WoodWeek – 14 April 2021

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Greetings from your WoodWeek team - coming to you from our HarvestTECH Conference in Rotorua. We've got over 330 industry leaders gathering here this week and plenty of machinery, coffee and innovative presentations happening. Yesterday we ran two conference rooms in tandem – one with innovators in forest safety technology and culture and the other with a focus on the latest harvesting and log transport technologies being applied.

Looking to our next big event in June, registrations are pouring in for our Carbon Forestry 2021 Conference in mid-June. Earlybird rates still apply, but we recommend you register before this event sells out. The pace of discussion on carbon forestry options and best practice is growing and will accelerate when the feedback comes from the first feedback round by the Climate Commission as they refine their planned advice to Government for action. Make sure your team is registered for our conference before time runs out.

Thanks to Forest 360 and Marcus Musson and the team at Forest 360 for this week’s market commentary: The Chinese economy is expected to expand by between 6 and 7% this year which generally has a direct correlation with log demand. Lumber imports into China are currently about half their usual level as high US demand for Canadian lumber puts the squeeze on supply. CFR log prices (the price paid delivered in China in $US) are at the highest point in 7 years. New Zealand shipped a record number of log vessels in February (around 2.3million m3) with March looking similar.

The wee geopolitical tiff between China and Australia and subdued supply from Europe has given NZ pole position in terms of supply into our biggest market, China. It’s not looking like China and Australia are going to sit around hold hands and sing Kumbaya for some time and while the European supply may increase once the snow melts and containers become more available, it’s unlikely this will tip the supply/demand balance.

Looking back on 2020 According to China Customs, log imports in 2020 totalled 59.20 million cubic metres valued at US$8.415 billion (CIF), a year-on-year decline of 2% in volume and 11% in value. The average price for imported logs was US$141 (CIF) per cubic metre, down 9% on levels in 2019. Of total 2020 log imports, softwood log imports rose 4% to 46.86 million cubic metres, accounting for 79% of the national total, 4% up on 2019. The average price for imported softwood logs was US$117 (CIF) per cubic metre, down 6% on levels in 2019. 2021 as we know is shaping up to be a different year.

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Forest 360 Market Commentary

(Forest 360 Marcus Mission) - With much commentary around the detrimental effect of Covid on hospitality businesses in NZ it is almost embarrassing that our industry is firing on all eight cylinders. Forest owners and investors are enjoying returns as high as we have seen in many years and, while we generally start reaching for the wet wipes this time of year as global supply exceeds demand, everything is ticking along nicely. This is not through good practice in supply chain management on our behalf however, its more through issues with other supply points that allows us to keep production cranking.

The wee geopolitical tiff between China and Australia and subdued supply from Europe has given NZ pole position in terms of supply into our biggest market, China. It’s not looking like China and Australia are going to sit around hold hands and sing Kumbaya for some time and while the European supply may increase once the snow melts and containers become more available, it’s unlikely this will tip the supply/demand balance. With current Chinese log inventories at about 4.3 million m3 and daily offtake from Chinese ports running at 85,000m3 (that’s 2,900 truck and trailer loads!) the inventory position is very favourable to suppliers.

The Chinese economy is expected to expand by between 6 and 7% this year which generally has a direct correlation with log demand. Lumber imports into China are currently about half their usual level as high US demand for Canadian lumber puts the squeeze on supply. CFR log prices (the price paid delivered in China in $US) are at the highest point in 7 years. Normally this would create some anxiety but without no obvious alternative supply, nothing that looks set to kick us back to the 22, just yet.

New Zealand shipped a record number of log vessels in February (around 2.3million m3) with March looking similar. It is unlikely that we can squeeze much more through the supply chain and at present it looks like a pelican trying to swallow a kingfish – it’ll get it down but will take a while. Most harvest crews in the Southern North Island are sitting on much higher than usual cut log stocks, trucks are being held up at ports for hours trying to get offloaded and the rail system is at capacity.

In addition, vessels are pretty much back-to-back at most ports and even if we could get all of our volume onto the ports, it is unlikely that we would have the capacity to load these vessels quick enough. This is nothing unusual for this time of year as good weather and strong prices almost always results a glut of available supply. So, while being infrastructure constrained is painful and inefficient for all involved, at a market level its actually not a bad problem in terms of supply and demand tension as we would potentially have the ability to oversupply key markets if all infrastructure constraints were removed.

Freight has continued to charge away with many exporters contracting vessels in the $US50-55/m3 region for April which is up $US20/m3 on January. This is being fuelled by soaring commodity demand worldwide. The resumption of the Australian grain trade following years of drought has not helped and getting a vessel sideways in the Suez Canal wasn’t ideal with fuel prices spiking, albeit briefly. While much of the increased CFR price will likely be lost on increased freight costs. At least our government is doing its best to get investor confidence and hence the NZ/USA dollar rate down by announcing the recent changes to its housing policy. The result of all of this is likely to be a small lift in AWG prices around NZ ports for April.

Domestic markets remain very strong for both pruned and sawlogs with many mills running at capacity to meet ever increasing order files for structural lumber. There are plenty of calls from different corners for Government to intervene to help increase domestic sawmilling capacity, especially in the wake of Carter Holt Harvey pulling supply from many of the retail chains. This either means tax breaks, subsidies or capping export log volumes/prices (labelled as Govt procurement policies). While any cashback from Government is attractive to a business, limiting volumes or the price of export logs is not the lever to pull as forest owners will simply put their investment dollars elsewhere and one day there’ll be very few forests with which to build a house.





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Review - China log imports dipped in 2020

China saw a decline in 2020 log imports – According to China Customs, log imports in 2020 totalled 59.20 million cubic metres valued at US$8.415 billion (CIF), a year on year decline of 2% in volume and 11% in value. The average price for imported logs was US$141 (CIF) per cubic metre, down 9% on levels in 2019. Of total 2020 log imports, softwood log imports rose 4% to 46.86 million cubic metres, accounting for 79% of the national total, 4% up on 2019. The average price for imported softwood logs was US$117 (CIF) per cubic metre, down 6% on levels in 2019.

Chinese analysts say China’s log imports fell mainly because of the impact of the pandemic but that the increase in softwood logs imports was due to the large volume of harvested logs available in Europe due to heavy felling as a pest control measure.

It has been forecast that as much as 500 million cubic metres of European spruce will be harvested by 2024 and most of these softwood logs will be imported by China via the China-Europe Railway Express. Softwood log imports from Germany soared – In 2020 the volume of softwood log imports from most countries however, from Germany, the Czech Republic and Japan imports increased which contribute to the overall rise increase in softwood log imports even during the pandemic.

New Zealand was the main softwood log supplier to China in 2020 accounting for 34% of total softwood log imports. Softwood log imports from New Zealand totalled 16.15 million cubic metres in 2020, a year on year decline of 8%.

Germany became the second main supplier of softwood logs imports at 9.98 million cubic metres, a year on year increase of 162%, accounting for about 21% of the total softwood log imports in 2020, exceeding imports from Russia for the first time.

China’s softwood log imports from the Czech Republic and Japan in 2020 rose 47% and 23% to 3.38 million cubic metres and 1.15 million cubic metres respectively. Russia ranked the third supplier of China’s softwood logs imports at 4.43 million cubic metres in 2020, a year-on-year decline of 24% and accounted for 9.5% of total softwood log imports in 2020.

Source: ITTO TTM Report



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Export prices reaching three-year highs

(RNZ coverage) - Log export prices have been on a strong run since November due to Chinese demand and a gap in supply, a forestry consultant and exporter says. Laurie Forestry managing director Allan Laurie said trade issues between Australia and China meant Australia was not sending logs there at present, and exports of spruce out of Europe were also lower.

He said it was unclear what was causing the European supply shortage but Covid- 19 related workplace issues and a lack of shipping containers - which is how spruce is transported - were likely culprits. Laurie, who is based in Canterbury, said this hold up in global supply was good news for New Zealand exporters and wood traders, and on the log exporting side CFR prices (the log prices landed in China in US$ per cubic metre) had continued to firm.

He said market fundamentals remained strong, adding, "We are seeing daily consumption rates run in excess of 85,000 cubic metres across the eastern seaboard. That's very good for this time of year, post Chinese New Year.

"We're of course seeing them come into their spring and the construction sector is typically quite busy from about now on. That's building apartments and using our timber basically to hold up concrete. But that's good news for New Zealand exports across both lumber and logs.

"Just to put this in context, that means in five days the China market is consuming more logs than is exported out of the South Island in a month," he said. Laurie said freight prices were exploding for both lumber from sawmills, and logs, with logs particularly hit hard.

"Our handy class vessels that come to New Zealand to take our logs to China have seen a significant increase, in fact a 20 percent increase in March which is quite extraordinary. The freight rates we're now seeing come through for April are the highest I've ever seen in the 26 years I've been involved in log exports."

Laurie said this meant that despite log prices climbing to close to the highest levels ever, New Zealand would potentially see wharf gate prices (what growers get paid for logs) start dropping in April. Meanwhile New Zealand's building industry is grappling with a shortage of timber - the forestry industry has said that's a processing issue and there are enough raw logs available.

More >>

Source: RNZ / Photo credit: Port of Tauranga



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Carbon Match update - Govt goes giddy

NZU Update - NZUs are still hovering around $37. Last week, a team of MPs - the Hons Megan Woods, David Parker and James Shaw, announced a raft of projects under the GIDI Fund, (Government Investment in Decarbonising Industry Fund), as follows. They also announced a ban on new low and medium temperature coal boilers that are used in manufacturing and production. That ban will come into effect by 31 December this year, and consultation is now underway on further proposals that would see existing coal boilers phased out by 2037.

Process heat accounts for about 8% of New Zealand's gross emissions and the potential to achieve emissions reductions via electrification or fuel switching for lower temperature process heat has been long identified.

But getting such capex across the line has been challenging to date, particularly at lower carbon prices delivered by the ETS until quite recently, hence the significant co-investments announced yesterday under the new GIDI fund.

Not content to rely on the signals from the carbon price alone, this move is seen as a regulatory backstop, and aims to avoid the locking in effect on emissions associated with long-life investments such as coal boilers.

The Government intends to throw everything it can at the problem - from rising carbon prices, incentives, regulatory backstops to plain old command and control.

While the coal sector can certainly be forgiven for feeling the most beleaguered of all right now, they're not going to be alone. The consultation document states that there are a number of other sectors where the resource management system could play a role in driving down emissions, for example, transport, urban form, forestry, agriculture and waste as well as broader opportunities within the energy sector.

The Government has said it will repeal the existing RMA and replace it with a new legislative framework over the course of the next couple of years. Alongside that you can be sure that more bans, incentive packages and other regulatory measures designed to supplement the effects of the carbon price will surely follow. This is only the beginning. This particular consultation closes on 20 May.

Carbon Match - every weekday 10am - 5pm.



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Contractor offers staff a reliability bonus

A forestry contractor is offering a yearly bonus of about $3640 if workers turn up for work and stay drug-free as the silviculture industry struggles to recruit and retain good staff. Training programmes have been introduced but Kiwis are reluctant to take on the physically demanding jobs, experts say, and there is still a reliance on migrants.

Inta-Wood Forestry director Nathan Fogden said he paid bonuses of about $3640 to attract reliable, drug-free workers. These were paid at intervals throughout the year and he had up to eight to 10 jobs available at any given time in Rotorua.

"It's a carrot that was brought in to acknowledge loyalty. They get paid some of it after six months but we really want them to stay for longer."

Fogden did just under 300 drug tests last year - no one failed. This year one test came back positive for cannabis and Fogden said every failure resulted in a cut to their bonus. But finding Kiwis willing to do the physically demanding work who were drug-free was proving difficult. The industry was looking for people aged 18 to 35 but unfortunately, typically some people in that age bracket were recreational drug and alcohol users, he said.

"Those two things clash." Fogden said, in his view, wages needed to be higher. His workers could make upwards of $54,000.

"It's damn hard and damn physical. You are working in all sorts of weather and you have a whole lot of health and safety components that other workplaces don't have to worry about. There's still a disparity between what the grassroots men and women across the field get paid and we don't have an industry without those people."

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Source: NZ Herald


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Forest products company going to court

(BusinessDesk) NZ First-linked forestry business faces liquidation application - David Henry is headed to court later this month after a Northland advertising firm applied for the liquidation of his company, NZ Future Forest Products (NZFFP).

Big Fish Creative, which has provided strategic planning and website development for NZFFP, applied for the liquidation of the wood products firm due to non-payment, according to Big Fish solicitor David Grindle of WRMK Lawyers.

Henry is the son of New Zealand First lawyer Brian Henry, also a founding director of NZFFP, whose board has also included Janet Trotman – partner of NZ First leader Winston Peters.

NZFFP was embroiled in controversy in 2019 after applying for $15 million in funding for a timber operation in Gisborne from the government's $3 billion Provincial Growth Fund.

That fund was overseen by the then minister for regional economic development and NZ First MP Shane Jones. After Jones recused himself from the decision-making process in October 2019, ministers Grant Robertson, David Parker and Phil Twyford subsequently turned the bid down in November.

It was reported at the time that NZFFP had also sought $95m in public money under the government’s one billion trees programme, though NZFFP denied that was the case.

Brian Henry, who court papers list as counsel for the defendant alongside Shanahan's Law, resigned as a director of NZFFP on Feb 19, 2020. Trotman stepped down on Aug 3 last year.

Big Fish counts the Auckland International Airport, Northland Regional Council and Refining NZ as its clients.

David Henry, who founded London-based natural resources investment firm Medea Capital Partners in 2012, also presided over NZFFP’s failed $126m offer for wood processing business Claymark Group in late 2019.

More court action possible - Last November, Kinleith Land and Infrastructure – another firm in which Henry is the sole director and which at least partially bankrolls NZFFP – failed to settle its $24.6m sale and leaseback agreement for Cavalier Corp’s manufacturing unit in South Auckland.

The plant was eventually sold for $25.5m in December to a third party, but Kinleith remains on the hook for the 10% deposit on that contract.

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Source: BusinessDesk


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Forest owners: Focus on both exotics and natives

Focus on planting exotic forests is key to climate goals says FOA - Planting non-native trees is a better way for the government to tackle climate change than focusing on just native forest regeneration, the New Zealand Forest Owners Association (FOA) says.

Their suggestion was one of more than 10,000 submissions to the Climate Change Commission's draft advice on climate policy when consultation closed on Sunday.

FOA president Phil Taylor told Morning Report the commission's advice to focus on planting native trees overlooks a more pragmatic approach, and using a mix of natives and exotics (non- native trees) would make the climate goals more achievable.

"I'm not saying [exotics] are better than natives, the issue with natives is they're extremely expensive and challenging to plant and establish. The FOA is not against planting native trees, but we think the CCC have over-relied on their ability to help New Zealand and their climate change ambitions.

"The Climate Change Commission has set some very ambitious targets; 300,000 hectares in the next 15 years. We think that's going to be pretty difficult to do with just natives.

"So we think that they should investigate the option to plant long-lived exotic trees as well - say redwood, douglas fir, both of which in their natural environment can grow for 500 to 1000 years."

Native trees establish slowly, and need more work than some exotic alternatives, which means they're more costly, he said.

"They're very susceptible to weed competition, so they grow very slowly. It's not just a case of planting the trees and leaving them, you have to maintain them for a number of years.

"They're very vulnerable to pest attack, like rabbits. And as the climate change effects take impact it's likely we're going to see less rain, particularly on the east coast areas of the North and South Island, so that's going to mean that water or soil moisture is going to be a problem for establishing natives.

"Different types will work and be easier to establish on different sites - so it's a matter of putting the right tree on the right site, this is what this is about."

But planting native trees offers wider benefits by supporting native bird, insect, lizard and plant habitats. "There's plenty of land in New Zealand that is suitable for establishment of all trees, whether they be natives or long-lived exotics, or indeed plantation forests," Taylor said.

"The advice to plant native trees is a good thing, the challenge we have is achieving those very ambitious targets. So don't discount long-lived exotic trees, that's what we're saying - they're not a replacement to natives, they're a complement to natives."

Either way, Taylor said big adaptations would be needed. "Given the scale they're talking about we're going to have to do things differently, it's going to require innovation, scale is certainly going to be an important issue, and also different changes in technology."

You can CLICK HERE to register at Earlybird rates for our Carbon Forestry Conference - do it now so you don't miss out!



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Bill not supported for timber recovery

Beehive - No support for bill to recover windblown timber – A law change that would enable the harvesting of windblown trees on conservation land following adverse weather events has been voted down by Labour, National MP based in West Coast-Tasman Maureen Pugh says.

“This legislation would allow the Director-General of Conservation to authorise the removal of specified windblown trees on conservation land following a significant event.”

“This is a practical bill which embraces environmental responsibility and supports regional economic development, it’s disgraceful Labour has chosen not to see it through to Select Committee, where they can implement changes to fix the technical issues they have raised – as well as hearing from the people this legislation would affect.”

The proposed law follows on from the legislation implemented by Dr Nick Smith following tropical Cyclone Ita in 2014, which saw a number of native forests in the West Coast and Tasman severely impacted.

“The 2014 legislation was supported right through the process by two Labour MPs. They saw the need for this legislation at the time, but it’s disappointing the Government didn’t take a similar pragmatic approach today when it denied further progress on my bill.”

“Removing and processing windblown trees which would otherwise lie decomposing on the West Coast forest floor would provide much-needed jobs for the region along with clearing space for native regeneration. Cyclones over the years show how necessary this legislation is, as large quantities of trees were felled as a result of the weather.”

The National Party commented, “clearly the Government hasn’t familiarised themselves with the benefits of Dr Smith’s Bill in 2014. As a result, they are ignoring the fact that when applied permanently and nationwide, we can make effective use of a beautiful natural resource that would otherwise rot on the ground.

“Not supporting this bill to Select Committee is a missed opportunity and will see valuable resources continue to be wasted. It proves this Government has no faith in the Director- General of Conservation to make a sensible, pragmatic call on whether or not to extract small amounts of native timber felled naturally by an adverse weather event.”

Source: Scoop




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... and finally ... something funny in passing

A humble and gaunt-looking elderly man, Mr Douglas Smithton is on his deathbed and knows the end is near. His nurse, his wife, his daughter and two sons, are with him.

He asks for two witnesses to be present, and a camcorder be in place to record his last wishes. When all is ready, he begins to speak:
“My son, Bernie, I want you to take the Mayfair houses."
“My daughter Sybil, you take the apartments over in the east end."
“My son, James, you take all the offices in the Plaza at City Centre."
"Sarah, my dear wife, please take all the residential buildings on the banks of the river."

The nurse and witnesses are blown away as they did not realize his extensive holdings. And as Doug slips away, the nurse says, "Mrs Smith, your husband must have a very hard-working man to have accumulated all that property."

Sarah replies, "Property? .... no such luck, the old fool had a newspaper route!”

--------------------


An Irish Priest was transferred to Texas. He rose from his bed one morning. It was a fine spring day in his new Texas mission parish. He walked to the window of his bedroom to get a deep breath of the beautiful day outside.

He then noticed there was a jackass lying dead in the middle of his front lawn. He promptly called the local police station. The conversation went like this:

"Good morning. This is Sergeant Jones. How might I help you?"
"And the best of the day to yourself. This is Father O'Malley at St. Ann's Catholic Church, There's a jackass lying dead in me front lawn and would ye be so kind as to send a couple o' yer lads to take care of the matter."

Sergeant Jones, considering himself to be quite a wit and recognizing the accent, thought he would have a little fun with the good father, replied, "Well now Father, it was always my impression that you people took care of the last rites."

There was long silence on the line for a few moments. Then, Father O'Malley replied, "Aye, 'tis certainly true; but we are also obliged to notify the next of kin first, which is the reason for me call."



That's all for this week's wood news.

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John Stulen
Editor
Innovatek Limited
PO Box 1230
Rotorua, New Zealand
Mob: +64 27 275 8011
Web: www.woodweek.com

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