Clarky's Comment - February 2010

2010 has started well with recovery of house construction starts in NZ and Australia now inevitable. Both countries face a catch-up from low building activity in 2009 plus increased immigration. Meanwhile China's infrastructure boom has kept up demand for export logs.

Improving wood products demand is seeing price rises in both processed wood products and log prices.

What are the risks we need to be aware of as harvesting activity picks up further in 2010?

  1. China may slow its economy down. That is possible but is not likely to cause a catastrophic reduction in demand. Firstly China needs to keep up 8% growth simply to provide the jobs for those entering the workforce and migrating from rural to urban centres. Secondly NZ pine has taken market share from both Russian and China domestic log supply and is becoming more firmly established in the China market.
  2. Russia may choose to reduce or eliminate the existing €15/m³ duty on log exports. There has been no suggestion of this but it would certainly adversely affect NZ pine exports to China if it did occur.
  3. Log storage restrictions are now common at most NZ log export ports. These restrictions have the effect of making new exporters uncompetitive with established exporters and therefore reduces price competition. If you don't have a level playing field and either competition amongst the log traders purchasing logs at wharf-gate in NZ, or direct access to the market (such as PF Olsen's Market-Direct strategy), log price rises can just translate into higher margins for the log traders. Some ports are actively increasing log storage facilities and providing a fair process for allowing new exporters to operate. Others appear satisfied with the status quo; that does not bode well for many forest owners as our annual log harvest rises steadily to 30 million m³/annum over the next decade.
  4. Some parts of society are calling for a ban on Methyl Bromide (MeBr) fumigation. If implemented this would cause a massive loss of log export trade until an alternative was found. Alternatives are being researched now but so far there is no obvious answer. Chinese biosecurity authorities have rejected an application by MAF to have deck cargo (that cannot be treated with Phosphine) fumigated once the logs arrive in China. The Stakeholders in MeBr Reduction (STIMBR) is working with Indian authorities and MAF Biosecurity to investigate replacing MeBr with Phosphine. PF Olsen is actively involved in trials to find new solutions.
  5. The frequency of intense rainstorms and transition of harvesting into steeper, more erodable country with marginal road access will present engineering challenges and add cost as society demands higher standards of protection of our clean waterways. Forestry protects erodable soils throughout the growing cycle but exposes these soils during the brief harvesting and inter-rotation period.
  6. The full roll-out of random drug and alcohol testing in the forest industry in 2010 means some labour will need to be stood down. While this may cause short-term disruption and labour shortages in some crews, the end result should be a better, safer and more productive workplace for all.

There is an air of optimism in the NZ forest industry at present that is quite different from this time last year. Our focus this year must be on operational excellence and working with government and contractor stakeholders to:

  • alleviate infrastructure constraints;
  • improve safety;
  • implement R&D and productivity improvement initiatives.

Material progress in these initiatives, along with a strengthening wood market, could make 2010 a good year for forest owners.