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Change and Challenge a Major Theme for Australian Forestry in 2012 – Same Again for 2013?

Another turbulent year in the Australian forestry sector is coming to an end with two of the country's largest private forestry companies (Gunns and Elders) coming closer to fully exiting the industry. I guess the big question is, will the New Year bring with a greater degree of stability?

The answer is probably yes and no. The wind down of Gunns (administration and receivership) and Elders (strategic exit) will most probably result in new owners for the large estates of both companies, who will look hold these assets for an extended period of time. This will replicate the outcomes for Taswood, Great Southern, Timbercorp, Forestry SA, Forest Plantations Queensland and a number of other lower profile assets over the past two to three years. Therefore, I think it is a fair observation that over the next twelve months or so, plantation forest ownership will have reached a fairly stable position in Australia.

However, there are also considerable challenges ahead in some other parts of the sector. For example, in Tasmania the much commented on Forest Peace Deal still has not reached full stakeholder and political acceptance, and one wonders whether it ever will.

The future relationship in Australia between forestry and carbon reduction policies and legislation is still unclear, and possibly not likely to get any clearer given that 2013 will be an election year and both sides of politics are challenged, for different reasons, by strong stakeholder interests around this issue. Further clouding the carbon discussion is the New Zealand carbon price experience, which doesn't augur well for a long-term role for commercial forestry in the commercial carbon space.

Domestic timber processing is still considerably depressed – driven by constrained consumer activity and exacerbated by the high dollar which favours imported lumber. It can be argued that, even if construction activity picks up in the next 12 months, there will be a significant lag response back to the forest because of the large lumber inventories that have been built up.

On a positive note, the introduction of legislation dealing with the illegal import of timber and timber products, while challenging to effectively implement, is a strong statement from both sides of politics in support of sustainably and legally produced Australian timber products.

Also, while chip and pulp prices have been depressed for some time, there are clear indications of increasing demand and greater attention to quality from China – if these indications turn into trends, then the plantation sector in particular could start to see some positive stumpage price changes.