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Clarky's Comment - September 2008

Our forest industry has been through a decade of declining log values and rising costs. There are some indicators on the horizon that this will change over the next few years, but to make the most of that changing environment we need to do some things a lot smarter.

All basic resource commodities have been experiencing rapidly rising values in response to limited supplies and rising demand, especially with increasing consumption in developing Asian nations. Wood product values have also risen, but to a much lesser extent than energy, steel, cement, coal and base metals. Wood price rises have been constrained by plentiful supplies from tropical rainforests (some illegally), Russia, Europe and Canada. Other than Europe, where growth in supply still outstrips demand, each of the other major producing regions is entering a period of supply constraint, or in the case of Russia high taxes on log exports. Combined with rising costs for steel and cement, and assuming demand Asian growth remains strong, we can expect wood products to rise in value. A large backlog of Australian housing construction is also emerging. Once interest rates fall a bit that will be good for our structural timber producers.

Will this help NZ plantation forest owners? Of course it will, but only to a limited extent unless we can develop new high-value Asian markets for our pruned timber, and get our supply chain costs down.

It is for this reason that I have been active in promoting what is needed from both the government and the forest industry players themselves at a range of forums over the last several weeks. These have included presentations to the Climate Change Leadership Forum, the NZIF/APPITA Rotorua Section and the Forest Industry Strategy Conference held in Rotorua. PF Olsen has been backing this up with my recent presentation to the Korea New Zealand Business Council in Seoul that promoted the case for moving some Korean pine log processing capacity to New Zealand to reduce energy consumption both within Korea (70% coal and oil generation) and in shipping logs. PF Olsen is also a financial supporter of the new Solid Wood Initiative (SWI) research programme, and a strong financial participant in all the research themes of Future Forests Research Ltd.

Some key messages are:

  1. Supply chain productivity is the key to improving our international competitiveness. Within this the low-hanging fruit is:
    • increased weights and dimensions for heavy transport (not just logs but all road transport), and that means also investing in the national roading network.
    • harvesting of steep country - research funding and business organisation need a step change, including long-term contracts for harvesting contractors to support investment in people and equipment.
  2. The Central North Island has geothermal steam, an environmentally benign energy resource that cannot be transported unless turned into electricity. The most efficient use of steam is directly as heat. Nearby are vast pine forests full of wet wood that is no use to anyone until it is dried. If we cannot match these two large resources up we are missing a big opportunity.
  3. We have a large volume of pruned logs maturing nationwide, and a mature US market, a share of which we compete on price with low-cost South American pine, painted MDF and finger-jointed boards. On the other hand we are closer to Asian markets, the high-end furniture and joinery portion of which is supplied by high-priced tropical hardwoods that are declining in both quality and availability. In addition we import clothing and manufactured goods from Asia that come in containers. Some of these containers go back empty. Filling them with dried clear grades of sawn timber seems logical to me!

PF Olsen chose wood for our new Rotorua office, not only because of its lower environmental footprint, but also its lower cost than steel or concrete.