WoodWeek 28 April 2021
Looking to our next big event in June, registrations are pouring in for our Carbon Forestry 2021 Conference in mid-June. Earlybird rates still apply, but we recommend you register before this event sells out. The pace of discussion on carbon forestry options and best practice is growing and will accelerate when the feedback comes from the first feedback round by the Climate Commission as they refine their planned advice to Government for action. Click here to register yourself or your team for our conference before time runs out.
Looking closer at our largest log market, as China quickly took action to control the spread of the virus, they pressured industry to start up their factories. At the same time, in order to support the recovery, the government introduced a number of measures such as supporting loans to smaller businesses, lower interest rates, reduced taxes, reduced utility prices and additional employment support. Industrial production quickly recovered to pre pandemic levels and by February 2021 was already ahead by 9.2%.
And almost finally today we end with a question: When is a forest not a forest? A: When it is worth over $130,000/ha for housing.
This week we have for you:
PF Olsen export log market updateChina - The CFR prices for New Zealand pine logs in China has increased approximately 5 USD over the last month and is still increasing. The price for A grade logs is now around 158 USD per JASm3 and log exporters will continue to ask for increased pricing to compensate for increased shipping costs. Steady increases in log prices this year have been achievable to date as wholesales are still making a margin.
Softwood log inventory has climbed to 4.6m m3 as volume continued to arrive while China restarted after the Chinese New Year period. Daily port off-take is currently a healthy 70k and increasing weekly.
The China Caixin Manufacturing PMI fell to 50.9 in February. This is a relatively neutral score which predicts minimal change in manufacturing. While output and new work eased the PMI was also affected by raw material shortages and transport delays increasing suppliers’ delivery times. (Suppliers’ delivery times makes up 15% of the PMI). Business sentiment strengthened with future output expectations jumping to the second highest since August 2014.
India – The Kandla log market is improving with April shipment indicative pricing for A grade of 165 USD for Australian logs and 175 USD for New Zealand logs. March shipments from Uruguay sold for an average of $140 USD for A grade. As explained further in the shipping section of this report, Uruguay is now targeting larger vessels for China. The average price for sawn timber in Kandla has increased to 501 INR per ft3.
Pine logs will be in short supply in Tuticorin due to the lack of containers. The price of a container from Australia to Tuticorin is reported to be over $100 USD per m3.
PF Olsen Log Price Index (March 2021) – The index remained at $130 in March as there was no price movement. The index is currently $10 above the two-year average, $6 above the three-year average, and $6 above the five-year average.
International wood markets volatilityOver the last six months we have witnessed one of the most volatile periods in forest product markets we've seen in recent times - Log export prices started increasing from the second half of 2020, as did freight rates. This seemed contradictory given the world suffered a major shock to its economic system, not unlike the financial crisis of 2009 to which it is often compared. The response to the Coronavirus pandemic interrupted production, forced businesses to close and workers were laid off.
Once the threat was established, China quickly took action to control the spread of the virus, then pressured industry to start up their factories. At the same time, in order to support the recovery, the government introduced a number of measures such as supporting loans to smaller businesses, lower interest rates, reduced taxes, reduced utility prices and additional employment support. Industrial production quickly recovered to pre pandemic levels and by February 2021 was already ahead by 9.2%.
There was a surge in exports, supported by soaring demand for Coronavirus related medical equipment. Fixed asset investment also bounced back, surpassing pre pandemic levels. As a result, the production and investment side of the economy did well. Households, however, were more cautious, preferring to save rather than spend. So, despite household incomes increasing in 2020, spending declined.
The demand for wood was also swept up in the recovery. While total residential construction started 2020 on a weak note, it picked up in the second half with building starts running higher than in the previous year. Several other indicators also pointed to a higher demand for wood – concrete production was up 6.3%, crude steel up 7.7% and manufactured steel products up 12.8%. This reflected the boom in all types of construction and with it came higher demand for logs, sawn timber, and plywood.
The question remains how this will play out in forest product markets. Fueled by the Chinese government’s stimulus programmes, China’s GDP is expected to expand by 8.2% in 2021. In recent months however, the government has started to unwind these programmes as the recovery gained momentum. GDP growth is now forecast to slow below 6% in 2022 and 2023, which is expected to moderate the demand for construction materials and hence logs and wood products.
Source: Andres Katz, Alphametrik
Carbon Conference: Introducing Sean WeaverEarly bird rates finish later this week for our upcoming Carbon Forestry Conference - The arrival of the forest carbon sector over a decade ago heralded a new era in forest conservation financing. For forest conservation to be carbon financed at scale it needs to be commercially viable without the help of grants.
The commercial viability of native forest carbon, however, is challenged by high costs and low revenues. A remedy that does not require blunt government intervention in the carbon market is a middle path that combines native and exotic carbon forestry.
Dr Sean Weaver, the founder and CEO of Ekos, will detail how this emerging trend is poised to take off in the coming decade. Ekos is an environmental financing consulting business focusing on indigenous forest carbon projects and zero-carbon certification for organisations and products.
He is an international expert in indigenous forest carbon, carbon markets and market-based mechanisms for environmental and climate financing.
Sean consultants NZ and Pacific Island national and regional governments, multilateral banks (World Bank, African Development Bank), international agencies (UNDP, SPREP) businesses on carbon forestry.
Click here to register >>
Global sawlog prices riseThe Global Sawlog Price Index rose 8% in the 4Q/20 as demand for logs was up in North America and Europe – Both of the WRI’s sawlog price indices (Global and European) jumped 8% q-o-q in the 4Q/20 as log prices increased worldwide. Demand for logs improved when lumber consumption increased in the second half of 2020, particularly in the United States, the United Kingdom, South Korea, and the MENA region. In Europe, the lumber market was generally flat, with only minor changes in domestic demand. However, European countries with high levels of lumber exports to non-European countries were in luck. Record setting lumber prices in the US helped drive increased shipments to higher levels y-o-y than in the 4Q/20. These increases were observed in Germany, Sweden, Romania, and Austria.
The Global Sawlog Price Index (GSPI) rose to a two-year high of US$74.66/m3 in the 4Q/20. This was more than two dollars above its 25-year average. Western US, Western Canada, Austria, Germany, and Estonia saw the most significant q-o-q price increases. Of the 21 regions included on the Index, only Northwest Russia and Poland saw falling sawlog prices from the 3Q/20 to the 4Q/20.
The European Sawlog Price Index (ESPI), denominated in Euros, rose to €76.13/m3 in the 4Q/20, up from an 11-year low in the 3Q/20. Sawlog prices in Austria, Germany, Norway, Estonia, and the Czech Republic increased the most during the fall of 2020.
Russia exported 15 million m3 of logs in 2020, which accounted for almost 12% of globally traded roundwood. Much of this trade may come to a halt next year when a new law proposed by Russia’s president will ban the exportation of softwood logs and high-value hardwood logs starting January 1, 2022. According to a just- released study by WRI and O’Kelly Acumen, Russian Log Export Ban in 2022 - Implications for the Global Forest Industry (LINK), China will probably look to source more sawlogs from other regions of the world, such as Oceania, Europe, and the US.
Source: Wood Resources International
Carbon Match - Carbon market updateLast week, another weighty ETS consultation document was published by the Ministry for Environment - It sets out a raft of potential adjustments to default emissions factors with the aim of giving effect to greenhouse warming potentials under the UN’s 5th Assessment Report (AR5). If taken up, these could affect ETS obligations for many sectors, from waste to synthetic gas users, to users of geothermal fluid and coal miners.
It also contains a number of other proposals which, if implemented, could have significant implications for business and for NZU holders generally. In particular, price control settings and unit limits on auction volumes are tipped for an overhaul.
Perhaps the most critical proposal is one which would give effect to a key time sensitive recommendation made by the Climate Change Commission in its draft advice. That was, to increase the trigger price for the cost containment reserve to $70 from 1 January 2022.
Another, more symbolic proposal is to raise the hard floor price on volume auctioned by the Government from $20 to $30. Thereafter, the idea is that each of these bounds is increased by 10 and 5 percent (plus inflation) respectively, year on year.
The result would be a much higher and wider price corridor for auction volume than the status quo ($20 to $50). The intent is that within that corridor, the ETS would contrive to deliver its precise "market" price on any given day, although higher or lower secondary market prices are certainly possible in theory.
Meanwhile, a significant recast of the Electricity Allocation Factor is also signalled. That factor is used to calculate how many NZUs are allocated to compensate the most emissions intensive and trade exposed industries for increased electricity costs experienced as a result of the ETS.
Accounting for about a third of the free allocation to industry, according to the MfE, it was set at 0.52 tonnes per MWh when the ETS began and lifted to 0.537 thereafter.
But some electricity sector experts have long suspected that it could be too generous, and analysis conducted for the Ministry and referred to in the consultation document implies that the difference could be material, depending on assumptions about competitive behaviour in the electricity market.
If this factor is reduced, so would the volume of NZUs given out to eligible industrials, all else held constant. However, NZU holders should hold their excitement, as in fact all that means is that more room is potentially freed up under the cap for the Government to auction off units it no longer has to give out to industry for free. The same approach is indicated when/if the NZ Aluminium Smelter is closed in 2025.
The full consultation document and its appendices can be found here.
Consultation closes at 5pm on Friday 28 May 2021 and the intent is that any new regulations or amendments will be gazetted by 31 September 2021.
NZUs - last/settle $37.25 on Carbon Match … but log in and check back on our open at 10am for live pricing.
Source: Carbon Match
Sino-Australian relations still chillyAustralian forest industry leader says China log exports remain in limbo with no end in sight to trade dispute - Australia's forestry sector claims there are no signs of any movement by Chinese officials to end the ongoing log trade deadlock.
China suspended imports of all timber logs late last year amid escalating trade tensions. While round logs are still being exported to some countries from deep-sea ports, the multi-million-dollar log trade to China remains in limbo.
Australian Forest Products Association chief executive Ross Hampton said there had been "no movement" since China banned imports of round logs from Australia.
"The Chinese government has said that there wouldn't be any timber accepted, or round logs (as they call them in the trade) out of any part of Australia," Mr Hampton said. "And they're not at the moment returning the minister's calls."
Carbon prices recover post-auction(BusinessDesk) Carbon prices recover after inaugural auction – New Zealand carbon prices are recovering following the inaugural NZ Units auction with a closing price last Friday of $37.60 on Jarden’s CommTrade and $37.43 on competitor platform Carbon Match.
The first carbon auction on March 17 under the emissions trading scheme saw prices fall by about $1.50 a tonne, with a recent recovery signalling the beginning of a rebound, according to Jarden’s head of institutional commodities, Nigel Brunel.
“The auction clearance rate pulled the market down - not with much volume being traded, I might add - but now it’s starting to edge back up again,” said Brunel. “It feels like the market is breaking the shackles of what might be considered a disappointing clearance price, and one which took the wind out of the market’s sails.”
Looking to the next quarterly auction, on June 23, Carbon Match’s Lizzie Chambers said the recent gentle firming in prices "seems fairly well supported above that level. Buyers know they have another opportunity at the next auction which isn’t far away, and sellers aren’t keen to sell it down,” she added. “It is healthy, but it is not going crazy.”
Will history repeat? – The long-awaited first auction under the ETS was a key test of the new market and includes a confidential 'floor' price the government sets before each auction to ensure there is no price collapse.
Historically, the price of NZUs has tended to stagnate in the first half of the year and rise in the second, but history didn’t have a carbon auction. “What happens at the next auction is the 64,000-dollar question,” said Brunel. “Over the last eight years, the market has gone up by an average of 34% between May and December as most trading activity happens in the latter half of the year.” “It will be interesting to see if we get a repeat of those second half returns because of the changes to the scheme. We haven’t had an ETS with auctions before. If the market can shake off the next five million tonne auction, we will know history can repeat.”
Image credit: Washington Forest Protection Association
Q: When is a forest not a forest?A: When you sell it to become a subdivision; that’s when - (BusinessDesk) Shanghai billionaire to sell Puhoi forest estate. Asia Pacific International Group, owned by billionaire property developer and Shanghai businessman Furu Ding, is selling its 1,510-hectare forest estate at Moir Hill, near Puhoi north of Auckland.
The site, held across 45 titles with existing resource consent for the development of 207 lifestyle blocks, is expected to fetch above $200 million given current land values in the area. John Binning, of the property’s marketers JLL Brokers, said the subdivision sites would vary in size from 5,000 to 10,000sqm.
Ding, the owner of the Marriott Hotel at Shanghai’s Changfeng Park, was granted Overseas Investment Office (OIO) approval to buy the then 1,900ha site in 2010. Both the Mahurangi and Puhoi River run through the property, which has essentially been used for pine forestry to date. The OIO didn't disclose the purchase price.
Investment experts appoint MaryKate Bullen(Atlanta, USA) Leading responsible investment expert to deepen FIA’s ESG and sustainability function – Forest Investment Associates (FIA) is pleased to announce the hiring of MaryKate H. Bullen to fill the new role of Director of Sustainability and Environmental, Social and Governance (ESG). Bullen will be responsible for the firm’s ESG programs and will chair the company’s cross- functional Stewardship Committee, providing leadership across the organization as it identifies and pursues sustainability and ESG opportunities.
Bullen has more than a decade of forestland investment experience, having specialized in the development and implementation of innovative approaches to sustainable investments in forestry, carbon markets and conservation. Bullen’s experience spans North and South America, Australasia and Southeast Asia. Prior to FIA, Bullen led the responsible investment program for New Forests, a forestry investment firm. There she also led corporate communications and media relations.
“MaryKate’s background, professional experience and her passion for sustainable forestland investing and ESG will serve our clients well and promote leadership in this increasingly important area. We are thrilled to welcome her global expertise and world-class talent to our team.” said Mike Cerchiaro, Senior Vice President, Director of Investment Management for FIA.
“Forestry as an asset class is well positioned to support institutional investors in meeting both financial and non-financial portfolio objectives, such as managing their carbon footprint, contributing to the UN’s Sustainable Development Goals, supporting biodiversity and wildlife management, and promoting vibrant rural communities where the forest sector is an attractive employer and a good neighbour,” explained Bullen. “Through its ESG systems and procedures, FIA will continue to work with clients and business partners to deliver these combined economic, social and environmental objectives.”
Buy and Sell
... and finally ... some light relief
Perspectives to ponder:
That's all for this week's wood news.
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