WoodWeek – 23 June 2010

This week we have for you:

• Contractors' Key Indicators
• Australian CO2 Group to Partner CNI Company
• Sawlog Prices Rise Almost 17% in 12 Months
• China-NZ Timber Deal Announced For Euro-Export
• FICA Members Meeting Tokoroa Wednesday 30th June
• FICA Network for Women Meeting This Friday - Rotorua
• Forestry Approved Code of Practice Review Seeks Input
• Stem Truck Driver Killed During Log Loading
• Danes Purchase NZ Carbon Credits
• Employers Access for Employee Literacy
• Carbon Forestry a Viable Option
• Carbon Market Igniting Overseas Interest
• MP settles Timber Case Out of Court with Osmose
• Buy and Sell
• ... and finally ... A Priest's Last Wish

Contractors' Key Indicators

Check out the latest changes in diesel prices, interest rates and exchange rates on both sides of the Tasman in this week's Key Indicators.

NZ CONTRACTORS' KEY INDICATORS 22nd June 2010
Interest Rates		Diesel Price Watch
	90-day bill rate = 3.05%		Average (excl GST / all regions) = $1.06
Exchange Rates			Change (month) = 0%
	NZD/USD = 0.7126		Change(quarter) = 0%
	NZD/Yen = 64.45		Change (year) = +6%
Labour Cost Index - Ag/Forestry/Fishing		Consumer Price Index
	Mar 10 quarter = 1006		Mar 10 quarter = 1097
	Change (quarter) =+0.2%		Change (quarter) = +0.4%
N/A	Change (year) = N/A*	NC	Change (year) = +2.0%

*Note:The LCI has been re-expressed on a June 2009 quarter base (=1000).

AUSTRALIAN CONTRACTORS' KEY INDICATORS 22nd June 2010
Interest Rates		Diesel Price Watch
	90-day bill rate = 4.92%		VIC (excl GST) = $1.13
Exchange Rates			NSW (excl GST) = $1.11
	AUD/USD =0.8828		TAS (excl GST) = $1.20
	AUD/Yen = 80.11		SA (excl GST) = $1.12
Wage Price Index - All Industries		Consumer Price Index
	Mar 10 quarter = 103.6		Mar 10 quarter = 171.0
	Change (quarter) = +0.9%		Change (quarter) =+0.9%
	Change (year) = +2.5%		Change (year) =+2.9%

Australian CO2 Group to Partner CNI Company

CO2 Group has formed a partnership with Maori commercial development company Tukia Group, and New Zealand based investment and advisory firm Carbon & Energy Partners (CEP). The partnership will trade in New Zealand under the name "CO2 New Zealand". CO2 New Zealand will trade the NZUs and develop new sustainable carbon forests on behalf of third party investors.

CO2 Group holds a 45 percent interest in CO2 New Zealand, with Tukia Group and CEP holding the remaining 55 percent. Tukia Group is committed to providing CO2 New Zealand with approximately 5 million New Zealand Emissions Units (NZUs) by the end of 2010, and access to undeveloped land to support the commercial needs of CO2 New Zealand. Tukia Group is land manager of 176,000 hectares of existing forest lands in the Central North Island Region.Australian environmental services company CO2 Group Limited has announced that will be expanding into New Zealand in June this year, the company's first overseas venture. The expansion of CO2 Group services outside Australia allows it to extend its commercial footprint into international carbon markets: the first Australian dedicated carbon forest sink planting firm to do so.

This initiative follows the passing of the New Zealand Emissions Trading Scheme (NZ ETS) and New Zealand parliamentary confirmation of the emissions compliance market commencing 1 July 2010. A key feature of the NZ ETS is the ability to generate and sell carbon credits into the international carbon market which in 2009 had a market value of US$143 billion.

CO2 Group has formed a partnership with Maori commercial development company Tukia Group, and New Zealand based investment and advisory firm Carbon & Energy Partners (CEP). The partnership will trade in New Zealand under the name "CO2 New Zealand". CO2 New Zealand will trade the NZUs and develop new sustainable carbon forests on behalf of third party investors.

CO2 Group holds a 45 percent interest in CO2 New Zealand, with Tukia Group and CEP holding the remaining 55 percent. Tukia Group is committed to providing CO2 New Zealand with approximately 5 million New Zealand Emissions Units (NZUs) by the end of 2010, and access to undeveloped land to support the commercial needs of CO2 New Zealand. Tukia Group is land manager of 176,000 hectares of existing forest lands in the Central North Island Region.

Sawlog Prices Rise Almost 17% in 12 Months

In the first quarter of 2010, the Global Sawlog Price Index (GSPI) reached US$76.77/m3, the highest level in over a year, according to the Wood Resource Quarterly. Much of the increase has been the result of a weaker US dollar, but sawlog costs have also gone up in local currencies in many markets, including Finland, Sweden, Germany, Latvia, Russia and New Zealand.

Global conifer sawlog prices have steadily increased for four consecutive quarters in all major world regions. The Global Sawlog Price Index (GSPI), which is based on quarterly conifer sawlog prices in 19 key regions worldwide, increased from US$65.89/m3 in the 1Q/09 to US$76.77/m3 in the 1Q/10, a climb of almost 17%.

The biggest price increases the past year have occurred in Oceania and Northern Europe, while North America has seen only moderate upward price adjustments. Sawmills in Central and Northern Europe continue to have the highest wood costs in regions producing softwood lumber. These are also regions that have experienced the biggest price increases the past year. In Sweden and Germany, spruce sawlog prices were 28% and 15%, respectively, higher in the 1Q/10 than in early 2009.

New Zealand exports of logs and lumber in the 1Q/10 were 50% and 18% higher, respectively, than the same quarter last year. The increase in shipments is practically all thanks to the continued strong demand for most forest products in China. As a result of the strong export market, domestic sawlog prices have gone up about four percent from a year ago in the local currency and 38% in US dollar terms. Export log prices have increased for four consecutive quarters, and were in the 1Q/10 over 50% higher than the same quarter in 2009.

Pine sawlog prices have also gone up in Australia by almost 40% in US dollar terms, mainly as the result of a strengthening Australia currency. Sawmills in Australia continue to have higher raw-material costs than their competitors in New Zealand.

Source: Wood Resources International LLC.

China-NZ Timber Deal Announced For Euro-Export

Wellington-based forest industry company Forme Consulting Group is planning a major joint venture with a Chinese manufacturer, Tianjin Sunwin Group, to process wood into eco-friendly, high quality components for the European building industry.

The companies plan to use a new environmentally safe wood modification process to modify the softwood, radiata pine, from New Zealand plantations into products suitable for substitution of threatened species. The processing will be done at a factory the companies propose to build near the giant and rapidly-developing port of Tianjin, near Beijing.About 100,000 cubic metres of high grade pruned logs would be primary processed in New Zealand and shipped for further processing in Tianjin.

This is an export project of benefit to both cities - Tianjin and Wellington – and is made easier by the Free Trade Agreement between New Zealand and China. Negotiations on the joint venture with Sunwin are being brokered by Jon Dey of Forme Consulting Group. Mr Dey sees China as the central point of the project’s value chain. A Memorandum of Understanding was signed in Tianjin earlier this month as part of the visit of Wellington’s mayoral delegation to China. Mayor Kerry Prendergast and delegates were on hand to witness the signing. Shortly afterward, Mr Dey, Mayor Prendergast and other members of the delegation were hosted by Mr He Lifing, the Deputy Party Secretary of Tianjin. Mayor Prendergast told Mr Hi that the MOU signed by Forme Consulting and Sunwin “is a particularly exciting example of New Zealand and Chinese businesses working together for the benefit of both nations”.

An application for official consent will be made in Tianjin to build the wood modification factory on about 120 ha of land that forms just part of the vast, 30-square-kilometre Dongjiang Tianjin port – the world’s fifth-largest. The wood modification plant would be the centrepoint of a wood processing ‘cluster village’ where locals would be employed to develop the treated wood into the components required by the building industry in Europe.

The modified wood will be used by the high value sector of the European building industry to replace tropical African hardwoods. This is because several European countries are restricting their use of tropical hardwoods to help prevent the deforestation of the world’s rainforests. In contrast, New Zealand-grown radiata pine is a quick-growing, sustainable and renewable resource which is grown in commercial plantations. It is recognised as the most suitable species for the wood modification process. High grade radiata pine logs will be sawn and kiln-dried in New Zealand before being shipped to the new wood modification factory in Tianjin. China’s building industry is also a market for the modified radiata pine. The planned start-up date for the joint venture is late 2012.

FICA Members Meeting Tokoroa Wednesday 30th June

FICA will hold a members update meeting and a Logging Costing Workshop at the Waratah office meeting room on the main highway in Tokoroa on Wednesday 30th June. The members meeting will start at 9:00am followed by lunch at 12noon. Then from 12:30pm the Logging Costing Workshop will run until 4:30pm. This will be followed up by refreshments for all FICA members and sponsors attending. There are still a few places left for the Costing Workshop. See the attached pdf form PDF for information. Print out, complete and return to FICA by fax (07 921 1381) or email (innovatekadmin@clear.net.nz). Alternatively you can register by phone with Jasmine on 07 921 1382 - please have payment details ready when you call (credit cards and direct credit options available).

FICA Network for Women Meeting This Friday - Rotorua

Networking ‘Women in Forestry’
Rotorua Regional Meeting – Friday 25 June 2010
‘Kingsgate Hotel & Conference Centre’

Purpose
Our objective is to: ‘Organise an inaugural series of regional conferences to bring together a large number of women to build on initial network capabilities and set in place regional support mechanisms for improved communications among forestry women.’

Networking ‘Women in Forestry’ could provide an opportunity for forestry women to:
1. Share knowledge and experiences,
2. Share resources,
3. Share practical skills,
4. Receive updates and advice on changes in the industry,
5. Explore buying power opportunities, and
6. Take time out of their busy schedules to enjoy the company of like minded women in the same industry.


Evening Agenda
3.30pm Meet and greet
4.00pm Introductions & Background
4.30pm Guest Speaker – To be confirmed (Rural Women)
5.30pm Mix & mingle
6.00pm Dinner

To register for this event (numbers are required for catering) please contact either Sonya Elmiger (sonya@blackburnegroup.co.nz or 07 378 5270 ext835) or Damita Pearse (damita.pearse@gmail.com or 07 8726708 ext77708, mobile 021 721371) ASAP

Forestry Approved Code of Practice Review Seeks Input

Now is the time for all contractors to request changes to the ACOPs. Get your comments in because the time is drawing near for all final submissions, please send all your requests through to your associated forestry groups and associations for input. This is your time for comment don’t leave it much longer. This message comes to you on behalf of the industry committee which FICA is represented on.

Stem Truck Driver Killed During Log Loading

Incident: A stem truck driver was killed when he moved out of the ‘safe zone’ while his truck was being loaded, and was struck by a falling log stem.

Circumstances:The stem truck had just been loaded with stem logs, and the truck’s front chain was placed over the load (but not secured). The truck driver asked the log loader driver to push down on the top log because it was sitting up. When the loader driver pushed the log down, the truck driver moved away from the safe zone in front of the truck, where he had been standing during loading, to the opposite side of the truck from where the loader was working (see diagram 1). The large end of a stem log popped out and over the side of the stanchion, striking the truck driver and killing him.

Investigation:The investigation revealed the following contributing factors:
• The logs were loaded well above the truck’s stanchions – almost a full diameter of a log above the stanchion at the side, crowning to 2½ logs above the stanchions in the centre;
• Slippery logs – the log de-limbing process exposes the slippery cambium layer underneath. The logs are more slippery in Spring due to sap rising in the trees;
• Pressure being applied to the top of the load by the loader;
• The driver moving away from the safe zone to an area where the loader operator could not see him.

Danes Purchase NZ Carbon Credits

The Danish Energy Agency (DEA) recently concluded an agreement to purchase forest carbon credits from nine Permanent Forest Sink Initiative (PFSI) projects located across both the North and South Islands of New Zealand totalling 1700ha.

The deal was facilitated by Permanent Forests International (PFI), a New Zealand based company that specialises in long term carbon forests. Director Mark Belton said it was pleasing to be able to achieve this groundbreaking agreement with Denmark because they are one of the most discerning buyers of project based carbon credits. Denmark applies stringent environmental standards in assessing carbon projects and requires that carbon credits are real, verifiable, additional and permanent (at a project level).

Mr Belton says this transaction represents a number of firsts. It is the first time Denmark has purchased carbon credits from forest projects and the first time it has purchased credits outside the Kyoto Protocol CDM/JI mechanisms. It is also the first time an EU Member state has purchased forestry credits from a developed country. While the EU ETS does not accept forestry credits EU Members can use them to meet Kyoto Protocol emission obligations.

“It is a huge affirmation of our Government’s PFSI mechanism and the integrity of the participating PFSI projects that they possess the right attributes to pass Denmark’s high standards of due diligence” Belton says.

A key feature of the PFSI is it requires forest cover to be maintained for a minimum of 99 years, in effect a forest conservation covenant, with maintenance of the forest as a carbon sink as the primary goal. Harvesting if it were to occur at all is only permitted on the basis of low intensity individual tree or small coupe removals. Clear felling is not allowed.

Belton says the PFSI is a leading legislative framework for ‘gold standard’ carbon forestry and is now gaining worldwide recognition. Belton believes the New Zealand Government's practical experience could be shared with other countries that may wish to develop effective carbon forestry mechanisms.

“A distinction of the PFSI mechanism is it enables remarkably efficient and low cost project registration, carbon measurement, and credit issuance compared with other international standards.”

The practical benefit of the PFSI’s low set up cost is that it can be commercially viable over very small project areas. This efficiency factor is critical because much of the suitable land for conservation forest management for carbon both in New Zealand and overseas is in relatively small land ownerships. If carbon forestry is to realise its enormous potential globally it requires efficient delivery mechanisms. The PFSI is a working example of how this can be achieved.

Belton says that in the New Zealand context the PFSI has the potential to be a transformative mechanism by making conservation management more economic on land areas that are environmentally high risk and high cost. The key is to secure attractive levels of payment for carbon sequestration and other environmental services. Only then will landowners be positively incentivised to change landuse over these “at risk” areas within their properties.

Permanent Forests International has recently presented another aggregation of PFSI credits to New Zealand emitters and prospective overseas buyers. PFI expect to have an increasing supply of PFSI carbon credits into the future.

"The sale of a bundle of New Zealand forestry credits to the Danish Government proves there is a premium market for PFSI credits", says the man who brokered the deal. Twenty-two thousand AAUs from 1700ha of forest covered by the Permanent Forest Sink Initiative have been sold to the Danish Energy Agency in the first sale of forestry credits to a European Union government, Carbon News (www.carbonnews.co.nz) reports.

The country’s specialist intelligence service on the emerging carbon markets says the sale was arranged by Christchurch-based Permanent Forests International. While price details are not available Mark Belton says that it was at a premium above NZUs. “It shows that PFSI credits are recognised by buyers as having quality,” he said. “Buyers are swamped with offers all the time, and mostly they won’t buy them.”

The PFSI is separate from the Emissions Trading Scheme. Forest owners who register with it are required to keep the forest for at least 99 years. The first sale of PFSI credits was in June last year, when 1000 tonnes was sold by EcoSecurities to the Sumitomo Mitsui Banking Corporation of Japan. Belton says that it’s the permanent nature of the PFSI credits that make them appealing to discerning markets like the Europeans, who are usually reluctant to buy AAUS. “Not all carbon is created equal,” he told Carbon News.

Employers Access for Employee Literacy

All employees need the core skills of reading, maths and communication in order for their employers’ businesses to run effectively.

Catherine Beard, executive director for BusinessNZ, says the fact that four in every 10 New Zealand employees have difficulties with these core skills is reflected in our country’s long-term trend of productivity under-performance.

“The Skills Highway website is a much needed tool that all employers can access to assess and address any gaps in their workforce’s competencies.

“There will be plenty of capable and hardworking employees out there who, with the right help will be able to get ahead personally and help businesses to achieve best performance".

“I urge all employers to have a look at the Skills Highway website and see where and how they can raise their performance.”

(Source: BusinessNZ)

Carbon Forestry a Viable Option

Carbon forestry is a viable option for land owners looking for new income streams, say forest owners. “Two recent studies indicate that plantations grown on hill country could be used to offset farm emissions and to improve overall farm profitability,” Forest Owners Association president Peter Berg says. “Many farmers already grow woodlots and small plantations, however much land suited to forestry has not been planted, because trees don’t provide an annual cash income.

“Carbon forestry changes this model – providing an annual stream of carbon credits starting about five years from planting. The credits, in the form of NZ Units (NZUs), can be sold on the open market or kept in the bank.”

Farm Forestry Association president John Dermer says a lot of comment about the ETS (Emission Trading Scheme) has been very negative and he suspects this has put most farmers off. “My advice to farmers is that they should take a close look at the opportunities and to make up their own minds whether they can make some money out of it. I suspect many hill country sheep and cattle farmers and dairy farmers with run-off blocks will be pleasantly surprised at what they discover,” he says.

“Having said that, you need to get it right. The ETS is complicated and there are risks that need to be managed, so it’s very important to take expert advice.” Canterbury University Professor Bruce Manley and forest researcher Piers Maclaren have examined the financial returns and risks associated with carbon forestry under the New Zealand (ETS).
In an article to be published in the academic journal Forest Policy and Economics, they explain that the main financial benefit of carbon forestry comes from the “time value of money”. In other words, income from the sale of carbon credits earned as the forest grows can be invested in more trees, something else, or used to pay off debt.

When the trees are harvested, about 75 per cent of the credits earned have to be returned to the government. This is because about 25 per cent of the carbon from the trees, in the form of stumps, roots and other plant material, remains with the land until the new crop becomes established.

“Manley and Maclaren’s studies show that radiata pine is a better investment than Douglas-fir or shining gum (Eucalyptus nitens) and at higher carbon prices, it’s best not to thin or prune the trees,” Mr Berg says. “However, the highest carbon regimes also involve the highest NZU repayment risk when the crop is harvested. So many carbon foresters are likely to continue pruning, or planting Douglas-fir, so they have a high value timber crop to sell at harvest." “Other ways to manage this risk include spreading forest establishment and harvest dates, deferring harvest and planting a portion in long-lived species such as Douglas-fir or redwoods.”

A recent AgResearch-led study looked at the potential to use new forests to offset farm emissions and what this meant for farm profitability and cashflow.

Results showed that when carbon values reached $30 to $40/NZU over 60 years, forestry plantings were a cost-effective option to hedge carbon price risk. Farms with existing post-1989 forestry benefited most from additional plantings as they were able to make immediate use of carbon being sequestered in existing plantations.

Mr Berg says that at a conservative carbon price of $22 a tonne it is possible to make an 8% return on capital from hill country forestry. Not only is this much higher than can be achieved from sheep and cattle, it is often possible to plant trees on parts of the farm where livestock productivity is low.

“The ETS also provides an opportunity for farmers on erosion-prone farmland to make their properties much more sustainable. There is good evidence to show that forestry prevents 80-90 per cent of soil erosion.

“Carbon forestry, like all investments, has associated risks and opportunities that need to be carefully considered. But there is now quite a large body of research information available for land owners wanting to make an informed decision.”

Carbon Market Igniting Overseas Interest

With less than two weeks until July 1st – interest in the New Zealand market continues to grow. There has been trading in the spot & forward NZUs and a parcel of NZ AAUs from PFSI forests also traded offshore. Whilst the buyer was disclosed as the Danes – the price was not disclosed – we believe it was a premium to the NZU.

The spot NZU price continues to be well bid in the mid to high $17’s with sellers at $18.

With the start date for emitters close - we believe initial demand will be greater than what is on offer at present – this may change in the next few months when EITEs receive their credits and the pre-1990’s start to flow. The view locally is for lower NZU prices in the coming months but we are not convinced and believe we may have seen the low for New Zealand carbon. Our research tells us that not all forest owners will sell their post -1989 credits and many may actually hold a portion of their pre-1990 for harvest requirements.

In addition - the global price of carbon (sCERs) continues to edge up and the NZ AAU sale this week to the Danes will bring the international focus onto our market which has also been building in the last few weeks. The Australians now realise we are the only game in town.

(Source: Nigel Brunel, NZ Carbon Market Weekly)

MP settles Timber Case Out of Court with Osmose

Nelson member of Parliament Nick Smith is reported as being delighted that a $15 million lawsuit against him has been settled out of court. The case goes back to July 2005 where Drs Robin Wakeling and Nick Smith MP made statements in television, radio and print media that were extremely critical of the efficacy and suitability of Osmose's surface applied boron timber preservative, known as TimberSaver, used to treat house framing.

As a result of the coverage, Osmose issued court proceedings claiming that a number of those statements were untrue and defamatory. Osmose claimed significant damages for losses, as the statements made and the subsequent uproar in the marketplace destroyed the market for TimberSaver.

Subsequently, Osmose joined several other parties to the litigation alleging that evidence showed they had participated in and shared responsibility for the statements made in the media by Drs Wakeling and Smith. The parties Osmose joined to the litigation included Arch Wood Protection (NZ) Ltd (formerly known as Koppers Arch Wood Protection (NZ) and Bay Treatment Ltd.

Osmose released a statement saying they also were pleased that they have been able to reach a settlement of the litigation with Dr Smith, Arch and the other defendants. While the terms of the settlement are confidential, Osmose is satisfied with the settlement and with the apology that Dr Smith has provided, in which he acknowledged that statements made about timber treated with TimberSaver were incorrect and unfair to Osmose.

The defamation lawsuit arose over timber treatment issues from five years ago when Smith was the Opposition spokesperson on Building and Construction.

“I am pleased this matter has been settled and the need for a six-week hearing has been averted,” Dr Smith said. “I would much rather put my time into current challenges and issues as this particular debate over timber treatment is long over."

“The settlement involves a payout from me that is less than I would have incurred from legal costs of a six-week trial. No public funds were involved in the settlement. I have been grateful for the financial support from Parliamentary Services of $209,000 for part of my legal costs to date, although the cost to me personally – including today’s settlement – exceeds this."

“This litigation has hung over me for half a decade. I’m just pleased to have it behind me so I can focus on my job of representing Nelson and my Ministerial portfolios.”

Buy and Sell

... and finally ... A Priest's Last Wish

An old priest lay dying in a hospital. He had faithfully served the people of NZ for many years. He motioned for his nurse to come near. 'Yes, Father?' said the nurse. 'I would really like to see Shane Jones and Chris Carter before I die', whispered the priest.

'I'll see what I can do, Father', replied the nurse. The nurse sent the request to the Labour Party and waited for a response. Soon the word arrived; Shane and Chris would be delighted to visit the priest. As they drove to the hospital, Shane commented to Chris, 'I don't know why the old priest wants to see us, but it certainly will help our images given the relations on our credit card spending, it might even save our political careers”! Chris agreed that it was a good thing wishing all the time he had bought Pansies rather than Roses for his boyfriend.

When they arrived at the priest's room, the priest took Shane’s hand in his right hand and Chris’s hand in his left. There was silence and a look of serenity on the old priest's face. Finally Shane Jones spoke: 'Father, of all the people you could have chosen, why did you choose us to be with you as you near the end?'

The old priest slowly replied, 'I have always tried to pattern my life after our Lord and Saviour, Jesus Christ. "
'Amen', said Shane. 'Amen', said Chris.. The old priest continued: 'Jesus Christ our saviour died between two lying thieving b*st*rds and I would like to do the same...’

And on that note, enjoy the rest of your week. Cheers.

John Stulen