WoodWeek – 13 October 2021

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There is some doubt about whether or not there is a Chinese proverb (or curse) that goes like this, “May he live in interesting times.” Believe it or not, we certainly do live in interesting times. Closer to the Kiwi psyche is perhaps the phrase, “Wouldn't be dead for quids”, so take your pick this week and remember to ‘pivot’ when the going gets tough.

In today’s opening commentary come prophetic words we’d probably rather not see: “It now seems that Evergrande may only the tip of the iceberg (or more aptly, top of the scab) with the Wall Street Journal predicting a day of reckoning in the Chinese development sector to the tune of $US5 trillion.” On that cheery note, we extend our thanks once again to the team at Forest 360 for sharing their insights into our most important wood export market.

On a more upbeat note, here is what that ANZ team had to say, “The forestry index lifted 4.7% to claw back some of the previous month’s losses. Export demand remains relatively robust despite China’s housing development industry being under some pressure. There are plenty of logs sitting on wharves in China, but demand for New Zealand logs is still robust despite the slowdown in end- user demand and the excessively high shipping costs.”

The ANZ commodity index commentary continued with this, “Logs are difficult to source from many other markets and the high shipping costs make it particularly prohibitive for China to source logs from South America. Local mills have also been competing strongly with export markets to secure logs.” So, it's a quid each way and hope for the best.

This week our team has decided to reschedule our 6th Annual WoodWorks Conference to 2 March 2022. The event has grown strongly this year with registrations up 50 percent and the date change is to allow as many people to have an in- person experience. This year the event includes a BRANZ pre-conference workshop and a CLT plant tour at Red Stag’s Waipa site at Whakarewarewa Forest on Tuesday, 1 March 2022). To register or see more details click Here>>

Carbon is still the darling of the market, however, with the news that at the Sept 1 auction, a single bidder secured 37% of all the New Zealand Units (NZUs) on offer. They laid claim to over 4.3 million NZUs for a sum of $234 million. Their identity is protected under confidentiality provisions in ETS law.

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Forest 360 Export Market Commentary

(OPINION Forest360) Just when you think you’ve reached the bottom of a cycle and things are looking slightly rosier on the horizon, along comes something out of left field and slaps you fair in the face - In this instance, that thing is Evergrande. With record high prices in the traditionally slow months of June and July now seeming like a lifetime ago, we have seen at wharf gate export prices drop from $NZ170/JAS for A grade to sub $NZ120/JAS in October. It looked like things were stabilising in September with in-market pricing seemingly finding a floor level and some exporters even reporting increases, however, once the Evergrande debacle came to press and exposed the greater liquidity issues of many other large Chinese development companies, market sentiment took a turn for the worse.

It now seems that Evergrande may only the tip of the iceberg (or more aptly, top of the scab) with the Wall Street Journal predicting a day of reckoning in the Chinese development sector to the tune of $US5 trillion. The Chinese government is no stranger to throwing large sums of money around, but this is a fair chunk of change even by their standards. It will take a while for this to play out and although it is becoming increasingly likely that Evergrande will get bailed out, to some extent, by the government, there will be a lot of blood on the floor for other development companies, investors and the construction market in general.

Chinese in-market log Inventory has been building over the past few months as NZ has been producing at near record levels and Chinese demand has softened. Traditionally, this time of year is the start of the Chinese construction season which sees demand increase substantially, but there are no signs of that eventuating at this point. Add to that the Golden Week holiday that has just concluded in China and we are now seeing inventory top the 5 million m3 mark, a level that generally puts significant downward pressure on sales prices.

This needs to be put into perspective however as the CFR (sales price in China in $US) is still around 20% above the 3-year average. The biggest contributor to low at wharf gate returns continues to be freight costs with freight around double the 2020 levels and 15% higher than the pre-GFC when commodities were at record levels. There are a number of factors driving this, most of them covid related. Companies that are struggling to move container freight are chartering bulk carriers that would otherwise carry logs. There is evidence of bulk carriers being converted to carry containers under-deck which effectively takes them out of the available bulk fleet. Add to this the long wait times at Chinese ports effectively reducing the availability of vessels and it’s a great time to own a bulk carrier. There are rumours of some softening in the freight market as vessel owners have started reading the commodity tea leaves but only time will tell if it manifests into lower freight costs.

Lockdown in NZ allowed most ports to completely cleanout all log stocks, however after little more than a month back at work, most ports are bulging at the seams again. With 2-3 week wait times to discharge in Chinese ports, there’s approximately 3 months production already in the supply-chain so its unlikely that any reductions in sales prices will result in reduced supply until early 2022. The general rule of thumb is that price levels under $NZ120/JAS for A grade start to see reasonable reductions in supply as the private woodlots slow or stop and many of the larger forests put supply restrictions on harvesting crews.

It is likely that the remainder of Q4 2021 will be rather ugly and Q1 2022 may not be far behind. Some exporters are talking prices in the very early $100’s for November which sends shivers down the spines of even the most steeled in our industry. Many forest owners are clinging to the hope of a return to $NZ150/JAS A grade, but that might be like clinging onto the guard rail on the Titanic waiting for a lifeboat.

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Carbon Match NZU Update

NZUs - NZUs have continued to change hands through the Carbon Match platform round the $64.50 mark so far this week.

Auction Monitor Report (1 September) - The report of the auction monitor has now been released in relation to the most recent auction which took place on 1 September.

As already revealed, 31 of 43 participants were successful in attaining volume and clearing price of $53.85 activated the $50 CCR trigger for the first time this year, with all of the extra 7 million units allocated for this calendar year purchased. This means that the December auction will take place without the shelter of additional volume under the cost containment reserve.

What we now know is that the largest participant purchased 37% of total units sold, followed by 20% purchased by the next largest successful participant. The average volume won per successful participant was 379,032.


Source: Carbon Match Weekly

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ANZ Commodity Index Update

The forestry index lifted 4.7% to claw back some of the previous month’s losses. Export demand remains relatively robust despite China’s housing development industry being under some pressure. There are plenty of logs sitting on wharves in China, but demand for New Zealand logs is still robust despite the slowdown in end- user demand and the excessively high shipping costs.

Logs are difficult to source from many other markets and the high shipping costs make it particularly prohibitive for China to source logs from South America. Local mills have also been competing strongly with export markets to secure logs.

Source: ANZ

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Forico issues Natural Capital Report

(Australia) Forest estate biodiversity worth billions to industry and society - Tasmania’s largest plantation forestry manager, Forico, has released a world-leading and Australian first Natural Capital Report, which puts the net value of its forest ecosystem at $3.39 billion and the value of sequestered carbon at more than $8.6 billion. The report sets a benchmark for business and industry in environmental stewardship and corporate sustainability reporting.

Natural Capital Reporting measures the value of natural assets alongside traditional metrics of production volumes and profit and loss. Essentially, it puts a dollar figure on how much the natural environment matters.

For the first time, Forico’s Natural Capital Report looks at the company’s core business of high-quality fibre production in the context of the broader social and ecosystem value functions including carbon sequestration, water filtration and providing habitat for biodiversity.

Forico Chief Executive Officer, Bryan Hayes, says the report demonstrates an overall net positive contribution to the environment from sustainably managed plantation and natural forests.

“Forico’s Net Natural Capital Value for 2021 has been conservatively estimated at $3.39 billion, which can be split between $463 million to business and $2.92 billion to society,” Mr Hayes says.

“Assigning a financial value to the importance of habitat, vegetation and biodiversity is evolving fast, and leading government offset schemes would value our natural forest areas at almost $7 billion.”

Mr Hayes says natural capital accounting has revealed Forico has sequestered more than 126 million tonnes of CO2-e from the atmosphere, with a further 54 million tonnes expected to be sequestered by the standing plantation estate before harvest.

“Using the social cost of carbon derived by the US Environmental Protection Agency – which is estimated at AU$68 per tonne of CO2-e – the value of carbon sequestered on Forico’s estate is worth more than $8.6 billion,” he says. Mr Hayes says effective forest management as well as the sustainable production of forest products could make a positive contribution to the mitigation of climate change and the transition to a true circular economy.

“Forico believes it has a positive role to play in enhancing our knowledge of climate change impacts and to support greater climate resilience in Tasmania’s economy, environment and society,” he says.

“As a custodian of the natural environment, trusted to protect our natural resources for future generations, we are committed to understanding the value of the lands we manage and our impacts on the natural world, which has driven our Natural Capital Reporting journey.”


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Big Carbon Buyer emerges

Unknown player makes big move in carbon market - A single buyer bought 37% of all the New Zealand Units on offer in the last carbon auction in September snapping up more than 4.3 million NZUs for $234 million. The bidder’s identity is not known and is protected under confidentiality clauses in emissions trading scheme (ETS) law.

A Ministry for the Environment analysis of the Sept 1 auction outlines some of the broad numbers in the third event of its type. It was notable because it resulted in the $50 ceiling price being crossed and released 7m NZUs in the cost containment reserve (CCR), which meant in all 11.75m were sold.

The clearing price of $53.85 meant the government made $632.7m.

The interim auction monitor report said: “For the first time and as anticipated by the market, the cost containment reserve was triggered. Possibly less expected was that the entire CCR volume was purchased with a consequent increase in the clearance price above the $50 trigger price.”

The report said the ‘interim clearing price’ – which is the price at which the full auction volume would have been sold in the absence of additional volume – was $57.


Source: BusinessDesk

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FWPA: Australia Log Exports Statistics

(FWPA Australia) This week’s FWPA ‘Statistics Count’ Update noted log exports for August were 98,689m³. this compares to pre trade disruption shipments of 397,421m³ in August 2020. Shipments since January are averaging 117,585m³ with alternative markets developing in India, Korea and Vietnam.

Note: Statistics were for exports category AHECC 4403.20 Coniferous Log Exports.


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PM plugs 1BT to UN

Prime Minister tells United Nations General Assembly about 1BT - The Prime Minister covered many topics in her address to the United Nations General Assembly on 23 September.

Not only did she talk about New Zealand’s efforts to combat climate change but she told delegates about the One Billion Tree Programme initiated by the previous Forests Minister Shane Jones.

‘As we mitigate, we must also adapt. This year New Zealand conducted its first national climate change risk assessment to tell us where to focus our effort, and within two years we will have a national adaptation plan. But we have already begun our journey. New Zealand has a programme to plant for instance, one billion trees by 2028. This will store carbon, but it will also support forest resilience, prevent erosion, improve biodiversity, and support our rural and indigenous communities.’

Read More>>

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3D Wood Printer

UI researchers win grant to build a 3D wood printer - Researchers at the University of Idaho received a $3.9 million grant from the National Science Foundation to build 3D printing technology capable of turning wood waste and sawdust into construction materials.

Leading the research team is Michael Maughan, an assistant professor in UI’s College of Engineering. According to a Thursday news release from the university, he hopes the project will champion more sustainable building techniques.

“We’re developing a new composite material, using completely bio-based resources on a truly large scale,” Maughan said, “With this technology, houses and commercial buildings can be made entirely differently. We can push past climate change, mitigate impact on our environment and make better use of the natural resources we have.”


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Rethink: Fire Research on Native Forest Logging

(Australia) Link between native forest logging and bushfires prompts calls for rethink of forest management - There is growing pressure on the Tasmanian government to rethink its native forest management practices, after new University of Tasmania research found regenerating forests are more prone to high- severity bushfires than mature forests.

The study focused on Tasmanian eucalyptus forest, aiming to assess how fire danger changes as forests mature, to help predict bushfire behaviour.

Wildfire ecologist James Furlaud said the study found fire risk in older forests was much lower than in young forests, and clear-felling — the practice of removing all trees from a coupe — could increase fire risk. "The older forests, especially really old forests, had moister understories, and because they had taller trees in the canopy it was much harder to have these very large, intense fires in older forests than in younger forests," Dr Furlaud said.

Forest ecology professor David Lindenmayer from the Australian National University has identified similar results in his research, focused on Victoria. That research found that in the first few years after an area was logged, the chance of a high severity fire was low, but in subsequent decades a logged and regenerated forest was much more likely to burn at higher severity.

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Investors eye carbon credits

Retail investors are becoming increasingly interested in carbon funds, trend driven by the rising carbon price and growing interest in ethical investing.

Salt Funds Management runs the only NZX-listed carbon fund, an investment vehicle to give investors exposure to the price of carbon mainly through New Zealand Units (NZUs) used in the Emissions Trading Scheme (ETS).

Salt managing director Paul Harrison said interest in carbon credits is accelerating, which is helping drive the market capitalisation of the fund from roughly $20 million at the start of the year to about $65m. Units in the fund were recently trading at about $1.97 on the NZX, up 60% on a year ago.

Retail investors had been encouraged by news of the carbon price potentially doubling in the next five years. There's widespread awareness that the carbon price in NZ has been too low, Harrison said. Looking to more mature markets like Europe, it's clear there will have to be further increases here to effectively drive behaviour change.

To reduce emissions, the government plans to release fewer NZUs into the market over time and gradually cut back the number allocated freely to trade-exposed industries.

There are also growing community pressures, here and abroad, for governments to do more to tackle emissions, Harrison said.

“There are a lot of positive influences that would make the cost of carbon continue to rise and drive change, which is a good thing,” he said.

The government this year released new guidance setting the NZU price threshold at which cost containment reserves, used to smooth price increases, would be released at future auctions.

In 2022, the threshold rises to $70. In 2026, it goes to $110, more than double the $50 trigger point which was breached at auction in Sept. The spot price for NZUs was recently about $64.50 on the secondary market.

Third auction - The Sept auction, only the third of its kind, was notable because all seven million units in the cost containment reserve were exhausted, as well as the original 4.75m allotment, meaning the final 2021 auction in Dec will have no restrictions.

NZUs sold for a clearance price of $53.85 at auction in Sept, netting the government $632.7m.

More >> https://businessdesk.co.nz/article/finance/why-investors-are-eying-carbon-credits

Source: BusinessDesk

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almost finally ... Pizza people pursue Greta

NZ's Climate Targets "nothing unique to any nation" - Greta Thunberg Can Go To HELL! - As Greta Thunberg turns up the heat on world leaders and New Zealand for inaction on climate change, HELL has sent a personal but public invitation to the environmentalist in her hometown of Stockholm, encouraging her to "go to HELL" the next time she visits New Zealand.

The adshel posters feature HELL's 100 per cent Carbon Neutral Deliveries promise and are in locations around the city. Since opening its doors, HELL has placed sustainability at the forefront of its business and wants to invite Greta to experience first-hand what the Kiwi company is doing to reduce its carbon footprint - and contribute in its own way to global goals of easing pressure on the planet.

In the early days of HELL in the 1990's founder Callum Davies would fill his car to the brim twice weekly with cardboard and glass for recycling, from the first store in Kelburn. In the early 2000s, HELL pushed back on the move by Coca Cola to replace glass bottles with plastic - a stance they like to think helped keep the glass 330ml bottles around for single serves.

More recently, in 2014, HELL worked with Love NZ to get pizza boxes accepted for recycling everywhere in NZ, when previously only some councils accepted them. HELL's newly released Sustainability Plan builds on this strong track record with ambitious goals for the future.

Ben Cumming, HELL CEO, thinks Greta and her own team of 5 million Twitter followers will appreciate the work they're doing to be kinder to the planet.

"Increasingly, we see influential figures on the world stage, rallying communities and urging large corporations and countries to change their ways and be kinder to the environment. Little do they know that down here in New Zealand, HELL is hearing them loud and clear and has been quietly working away on this for a long time," he says.

"As well as our carbon neutral deliveries, which are offset through planting forests in the Pacific, we're rolling out new initiatives cementing our focus on further reducing our carbon footprint and minimising waste. Looking to the future, we want our 75 stores to be even more clean and green. This includes a national electric fleet of delivery vehicles, renewable energy within stores, and sourcing more than 95 per cent of food and materials within Aotearoa.

"Like many other businesses, we know we still have a long way to go on our journey towards a more sustainable world. We hope our story might inspire other businesses to think about their impact on the planet, and we'd love to show Greta what Kiwi businesses are already doing to make the world a better place," says Ben Cumming.

HELL had also tried to secure a large billboard in Stockholm, but they missed the joke, and were turned down for being too 'offensive.

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... and finally ... your Wednesday funnies

An oldie but a goodie:

Australia Post created a stamp with a picture of the Prime Minister of Australia.
Soon they found problems as the stamps were not sticking to envelopes.
The enraged Prime Minister demanded a full investigation.

After a month of testing and spending of $2.73 million on the enquiry, a special Royal Commission presented the following findings:
1. The stamp is in perfect order.
2. There is nothing wrong with the adhesive.
3. People are spitting on the wrong side of the stamp.


Grandparenting has changed according to one of our readers:

I didn't know if my granddaughter had learned her colours yet, so I decided to test her. I would point out something and ask what colour it was. She would tell me and was always correct.

It was fun for me, so I continued.

At last, she headed for the door, saying, "Grandma, I think you should try to figure out some of these colours out for yourself!"

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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