Log availability for CNI plant – a clarification

Wednesday 5 Dec 2018

The November 7th issue of WoodWeek ran a story entitled ‘Kawerau set to get new mill’. This was reproduced from BusinessDesk and discussed the recent OIO approval for the Guangxi Fenglin Wood Industry (Fenglin) particle board mill in Kawerau.

The article noted that the Wood Processors and Manufacturers Association of NZ had raised concerns over the availability of fibre for the new plant, given existing demand from current wood fibre users in the region. The article then goes on to say “However, an evaluation of wood fibre availability for New Zealand Trade and Enterprise by Finland forestry consultancy Indufor concluded there is more than enough wood available to support an additional 700,000 cubic metres of domestic fibre demand”.

There are a couple of points raised by the BusinessDesk article that need to be clarified.

“…by Finland forestry consultancy company Indufor…”
This statement could give the impression that the project was undertaken from afar with little local context. While Indufor does have an office in Helsinki, this particular project was undertaken by Indufor’s Auckland office. In the course of the study, interviews and/or phone discussions were held with most of the large forest owners, wood processors, and fibre customers in the region. Indufor also undertakes appraisals, resource assessments, and market studies throughout NZ, including the Central NI.

“… Indufor concluded there is more than enough wood available to support an additional 700,000 cubic metres of domestic fibre demand”.
The above sentence is correctly reproduced from the executive summary of the report. However, to reproduce just this sentence, without the wider context of the report can give a quite incorrect impression of the project findings.

The quoted sentence was embedded in the following paragraph: “In the year ended March 2017, some 47% of the Central NI annual harvest was exported (5.4 million m3). There is more than enough wood available to support an additional 700 000 m3 of domestic fibre demand. The question becomes the availability by fibre type (and hence fibre cost)”. This is making the point that there is a significant excess of production over domestic demand at an aggregate level but leads into the issue of availability by log type.
This is expanded on further into the report: “Low quality, small diameter logs were traditionally consumed by the domestic industrial fibre customers. These have experienced strengthening demand in recent years. This is primarily a result of a buoyant log export market competing directly for a similar specification product, as well as solid domestic demand. As a result, the domestic industrial fibre consumers must import logs from regions outside of the Central NI, as well as use industrial and small sawlogs that could otherwise be exported. This highlights that the shortfall is an economic rather than physical deficit.”.

While the scope of the project did not extend to a detailed assessment on the impact on fibre prices, Indufor was asked to comment, at a high level, on possible price effects. The analysis showed that a particle board mill would be able to make use of currently under-utilised forest residues, as well as periodic sawdust surpluses. However, “… the balance of the new demand (350 000 m3 p.a.) will need to be fulfilled by logs currently being exported (mostly industrial grade and small sawlogs), as well as further inter-region transfer of logs and woodchips. This will push up the average delivered cost of fibre to all fibre users in the North Island.” I should add that this statement was based on the domestic sawmilling capacity as at mid-2017. The report highlights that any expansion of the sawmilling base, and corresponding additional production of woodchip, sawdust, and shavings will reduce the impact on overall fibre price. In addition, developing cost effective means of uplifting forest cutover residues would also assist in containing fibre feedstock prices.

Hopefully this article has put more colour around the overall conclusions of the report. The full report and executive summary are available in the public domain for those readers interested in the more detailed findings.

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