WoodWeek – 18 August 2021

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Welcome to our wood news update for a week we won’t soon forget. While the export log market to China has changed dramatically in a month, our normal work lives, as we know them, have had the handbrake applied swiftly overnight. This time as lockdown is enforced, we are much better informed and have many more science tools to understand what is happening.

Looking to one of the key differences, construction is booming but still not meeting housing demand. Is there now a case for industry leaders to advocate to Government that forest and wood products production be considered an essential industry?

Regarding log exports perhaps it’s time to briefly consider a longer-term view. The International Monetary Fund (IMF) maintains their forecasts that China’s economy will grow 8.4 percent in 2021, with global growth of 6%. Both the United States and China are seeing a rapid rebound from the economic damage brought on by the COVID-19 pandemic. So the market haiatus may be short-lived. Local log buyers are well- placed to continue taking volume at pace, although they want the better quality logs from the forest, which come with the lower grades destined for China.

Let’s face it, we all knew that what goes up … must come down. Cast your mind back to late February, when our industry commentator cautioned ”Considering the longevity of the current pricing levels in China (our primary market), as history has dictated, time and time again, once A grade exceeds $145/JAS it's time to brace yourself for a good old-fashioned walloping.”

His wise words continued with the warning, ” Each time prices get to these levels there’s plenty of talk about the drivers around price being different this time and this is the new medium-term level. Within a month we’re generally crying into our soup and dialling back production as prices plummet faster than John Banks’ radio career.”

Heading to the hills now, where there are disparate views about farming and carbon forestry. Competition from carbon farming is driving up land prices and pushing first- farm buyers out of the market, says Beef + Lamb New Zealand. Chief executive Sam McIvor. However, government officials are challenging the figures in the B+L commissioned BakerAg report. Agricultural Minister Damien O’Connor says his officials have calculated the area of new forestry planted over that period at 87,200ha, 20,000ha a year, 37% lower than BakerAg.

See you again next Wednesday, when we find out if our team of 5 million is up to beating this nasty virus. Let’s hope we are. From our fortunate position of being this year's largest log exporter into China and the one of the last countries enjoying freedom of movement ... what a difference month and a day makes.

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China Economic Outlook

China’s Gross domestic product (GDP) expanded year-on-year by 7.9% in the second quarter of 2021. Monthly data, including retail sales, industrial output and fixed investments, showed growth softened but not as much as expected, adding to views that policymakers may do more to support the recovery. Higher raw material costs, supply shortages and pollution controls are weighing on industrial activity. The People’s Bank of China (PBOC) has announced that it would cut the amount of cash that banks must hold as ratio reserve requirements (RRR) by 0.5 percent, which would release about 1 trillion RMB in cash. This signals that the central government is becoming more concerned with economic recovery in the private sector, with this RRR cut expected to free up liquidity that could help banks deal with pressures arising from deteriorating asset quality, as well as the impact of the pandemic and wealth management product reforms.

Outbreaks of new cases of COVID-19 have been associated with lagging performance in consumer spending. The Delta variant of COVID-19 was dominant in those infections in the Guangdong province upsurge, which also caused delays in some of the major ports in Guangdong. The two-year average growth in retail sales remains below pre-pandemic trends, which is evidence of persistent weakness in domestic private consumption. Household income growth also remains outpaced by GDP, even as average working hours have increased in recent months.

The Caixin China General Manufacturing Purchasing Managers’ Index (PMI index) expanded at a softer pace in June, coming in at 51.3 (with a reading above 50 indicating an expansion in activity). Despite edging down to a three-month low, the June reading marked the 14th consecutive month of expansion. Surveyed companies indicated that the recent uptick in COVID-19 cases and supply chain difficulties weighed on output, while the pandemic dampened demand both at home and abroad. Inflationary pressures eased somewhat, but manufacturing enterprises’ purchasing prices and factory-gate prices still rose.

Forecasts - The Economist Intelligence Unit (EIU) under the Economist Group maintains their expectations that China’s real GDP will be around 8.5% in 2021, up from 2.3% growth in 2020. However, the continuous momentum has waned due to the government having toned down policy support as the pandemic is brought under control. COVID-19 vaccination has accelerated, and current expectations are that 60% of the population will be fully vaccinated by the second quarter of 2022.

The International Monetary Fund (IMF) also maintained their forecasts that China’s economy will grow 8.4 percent in 2021 this year, with global growth of 6%. Both the United States and China are seeing a rapid rebound from the economic damage brought on by the COVID-19 pandemic. The IMF noted that China’s effective containment measures, strong public investment response and central bank liquidity support contributed to the strong recovery. Ongoing fiscal support will be targeted, likely to focus on major infrastructure projects such as the Yangtze River Delta integration targets, and the Greater Bay Area city clusters.


Source: Canada Wood Market News

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Farmers Confusion Over Free Markets

Farmers want free markets for food but not for land use - Competition from carbon farming is driving up land prices and pushing first-farm buyers out of the market, says Beef + Lamb New Zealand. Chief executive Sam McIvor says a commissioned report compiled by BakerAg calculates carbon farmers bought an estimated 31,000ha in the four years since 2017, 34% of the 92,118ha of the sheep and beef farms purchased for conversion to forestry.

“One of the interesting aspects which is parallel with housing, is the fact that carbon farming is driving land prices up, which is putting farms out of reach of young people,” McIvor said. While timber prices have boosted demand for land, the report attributes a significant reason to climate change policies making revenue from a combination of forestry production and carbon, or carbon-only, more attractive.

“We anticipate this trend will continue as the carbon price continues to increase,” he said.

Carbon prices are currently around $46 per tonne, but McIvor says with the Climate Change Commission (CCC) forecasting prices hitting $140/t in 2030 and $250/t, competition is only going to get more intense, evident by increased activity this year.

Forestry is a legitimate land-use and has a role in climate change, but McIvor says carbon farming locks up land forever, allowing carbon emitters to offset their emissions without reducing the source of those emissions. The report calculates the conversion of farmland to forestry and carbon farming meant the loss of 700,000 stock units from 2017 to 2020.

Included in the 92,118ha being converted, was 14,300ha for mānuka honey production. Between 2018 and 2020, an additional 47,382ha was planted under the billion trees programme or Crown Forestry joint venture, of which three-quarters was for exotic trees and the balance native.

B+LNZ disputes claims the land going into trees is unproductive, saying while 90% is classed 6 or 7, 64% is of low to moderate erosion susceptibility and primarily used for lamb and calf breeding. McIvor says he has been meeting with ministers and the forestry sector to air their concerns, particularly at the scale and pace of whole farm purchases and its impact on rural communities.

B+LNZ wants limits on the volume of offsets available to participants in the Emissions Trading Scheme (ETS), such as in California where it is 8%, and restrictions on the quantity of New Zealand Units (NZUs) issued to forestry participants for post-1989 forests for carbon sequestration.

The Forest Owners Association says the report asks more questions than it answers and lacks sufficient rigour for the Government to impose restrictions. President Phil Taylor says the current forestry estate is still 162,000ha less than it was 18 years ago. “Our concern on current figures would be that the CCC’s reliance on an expansion of the exotic forest area by another 380,000ha by 2035, to meet the 2050 greenhouse gas target, is going to fall well-short,” Taylor said.


Source: Farmers Weekly

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Govt Questions Accuracy of Forestry Report

The Government claims a BakerAg analysis on the amount of land being planted in forestry has over-egged the area by 37%.

But the report authors attribute any discrepancy to delays between completed land sales and planting.

BakerAg calculated 139,500ha of new forestry was planted from 2017-2020 by tracking farm sales and titles data, cross referenced with companies known to be forestry or carbon farming companies.

Agricultural Minister Damien O’Connor says his officials have calculated the area of new forestry planted over that period at 87,200ha, 20,000ha a year, 37% lower than BakerAg.

“Government afforestation estimates are based on a combination of land-use mapping, nursery sales and funding within the one billion tree programme,” O’Connor said

He says 20 years of deforestation has reduced the forest estate by about 70,000ha.

The BakerAg report was commissioned by Beef + Lamb NZ and concluded whole farm purchases by forestry companies resulted in 92,000ha of new exotic forest planting between 2017 and 2020.

A further 47,400ha was planted under the one billion trees programme and other planting incentives.

B+LNZ was most concerned that 34% of whole farm purchases were to carbon farming companies, planted in exotic forest and left untouched with carbon credits sold to emitters.

It warns this demand is pushing up land prices, locking young farmers out of the market and resulting in the loss of breeding country while also robbing rural communities of population and services.

O’Connor says the Government is listening to concerns, is committed to a policy of “right tree, right place” and closely monitors forest planting. But it will not cut across farmers’ rights to make decisions about their land.


Source: FarmersWeekly.co.nz

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A Tale of Two Log Exporters

(IndustryEdge) Log export data tells tale of two Tasmans - Latest log export data for Australia and New Zealand tells two radically different stories. New Zealand’s log exports are booming and the price is at record levels. Meantime, Australia’s trade is constrained on both fronts, despite the strength of global demand for fibre.

As the data and visualisations on the Wood Market Edge online platform demonstrate, in June 2021, Australia’s total softwood log exports reached just 98.3 km3, the lowest export volume in five months. The average price was AUDFob114/m3 or USDFob85/m3. The main recipient country for the month was Korea (54.6 km3), followed by Vietnam and India.


Source: Industry Edge

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A Log Export Explainer

(Lucy Craymer, Stuff) - Millions of cubic metres of logs leave our shores every year - all while we remain desperately short of timber If you want to build a house in New Zealand, you'll likely want timber. But in a country that cuts down around 40,000 hectares of trees, there is a shortage of the stuff. National Correspondent Lucy Craymer explains why trade is affecting our ability to produce structural timber.

Builders are struggling to get hold of basic building materials and there are warnings that prices – already high – could rise as much as 35 per cent this year. It’s an ugly forecast for builders charged with tackling a chronic shortage of housing. And it is not easily fixed without the government doing a U-turn on the country’s entrenched devotion to free trade.

The problem has its roots more than 10,000km away in Chinese provinces like Shandong and Hebei, known for wood processing - and also in a trade agreement that has heralded significant benefits to our economy while at the same time undermining the country’s wood manufacturing sector over the course of a decade.

Why does so much timber go to China? - Simply, they are able to pay more. But there is more to the answer than just pure supply and demand. Let’s start with the Free Trade Agreement (FTA), which New Zealand and China signed in 2008. This got rid of import taxes on New Zealand logs going to China but did not eliminate those on other wood products New Zealand produces such as plywood (tariffs on many of these will be eliminated when an upgrade to the FTA takes effect).

In short, this means it can be more economical for China to buy logs from New Zealand than other wood products. It also means New Zealand logs are comparatively attractive to logs from countries without FTAs with China. This demand has resulted in higher prices for New Zealand logs.

And Chinese buyers can pay more for these logs even though they have to ship them all the way to China for a few reasons, including that the manufacturing sector in China receives some subsidies. A recent investigation by Canadian authorities into Chinese decorative wood moulding listed possible subsidies that manufacturing companies in China can receive, including: export market grants, significant reductions in corporate tax and other preferential tax policies and rent reductions.

Tava Olsen, a professor at the University of Auckland who specialises in supply chains, adds China’s processors also benefit from being larger and having fewer environmental restrictions such as the chemicals they use and how they dispose of them. She says it's also easier to ship logs than higher value products that would require more care to prevent damage.

The premium that Chinese buyers are often willing to pay has been a boon for forestry owners – many of whom are not New Zealanders but foreign corporations that have invested in land here. A 2019 report for the Ministry of Business Innovation and Employment found that forest owners were selling logs to local sawmills at the same price as they could get when they exported them. “Effectively, Chinese log buyers are setting the market price for New Zealand sawmills,” it argues.


Source: Stuff

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Tasmania Forestry Hub Appoints New GM

After more than 25 years’ working in domestic and international forestry and agriculture sectors, the Tasmania Regional Forestry Hub’s new general manager will soon return to his home state where he hopes to make a tangible difference to the growth and standing of the local forest and forest products industry.

Simon Talbot—who hails from six generations of Tasmanian farmers and foresters—will commence his new role in mid-September, following an interstate move from Victoria where he currently holds the position of Executive Director for the state’s largest land manager, Parks Victoria/DELWP.

“My career began in Tasmanian working in silviculture, forestry and paper sectors and has let to opportunities directing agricultural policy and associated plantation investments across Asia Pacific, for the world’s second largest food company, Kraft/Cadbury,” Mr Talbot said.

Despite living and working outside the state for many years, Mr Talbot said Tasmania has always remained ‘home’.

“I have family and friends in sawmilling and harvesting operations in Tassie and believe I have a thorough knowledge of Tasmania’s forestry sector from more than seven years working across in the pulp and paper industry in the state’s north-west, as well as active investments in plantations and promotion of specialty timbers.

“I believe we are on the cusp of a golden age, for the industry and Tasmania in general, and I want to be a part of helping showcase what is being achieved, to support innovation and new developments, a revitalised supply chain, help create a pipeline of talent and achieve the right patient investment models.”

A federal initiative, the Tasmania Hub’s vision is to grow a sustainable, innovative forest industry that supports Tasmania’s community and economy into the future and is supported by the community by focusing on four strategic priorities: climate and carbon policy, workforce skills and training, resource and land access, and supply chain and infrastructure.

Tasmanian Forests and Forest Products Network Convenor, Therese Taylor said in recruiting its new GM, the Hub was looking for someone who could work with industry to implement a roadmap addressing the sector’s identified priority areas which focus on strategic actions that encourage the planting of new trees and foster an innovative and forward-looking industry.

“Simon will be a great asset to the Hub’s work. He has a proven track record working with a range of stakeholders on complex and significant projects and in this new role, will work with the industry across the state to develop agreed pathways forward to advance opportunities for progress and growth of the forest industry into the future,” Ms Taylor said.

Mr Talbot and his family will relocate permanently to their recently renovated farmhouse in northern Tasmania next month.

Source: Tasmanian Forests & Forest Products Network

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Rayonier: A safer, more organised harvest

FORKS, Washington—After more than 40 years of using chainsaws to cut trees on steep slopes, Dave Dilley remembers the first time he watched a winch-assist machine in action. He stood in the forest, unable to take his eyes off a feller buncher as it eased up and down the mountain. Without the winch-assist machine, the buncher—a machine that efficiently cuts down trees and “bunches” them together—would be at risk of toppling, sliding or at least digging deep ruts into the soil.

But the winch, a machine that anchors into place and supports the buncher with a powerful cable, enabled the buncher operator to move across the terrain easily, using a simple device to operate the winch-assist machine from within the cab of the buncher.

“I just saw where it would work here,” says Dave, owner of Dilley & Soloman Logging Company and a lifelong resident of this small town on the Olympic Peninsula in northwest Washington. It wasn’t long before Dave had two winch assist machines of his own.

The Logging System is Safer for Loggers - “The most important thing with this procedure is safety. It’s always our first concern,” says Rayonier Timber Production Forester Dennis Cox, who encouraged Dave to make the change. The logger agrees. “You need less people on the ground, so there’s less danger. That’s the big reason we got into this type of logging,” he says.


Photo credit: Rayonier.com

Source:Rayonier USA

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... and finally ... some pub fun ...


An Australian, an Irishman and an Englishman were sitting in a bar.

There was only one other person in the bar. It was a man. The three men kept looking at this other man, for he seemed terribly familiar. They stared and stared, wondering where they had seen him before, when suddenly the Irishman cried out 'My God, I know who that man is. It's Jesus!'

The others looked again and, sure enough, it was Jesus himself, sitting alone at a table.
The Irishman calls out, 'Hey! You!!! Are you Jesus?'
The man looks over at him, smiles a small smile and nods his head, 'Yes, I am Jesus' he says.

The Irishman calls the bartender over and says to him 'I'd like you to give Jesus over there a pint of Guinness from me.' So the bartender pours Jesus a Guinness and takes it over to his table. Jesus looks over, raises his glass, smiles thank you and drinks.

The Englishman then calls out, 'Errr, excuse me Sir but would you be Jesus?'
Jesus smiles and says, 'Yes, I am Jesus.'
The Englishman beckons the bartender and tells him to send over a Pint of Newcastle Brown Ale for Jesus. The bartender duly does. As before, Jesus accepts the drink and smiles over at the men.

Then the Australian calls out, 'Oi, you! D'ya reckon you're Jesus, or what?'
Jesus nods and says, 'Yes, I am Jesus.'
The Australian is mighty impressed and has the bartender send over Schooner of Victoria Bitter for Jesus, this he accepts with pleasure.
Sometime later, after finishing the drinks, Jesus leaves his seat and approaches the three men He reaches for the hand of the Irishman and shakes it, thanking him for the Guinness.
When he lets go, the Irishman gives a cry of amazement 'Oh God, the arthritis is gone,' he says. 'The arthritis I've had for years is gone. It's a miracle!'

Jesus then shakes the hand of the Englishman, thanking him for the Newcastle Brown Ale. Upon letting go, the Englishman's eyes widen in shock.
'By Jove', he exclaims, 'The migraine I've had for over 40 years is completely gone. It's a Miracle!'
Jesus then approaches the Australian, who has a terrified look on his face.
The Aussie whispers to him, 'P!ss off mate, I'm on Workers Comp.'

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

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

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