WoodWeek – 3 February 2010
Greetings from part two of summer in Rotorua - the wet
part! This week we have our first export market report for
you. It confirms that there are continued positive signals
from the main markets. The figures for 2009 are included
and are quite startling. Finally there is some discussion
on likely drivers of export wood demand for the coming
year - and some really good insights!
NOTE for FICA Members - A reminder for ALL FICA silviculture
contractor members - the conference call is TOMORROW at
4:30pm - see the dial-in details below. A story on a sacked
worker being compensated for wrongful dismissal is a stark
reminder for contractors to make sure you have procedures in
place for disciplining workers when
necessary.
Finally this week we have a number of stories this week on
carbon forestry, Brazil's softwood prices and our old friend
climate change - all as potential market drivers for the
future. And if you register to attend FUTURE FORESTRY
FINANCE CONFERENCE you will be gaining more insight into
these factors from our great line-up of local and overseas
speakers. Registrations are still pouring in for both the
Sydney and Auckland events so best be quick to sign up -
it's only a month away.
Subscribe a friend
This week we have for you:
Contractors' Key Indicators
Lots of downward arrows in this week's Key Indicators, which is nice for a change - check out how these affect you.
NZ CONTRACTORS' KEY INDICATORS
3rd February2010 | | Interest Rates | Diesel Price Watch |  | 90-day bill rate = 2.74% | NC | Average (excl GST / all regions) = $0.99 | | Exchange Rates | NC | Change (month) = +3% | | NZD/USD = 0.7085 | NC | Change(quarter) = +11% | | NZD/Yen = 64.20 | | Change (year) = +4% | | Labour Cost Index - Forestry/Logging | Consumer Price Index |  | Sep 09 quarter = 1002 | | Sep 09 quarter = 1095 | | NC | Change (quarter) =+0.2% | | Change (quarter) =+1.3% | | N/A | Change (year) = N/A* | | Change (year) = +1.7% |
*Note:The LCI has been re-expressed on a June 2009 quarter base (=1000).
AUSTRALIAN CONTRACTORS' KEY INDICATORS
3rd February 2010 | | Interest Rates | Diesel Price Watch | | 90-day bill rate = 4.24% | | VIC (excl GST) = $1.07 | | Exchange Rates | | NSW (excl GST) = $1.06 | | AUD/USD = 0.8802 | | TAS (excl GST) = $1.16 | | AUD/Yen = 79.90 | | SA (excl GST) = $1.08 | | Wage Price Index - All Industries | Consumer Price Index | | Sep 09 quarter = 102.0 | | Sep 09 quarter = 168.6 | | Change (quarter) = +0.9% | | Change (quarter) =+1.0% | | Change (year) = +3.4% | | Change (year) =+1.3% |
TPT Forests Export Market Report
Didn’t 2009 turn out to be a boomer year in terms of export log demand – certainly better than one forecast when looking back at December/January last year. According to MAF stats NZ pulled up with total log exports just shy of 9 M m3 at 8.74 M m3 for 2009 – that’s about a 33% increase over the 2008 levels and is the highest recorded volume of logs to leave NZ shores.
| Year | China | Korea | Japan | India | Others | Total | | 2008 | 2,036,558 | 2,930,161 | 811,911 | 579,313 | 217,368 | 6,575,311 | | 2009 | 4,836,076 | 2,385,607 | 558,102 | 814,263 | 155,821 | 8,749,869 | | % change | 237% | 81% | 69% | 141% | 72% | 133% |
When one considers just how bad we expected 2009 to be, the graph below is truly remarkable and the variance from the circumstances 12 months ago even more so.
The significant drop off over the December period shouldn’t be alarming, although it does mirror the horrors of 2009, this year the sharp drop off in shipped volume is a result of the Christmas break and slippage of vessels which meant shipping didn’t occur until early/mid January instead of December – this can be seen by the sharp increase in the thick green line which is log inventory levels around NZ ports at the end of the year.
At the end of 2009 and beginning 2010 all markets are showing signs of gradual improvement in terms of their underlying demand for softwood logs. This continues to be a result of the recovery of the economies as the stimulus packages encourage construction activity and then of course the ongoing declining supply from Russia. Should the Russian supply continue on its downward trend to China (and to a lesser extent Japan and Korea) the demand for softwood from other supply sources such as NZ will continue to strengthen. There appears to be the beginnings a structural shift in China’s sourcing patterns of softwood logs as a result.
In combination with this supply/demand situation the recovery experienced across all markets is being supported by an upswing in true demand on the back of economic growth although is extremely modest at 2-5% pa depending on market. The good thing is that this is occurring across all the markets at the same time (which is unusual including the improvement in NZ’s domestic demand) and in combination with the structural changes that appear to be happening in China, this export log market feels a little more robust than the typical short lived market cycle ride. Basically the market has been on an upswing since Feb which is a very long tenure in this trade using history as a guide. It is difficult to determine how deep and long the Chinese / Indian pockets are when it comes to stimulus spending, as is in fact putting a figure on what percentage of the market is being created by this is. But it is very likely that these two countries will be amongst the last one’s to take the hand out of the stimulus pockets. These two economies are expected to achieve +8% GDP growth over the next 2-3 years and will be the only log markets which are likely to perform anywhere near that level.
Advanced economies are now wrestling with disturbingly high unemployment levels and the daunting task of restructuring parts of the financial sector. Unemployment is expected to remain stubbornly high as many of the displaced jobs are not likely to return in the medium term which will keep a lid on growth across most sectors of the economy. The recovery in developed nations is expected to be very slow and protracted however there will be those that perform better than others with Australasia likely to be at the top end of the spectrum. This performance gap will largely be attributed to the extent which the financial sector needs restructuring in various countries. This will require international co-operation to overcome possibly divergent national interests to achieve the cross border reform required to win back public confidence and achieve structural stability. Australasia did not get the banking crisis which featured in US and Europe (apart from 3rd tier finance co’s caught up in the levered property sector), nor did Asia to a large extent. In the next 6-12 months this should see these economies be in a better structural position to achieve growth.
Developing nations are desperately trying to rebalance their economies from export orientated growth into internal domestic demand. Prosperity which has been relied upon from the rich countries is likely to be down for some time yet which will also reduce recent trends of foreign investment and competitive credit into these economies. In the meantime most of these nations are spending their significant reserves built up during the halcyon export days on genuinely needed infrastructure and other pubic works which will assist economic competitiveness in the future. Arguably a lot of the infrastructure projects are just spending for spending’s sake in the developed countries but in both cases the music will need to come to an end at some stage and some will/can keep playing for longer than others.
Co-ordinated stimulus and monetary policy manoeuvres by all the major economies were a feature of keeping the crisis out of the jaws of a fully blown depression. Inflation/deflation will need to be controlled before they take hold as the long term effects on standards of living can be devastating. Monetary policy will therefore differ (already is now) among the major central banks as the additional problems of asset bubbles, bad lending practices and potential social unrest play out differently across the globe. Raising interest rates too early will be damaging to a sustained recovery, but unnecessary delays will cause issues further down the track also.
All in all, the forward look is positive for those involved in log exports. As the economists debate how things are going to play out over the next twelve months financially, the ongoing need for economic growth in the developing nations and what appears to be an ongoing reduced supply from Russia will allow log exports from NZ to keep strengthening . . . . at least as far out as the crystal ball will allow us to see.
FICA Silviculture Meeting Change
IMPORTANT NOTE - FICA Silviculture meeting on Thursday 4th February (tomorrow) now CHANGED to a CONFERENCE CALL.
CALL TIME: 4:30pm (please be prompt – saves everyone’s valuable time)
TO ACCESS THE CALL:
Dial 083 032 from any phone in NZ (landline or mobile)
Dial the access number 380 035 followed by the # key
When you hear that you have entered the meeting please introduce yourself and everyone in the meeting will reply and identify themselves. (Please try to locate yourself somewhere with minimal background noise)
AGENDA: What bothers you most about your current silviculture business operations profitability?
For Rotorua contractors you are welcome to attend the meeting in the FICA office where we will be using a conference phone.
The Heat Goes On in February's NZ Logger
As the mercury continues to rise this summer, so does the fire threat and it has reached extreme levels in parts of New Zealand. NZ Logger spent two days training with wannabe fire fighters to see what it takes to fight a forest fire and also talks to the NZ Rural Fire Service about the potential for the Big One to ravage our forests.
The Koreans make great cars and TV sets and now, it seems, forest harvesting equipment. The latest from Doosan (formerly known as Daewoo) is put through the Iron Test and impresses the NZ Logger team.
Also, we may have seen record numbers of mill closure recently, but why are some sawmills running out of wood – the answer is in February’s NZ Logger.
To find out more head to the NZ Logger Website.
Compensation for Sacked Worker a Timely Reminder
A small business has been ordered to pay an employee $12,000 - including $6000 compensation for distress - after he was sacked for supplying cannabis to a workmate. The Employment Relations Authority has upheld a claim by a Christchurch appliance repairman that his employer, unfairly dismissed him last March after discovering a suspicious message on his company cellphone. The decision may come as a shock to other small business owners but the company owners were criticised for not following proper procedures and due process. Read more...
(Source: NZ Herald)
Gas Links with Disease Unfounded
Renewed concerns that the fumigation of logs and lumber might be linked to motor neurone disease have no scientific basis, says the forest industry. “Methyl bromide gas is obviously toxic at the doses used to fumigate logs. But outside fumigation envelopes or containers it poses no risk to the public or to wharf workers who follow normal safety procedures,” says Stakeholders in Methyl Bromide Reduction (STIMBR) spokesperson Gordon Hosking.
Dr Hosking was responding to media reports of research by a PhD student at Canterbury University that showed a reaction when methyl bromide was mixed with glutathione, a protective chemical found in living cells. “The research supervisor, toxicology professor Ian Shaw, has said the findings do not prove that motor neurone disease and methyl bromide are linked. But the possibility that they might has alarmed maritime and wharf workers,” he says.
“No-one knows what causes motor neurone disease. So it is understandable that family members and fellow workers should see possible exposure to the gas as an explanation for cases involving workers at sites where fumigation is carried out.
“Their concerns were fully investigated in an official enquiry five years ago and no link was found. Further reassurance comes from more recent investigations by the Institute of Environmental Science and Research, Environmental Risk Management Authority (ERMA) and the Ministry of Health that also found no link,” Dr Hosking says. “Permanent cell damage only occurs in real life when excessive exposure to a toxin overwhelms glutathione and the body’s other natural defences. This does not happen to workers in our ports because gas levels in working areas have been shown to be well below levels that might cause harm.”
Methyl bromide is used at some ports to fumigate logs and lumber for export and some imported food products, such as garlic from China and grapes from Australia. “Internationally it is the most widely accepted biosecurity fumigant, because it is effective against a wide range of pests and diseases, safe when used correctly, and does not harm the treated produce. However, because it damages the planet’s ozone layer, the hunt is on world-wide to find alternatives,” Dr Hosking said.
The forest industry and MAF Biosecurity are working with scientists and researchers in other countries who are exploring alternative treatments, including many that don’t involve chemicals of any sort. “In the meantime, however, we have no alternative but to continue using methyl bromide as it is so effective in keeping our country protected against biosecurity pests and enabling our valuable exports to be accepted overseas,” says Dr Hosking.
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Commitment to Sustainable Forest Management in Tasmania
The Rudd Government and Tasmanian State Government last week released a Joint Government Response to the Second Five Yearly Review of the Tasmanian Regional Forest Agreement (RFA). Minister for Agriculture, Fisheries and Forestry Tony Burke and Tasmanian Minister for Energy and Resources David Llewellyn said the response highlighted the determination of both governments to work cooperatively to keep Tasmania’s forests well managed and sustainable.
The Ministers’ joint response addresses all 43 recommendations for further improving management practices and monitoring emerging issues which were outlined in the review. The commitments in the joint response will ensure Tasmania’s forest management system continues to adapt to reflect new information as well as community expectations and priorities, such as climate change.
Mr Burke said RFAs were central to the sustainable management of Australia’s major forests and forestry industries. “Regional Forest Agreements are the cornerstone of our national forest policy,” Mr Burke said.
Mr Llewellyn said maintaining high standards in sustainable forest management was a priority for the Tasmanian Government. “Tasmania will continue to build on its strong record of implementing the Regional Forest Agreement,” Mr Llewellyn said.
The Joint Response was tabled in the Australian Parliament in the Senate and is publicly available on the DAFF and DIER websites at: www.daff.gov.au/tas-rfa-joint-response and www.dier.tas.gov.au/forests/tasmanian_regional_forest_agreement_rfa.
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Credit-rich Foresters Looking for Buyers
New Zealand forest owners are moving to sell last year's carbon credits as NZUs start to flow into owners' accounts. Owners who have lodged claims for last year's credits started receiving their allocations this week. At least two significant forest owners - Malaysian-owned Ernslaw One and Dunedin City Council-owned City Forests - are preparing sales, and industry sources say that other forward deals have been done.
OMFinancial has reported that there have been about a million trades of New Zealand credits over the past week. To receive credits for last year, forest owners must lodge returns between January 1 and March 31. So far this year 30 returns have been lodged with the Ministry of Agriculture and Forestry, compared to 45 for the whole period last year.
(Source: Carbon News 2010)
Long Time Industry Adviser Set to Retire
MAF Regional Team Leader John Vaney is retiring at the end of February 2010 after 41 years in the NZ Public Service, with most of this time based in Rotorua.
Over the last 12 years John has been the Regional Team Leader for MAF Policy's activities out of the Rotorua Office with a focus on forest industry policy advice and related projects in the North Island. Throughout his career John has had senior management and technical experience in all aspects of forestry and wood utilisation, with particular emphasis in the fields of wood processing development, timber end use, training, consultancy services, management of the Crown’s Maori lease forests, quarantine and protection services, investment promotion, offshore market development and policy development.
John joined the New Zealand Forest Service as a Forester Trainee in January 1969 and was appointed as the Timber Utilisation Officer for Westland Conservancy in late 1974 one year after he completed his Bachelor of Forestry Science degree at the University of Canterbury. Subsequent positions he held in the NZ Forest Service were Principal Timber Utilisation Officer for Rotorua Conservancy (77/83), Senior Forester, Solidwood Processing Group, Forest Research Institute, Rotorua (83/84) and Principal of the Timber Industry Training Centre near Rotorua (85/86). Towards the end of the NZ Forest Service he was appointed as the Regional Manager for the new Ministry of Forestry in Rotorua, a position he held for nearly 6 years before being appointed as the Operations Manager, Forestry Development Group managing the Marketing Support Services Team in Rotorua (92/98). John joined the new Ministry of Agriculture and Forestry when MOF was merged with the Ministry of Agriculture in March 1998.
John currently represents MAF Policy on the Executive Council of the NZ Pine Manufacturers' Association and was appointed an Honorary Member of the Forest Industry Engineering Association of New Zealand Inc in 1993.
The team at WoodWeek would like to thank John for his work in the Forestry sector and wish him all the best for the future.
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New Zealand Carbon Forests – The Next Sizzle Act?
In late-2009 the New Zealand government passed the world's first Government legislated, Kyoto compliant Emission Trading Scheme (ETS) which allows for the trade of tree based carbon offsets. This was the latest saga in what has been a tortuous route in New Zealand for Kyoto and forests. The country was an early signatory to Kyoto; reportedly based on an estimate it could make around $500 million out of the deal. It was initially going to commandeer forest carbon credits, even from private forests, until a revolt of forest owners encouraged it to change its mind.
A reversal of information saw this estimate change from a credit of $500 million to an equivalent deficit. This spooked politicians. The Government then used a little (or unknown) Cabinet Paper to apply punitive penalties to owners felling pre-1990 planted forests, if land use was changed. This has stymied profitable conversion of sub-optimal forests to dairy farms or sub-divisions.
The Government then established some complicated rules covering post-1989 planted forests, and threw in another option called a "Permanent Forest Sink Initiative" (PFSI). This was initially a way to sell forest carbon credits so long as the Government had a 100 year hold on land use. This was later reduced to 50 years.
Forest carbon projects (including funding initiatives from major USA and UK- based funds) were announced around 2007, but failed and left seedling nurseries struggling to survive with unsold stock -- twice. In 2009 some forest carbon forest credits were sold; one lot to the government of Norway under voluntary arrangements. In early 2010 a number of "early mover" investors were again examining options.
Confused? Who is not?
However, now the November 2009 legislation is in place, it at least 'stabilises' the topsy-turvy meanderings of New Zealand forest carbon rules over the last decade. Perhaps now the action can begin? A new DANA publication on the New Zealand forest industry sector includes a chapter on the history and possible future of the forestry carbon offset trade industry post-Copenhagen.
(Source: 2010 New Zealand Forest Products Industry Review. DANA Ltd. See www.dana.co.nz or contact jan@dana.co.nz)
NZ Joins Copenhagen Accord on Climate Change
The Government announced on Monday that New Zealand is joining the Copenhagen Accord on climate change and is submitting its existing conditional target range of 10% to 20% below 1990 levels by 2020.
“The Copenhagen Accord is a constructive step forward to developing a comprehensive global deal on climate change,” Climate Change Issues Minister Nick Smith said. “Joining this accord reinforces New Zealand’s ongoing commitment to doing our fair share to resolving this global problem.”
Minister Responsible for International Climate Change Negotiations Tim Groser said New Zealand was disappointed the Copenhagen conference did not make progress on a comprehensive and legally binding agreement.
The conditions of the 2020 target rate are:
a global agreement that sets the world on a pathway to limit global temperature rises of not more than 2°C
comparable efforts by other countries
actions by advanced and major emitting developing countries fully commensurate with their respective capabilities.
effective rules governing land use, land use change and forestry (LULUCF)
full recourse to a broad and efficient international carbon market
Brazil’s Softwood Sawlog Prices Down 11% from 2008 Peak
Lumber exports from Brazil have fallen 45% in two years, resulting in reduced demand for sawlogs and lower log prices. In the 4Q/09, pine sawlog prices were down 11% from their peak in 2008, but were still over 300% higher than six years ago, according to the Wood Resource Quarterly.
Softwood sawlog prices in Brazil have gone through an unprecedented roller-coaster ride the past seven years, a ride that for a majority of the period has been quite beneficial to landowners and timberland investors. Pine sawlog prices increased almost fourfold (in US dollar terms) from the 1Q/03 through early 2008, according to the Wood Resource Quarterly. The continuous upward price trend lasted for six years, but was interrupted in late 2008 when prices fell 30% in just six months. During 2009, prices have gone up again and were 22% higher in the 4Q/09 as compared to 4Q/08. Sawlog prices in the 4Q/09 were just 11% below their all time high of 2008.
Brazilian sawlog prices are currently below the Global Sawlog Price Index (GSPI), which inched up to US$68.87/m3 in 3Q, but are still substantially higher than in the US, Canada, Russia and New Zealand.
Some of the log price fluctuations can be explained by the varying strength of the Brazilian Real, but prices have also changed in the local currency. Log prices in Real terms reached their peak in 2006 and have since fallen 11%, reports the Wood Resource Quarterly. Sawlog prices have continued to fall in 2009 primarily because of sharp reductions of lumber exports to North America and Africa. In 2009, Brazil exported 45% less softwood lumber than in 2007. The domestic demand for lumber has also declined, partly because composite board and plywood are being used in its place.
Despite the recent gloomy developments in the Brazilian lumber industry, there is much confidence within the sector that over the next five years, both the export and domestic markets will improve. In 2014, the World Cup in soccer will take place in Brazil, and 12 host cities (with a total population of 34 million people) will need to undertake major investments in infrastructure, new construction of stadiums and remodelling of hotels and other accommodation facilities. As a consequence, the domestic demand for wood products will increase. Furthermore, Brazil will be hosting the Olympic Games in 2016, which will result in additional substantial investments in the construction sector in the country.
(Source: Wood Resources International LLC)
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Buy and Sell
...and finally...how to stay married 50 years...
It's really quite simple when you think of it!
At St. Mary's Catholic Church they have a weekly husbands' marriage seminar. At the session last week, the priest asked Giuseppe, who was approaching his 50th wedding anniversary, to take a few minutes and share some insight into how he had managed to stay married to the same woman all these years.
Giuseppe replied to the assembled husbands, 'Wella, I've a-tried to treat-a her nice-a, spenda da money on her, but besta of alla is, I tooka her to Italy for the 25th anniversary!
The priest responded, 'Giuseppe, you are an amazing inspiration to all the husbands here! Please tell us what you are planning for your wife for your 50th anniversary?
Giuseppe proudly replied, 'I'm a gonna go get her".
And on that note, enjoy the rest of your week. Cheers.
John Stulen
Innovatek Ltd Rotorua Office
PO Box 6160
Rotorua 3043
New Zealand
Ph:+64 7 921 1382
Fax:+64 7 348 1420
Web page: www.innovatek.co.nz
This week's extended issue can be viewed at www.woodweek.com
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