Clarky's Comment - July 2009, Selling All our Wood

Selling All our Wood - A Challenge and an Opportunity

The New Zealand pine log availability is set to rise from the current 20 million to 30 million m³ between now and 2020. Currently we process about 13 million m³ in NZ domestic mills, and export about 7 million m³, although in the first half of 2009 exports have increased while domestic mill processing has declined.

In many ways, we would be much better off with a larger and stronger domestic log processing sector. Value-added manufacturing would increase GDP and has the potential to increase log and forest values more than exporting a raw commodity. A thriving domestic log processing sector would probably provide more demand and price stability, reducing the wild swings in harvesting level which are disastrous for harvesting contractors and truckers. More domestic log processing would be good for employment.

Unfortunately, and despite support and promotion by PF Olsen, there appears to be little appetite for investment in new or expanded sawmilling, ply, veneer, MDF, particle board or pulp and paper manufacturing in New Zealand at present. Unless the relative economics of processing in New Zealand compared to other countries moves in our favour, we will have no option but to at least double the volume of logs exports over the next decade. Pruned log alone is set to expand by 1.5 to 2 million m³/annum.

Though not without its challenges, PF Olsen is optimistic about the industry's ability to market this additional volume, based on what we see as growing demand in China, India and SE Asia. Traditional supply sources in these countries cannot expand to keep up with big infrastructure development projects and rising per capital wood consumption. Then overlay the advantages of wood against alternate building materials in energy consumption and greenhouse gas emissions, plus international efforts to curb illegal logging and put in place mechanisms to pay developing nations not to deforest. New Zealand's sustainable pine forests start to look pretty interesting as a reliable and environmentally benign source of raw material.

Our optimism is supported by:

  • Increased level of enquiry for logs, not just from "wanna-be" middle men, but also directly from end-users in China, SE Asia and India.
  • Evidence that young, highly western-educated foreigners are establishing themselves in New Zealand to purchase logs on behalf of end -users. This gives a very direct channel to market and a long-term demand and commitment to purchase logs consistently.

The challenges we face include:

  1. Our internal road and port infrastructure. These will need to be enhanced to cope with a doubling of log export volumes.
  2. The skilled people and harvesting equipment to get these logs off steep remote hills and onto ships in an economic manner.
  3. Access to bulk ships at viable prices.

These are not small challenges, but if not addressed forest owners will simply have margins eroded by high costs and a bidding war with each other for whatever the constraining factor is. So how do we avoid that? The low-hanging fruit include:

  • Upgrade of road networks and bridges to cope with greater truck weights and dimensions. There is some good work under way by Government on this front.
  • Convincing port companies that the export log trade is expanding and sustainable, but is only financially viable with improved on and off-port storage, in some cases linked with rail delivery to ship side. Port companies need to offer fair and equitable access to port facilities for new exporters, to allow innovation. We also need more efficient solutions to handling logs at off-site storage facilities.
  • Regular ship calls, more stable shipping rates and more cooperation amongst exporters around sharing shipping space.
  • More stability in longer-term customer sales contracts that will enable longer term harvesting contracts that in turn gives contractors and their bankers the confidence to invest in new equipment and skills development.
  • Strong pan-industry support for R&D into improved harvesting productivity.

In summary, despite it perhaps not being the preferred option (over a bigger domestic processing sector), strong export sales channels are critical to making sure forest owner stumpage values are maximised. The "global village" is another way to view this marketing approach. Mills in China, India, or where ever, are potential clients of PF Olsen' forest owner logs. So long as they can pay best prices, and we can establish efficient supply chains to them, then the best net return to the forest owner will be achieved.

The "global village" means we supply mills that can pay the best price. There may just be the matter of ocean shipping and several 1,000 km between the forest and the mill. This photo shows a typical sawmill in China processing PF Olsen-supplied logs.