign investors with Catalyst Paper, one of the central Vancouver Island community's biggest employers and taxpayers, seems to have blown up in his face.
Ken McRae, in an attempt to help attract some new investment to help the financially beleaguered forest company through the difficult times in the industry, introduced Catalyst executives to business officials from Yancheng, China, in February, but the new relationship appears to have gotten more cosy than the mayor intended.
Instead of investing in Catalyst, which conducted a tax revolt this year against Port Alberni and three other Island communities while claiming taxes were too high, the Chinese are proposing that the company take their Port Alberni mill apart and ship it to their country for reassembly where they claim Catalyst would receive much fairer tax rates.
The Chinese want Catalyst's paper manufacturing to be done in Yancheng City with the raw materials for the production to be shipped from Canada. While Catalyst has indicated that it has no plans to shut down its Island operations - at least not right now - the company has been beating McRae over the head with the offer and leveraging it as a warning to Port Alberni and other forest-dependent communities of what could happen if they don't lessen their industrial tax rates and become more business-friendly.
Support service for former sawmill workersOn Wednesday the NZ Ministry of Health released a report on a proposed special support service for former sawmill workers who were exposed to pentachlorophenol (PCP), a timber preservative used in the 1950s to 1980s.
Ministry of Health Environmental and Border Health Protection Manager Sally Gilbert says the report's authors Allen & Clarke sought the views of former sawmill workers and their families, Sawmill Workers Against Poisons (SWAP), potential health service providers, and a technical group consisting of epidemiologists, toxicologists, and public health specialists.
"The Ministry of Health has accepted Allen & Clarke's recommendations and intends to establish a special support service for former sawmill workers exposed to PCP in line with those recommendations," Sally Gilbert said. More >>
Buy and Sell
...and one to end the week on...the bank job & cooking chicken
A man with a gun went into a bank and demanded their money. Once he was given the money, he turned to a customer and asked, "Did you see me rob this bank?"
And on that note, have a great weekend. Cheers.
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