WoodWeek – 20 May 2020

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Greetings from your news team. Beyond good log prices in China this week, things are not looking good. The focus for many will be making submissions (due by tomorrow night) to the first planned regulatory intervention on log traders and forestry advisors. The proponents of both sides of the argument have made good points. On one hand, there are no controls currently on who can buy and sell logs, something Shane Jones wants to change. Single time sellers of a small woodlot can be cheated of a fair return by unscrupulous operators whose promises sometimes don't deliver when loads are tallied up at wharf gate.

On the other hand, FOA president Phil Taylor expressed another view to the Northland Age this week: "How will giving someone a certificate to buy and sells log lead to more logs being processed in New Zealand and not exported?" He wondered if the government was going to target other primary industries to force more domestic processing.

"Sometimes the raw material is the best thing - look at apples and kiwifruit," he said. "Is the government going to force the wool industry to process more than the current 5 per cent of the national clip in New Zealand carpet mills? We currently process 42 per cent of our wood harvest right here in New Zealand, more than eight times the ratio of the wool industry."

Amid these opinions comes a terrible irony as Carter Holt Harvey LVL is set to make over 150 workers redundant. Carter Holt Harvey (CHH) chief executive Prafull Kesha said the proposed restructure intended to end LVL's export business and refocus it to a domestic operation. The LVL mill has 325 workers; about half are expected to be impacted by redundancies. A company spokesman said the restructure was not a direct result of Covid-19, however the pandemic had impacted the business.

"The proposal reflects our serious concern that the export part of the LVL business, which accounts for approximately 70 per cent of our production and sales volume, is unprofitable and the business as it operates today can’t continue," Kesha said.

To end on a more positive note, we have a reminder: you can now register at great prices for our Forest Safety webinars coming up in June. Thanks to all of our sponsors, presenters and the wider industry who are right behind this new initiative. You can see the speakers and register NOW by clicking here.

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Have your say on Log Traders Bill

Have your say on the Forests (Regulation Of Log Traders And Forestry Advisers) Amendment Bill - The Chairperson of Parliament’s Environment Select Committee, Dr Duncan Webb, is calling for public submissions on the Forests (Regulation of Log Traders and Forestry Advisers) Amendment Bill.

The bill seeks to establish a registration system for log traders and forestry advisers that strengthens the integrity of the forestry supply chain, and supports a continuous, predictable, and long-term supply of timber for domestic processing and export.

The Chair has set a closing date for submissions of 21 May 2020. The committee is due to report to the House by 5 June 2020.

To tell the Environment Committee what you think - click here

Submissions can be made via the Parliament website. Make a submission on the bill by 11.59pm on 21 May 2020.

To read the full content of the bill - click here

Get more details about the bill on the Parliament website

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Manufacturers: Address unfair China trade

Efforts to rebuild a stronger export economy will be short-lived if the country doesn’t start addressing the cost of unfair trade practices by China, wood and steel processors say.

A surge in export log prices – driven by demand from China – is part of a recurring issue that successive governments have failed to address, said Jon Tanner, chief executive of the Wood Processors and Manufacturers Association.

The group has been promoting greater use of timber construction to underpin renewed investment in domestic processing and create more jobs in the sector. But the high cost of logs here increases the cost of domestic construction products and makes them less competitive with imports. It also makes it virtually impossible to export timber products to China.

Tanner said the issue goes beyond just steel and timber. While agricultural protections are not outlawed by the World Trade Organisation, New Zealand farmers were still facing unfair competition against subsidies in Europe and the US, yet that topic is seldom discussed at a policy level.

“All our problems start with trade and unequal competition so therefore we’ve got to get that right first,” Tanner told BusinessDesk.

Chinese trade - New Zealand signed a free trade agreement with China in 2008 and has since seen two-way trade between the countries more than triple. Exports to China were worth $16.8 billion in the 12 months ended March 30, almost twice that of trade with Australia, our second largest market.

But in recent years NZ Steel has lodged three dumping claims related to Chinese steel products, while non-compliant building products imported from China have also attracted more attention from industry and officials.

In 2017, the Ministry of Business, Innovation and Employment funded a study to understand why Chinese importers were paying above international rates for New Zealand logs. The study, by Forest Economic Advisors, noted the “extremely significant” trade imbalance between the countries, with New Zealand’s log exports volumes being 35-times the volume of value-add timber products we shipped to China.

Chinese buyers were effectively setting the domestic log price for New Zealand mills and only the most efficient, modern New Zealand mill could be competitive exporting product to China, the study found.

Source: BusinessDesk

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WPMA likes plan to regulate log trading

Regulate NZ log trading: A step to clean up NZ log market distortion - The Wood Processors and Manufacturers Association chair, Brian Stanley, welcomed the announcement on Friday by Forestry Minister Hon Shane Jones to introduce legislation to regulate the behaviour of traders operating in the New Zealand log market.

New Zealand wood processors cannot access local logs because of massive price distortions in the domestic log market that are being caused by overseas subsidies he says.

“This legislation will help to ensure that log traders treat New Zealand wood processors and manufacturers fairly – enabling our local processors to add value to NZ logs and provide local employment. WPMA congratulates the Minster on leading the charge,” says Mr Stanley. “The Forests (Regulation of Log Traders and Forestry Advisers) Amendment Bill has started its passage through parliamentary processes and looks to have a test that persons trading in logs or providing advice are “fit and proper.”

“As an industry that prides itself on, and is certified for its ethical practices, we would expect the government to set a high bar for registration here”, says Mr Stanley. “As a NZ manufacturing sector feeling the full brunt of unfair industrial support measures overseas, the WPMA would expect the proposed Forestry Authority to enforce standards for sale and purchase agreements for domestic log transactions that reflect the real world price of logs and not prices artificially jacked up by subsidies,” adds Mr Stanley.

“Government subsidies to the wood industry are alive and well overseas. Unless we level the playing field in the NZ log market we will see further loss of jobs in the regions, wood prices to the NZ public driven up, an on-going disincentive to investment in our industry and the nation’s hopes of a future zero-carbon economy based on the wood industry dashed. We are not calling on the NZ government to match these subsidies – they are illegal under WTO law - but asking for regulations that remove the extreme market-skewing effect that these foreign subsides have here.”

“Mr Jones is taking a step in the right direction today and we congratulate him on this. The WPMA looks to supporting the Minister’s initiative as the Bill goes through Parliament,” concludes Mr Stanley.

Source: WPMA

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FOA praises housing and ETS measures

Forest Owners Pledge Support In Budget Measures To Assist Economic Recovery - The Forest Owners Association (FOA) says it’s keen to work with government and with the rest of the primary industries to implement government investment aimed at reviving the economy after the COVID-19 crisis.

The President, Phil Taylor, says forestry will have an important role in both employment for exports, and in supporting domestic processing.

“Forestry has a lead role in New Zealand’s economic recovery. We are on track to be earning $7b a year in export receipts and we are a major employer, especially in regional New Zealand. “We are keen that the $500 million to support the primary sector announced in the Budget will include the forest industry. We will be a major contributor in using our trees in the fight against climate change over the next few years, and there is the need to integrate all land uses in this huge challenge.”

“The Budget allocation of $43.4 million for ‘Rebuilding Forestry Emissions Trading Scheme’ appears also to represent a major step in making the ETS a real instrument for this purpose.”

“There are other areas of the Budget announced today that we are interested in too, such as loans to boost research and development, a spend on improving rail services and ports, both of which are important for log transport and export.”

“We’ve noted free trades’ training for our increasingly mechanised industry, improved access for Maori into training, and a boost to Trade and Enterprise for helping access into overseas markets. A larger spend on biosecurity is another investment which will further protect the rural landscape across a range of land use.”

“Another important announcement is the $5 billion for building 8,000 new homes. We hope there are government efforts to ensure the use of timber as much as possible. This would reduce the use of carbon emitting steel and concrete and really help our domestic processing industry and we would really support this.”

Source: Various

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Jobs at risk with LVL exports ending

Carter Holt Harvey restructure puts about 160 jobs in limbo - About 160 jobs are at risk after Carter Holt Harvey proposed a restructure of its Laminated Veneer Lumber (LVL) business in Marsden Point.

This comes after the company decided to close its Whangarei mill in February, culling more than 110 jobs after consultation in January.

Carter Holt Harvey (CHH) chief executive Prafull Kesha said the proposed restructure intended to end LVL's export business and refocus it to a domestic operation.

"The proposal reflects our serious concern that the export part of the LVL business, which accounts for approximately 70 per cent of our production and sales volume, is unprofitable and the business as it operates today can’t continue," Kesha said.

He said while total closure was being considered and remained an option, cutting out LVL's export business could be more viable for its long term survival.

LVL had 325 workers, and it is understood about half were expected to be impacted by redundancies. A company spokesman said the restructure was not a direct result of Covid-19, however the pandemic had impacted the business.

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Opinion: Industry future needs new thinking

ForestX comment: Shane Jones’ musings on log export restrictions appear to have died a natural death. But, everyone agrees on his sentiment that we need stronger debate on the industry’s future. We need to tackle head on the industry’s reliance on a narrow selection of markets.

Could we please stop talking about adding value to our logs and start getting specific about what processing has a chance of actually achieving better margins? More to the point unless there is even wood flow out into the future in each of our forest regions, how do we expect anyone to invest in any form of processing?

What is it about the industry that has it at the bottom of local investors’ list of targets? Finally, let’s get down to some of the harder issues, like the biosecurity risk in having all our eggs in the pinus radiata basket. It is surely time for a serious industry forum so that a full debate can be had.

Kim von Lanthen

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Registration coming for advisers and log traders

A new log registration scheme and practice standards will bring us one step closer to achieving ‘value over volume’ in our forestry sector, Forestry Minister Shane Jones says.

New legislation introduced as part of Budget 2020 will require forestry advisers, log traders and exporters to register and work to nationally agreed practice standards that will strengthen the integrity of New Zealand’s forestry supply chain.

The new legislation follows a smaller package of measures announced late last year as part of the Government’s ambition to see a thriving forestry sector that benefits New Zealand and New Zealanders first and foremost.

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“The COVID-19 crisis showed us how an overreliance on log exports to a small number of markets makes our forestry industry less resilient and more susceptible to global forces,” Shane Jones says.

“An enhanced domestic wood processing sector will play an important part of the recovery for our regional economies, helping create new export products, new jobs for Kiwis and a renewed sense of ownership of our forests.

“Industry consultation identified that improved professional standards, market assurance measures and better information resources were critical areas to enable a more integrated system. The quality of advice from forestry advisers and interactions with log traders is critical to the financial returns forest growers receive, and to the operation of the broader log market.

“The new regulatory system will provide some critical foundations to help the industry navigate what is anticipated to be a more volatile and uncertain trading environment during the COVID-19 recovery period.

“Having a more transparent market will better connect owners of land and owners of trees, and particularly for first-time entrants to the market to timber processors and marketers of forest resources to domestic and overseas customers.

“New Zealand’s log supply market is in transition, with smaller owners playing an increasingly important role in the annual harvest. Knowing that only registered professionals can provide forestry advice is expected to give growers greater confidence in the recommendations they receive on the management and valuation of their investment, and the financial returns achieved through the sales and purchase process,” Shane Jones says.

Forestry advisers will need to demonstrate they have the relevant skills, experience, and qualifications to advise growers, and undertake training and professional development in their specialist areas.

Log trading entities will need to pass a fit and proper person test, operate in accordance with industry standards, and meet record keeping and reporting requirements.

The Bill also allows for an arbitration and compliance system to support accountability.

“This will help support a continuous, predictable and long-term supply of timber for domestic processing and export and result in greater confidence in business transactions, both in New Zealand and internationally,” Shane Jones says. “These changes are critical for the country’s reputation as a reliable, high quality producer and exporter of wood products, and for the improved economic, employment and environmental outcomes for the industry and community regionally and nationally,” Shane Jones says.

See Regulatory Impact Statement here

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SFM wins major forest management contract

Tasmanian forest leader wins major management contract - Tasmanian- owned and operated company SFM is pleased to announce it has been appointed by New Forests to manage the timber plantation assets purchased from Norske Skog after a competitive tender process.

Now to be called Lenah Estate Pty Limited, the Tasmanian plantations were bought by Australian-based international forestry investor New Forests, on behalf of its Australia New Zealand Forest Fund 3 (ANZFF3), from Norske Skog in February this year.

“We are delighted to win this contract to manage such an extensive and quality resource that supports the Boyer mill, the Derwent Valley and wider Southern Tasmanian community and local farmers,” SFM Managing Director Andrew Morgan said today.

“SFM has a strong track record in plantation management, having multiple management contracts interstate, so to be successful in our home state is very gratifying,” Mr Morgan said.

Managing Director Andrew Morgan (left) with SFM Director David Wise . The Lenah Estate land area under management by SFM is approximately 27,150 hectares across South Central Tasmania, predominantly the Derwent Valley. It includes 50 joint venture plantation projects with private landowners and Sustainable Timber Tasmania (STT).18,000 hectares or 97.5% of the 18,500 plantable hectares is radiata pine softwood plantations. Around 350,000-400,000 tonnes will be harvested annually, with the majority going to the Norske Boyer mill. Lenah Estate will replant 500-1000 hectares per year.

SFM will open an office in New Norfolk employing a core team of 8 full-time employees, supported by the broader SFM business with more than 20 FTE employees and over 100 FTE sub-contracted truck drivers, plant operators and support services.

“In a competitive field of property manager proponents, New Forests considered SFM’s proposal attractive for its commitment to local staffing, its technical capacity and its local knowledge”, Matt Crapp, Director Operations, said.

“New Forests looks forward to working with SFM on the long-term management of the Lenah Estate, including its ongoing supply to the Boyer Mill and our shared intentions that the Estate maintains third-party forest management certification,” Mr Crapp said.

“New Forests aspire to build on the positive relationship that Norske Skog has had with its contractors, joint venture landowners and the general community. We see opportunities for continued investment in this significant plantation asset to enhance its long-term value and have asked SFM to consult widely with stakeholders to develop and refine these plans.”

SFM currently manages two plantation projects for New Forests, consisting of both hardwood and softwood species across three States – WA, SA and Victoria.

Lenah Estate will be a significant addition to the SFM portfolio, which includes harvesting, haulage and export of more than 500,000 tonnes of plantation timber per annum. Hydrowood, a world first operation salvaging Tasmanian specialty timbers standing underwater for decades is a wholly-owned subsidiary of SFM.

About SFM - SFM Environmental Solutions Pty Ltd is a professional forestry business that provides forest management and consultancy services to a range of clients in Australia and New Zealand.

SFM provides certified forest management solutions under the Forest Stewardship Council and the PEFC/Responsible Wood certification systems so that its clients and the community can be assured that SFM provides a quality management service in line with world’s best practice.

Through its contractor networks and strong relationships with government agencies, forest companies and processors, SFM’s harvesting and marketing service offers an unprecedented level of efficiency resulting in maximum results for the tree grower.

Hydrowood, a wholly-owned subsidiary of SFM, salvages Tasmanian specialty timbers standing underwater for decades in man-made hydro-lakes and creates timber products for bespoke joinery, furniture and high-end architectural applications.

SFM prides itself on employing quality staff and maintaining high standards of operating systems to ensure the viability of the company and the natural resources it manages. SFM is headquartered in Hobart, Tasmania and has regional offices in Launceston (TAS), Mount Gambier (SA) and Tauranga (NZ).

www.sfmes.com.au - www.sfmnz.com - www.hydrowood.com.au

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Carbon market update

Carbon Match Weekly - In the eyes of the beholder - We're very close to surrender deadline now. We still have a few buyers looking to pick up against current year liability, with the backstop being the fixed price.

Last trade $24.90 for 50k best offer $25. If you're a seller anywhere around there please get in touch.

Yesterday an update posted on the MfE website made it clear that market participants will be none the wiser about future ETS settings ahead of the upcoming 31 May surrender deadline. Please note the announcement of the non-announcement.

There has been some confusion, to say the least, following the December consultation on ETS settings, in which it was proposed that the fixed price option for 2020 could be raised to $35 - effectively an average between the proposed price floor in the auctions ($20) and the proposed price ceiling ($50).

That proposal initially appeared to herald higher carbon prices, but when the Emissions Trading Reform (CCRA) Amendment Bill emerged recently from Select Committee, there was no mention of a mechanism to raise the fixed price option to $35. As it approaches its second reading, the headline number remains $25.

Officials note that the Bill still has several stages to go through and further changes are possible, but folks on both sides of the market are questioning the political appetite to peg carbon prices at a higher base using a $35 headline fixed price in the current economic climate.

In any event, if passed as it stands the Bill would see the fixed price option removed altogether - either when auctioning begins or by the backstop date of 1 January 2023.

Clear as mud? We'd all better wait and watch. Meanwhile as we said last week, the only way you can take matters into your own hands is to transact - whether that's spot on Carbon Match, forward agreements, or indeed, given that we are this close, using the $25 FPO while you know you still can.

Carbon Match - open now and between 1pm-5pm every weekday.

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Southland: Forestry directors asked to resign

Invercargill city forestry directors forced to resign: The three directors of an Invercargill City Council-owned forestry company which is being sold have effectively been forced to resign during the Covid-19 pandemic and two of them are unimpressed. Invercargill City Forests Limited chairman Mel Montgomery said she and fellow directors Ben Nettleton and Rebecca Keoghan were asked to resign by Holdco chairman Brian Wood in April, which they did.

Holdco, an investment company owned by the city council, owns Invercargill City Forests which is in the process of having its forests sold and being liquidated. Its 14 forests in Southland, Otago and Nelson/Marlborough have a total productive area of more than 3000ha of mostly radiata pine.

The forestry company directors were overseeing the sales process at the time of their departure, Montgomery said. ''He [Wood] basically said that due to Covid-19 money was tight amongst the group and we had done all the work for the sale and they could take it from there.

The next stage of the sales process was to decide which parties to invite to make offers, she said. ''But we never got a chance to do that.'' The directors had a lot of institutional knowledge and had done all the background work, she said.

''I feel like it wasn't the right call for the sake of a couple of months directors fees, I think we should have seen the process through.''

Another director, Ben Nettleton, said the move to ask the directors to resign was surprising given they were at a sensitive stage of the sales process. He got a sense the Holdco board was wanting to move it forward with ''indecent haste''.

The third forestry company director, Rebecca Keoghan did not respond by Tuesday's 3pm deadline, but Holdco chairman Brian Wood said Keoghan had no problem with the request to resign. Wood confirmed he had asked the directors to resign as a cost-cutting measure.

''We looked at the overall position of the group and where we could save cash and the forestry company was one area we could.''

The forestry company directors were costing about $10,000 a month in fees and costs and they had done 90 per cent of their work by preparing the company's forests for sale, Wood said.

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FWPA: Forests are for kids ... really!

Did you know that FWPA runs a program called ForestLearning? It's about leading the way in harnessing technology to teach kids about forestry, through a number of innovative means. Using virtual reality, students are transported to forest and wood processing environments, without leaving the classroom! And by setting up video links with foresters in the field, students get to talk to key industry members, on-site, in real-time. And these are just two examples of many!

The activities of ForestLearning are designed to educate children about the sustainable forestry industry, as they grow up to become tomorrow's leaders, policy makers and consumers ... or even the next generation of foresters!

The program provides forestry and sustainable wood product information, aligning with the Australian curriculum. And with much of its content ideal for online delivery, it's strongly placed to offer more learning opportunities during this current unprecedented time, as demand for at- home options increase.

And the great news is ForestLearning is now on LinkedIn! If you've got school-aged children, have a teacher in your life, or are just keen to learn about how we're engaging the next generation, follow the page and be the first to hear about the latest innovative developments.

See more about ForestLearning here: https://www.linkedin.com/company/forestlearning/

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Fuel cells: Daimler and Volvo team up

Large scale production and commercialisation of hydrogen fuel cells has been given a boost by a joint venture between two of the world's biggest commercial vehicle manufacturers - Daimler Truck AG and Volvo Group have announced they have signed a preliminary non-binding agreement to establish the new joint venture.

The intention is to develop, produce and commercialise fuel cell systems for heavy-duty vehicle applications and other use cases according to a media release that confirmed Daimler will consolidate all its current fuel cell activities in the joint venture. Volvo Group will acquire 50 per cent in the joint venture for the sum estimated to be worth $1.35 billion on a cash and debt free basis.

As energy is emitted from batteries or by converting hydrogen on board into electricity, CO2- neutral transport can be accomplished through electric drive trains said Chairman of the Board of Management Daimler Truck AG Martin Daum.

"For trucks to cope with heavy loads and long distances, fuel cells are one important answer and a technology where Daimler has built up significant expertise through its Mercedes-Benz fuel cell unit over the last two decades," he said.

"This joint initiative with the Volvo Group is a milestone in bringing fuel cell powered trucks and buses onto our roads,” said Daum.

Using hydrogen as a carrier of green electricity to power electric trucks in long-haul operations is one important part of the puzzle according to Volvo Group President and CEO Martin Lundstedt. "Combining the Volvo Group and Daimler’s experience in this area to accelerate the rate of development is good both for our customers and for society as a whole," he said.

"By forming this joint venture, we are clearly showing that we believe in hydrogen fuel cells for commercial vehicles. But for this vision to become reality, other companies and institutions also need to support and contribute to this development, not least in order to establish the fuel infrastructure needed,” said Lundstedt. The joint venture will operate as an independent and autonomous entity, with Daimler Truck AG and the Volvo Group continuing to be competitors in all other areas of business.

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Buy and Sell

... and finally ... How about this?

Video Clip Alert: You'll have to be a baby boomer or youthful convert to become an avid Simon & Garfunkel fan, but this Covid19 version of The Sound of Silence will be of interest:

One last thought ... is it just me or are the people running business survival webinars using this word too much since we entered Levels 4, 3 and 2?

See if you can guess the word we might just be getting sick of now:

Thanks for keeping up with the latest wood news with us!
Have a safe and productive week.

John Stulen, Editor

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