Commodity Prices Continue to Move Higher

The ANZ Commodity Price Index lifted a further 3.8% in February 2010. The current index reading is the second highest for the series and not far below the all-time high recorded in July 2008. In world price terms, six commodities recorded a strengthening in prices and three recorded price declines. The price of logs rose to a 14-month high.

The value of the New Zealand dollar eased relative to most of our major partners in February. The exception was versus the Euro, which was unchanged. The drop in the value of the kiwi dollar exacerbated the increase in the NZ dollar valued commodity price index.

Commodity Exports - HS Code 44.0 - Logs, Wood and Wood Articles
Month ended January		3 months ended January		12 months ended January
2009 $(million)	2010 P $(million)	2009 $(million)	2010 P $(million)	2009 $(million)	2010 P $(million)
132	172	535	561	2,193	2,358
UP 29.6%		UP 4.9%		UP 7.5%

(Source: Statistics NZ) (P - Provisional)

Strong Rebound in China from Short Downturn in 2009

At the recent second China Forestry Society Conference, Madam Jiang, Director of the Chinese Society of Forestry, predicted that China's total wood fibre demand on a round-wood equivalent basis (RWE) will reach 350 million m³ by 2015. Domestic output is expected to supply the RWE of just 200 million m³.

The balance required, or the supply gap (i.e., the volume of imports required), could reach 150 million m³ RWE. This represents a substantial five-year increase in China's RWE consumption from the 245 million m³ projected for 2010; the supply 'gap' is projected to grow from 95 million m³ (RWE) in 2010 to 150 million m³ (RWE) in 2015.

The impact of the global economic recession negatively affected China's finished wood product exports (and imports) in 2008/09, but the government took swift action in late 2008 to stimulate domestic demand by implementing a US$730 billion stimulus package that includes policies to reduce taxes and loan interest rates for residential purchases by around 30%. As a result, 2009 statistics from the State Forest Administration (SFA) indicate that Chinese forest industry production value grew by 9.8% versus 2008; total forest products trade (imports plus exports) decreased by 4.9% as imports decreased by 15%.

Russell Taylor, President of International Wood Markets Group outlined in the Future Forestry Finance events run in Sydney and Auckland last week - a detailed analysis of both the Chinese and Russian economies, markets and timberland and forest lands investments and the impact that these changes are going to have on this part of the world. For those unable to get to either event, limited copies of the event proceedings can still be obtained by returning to us the attached order form.

Source:International Wood Markets Group, www.woodmarkets.com

Solid Energy Opens Taupo Wood Pellet Plant

New Zealand’s largest wood pellet fuel plant was opened on Friday by the Prime Minister, the Hon John Key. Built by Solid Energy business, Nature’s Flame, the $34 million Taupo plant will initially produce up to 40,000 tonnes a year of the clean-burning, low-carbon fuel with a substantial proportion of its output exported.

The plant, in Taupo’s Aratiatia industrial park, processes large volumes of pine wood residues from central North Island sawmillers and wood-product manufacturers. These are screened, ground, dried and compressed into wood pellets for bulk delivery in New Zealand and overseas.

The plant’s first major shipment – 6,500 tonnes destined for European power plants – is now being assembled at the Port of Napier for loading. This first shipment is part of a three-year, $15 million contract with the European utility sector. Nature’s Flame wood pellets are also being exported to Italy for the home-heating market and to Japan, for use by electricity generators and the horticulture sector to heat glasshouses.

Solid Energy Chief Executive Officer, Dr Don Elder, says commissioning of the Taupo plant confirms Solid Energy’s position as the largest wood pellet producer in the Southern Hemisphere (based on actual production). The scale of its output lifts wood pellets into the mainstream of New Zealand energy options and signals the beginning of a new income stream for New Zealand exports.

Forest Fires Put Carbon Credits at Risk

A forest fire burning near Dunedin, New Zealand last week highlights the risk of natural disasters to carbon which run into millions of dollars, Carbon News reported last Friday. Wenita Forest Products, which owns the 800ha of forest and cutover which had been burning most of the week, has registered under the Emissions Trading Scheme, but has not yet claimed credits.

If it had, it would be liable for the carbon lost in the fire, according to Carbon News, the country's specialist news service on the carbon markets. Under the ETS, the destruction of trees through natural disaster is treated in the same way as harvesting - making the forest owner liable for the loss of carbon.

That means that in the case of fire or wind damage, the forest owner would have to surrender as many credits as it had received for the forest lost. If, for example, a company had been receiving credits on 700ha of forest for 20 years it could be liable for some 500,000 tonnes of carbon - worth $10 million at a carbon price of $20 a tonne. Carbon News says the issue of how to protect forest owners from the cost of carbon loss through natural disaster is now being investigated. More >>

FICA Annual Conference Details Announced

This year FICA will hold their annual conference with members of other key industry associations including the Forest Owners Association, Wood Processors Association and Pine Manufacturers Association, for a joint conference at Te Papa in Wellington on the 12th and 13th of October, 2010.

The joint conferences are preceded by the NZWood Timber Design Awards Dinner and Ceremony on the evening of 11th October.

12th October – Day one will be joint conference day will all associations.
13th October – Day two of the conference will be the FICA Annual General Meeting in the morning followed by either a field trip in the Wellington region or a contractor-focused conference in the afternoon.

Further details will follow in WoodWeek issues later this year.

NZ Plantations Continue to Attract International Interest

New Zealand was the first country outside North America to attract US-based TIMO funds to its plantations. Following an initial deal made by the then RII (now Global Forest Partners) in 1992, a steady stream of forests were put on the market by both the Government and by private interests over the next one and a half decades. Most of these were acquired by institutional investors via a series of TIMOs.

Major TIMOs operating in New Zealand now include Hancock Timber Resource Group (HTRG), GMO Renewable Resources and Global Forest Partners. A number of others have/are looking for opportunities. In addition, at least one pension fund has invested in its own right, as has a major US based University Endowment Fund.

More recent investors have been UK based listed timberland funds including Phaunos Timber Fund, which assisted with the recapitalising of a major forest company, Matariki Forests in late-2009. The existing owners including a subsidiary of US REIT Rayonier, a subsidiary of German based Deutsche Bank and Australian based pension fund AMP sold down shares. Phaunos is now reportedly the largest shareholder of Matariki, which owns 320,000 acres of plantations. In addition to institutional money, several private investors from the United States, Australia, Asia and Europe now own plantations in New Zealand.

The super returns enjoyed by the early movers in the 1990s are no longer available, but there are several reasons why New Zealand is recognised as a "safe' place to invest.

A number of "early mover'" investors are now looking seriously at carbon forests as the next sizzle investment in the sector. It is early days for carbon forestry, and it remains problematic, but it might be very rewarding if the international community can get its climate change act together in 2010.

(Source: DANA Ltd)

Satellite Mapping for Forest Nutrition

Advances in the use of satellite technology are allowing researchers to measure nutrient levels in Australia’s forestry plantations more accurately. The use of remote sensing could also prove faster, cheaper and better from an occupational health and safety perspective than traditional methods, according to the findings of research on the Rennick Pinus radiata plantations on the South Australia – Victoria border. “We’ve moved a step closer to being able to provide forestry managers with practical tools to help them plan more effective fertiliser applications and research programs,” says Dr Neil Sims, CSIRO remote sensing research scientist and co-author of the project report.

Radiata pine growth in southern Australia is often restricted by low soil fertility. Currently, forestry companies spend more than $10m annually checking nutrient levels and applying fertilisers. However, field samples may not adequately represent the range and distribution of nutrient concentrations across the wider plantation. If fertiliser is applied where it is not required, valuable nutrients can be lost through run-off and other natural processes and can find their way into local waterways where they can lead to environmental problems, such as undesirable algal growth.

A FWPA funded project that brought together experts from CSIRO’s Sustainable Ecosystems Division, Forestry SA and HVP Plantations, Australia’s largest private timber plantation company, compared satellite image data with field measurements obtained from the same plantations. The project used hyperspectral satellite images to map concentrations of nitrogen, phosphorus, potassium, iron, zinc, copper and boron in radiata pine foliage and found the images could potentially provide accurate information across entire plantations. “There is no other way to get data of this kind,” says Sims. “You still need to collect and test some field samples to calibrate the satellite data, but the satellite data can be used to direct the field sampling to the most undernourished areas and will also tell you about any problem areas in between your sampling points.”

Such data would allow plantation growers to apply fertiliser only where an economic response is guaranteed, cutting expenditure on fertilisers and equipment, freeing up staff for other duties, and improving their environmental impact. Potential cost savings are substantial: images used in the project cost around AUD$0.09 per hectare of plantation compared to $2 to $5 per hectare for airborne images taken from a plane.

Satellite mapping also promises to improve health and safety conditions for plantation staff by removing the need for current methods of data collecting that involves shooting branches from tree crowns. HVP Plantations manager Stephen Elms concludes: “Remote sensing techniques have the potential to offer quicker and more comprehensive results than our standard field sampling practices.”

Click here to download full research report

(Source: Forest & Wood Products Australia)

Chilean Earthquake Could Cause Pulp Supply Crisis

The horrific earthquake in Chile has resulted in temporary shutdown of about 4.5 million metric tonnes/year of market pulp capacity. Arauco and CMPC have issued "force majeure" letters to their customers saying that they will not fulfil their commitments. Detailed structural analysis of the mill facilities will be needed to determine needed repairs and when production can be resumed.

The Chilean earthquake and resultant reduction in pulp supply comes at a time when pulp markets are already very tight with Chinese customers on allocation. The immediate impact is likely to be higher pulp prices leading to higher paper prices. NBSK pulp prices are already at US$890/tonne. In addition to the temporary closures in Chile, supply problems have resulted from flooding in the USA South and Indonesia. Canadian pup mills have announced maintenance shuts for April. Pulp producers are in a position to go for one or two price increases. It is likely that NBSK pulp prices could escalate to US$940/tonne by mid-2010. This could be very beneficial in the short term for market pulp producers. The increased pulp prices could result in increase paper prices ranging from US$25 to US$40 per ton depending on the grade. The pulp price increases will have differential impact on paper prices - affecting fully integrated producers less. The impact will depend on the percentage of market pulp used papermaking.

(Source: Gerson Lehrman Group)

The Latest Wooden Toy for Kids

Remember those wooden building blocks you just loved to stack and bowl over as a kid – well here’s the latest twist in this timeless toy that takes the fun to a whole new level. Tegu starts out with European Beech wood to build these innovative blocks. Then they throw in magnets to get them to do things you wouldn’t expect, like defy gravity. The added issue of 'like' magnetic poles repelling throws an interesting challenge into the mix.

Tegu also prides itself in being a socially and environmentally responsible company. The blocks are made in a small town in Honduras, which Tegu claims fosters economic, social and environmental sustainability in the community. The toy company is also contributing to reforestation projects in the region.

Unfortunately, these blocks can only be purchased in the US at this stage, but Tegu are hoping to distribute internationally in the future. Watch this space.

Buy and Sell

…and finally… a man went into a pub…

"Good evening, sir", said the bartender, what would you like to drink?

"A large whiskey thank you", said the man.

"That will be $8" said the bartender.

"No", said the man, "I distinctly remember you invited me to have a drink. I thought it was very kind of you".

The bartender turned to another customer, who was a solicitor, and ask for his support. The solicitor said that he was very sorry, but the bartender had definitely made an offer and the man had accepted it, so he did not have to pay.

The bartender was furious and turned the man out, telling him never to come back again. But about 10 minutes later the man reappeared.

"I thought I told you never to come back", the bartender said.

"I've never been here before my life", said the man.

"Then you must have a double", said bartender sarcastically.

"Thank you very much, I will and I'm sure my solicitor friend would like one too."

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