WoodWeek – 22 January 2020

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Welcome to more good wood news for a Wednesday. First to the markets where a look back over the past year or two shows New Zealand continues to expand its market share in China, supplying 39% of the total import volume in the 3Q/19, up from 32% five years earlier. Interestingly, a number of countries in Europe, although some still small suppliers, have begun to expand their presence in the Chinese market over the past 12 months, reports Wood Resource Quarterly. This can be attributed to an oversupply of logs in their domestic markets. In the 3Q/19, the European supply of softwood logs totalled over two million m3.

It has been a while since we heard from Fenglin, who have become a familiar name appearing in the news with yet another attempt to become wood manufacturers in New Zealand. China’s Guangxi Fenglin Wood Industry Group is in talks with Trust Tairawhiti to develop a wood processing facility near Gisborne. The firm, which had been planning a development at Kawerau, said it had recently signed a letter of intent to collaborate with the trust to develop a facility which ultimately could process up to two million tonnes of logs annually.

Moving across the Tasman: While it will be many months before people in several states and many forest and wood companies will be able to quantify the heavy toll exacted on Australia’s commercial wood basket, there is early speculation on how the asset base of Forestry Corporation NSW will be affected. The bushfires blazing through NSW are understood to have inflicted a $400 million to $500 million haircut on the state’s plans to privatise forestry assets. A column in this week’s Australian Financial Review reveals NSW and its advisers have updated interested parties on the proposed privatisation for the Forestry Corporation of NSW's softwood forests in recent days, in light of the fires.

To a more positive development in Queensland, a potential job-generating Wide Bay wind farm proposal is gaining momentum there. The proposed large-scale wind farm project in the Wide Bay region, valued at up to $2 billion, is moving forward. Minister for State Development Cameron Dick said the Forest Wind project could create around 440 construction jobs and boost renewables supply for Queensland’s future energy needs. He added it would be one of the largest grid-connected wind farms in the southern hemisphere.

Registrations ARE NOW OPEN for our FIEA Forest Safety & Technology conference series in Melbourne and Rotorua. Plans are well underway. Keynote speakers and the full program will be released shortly.

This year, our focus is key aspects relating to communications, fatigue, mental health. Case studies from innovators and leaders in safety communication and management will feature. We will include log transport safety initiatives at both events. Technology solutions to support practical management of safety in the workplace are coming into their own with ease of use for everyone in the workplace will also feature. Governance issues will also be covered.

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NZ expands market share in China

New Zealand continues to expand its log market share in China, supplying 39% of the total import volume in the 3Q/19, up from 32% five years earlier. Russia and North America suffered the largest declines in the Chinese market share from 2015 to 2019, with Russia’s share falling from 28% to 12%, and North America from 21% to 13% during the same period.

In the 3Q/19, log imports from Russia were at their lowest levels in almost 20 years. The only other major change in the Chinese market over the past few years has been an increase in pine log shipments from Uruguay. These have increased from just a few thousand cubic meters in 2016 to almost 2.5 million m3 last year, making Uruguay the fifth largest log supplier to China in 2018. Startlingly, shipments from Uruguay to China fell to less than 200,000 m3 in the 3Q/19, when prices for logs plummeted to the point where it no longer made financial sense for Uruguayan exporters to ship logs.

Interestingly, a number of countries in Europe, although some still small suppliers, have begun to expand their presence in the Chinese market over the past 12 months, reports the WRQ. This can be attributed to an oversupply of logs in their domestic markets. In the 3Q/19, the European supply of softwood logs totaled over two million m3 (see chart).

Supplying countries included Germany, Czech, Poland and France (in descending order), all countries impacted by storms and insects in 2018 and 2019. The European share of imported softwood logs has increased from just three percent in the 3Q/18 to as much as 20% in the 3Q/19.

Source: Wood Resource Quarterly (WRQ)

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Fenglin tries a third time near Gisborne

China’s Guangxi Fenglin Wood Industry Group is in talks with Trust Tairawhiti to develop a wood processing facility near Gisborne.

The firm, which had been planning a development at Kawerau, said it had recently signed a letter of intent to collaborate with the trust to develop a facility which ultimately could process up to two million tonnes of logs annually.

Wang Gaofeng, chief executive of Fenglin’s New Zealand arm, said a feasibility study the company had been working on with the trust demonstrated the potential of the local forestry resource.

“We’re keen to use our capital and expertise to help unlock that potential by investing in projects that add value to New Zealand’s exports and support economic growth in the provinces,” Wang said in a statement.

“Currently, some three million tonnes of raw logs go through Eastland Port every year. If we can turn them into finished products, we will create sustainable local jobs, boost export earnings, and provide the construction industry with an environmentally-friendly alternative to steel and concrete.

No-one from the trust, previously known as the Eastland Community Trust, was immediately available to comment.

But it is actively trying to develop more local wood processing in the region. It bought the closed Prime sawmill site at Manutuke, south-west of Gisborne, in 2015. Last year it sold the main mill to Far East Sawmills but retained the 22-hectare site as part of a plan to develop a processing cluster there.

Far East received $500,000 from the Provincial Growth Fund toward the recommissioning of the mill, and in July, an investment of up to $19.5 million by the fund was announced to help develop the wood cluster.

Regional Economic Development Minister Shane Jones said the volume of wood coming out of Tairawhiti during the next 15 years is “mammoth” and the region needs to find ways to extract more value from every log.

While it’s still early days with the Fenglin proposal, Jones said the Crown may have a role in helping remove potential obstacles to the project, which may include increased power supply for an enlarged facility and transport of finished product, either through the port or by rail.

Work is already planned next year on studies of potential barge sites north of East Cape to help access logs that are otherwise landlocked by poor roads in the area, he said.

Jones said he would work with Trade and Export Growth Minister David Parker to see what other infrastructure may be required and a seminar of interested parties is likely early in the new year.

Wang’s statement didn’t detail Fenglin’s proposal, which he said could create up to 300 jobs.

In a statement to the Shanghai stock exchange last week, its parent company said it was looking at a particle board plant capable of delivering 400,000 cubic metres of particleboard annually.

A formal land purchase or lease would be required, along with resource consents and Overseas Investment Office approval. Construction could take about two years, it noted.

In 2018, Fenglin was cleared by the OIO to lease 33 hectares at Kawerau from the Putauaki Trust to build a particle board plant. That was intended to produce about 600,000 cubic metres of board annually, cost about $180 million to build and be operating by 2020.

The project, like an earlier one Fenglin investigated near Taupo with Contact Energy, was to have benefitted from the local geothermal energy available at Kawerau.

Wang said that, despite the best efforts of the parties involved, the company hadn’t been able to complete the lease with Putauaki due to the potential risk of subsidence at the site if it was developed for further geothermal generation by Mercury NZ.

Jones noted that the original development discussions had been started by former Trade Minister Tim Groser and had had a “dinosaur-like gestation period.”

While Kawerau would be disappointed by Fenglin’s withdrawal, he said it was important that the Gisborne opportunity be pursued if feasible.

Source: Business Desk

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NSW - Asset value singed by fires

NSW forests sell-off value singed - The bushfires blazing through NSW are understood to have inflicted a $400 million to $500 million haircut on the state’s plans to privatise forestry assets. Street Talk can reveal NSW and its advisers have updated interested parties on the proposed privatisation for the Forestry Corporation of NSW's softwood forests in recent days, in light of the fires.

Sources said potential buyers and advisers were told the ongoing fires had given the government pause on its privatisation plans – and there was still a chance the sale process could be postponed indefinitely.

However, the upshot is that it’s going ahead for now, although the deal will be smaller than what was originally proposed because fire has damaged an estimated 40,000 to 50,000 hectares.

Early numbers being bandied around suggest a $700 million to $800 million-odd sale, rather than a $1.2 billion deal, sources said.

The advisory team is spearheaded by investment bank UBS and includes law firm MinterEllison, KPMG’s number crunchers and forestry and agricultural industry consultants Margules Groome.

What's up for sale? - Up for sale is the Forestry Corporation of NSW's profitable softwood division, which consists of about 230,000 hectares of radiata pine forests, primarily producing timber for use in house construction.

Sources said there are a handful of logical acquirers on the hitlist of NSW and investment bank UBS (whose team is led by Kiwi Chris Simcock) – and they’re the sorts of names in and around Australia’s forestry industry.

Privately owned plantation land manager New Forests, which was founded in 2005 and claims to have $5 billion invested in forestry assets across the Asia Pacific and US, has been quick to signal its early interest.

Sources said New Forests was in front of advisory firms seeking a financial adviser to work on its slated bid. It is understood New Forests sent a request for proposal to about half a dozen advisers including Morgan Stanley, Cameron Partners and Gresham, each of which has form in forestry transactions.

A beauty parade would get under way in coming weeks, sources said.

More >>

Source: Street Talk in Australian Financial Review

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PF Olsen Log Price Index

Due to the increase in the AWG prices the PF Olsen Log Price Index for December increased $1 to $122. The index is currently $5 below the two-year average, $4 below the three-year average, and $2 higher than the five-year average.

Basis of Index: This Index is based on prices in the table below weighted in proportions that represent a broad average of log grades produced from a typical pruned forest with an approximate mix of 40% domestic and 60% export supply.

Source: Wood Matters, December 2019, PF Olsen

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Minister: Overseas investment rules for review

Officials will look in the new year at whether recent changes to foreign investment rules for forestry need to be “tweaked” to deliver better land use outcomes, Forestry Minister Shane Jones says.

Planting for expansion of the country’s forestry industry and as a carbon sink to help meet the country’s emission reduction targets depends on getting the right trees in the right places, he said.

Officials have already been reviewing the national environmental standard for plantation forestry this year. Jones said he will meet with Agriculture Minister Damien O’Connor, Forestry New Zealand head Julie Collins and former forestry company PF Olsen chief executive Peter Clark early next year to test whether changes to the Overseas Investment Act are also working as intended.

Jones said he’s not convinced new rules intended to fast-track land purchases for afforestation are creating a “Klondike effect” that is distorting land use patterns. Drylandcarbon’s development plans for Te Puna station inland from Wairoa – announced last week - show that productive land can be protected while also planting land not suitable for plantation forestry, he said.

Billion trees

Jones, also the minister for regional economic development, has led the government’s programme to plant a billion trees over 10 years to expand the country’s carbon sink, stabilise erosion-prone land and reinvigorate the country’s forestry and wood processing industry.

Critics, particularly in areas like Hawke’s Bay, the East Coast and Wairarapa, which experienced similar planting programmes in past decades, point to the risk of rural depopulation if productive farm land is lost to forestry.

Jones said there is marginal land that should be permanently planted, but he doesn’t resile from expanding plantation forestry. He said it had always been a part of rural industry and many farmers were comfortable with that as an option.

“It’s still got a big role to play.”

What many farmers were less comfortable with, he said, was locking up land permanently for carbon sinks, and there needs to be confidence that where that is being done, it is being undertaken appropriately.

Forestry NZ data provided by Jones’s office showed that as at Oct. 31, the Overseas Investment Office had processed 30 applications under the special forestry test created a year earlier. While the applications were for 74,580 hectares, the vast bulk of that was existing forests, with only 8,811 ha being new land to be converted to forestry.

Land mix

New planting under the billion trees programme and land registrations under the emissions trading scheme also show most is being carried out on lower value land.

Land-use capability measures grade land 1 to 8 according to its physical character, fertility and climate. A rating higher than four is generally unsuitable for vegetables or arable crops, while a rating of eight is unsuitable for even lower-value grazing or production forestry.

As at Oct. 31, 89 percent of the 8,931 hectares to be planted under grants through the one billion trees programme - 1BT - were classed LUC 6-8.

As at Sept. 30, 2,994 ha of forest had been registered under the emissions trading scheme, compared with 1,822 ha for all of 2018. Of the 2019 registrations, about 87 percent was for class 6-8 land, compared with 72 percent in 2018. Registrations on class 1-5 land so far this year total 384 ha, compared with 504 ha in 2018.

About half of all 2019 registrations so far have been for indigenous planting, compared with less than 1.5 percent in 2018.

“An increasing area of new ETS registrations is in the LUC 6-8 category, of which an increasing area is for indigenous tree species,” Forestry NZ notes in a slide. “These plantings are driven by the carbon market – not grant 1BT funded.”

Source: Business Desk

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Forest + Wind = Opportunity

Job-generating Wide Bay wind farm proposal gaining momentum - A proposed large-scale wind farm project in the Wide Bay region, valued at up to $2 billion, is moving forward thanks to facilitation support provided by the Palaszczuk Government.

Minister for State Development Cameron Dick said the Forest Wind project could create around 440 construction jobs and boost renewables supply for Queensland’s future energy needs.

“This would be one the largest grid-connected wind farms in the southern hemisphere,” Mr Dick said.

“The wind farm would generate approximately 1200 megawatts at capacity, which will power more than 550,000 homes.

“This is enough power for all homes across the Wide Bay-Burnett, Sunshine Coast and Gold Coast combined, or the entire Brisbane City Council area.

“This could increase Queensland’s installed power generation capacity by approximately nine per cent. The project is being advanced as an exclusive transaction as part of the Queensland Government’s investment facilitation services.

“It will now move into the detailed assessment stage, which will also include the assessment of its development application.”

Mr Dick said the proposed wind farm would be located within state forest land between Gympie and Maryborough.

“It would co-exist with established southern pine timber plantations that support our forestry industry,” he said.

Forest Wind Holdings, a joint venture between Queensland-based renewables firm CleanSight and Siemens Financial Services, has proposed to locate up to 226 wind turbines across the sites.

The plantations are owned and managed by HQPlantations on land under licence from the state.

The project has the potential to generate 1200 megawatts of renewable energy.

Together with other wind energy projects in the state, this would represent 12 per cent of Queensland’s installed generation capacity.

More >>

Source: Queensland Government

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Bushfires and carbon

Australia bushfires spew 2/3 of national carbon in one season - Australia's bushfires are believed to have spewed as much as two-thirds of the nation's annual carbon dioxide emissions in just the past three months, with experts warning forests may take more than 100 years to absorb what's been released so far this season.

Until recently, Australia's forests were thought to reabsorb all the carbon released in bushfires, meaning they achieved net zero emissions, but scientists say climate change is making bushfires burn more intensely and frequently.

Dr Pep Canadell, a senior research scientist for CSIRO and the executive director of the Global Carbon Project, said that meant slower regrowth rates in Australian forests between bushfires.

"We used to see hundreds of thousands of hectares burned in bushfires, but now we are seeing millions on fire," he said. "It is drying in south-east Australia, that prompts the question if these trees will be able to bring all that carbon back [into regrowth].

"We may need more than 100 years to get back to where we were, after those mature forests with beautiful tall gum trees have burned."

A 2015 landmark study lead by Murdoch University, Interval Squeeze, shows how climate change, drought and escalating fires combine to reduce forests' ability to reabsorb carbon.

One author of the study, University of Tasmania professor of pyrogeography and fire science, David Bowman, said "normally bushfires are thought of as carbon neutral" but "in very simple terms, we're seeing climate extremes carry a double punch, with more frequent fire and drought."

"Normally the forest would bounce back, but because it's been under huge drought stress, the capacity of forests to regrow is limited."

Emissions from natural causes such as bushfires are excluded from Australia's target under the Paris climate agreement to cut human-induced emissions on 2005 levels by 26 to 28 per cent by 2030.

"Climate change doesn't care where the carbon emissions come from. It's the total amount of carbon that accumulates in the atmosphere that counts," Canadell said.

More >>

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Shane Jones and David Henry confused

A forestry company with close links to New Zealand First says it made a presentation to Shane Jones about the project it was seeking a $15 million government loan for, months before Mr Jones says he first heard of it.

Mr Jones has said he first heard about a bid by New Zealand Future Forest Products for Provincial Growth Fund money in October and immediately wrote to the Prime Minister declaring a conflict of interests because directors at the company have close ties to his party.

But the company's PGF application form says the project was discussed with Mr Jones in a presentation before the bid was submitted on April 8.

Mr Jones has issued a statement to RNZ saying the presentation never happened. But NZFFP director David Henry says the presentation was a meeting he personally had with Mr Jones in Wellington. To hear more on this story listen to investigative journalist Guyon Espiner.

More in-depth details on this story >>

More audio 'he said vs he said' >>

Source: RNZ


Really, this is a political story, not wood business story, so we will leave it there. To read more on the political angle we refer you to the insight of veteran political journalist Richard Harman with this:

"The political year has not even begun. But already Shane Jones is making headlines for a possible conflict of interest over his meeting with people associated with NZ First over a forestry investment and his forthright comments on vegans."

More >>

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Carbon Match market update

2020 - Well we are back at it and NZUs are at all new record levels - There's been a little bit of "I’m all for it, but you go first" as people drift back from summer holidays, still needing to digest the finer details of the Government’s proposals on future ETS settings.

But back we are and any which way you look at it the jump up from pre Christmas levels has been noteworthy. We are now $4 higher than prior to the announcement of the ETS settings consultation, details of which emerged after the Carbon Match platform had closed for Christmas.

Since reopening at the beginning of last week we’ve seen prices firm from $28.60 to current levels, with significant supply moving through the platform yesterday between $29 and $29.15. We've seen a very small amount change hands at an even higher price today.

The consultation on proposed ETS settings remains open until the end of February. That document sets out a proposed provisional emissions budget for 2021-2025 and an overall limit for emissions in the ETS for that same period.

As it emerged when many of us had already hightailed away for Christmas, just to recap, the key proposals in regards to price settings include the following:
- the fixed price option for compliance (calendar) 2020 liabilities has been signalled to increase to $35;
- the ultimate replacement for the FPO thereafter, known as the “cost containment reserve” or CCR, has been signalled to become available from a trigger price of $50 but with many details still yet to be determined.

Meanwhile while the scheme is set to have a total makeover and the Government will join traditional sellers but via auctions instead of through the existing secondary market. Auctions are not expected to commence properly until next year post election but some 2 million units are intended to be sold in a “pilot” auction(s) in late 2020.

While the proposals appear for the most part to be supportive to price, the availability of the FPO at $25 for surrender against calendar 2019 liabilities could logically be expected to somewhat temper demand and hence prices. Likewise, the prospect of a general election later this year will introduce new uncertainties into the equation as time goes on.

NZUs are bid to $29.15 as of writing, but with relatively thin supply on offer. If you or someone you know would be a happy seller here, please get in touch or join the offer.

Source: https://www.carbonmatch.co.nz

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Forestry Antiques Roadshow

Forestry Antiques Roadshow: Episode #1 - One of our readers is trying to find out the source of today’s forestry antique. It comprised a plugged seedling and the gun to drop them in with. Picking up on the TV show name we’ve copied this article from; if you can estimate its value as well as identifying its history for our reader who has said device; then clearly that would make this ongoing story even more interesting.

If you know please reply to office@innovatek.co.nz and if it is interesting enough we will follow up with the reveal in a future issue.

Got something you want to know where it came from? Drop us a photo and we’ll consult our readership and share the answer – and we will all be the wiser for it.

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Forest investment not simple

Forestry investment far from straight forward venture - As forest fires, and climate change debate, rage across the Tasman (and our thoughts and best wishes go out to our Australian cousins), the topic of forestry in New Zealand has arisen over the Christmas break.

Most of the barbecue conversations have been quite generic, for example focusing on what the true impact of the planting of a billion new trees will have on our ecosystem as we strive towards addressing our carbon neutrality goals via a massive carbon sink consuming hundreds of thousands of acres, whether intense forestation of otherwise productive land will have a material negative cash-flow consequence for NZ in the short term (e.g. milk sells annually, trees are harvested every 25 years or so), and whether the regularity of forest fires in NZ will also increase as we experience forestation and climate change.

We even debated the concept of farming carbon credits, versus (or to exclusion of caring about) wood, and the long-term impacts that could have on good forestry management.

I also listened to an interesting podcast about the collapse of Myan civilisation being partly attributed to regionalised climate change arising from significant local deforestation, leading to droughts and the breakdown of social structures, and pondered what impact intensive re- forestation could have on some regions in NZ, if any. But I am getting off topic.

Forestry has been a popular form of investment over the years, including through fractionalised ventures like Limited Partnerships, with investors ranging from large corporates, investment funds, managed syndicates/partnerships, through to small personal holdings or a utilisation of sub-par land within existing farms.

Against the backdrop of climate change and expectations around the potential changes to rules pertaining to trading carbon credits, plus the Government’s Billion Tree Programme and associated incentives, based on the discussions I have had, there is an increased interest in forestry as an investment, notwithstanding short-term price fluctuations for wood.

Of course, people were interested in how the tax of forestry works ...

Taxable income is derived from almost any disposal of timber, which includes disposal of sawn or standing timber, or the grant of a right to cut and remove timber. This also includes insurance proceeds when a forest is destroyed.

When land is sold which contains a stand of trees which is a forest block (not merely a shelter belt or ornamental), a market valuation should be obtained to determine whether any gain in the value of the trees should be returned as income.

It also follows that the purchaser of the land with the stand of trees will then use this value as their cost base. This is often forgotten about when farms are sold. Transfer upon death may also trigger tax consequences.

Where income has been derived from the disposal of timber, there could be significant income (and therefore tax), depending on the size of the block in question. While the general rule is that income is taxable in the year in which it is derived, there are provisions within the Income Tax Act 2007 relating specifically to timber.

The nature of these provisions is to provide a concession with respect to the timing of income derived.

More >>

Source: Otago Daily Times

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...almost finally ... This car is made of wood!

Electric vehicles have been turning the tide in the automotive industry in terms of making cars better for the environment. But Japan’s Ministry of the Environment believed we could do better—and the result is an unprecedented supercar made entirely of wood.

The entire car is composed of nano cellulose fibers, or plant-derived material (including agricultural waste) that’s one-fifth of the weight of—and five times as strong as—steel, the Ministry of the Environment notes. By using those fibers to compose most of the bodywork and part of the tub, the result is a car about half as light as your traditional one, with a ten percent overall reduction in mass.

That alone is a pretty awesome feat, but the production process also drastically reduces carbon emissions associated with automotive manufacturing. It’s basically just recycling on a massive scale.

And I have to admit, the designers and engineers did a great job putting together a gorgeous-looking car. As much as I love the tiny and kind of adorable EV trend right now, I can also understand why it wouldn’t be super appealing to traditional automotive enthusiasts who are looking to be excited by new cars.

The Nano Cellulose Vehicle (NCV) looks awesome. The sharp-cut angles of the bodywork and the butterfly doors immediately bring to mind Lamborghini, or the Acura NSX. The interior features kimono-wrapped seats and a gorgeous wooden dashboard (not just that fake wood look you get in most cars).

That said, all of the research and design has gone into the bodywork, not the stuff that makes the car run. There isn’t really any information at all out there about what kind of power source will be implemented, but the rumor is that it’ll be equipped with a hydrogen fuel cell and have a top speed of... 12 mph.

So, yes, there’s some room for improvement in the powertrain. But the rest of the car? Certifiably awesome.

More >>

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Buy and Sell

...and finally ... If your dog could text...

That's all for this week's wood news.

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John Stulen
Innovatek Limited
PO Box 1230
Rotorua, New Zealand
Mob: +64 27 275 8011
Web: www.woodweek.com

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