WoodWeek 3 February 2021
The first word today goes to FOA president Phil Taylor, who points to the 380,000 new hectares of exotic plantations the Commission anticipates will need to be planted between now and 2035.
“These extra trees will be the support act for the Commission’s targets of massive reductions of the overall carbon dioxide emissions from industry and transport. This decarbonisation has to be the thrust of meeting New Zealand’s climate change mitigation obligations.”
“Anything else is delaying solving the problem. Pines are great at buying time, but they don’t cut gross emissions themselves.”
“The trees the Commission has identified are fast growing and so they will sequester carbon at a rapid rate, which the Commission acknowledges. In a rotation forest they maintain that high carbon bank. They also provide an average export return to the landowner for the timber which is above that from farming.”
Softwood log exports from Russia have been in steady decline for the past 15 years and could reach zero in 2022 if President Putin’s new log export ban is implemented. He’s reportedly requested a “complete ban on shipments of unprocessed or roughly processed conifer and valuable hardwood out of Russia by 1 January 2022”.
Finally, we send our condolences to the family of our long-time personal friend and colleague, Jim Park. For those of you who worked with Jim, his funeral is in Rotorua tomorrow.
This week we have for you:
Log Export Market UpdateThanks to the team at Champion Freight, we have the latest review of New Zealand's log export markets to the end of December 2020. As you can see in the accompanying graphic, total log export values to China to the end of 2019 were down 10 percent year-on-year, to NZ$3.07 billion contributing to overall log exports reducing by 11 percent across all markets. Amid this, markets in India were down 17% while Japan sales were up 5% over the year.
To the end of December, China shipments month-on-month were down 3 percent and overall log exports up 7 percent.
PF Olsen - Log export market updateLooking to our key log export markets, this week we have commentary from the PF Olsen team. The December AWG prices for export grade logs increased by 7-8 NZD per JASm3 from November prices. Log prices increased in China as the market reacted to the ban of Australian logs.
Due to the increase in export log prices the PF Olsen Log Price Index increased by $4 in December to $124. The index is currently $3 above the two-year average, $1 above the three-year average, and $1 above the five-year average.
See graph below for details.
Source: PFOlsen Wood Matters
Russia to outright ban log exports in 2022Softwood log exports from Russia have been in steady decline for the past 15 years and could reach zero in 2022 if President Putin’s new log export ban is implemented
In a recent statement, Russian president Vladimir Putin ordered the government to strictly control the exportation of roundwood and low-value forest products, and to clamp down on the illegal trade of logs (in his terms: “hard-hitting decriminalization of the industry”).
He also requested a “complete ban on shipments of unprocessed or roughly processed conifer and valuable hardwood out of Russia by January 1, 2022.”
This statement would indicate that lower-value hardwood logs, such as birch pulplogs exported to Finland, may be excluded from the future export ban.
To encourage domestic processing of Russian timber, Putin also wants to implement a government program of subsidized loans for investing in wood processing facilities, primarily in Siberia and Russia’s Far East, targeting the growing wood markets in Asia.
These industry loans would be available for facilities producing lumber and panels, and pellet manufacturers which predominantly use small-diameter logs for their wood furnish.
If the log ban is enacted, it will be the end of Russia’s long-lasting role as one of the world’s largest exporter of softwood logs. Over many decades, the country exported large volumes of wood raw-material, predominantly to forest products manufacturers in Asia and Europe.
Softwood log export volumes peaked at 37 million m3 in 2006, but when log export tariffs were implemented in 2008, shipments fell dramatically and were down to only 8.5 million m3 in 2019.
This year, the decline has continued and only an estimated six million m3 is likely to be exported, according to the Wood Resource Quarterly. A majority of the shipments have gone to China (about 75 per cent) and Finland (10 per cent) in the first half of 2020.
Russian hardwood log exports have fluctuated between 7-8 million m3 the past five years but are likely to fall in the next two years if higher-value logs such as oak and ash are banned for exports.
China has sourced about 10-12 million m3 of softwood and hardwood logs annually from Russia for the past five years. Subsequently, the log export ban will substantially impact the future sourcing of both wood raw-material and processed products to China, a potentially troublesome scenario due to their outlook for increased consumption of forest products.
Source: Canadian Forest Industries
Open letter to Climate Change CommissionOpen letter to Climate Change Commission from Euan Mason - Some initial comments after a brief reading of your report:
The Climate Change Commission should be commended for making a very helpful, comprehensive report on such a difficult topic. The Commission is right to state that our long term focus must be on reducing greenhouse gas emissions. With respect to forestry issues there appear to be a number of unsubstantiated assumptions, however:
1. Forest C storage is said to be “impermanent”. What matters is the total area of New Zealand in forest, not whether or not any particular forest stand blows down, burns or is harvested. If we commit to increasing the total national area of forest and to ensuring that the very small areas that blow or burn down, or those areas that may be harvested, will be re-established, we can enlarge a very stable, permanent C store in forests.
2. Forest is said to be risky because climate change will increase the risk of fires. New Zealand’s forests have long been far more likely to blow down than burn down, and the frequency of forest fires has not yet been shown to have increased in New Zealand. Australia, at similar latitudes to the Sahara and with continental climate patterns, has always been subjected to greater forest fires than us, and our opinions on this matter appear to have been strongly influenced by anecdotes from across the Tasman Sea. This is poor evidence on which to base policy.
3. There appears to be an implicit assumption that native forests are more permanent than exotic forests, and to the extent that exotics tend to be pioneer species from an ecological point of view, this is true for unharvested forests, but the conclusions that we must plant native forests and that these forests will greatly help us reach our 2050 target are flawed. Native forests sequester C very slowly compared to our most productive exotics, and areas of native forest required to have the necessary impact on our C accounts by 2050 are simply too large and expensive for us to contemplate.
There is abundant evidence that we could take advantage of rapid sequestration rates of exotics to fill gaps in our C accounts (these gaps result from a necessarily slow pace of change in greenhouse gas emissions and are acknowledged by the Commission) while gradually transitioning these pioneer exotic carbon forests to later seral stage native forest over many decades.
This latter approach would have substantial advantages. It:
a) is much cheaper, in dollars and in land area required, than directly planting native C forest;
b) ensures that forests actually fill the gaps in our C accounts; and
c) ultimately provides extra native forest which many of us would like to see, but in a more natural way.
Source: Scoop News
Vale Jim ParkWe were saddened to hear that our long-time friend and industry colleague, Jim Park passed away last week. Jim was known for his consulting and practical expertise to many people involved in forestry and especially those involved in achieving the most from pruned pine across our forest estates.
Many of us in forestry knew Jim through our connections to research at FRI. Jim missed some of the formal forestry academic background but was in no way disadvantaged and had an intellect that earnt the respect of all that encountered him. He brought to forestry an insightful, often visionary and uncompromising research approach. Most of his work was in providing methods and tools to understand the inherent value of our pruned log resource.
One of his major achievements was developing the ‘Grade Index’ measure of log quality and this evolved into the Pruned Log Index accompanying rigorous methods of undertaking mill based log grade studies. Jim created a considerable body of published papers that will be an enduring legacy. In 1998 he went on to use these tools and his considerable knowledge to embark on a successful commercial consultancy business (Interface) which worked both on and off-shore.
Following a private cremation, a celebration of Jim's life will be held on Thursday, 4 February at 2pm at Osborne Funeral Directors Chapel, 197 Old Taupo Road, Rotorua. Donations to the Rotorua Hospice would be appreciated and may be left at the service.
Source: Graham West & Alan Somerville
Carbon market updateReality Bites - Enjoy the picture - summer holidays were over so fast! It's now the third week back and there’s a bit going on so here’s a quick carbon update.
Obviously Biden's immediate signing of an executive order to rejoin the Paris agreement was well signalled. But nonetheless it's another factor supporting sentiment. The new administration is expected to seek out common ground with China, which has a goal of carbon neutrality by 2060. Meanwhile late last year the EU also increased its target, agreeing to reduce emissions by 55% relative to 1990 levels by 2030.
Here in New Zealand, for those in the climate change community or affected by the ETS, the next big event of interest will be the release of the draft version of the Climate Change Commission’s advice, due February 1st.
That advice will, among other things, provide advice on whether New Zealand's current NDC actually makes the grade, in terms of being compatible with global efforts to limit warming above 1.5°C above pre-industrial levels. It will propose our first three emissions budgets and give guidance on how we might achieve them; what reductions in biogenic methane might be required and also the extent to which we might reasonably rely on forestry offsets.
Auctions Near - Thereafter, 17 March is the date of the first Government auction. With the Government the only seller at that event, this will be a new kind of opportunity to potentially get one's hands on a chunk of volume.
4.75 million NZUs are to be made available at the first auction, unless the cost containment reserve is triggered (i.e. the auction clears at $50 or more), in which case a further 7 million tonnes becomes available.
Today and tomorrow the NZX and the EEX are showcasing the auction platform that has been specially commissioned by Government.
The simulation today delivered a clearing price of just $28.30 - some ten dollars below recent spot market values.
Operational simulations are not necessarily indicative of reality and also included no technical reserve.
But although it was a dummy run, it perhaps provides an insight into the decision by Cabinet shortly before Christmas to introduce an amendment bill to implement a technical reserve price. Climate Change Minister James Shaw confirmed to Carbon News that this was the case, and that the aim was to have the TRP in place before the first auction.
The Devil You Know- Meanwhile, on the secondary market, NZUs are now at $38.40, with good interest both sides.
At the risk of sounding our own trumpet, the key difference between the black box of a quarterly auction and our existing secondary market platform is that as a buyer, you can see the other bids around you. You know where you stand on Carbon Match.
And, if you can suck it up and pay the sellers' asking prices, the volume is yours then and there. In the auctions of course, you have no guarantee of getting filled to the level you require, or at the price you have decided to pay. The Point? The secondary market continues to offer daily opportunities to pick up volume at a known price today and move on with your life.
Remember also, that the cost containment reserve is not a price ceiling. None of us can predict where the auctions will clear, but $50 is definitely not a formal cap on where the value of NZUs could be over the course of 2021. On the other hand, the auction volume is quite significant, and there are a number of scenarios, including some to the downside.
One factor to bear in mind is that for most of the buy side, a $35 fixed price option still remains available against 2020 calendar year liabilities until the end of May compliance deadline.
Everyone has some capital constraint, and with the first auction taking place before the 2020 compliance deadline, most rational compliance buyers will find it difficult to justify paying more than $35.
But the intention to introduce an undisclosed technical reserve price is likely to deter low balling at the auctions. And, notwithstanding our comment above, we still continue to observe a spot market well supported at north of $38.
Anything could happen.
Carbon Match - now open 10am - 5pm every weekday.
Rates rise targets plantation forestryForest owners in the Wairoa district are unhappy at a recent targeted rates increase they believe is unfair, but other councils around the country have either already adopted or are considering similar moves.
The Wairoa District Council recently approved changes to its rating model that included new rates differentials. The new rating system, which takes effect from July 1, consists of five differentials. Forestry carries the largest weighting at a differential of 4.0, with commercial at 1.6, residential at 1.0, residential properties valued at over $399,999 at 0.8 and rural at 0.7.
Wairoa Mayor Craig Little says forestry’s increased differential reflects community feedback that the sector contributes less than it should towards the social, economic and environmental wellbeing of the district. He says the new rating model is the result of feedback received from the community through submissions, community meetings and caravan sessions.
“We have struck a balance where we have listened to the community while achieving a future rating system that is simple, affordable and appropriate,” Little said.
Wairoa is not the first rural or provincial council in New Zealand to introduce a rating differential of 4 for forestry, with Waitaki District Council already having that rating level in place. Waitaki Mayor Gary Kircher says it was introduced after the council had to foot the bill for significant road maintenance after damage done during log harvest.
He says the council was faced with a situation a few years ago where one road in the district was “blasted to bits” by a forestry operation, with the repair bill running to more than $1 million. The council had to decide how it could capture the cost of repairs and target them where it belonged.
Source: Farmers Weekly
Loggers survey reveals differencesCFI’s 2016 and 2018 Contractor Survey results found that Quebec, on average, had smaller operations, lower costs, and a younger workforce, which spelled mostly good news for the province. But the results of CFI’s 2020 survey show that the picture is changing. While the region remains one of the most profitable in Canada, with a fair amount of success negotiating logging rates, the cost of operating is on the rise, along with the average age of contractors, and harvesting volumes remain low. Overall, the results suggest the industry could see significant changes in the next five years.
In general, Quebec contractors reported the following:
Rates and profits - Quebec contractors continue to have luck negotiating rates, with a total of 40 per cent seeing a rate increase compared to five years ago. In 2018, that number was 34 per cent, and in 2016, it was just 17 per cent. But, this is still a ways away from the 64 per cent of loggers in Alberta who saw a rate increase, or even the 50 per cent in Ontario.
As logging rates in the region have increased, so have profit margins. Quebec continues to be one of the most profitable regions for loggers, with 17 per cent reporting a profit margin of 11 per cent or higher. Only Alberta has better numbers, with 36 per cent reporting a profit margin of 11 per cent or more. Despite this, more Quebec contractors reported making no profit in 2019 compared to 2017 – 19 per cent versus 13 per cent. A large proportion (26 per cent) say they made a profit of one to three per cent.
This change could be explained by the fact that operational costs in the province have gone up since 2018. All told, 87 per cent of Quebec contractors say the cost of labour has gone up, and 76 per cent say fuel costs have increased. In comparison, 84 per cent of contractors nationwide report labour costs have risen in the past three years, and 61 per cent say fuel costs have increased.
Across the country, insurance costs have skyrocketed. Almost 100 per cent of respondents in Quebec (87 per cent) say insurance costs have gone up in the past three years, likely as a result of the increasing cost of machinery. But the cost of machinery remains lower in Quebec than in other provinces, with just 35 per cent of Quebec loggers rating machinery purchase as having increased significantly, compared to 55 per cent nationally.
Full report click here
Marlborough forestry practices questionedForestry practices questioned after three quarters fail first inspection - Questions have been raised about the methods used by Marlborough’s forestry industry after three quarters failed their first round of compliance for the third year in a row.
Source: Marlborough District Council
Thirty-five blocks went under the microscope during the Marlborough District Council’s annual forestry inspection last financial year, covering off 10 different companies. Initial inspections found 10 blocks were compliant, with the remaining 25 blocks, or 72 per cent, non-compliant. This mirrored compliance levels from previous years.
Council environmental protection officer Claire Frooms said the biggest causes of non-compliance last year were erosion and sediment controls not being in place or not being maintained, in a breach of environmental rules.
Source: Stuff News
IEA Bioenergy appoints new NZ ChairPaul Bennett of SCION, New Zealand has been elected as the new chair of the IEA Bioenergy Technology Collaboration Programme for 2021. He follows Jim Spaeth of the United States Department of Energy who acted as chair in the past 3 years.
The IEA Bioenergy Executive Committee also appointed two new vice-chairs to assist the chair in his work: Sandra Hermle of the Swiss Federal Office of Energy and Dina Bacovsky of BEST (Bioenergy and Sustainable Technologies), Austria.
Jim Spaeth: “As the outgoing IEA Bioenergy Technology Collaboration Program Executive Committee Chair, I am pleased to welcome Paul Bennett from New Zealand, as the newly elected Chair of the IEA Bioenergy. Paul, who currently has the position of Integrated Bioenergy Portfolio Leader at Scion, brings a wealth of international business experience as well as bioenergy and fuels expertise, having previously worked in numerous very senior management positions for BP in several locations around the globe.”
The IEA Bioenergy Technology Collaboration Programme (IEA Bioenergy TCP) is a global network on research and implementation of bioenergy, established under the International Energy Agency’s Implementing Agreement mechanism.
The IEA Bioenergy TCP comprises a world-wide network of experts in every aspect of the value chain of biomass for energy, who are from the research community, institutions of higher education, government agencies and industry. Further information: www.ieabioenergy.com.
JK’s forests Rowling in itJK Rowling's forestry firm paid more £750,000 in EU subsidies - A company controlled by JK Rowling, one of Scotland’s wealthiest women, was one of the biggest beneficiaries of EU agricultural subsidies last year.
The Scotsman can reveal the Harry Potter author, whose personal fortune is estimated at nearly £800 million, is the controlling party and sole shareholder of a firm that received more than three quarters of a million pounds in 2019 via the EU’s Common Agricultural Policy (CAP) scheme.
The company in question, Thistlelane Limited, has significant control over another firm, Strathbright Limited. Title deeds show Strathbright owns swathes of forestland in the south of Scotland larger than Edinburgh’s Holyrood Park.
Cumulatively, both companies have received more than £1.4m in agricultural subsidies over the past decade, according to records maintained by the UK Department for Environment, Food, and Rural Affairs (DEFRA) and the open data site, Farm Subsidy.
A spokeswoman for Ms Rowling said that grants were available to “all qualifying landowners” and were allocated on a “non-competitive basis” following consultation and approval by Scottish Forestry. She said the firms in question had carried out extensive tree planting to establish new woodlands.
Numerous individuals and investors have become involved in the forestry sector in recent years, thanks in part to generous grant schemes designed to create new woodlands and ensure the sustainable management of existing sites.
Northland and rural sector steal the showThe winterless North takes the lead - Northland and rural sector steal the show In The Latest ASB Regional Economic Scoreboard.
A strong performance from Northland this quarter has seen the region shoot up seven spots to take the lead in ASB’s quarterly Regional Economic Scoreboard.
ASB senior economist Chris Tennent-Brown says, “It’s an impressive performance given the region would have been more exposed than most to Auckland’s move to COVID Alert Level 3 in August,” although he notes the figures reflect year-on-year growth and the recovery from a tough 2019 will be helping boost Northland’s rankings.
“This quarter’s result reflects an upswing, though there is still a way to go, with the unemployment rate above the national average. Still, it’s positive to see some catch-up momentum getting underway.”
The ASB Regional Economic Scoreboard shows solid population growth, employment, retail and new car sales figures for Northland this quarter, with Mr Tennent-Brown highlighting the forestry sector as one of the standouts of the post-pandemic economy.
“Forestry exports are performing strongly thanks to the rapid Chinese recovery, and the booming domestic construction outlook is also acting as a key support. Forestry products are one of the few commodities where prices largely match last year. Overall a solid performance from the North this quarter.”
Rural New Zealand the star of the show
Whilst the main centres had a softer quarter, rural New Zealand is holding up well with Bay of Plenty and Waikato taking silver and bronze respectively, thanks to their heavy agricultural focus.
The stronger outlook for the dairy sector of late is one factor, along with a record Kiwifruit season in the Bay, and solid export activity.
“All the regions with dairy exposure will be pleased to note we have lifted our farmgate milk price forecast to $7 recently.
“The primary sector’s resilience is really pleasing to see. Most obviously, food production is an essential service, so farmers have just kept doing a great job while their peers in the service sector dealt with the fear of further lockdowns. With borders largely closed to the movement of people, tourism is hurting, and that’s having a negative flow-on effect on related sectors, like retail trade. So it’s not surprising to see regions that are more reliant on agriculture and exports experiencing the benefits,” says Mr Tennent-Brown.
Waikato is seeing the positives from having low unemployment as well as robust annual growth and strong retail sales, although non-residential construction looks to be slowing slightly this year.
Meanwhile, Bay of Plenty residents were the most upbeat across the country this quarter, despite the lack of international tourism dollars that the region usually enjoys. “Hopefully there is a big domestic tourism influx over the summer as the festival season begins.”
South Island still trailing as the North Island dominates the upper half of the scoreboard
The North Island continues to outperform the south, with Otago, Southland and Canterbury all remaining at the bottom of the ladder this quarter.
“South Island regions have traditionally relied more heavily on international tourist earnings than most North Island regions, and we’re seeing this continue to take a toll. It’s highly likely that until we get a vaccine and tourism begins to pick up, we will continue to see the relative industry impacts reflected in regional economic success,” says Mr Tennent-Brown.
Softer metrics across the board hindered Otago and Canterbury’s progress this quarter, however, for Southland, which fell five spots to 14th, the potential closure of the Rio Tinto plant likely weighed on sentiment.
Taranaki has the biggest drop this quarter- It was a tough quarter for Taranaki with the region sliding eight spots to 12th.
“The two big industries in the region are pointing in different directions. The energy sector faces an uncertain future as energy prices trundle along historic lows. That’s having a wider flow-on effect in the region and, last month, we saw Methanex announce it would shut its methanol plant in Waitara, after failing to secure new gas supplies.”
Despite sitting in the lower half of the table for most metrics, including population growth, employment, construction and house sales, Taranaki’s strong dairy sector would likely be a support in coming months says Mr Tennent-Brown.
The full ASB Regional Economic Scoreboard, along with other recent ASB reports covering a range of commentary, can be accessed at our ASB Economic Insights page
The Science: Global forest estate good for the planetForests Absorb Twice As Much Carbon As They Emit Each Year – The world is getting a better understanding of just how important forests are in the global fight against climate change.
New research, published in Nature Climate Change and available on Global Forest Watch, found that the world’s forests sequestered about twice as much carbon dioxide as they emitted between 2001 and 2019. In other words, forests provide a “carbon sink” that absorbs a net 7.6 billion metric tonnes of CO2 per year, 1.5 times more carbon than the United States emits annually.
Unlike other sectors, where carbon makes a one-way trip to the atmosphere, forests act as a two-way highway, absorbing CO2 when standing or regrowing and releasing it when cleared or degraded.
Before now, scientists estimated these global “carbon fluxes” from the sum of country-reported data, creating a coarse picture of the role forests play in both carbon emissions and sequestration. With these new data that combine ground measurements with satellite observations, we can now quantify carbon fluxes consistently over any area, from small local forests to countries to entire continents.
Using this more granular information, we found that the world’s forests emitted an average of 8.1 billion metric tonnes of carbon dioxide into the atmosphere each year due to deforestation and other disturbances, and absorbed 16 billion metric tonnes of CO2 per year.
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... and finally ... ha ha ha
The past, the present and the future walked into a bar together.................it was tense!!
St. Peter goes over to God's chambers and tells him who is waiting for entrance. God says to Peter: "How many times do I have to tell you? You can't be judgmental here. This is heaven. All are loved. All are brothers. Go back and let them in!"
St. Peter goes back to the Gates, looks around, and lets out a heavy sigh. He returns to God's chambers and says, “Well, they're gone."
“The guys wearing hoodies?" asked God.
"No, the Pearly Gates” replied St. Peter.
The inspector decides to give Tom a pop quiz, asking: "What would you do if you realized that two trains were heading towards each other on the same track?"
Tom says: "I would switch one train to another track."
"What if the lever broke?" asks the inspector.
"Then I'd run down to the tracks and use the manual lever down there," answers Tom.
"What if that had been struck by lightning?" challenges the inspector.
"Then," Tom continued, "I'd run back up here and use the phone to call the next signal box."
"What if the phone was busy?"
"In that case," Tom argued, "I'd run to the street level and use the public phone near the station."
"What if that had been vandalised?"
"Oh well," said Tom, "in that case I would run into town and get my Uncle Leo."
This puzzled the inspector, so he asked, "Why would you do that?"
"Because he's never seen a train crash."
That's all for this week's wood news.
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