WoodWeek 8 September 2021
Moving to the other big forest market – carbon, where Last week was a big week. Wednesday's Government auction saw all scheduled volume (4.75 million NZUs) and the entire cost containment of 7 million taken out at $53.85. This means the last auction of the year will take place with no cost containment reserve. That news saw the secondary market kick on up immediately, closing at $59.00 the same evening. And by close of play Friday on Carbon Match, NZUs had changed hands at $60.00.
A reminder that registrations are still open for our 6th Annual WoodWorks Conference on 3 November. The event has grown by over 50 percent already as embodied carbon accounting rules for new construction are being mooted. With a BRANZ pre-conference workshop and over 70 percent of delegates booked for our Red Stag CLT plant tours on Tuesday, 2 November we are committed to providing you with an in-person experience for this event. To register or see more details click here.
Moving to Australia where, as recently as October 2020, the softwood export log trade was running at some 300-400,000m3 per month with China as the main destination. However, as can be seen in the following graph this trade hit the wall late last year due to trade disruption which has affected several of Australia’s fibre exports to China. The upside for Australian wood exporters is the trade has evolved with new markets emerging in India, Korea and Vietnam. Smaller sales to other countries such as Indonesia, Malaysia and Thailand have also been made in recent months. Volumes are still volatile, so it remains unclear if these are spot sales or ongoing market opportunities.
Finally, this week's SnapSTAT graphic shows how our safety statistics are tracking. Thanks to our feature sponsors - Chainsaw & Outdoor Power and Oregon.
This week we have for you:
Forest 360 Market Commentary(OPINION Forest 360) – With most of the New Zealand log producing regions back into action at level 3, it’s good to see log trucks back on the road, crews back to work and the tail end of planting season getting completed. While lockdown will have ongoing ripple effects with some crews that have only just recovered from the first one, it was very timely in that the NZ supply chain was bursting at the seams with record production numbers. July and August saw massive issues with vessel wait times in Gisborne and Tauranga which then started to flow onto other ports such as Napier as supply was diverted.
Congestion issues started at Gisborne Port in June as the port company undertook repair works to its berth which, when combined with long periods where vessels couldn’t be loaded due to wave surges, lead to vessel wait times of around 20 days. When you have a vessel costing in the mid to high $US30,000 per day, things start to get very ugly, very quickly. The Gisborne port company then stopped all top-deck loading of logs as the lashing of this log cargo on the top of the deck takes significantly longer than stowing into the under-deck hatches. As top-deck cargo must be fumigated (or debarked) on port before loading, there are only a limited number of ports that this can be carried out on. This shifted the top-deck problem onto Tauranga which in turn led to wait times there of around 14 days.
When vessels are parked in a queue, they are basically out of the supply chain which is not helpful when you’re running at full throttle on the supply side and vessel supply is tight. As we require a smaller class of vessel in NZ due to the draft and berth limitations of many of our ports, we very quickly become price takers when vessel supply dries up as these ‘Handy Class’ vessels are only in limited supply and are in hot demand globally.
If we hadn’t already created enough problems for ourselves with vessel wait times around New Zealand coastline, some China port regions experienced significant Delta outbreaks leading to a number of ports being shut down without warning, specifically in the Yangtze basin. This has created congestion issues at the delivery end as available berthage has reduced around 30% resulting in around 10 day wait times there also. If you’re chartering a vessel at the moment, it’s a bit like sitting in Auckland traffic in a taxi watching the fare tick over as you go nowhere. On the flip side, its good times to own a bulk carrier as you’re getting paid while you’re bobbing around at anchor playing cards.
What does this mean for forest owners? Unfortunately, with commodities, it’s the primary grower who generally ends up owning the majority of the supply chain cost increases, and this situation is no different. September At-wharf-gate (AWG) prices are reasonably flat with August in the mid to high $120’s/m3 for A grade down from around $170/m3 in June. While some of that is a reduction of in-market sales prices (CFR) courtesy of price regulation by the Chinese Government, a large chunk is the freight costs. While CFR prices are down to around $US170/m3 from around $US195/m3 in June, this is still around $US35/m3 higher than the 3-year average. These price fluctuations pretty much mirror what has happened in other commodity markets such as iron ore and copper, but it is important to note that prior to the recent price spike, CFR prices have only broken through $US160/m3 for two months in the last quarter century.
There’s plenty of hand wringing happening with forest owners at present over current AWG pricing levels as many still have the eyewatering June and July numbers firmly burnt in their mind. There’s a reasonable belief that this is the bottom of the cycle, and we will expect to see some increases in AWG numbers, albeit subdued, heading into late 2021 and early 2022. Current AWG numbers are very close to the 3-year average and if, 3 years ago you’d have said we’d be worrying about A grade in the $NZ120’s AWG being the bottom of the cycle, you’d have wondered what the fuss was all about.
If you’re a forest owner going down the carbon route, the hand wringing would have been hand rubbing late last week as the spot carbon price hit $60/NZU following the Government auction at which all units were sold at $53.85 from the cost containment reserve. This auction saw all of the 11.75 million carbon tonnes allocated being sold and a further 7 million tonnes worth of bids going unfilled. This will be making James Shaw pucker somewhat as it is likely that there is a fair degree of speculation in carbon rather than pure demand from emitters.
Carbon Soars Amid NZ ETS ConsultationNZUs hit new highs – Last week was a big week for the NZ carbon market. Wednesday's Government auction saw all scheduled volume (4.75 million NZUs) and the entire cost containment of 7 million taken out at $53.85. This means the last auction of the year will take place with no cost containment reserve.
That news saw the secondary market kick on up immediately, closing at $59.00 the same evening. And by close of play Friday on Carbon Match, NZUs had changed hands at $60.00.
What next? There is a lot going on in the space, with the market homed in on any new filament of information. Two consultations are underway - one on ETS governance and another on the reform of the industrial allocation. Both of those can be found here . Responses are due by 17 September.
Meanwhile, the Government's own economy-wide emissions reduction plan for New Zealand is keenly anticipated and expected to draw on efforts and analysis from almost every part of the Government. Public consultation on the plan was originally expected to run from late August to early October but appears to have been held up with the Delta outbreak.
At $60, NZUs are up $10 over the last fortnight, and $20 since early June, just three months ago. Stay tuned.
Source: Carbon Match from 10am - 5pm every weekday.
RNZ: Forestry, Dairy drag Index downThe ANZ Bank's World Commodity Price Index dropped 1.6 percent last month, as dairy and wood products retreat from the extreme highs these hit earlier this year. The dairy sub index fell 4 percent month on month, with whole milk powder, a key driver of farmer's returns, falling 6.5 percent.
Forestry prices fell sharply, down 6.6 percent in August, as high overseas demand for logs started to ease.
"Dairy and forestry led the index down, offsetting stronger prices from other sectors," ANZ agri economist Susan Kilsby said.
Meat and fibre prices rose nearly 3 percent in August and were back to pre-pandemic levels. Meanwhile, coarse wool prices hit their highest level in over two years, with prices expected to remain firm due to strong interest in natural fibres from overseas buyers.
Aluminium was the stand-out commodity for the month, with prices rising 4 percent over August to hit a 10-year high.
UC: Wood Waste for Green HydrogenTransforming wood waste into green hydrogen and carbon dioxide - Mountains of wood waste could be broken down into hydrogen and carbon dioxide gas to reduce fossil fuel consumption, according to researchers at the University of Canterbury (UC).
Chemical engineers Shusheng Pang and Alex Yip are developing a novel way to make climate-friendly hydrogen, which is being touted as a replacement for natural gas. Today, green hydrogen is made using electricity, though about 20 per cent of this power is generated by burning fossil fuels.
The process would also capture lots of carbon dioxide, which could be used in plant nurseries, fertiliser factories and chemical plants instead of fossil fuels.
Some greenhouses burn fossil fuels such as natural gas to create additional carbon dioxide – which boosts plant growth – and heat their facilities. All plants breathe in carbon dioxide and store the carbon in their leaves and wood. Forests suck up carbon dioxide directly from the atmosphere.
The forestry sector produces approximately 3 million tonnes of wood leftovers, such as unwanted branches, each year. Often this is left behind in plantation forests – and during floods, the debris can wash downstream, causing damage, Pang said.
Pictured above: University of Canterbury Chemical and Process Engineers Professor Shusheng Pang (left) and Associate Professor Alex Yip.
and even more >>
Source: Stuff and University of Canterbury
SnapSTAT - Safety: How Are We Tracking?
Australia: Export Log Trade Evolves(OPINION - FWPA) At the time of writing many parts of Australia are in various stages of lockdown with one big positive being it has coincided with the Olympic Games. So whilst COVID and the Olympics understandably dominate the news cycle it can surprise that our industry is still very active in supplying fibre to the region and timber and wood panel products for the local housing market.
As recently as October 2020 the softwood export log trade was running at some 300-400,000m3 per month with China as the main destination. However, as can be seen in the following graph this trade hit the wall late last year due to trade disruption which has affected several of Australia’s fibre exports to China.
The good news is the trade has evolved with new markets emerging in India, Korea and Vietnam. Smaller sales to other countries such as Indonesia, Malaysia and Thailand have also been made in recent months. Volumes are still volatile, so it remains unclear if these are spot sales or ongoing market opportunities.
The change in markets and the lower volumes has also impacted the ports where logs are being exported from. Based on the recent trade data for June a comparison for the period Jan to June for the past 3 years highlights the changes in main ports.
The aggregate softwood log sales for Jan to June 2019 shows strong export activity from the Queensland (ports of Brisbane, Gladstone), Victoria (ports of Melbourne, Portland) and NSW (ports of Sydney, TwoFold Bay). In the equivalent period in 2021 activity is more concentrated with exports mainly being shipped from the ports of Melbourne, Portland and TwoFold Bay. It will take time to understand where the displaced export sales end up. Many of these logs were generated from silviculture activities or out of specification logs for domestic processing. So it will be interesting to see if this current trade challenge impacts thinning operations and/or results in changes in domestic processing.
However, at a macro level trade with China couldn’t be stronger. Australia’s exports to China reached some A$145 billion in 2020 which was 2.16% less than 2019’s total of A$148.4 billion, which was the highest since 1988. The bulk of this has been iron ore which has seen record prices providing a windfall for our mining companies.
Nevertheless, China continues to purchase record levels of logs, just not from Australia. New Zealand which has been a major supplier of softwood logs to China over the past decade has recovered from COVID 19 affected trade in 2020 to see solid increases in volume in 2021.
It would be hard to know if Australia’s lost export sales have been picked up by New Zealand other than to observe that New Zealand’s export volumes continue to grow.
However, to put that all in perspective, in terms of trans-Tasman rivalry we can measure, it’s important to note the Matildas, the Kookaburras and the Hockeyroos all got the right result in Tokyo.
Source: FWPA Statistics Count and IndustryEdge
FWPA CEO steps downAfter over 13 years as the Managing Director of Forest and Wood Products Australia, Ric has decided the time is right to hand over to the next leader of the company and he has formally tendered his resignation to the Board.
The board are proud of the achievements of the FWPA team under Ric’s leadership over the last 13 years and although these are challenging times, they have continued to deliver an enormous amount of great work despite COVID, lock downs, devastating fires and significant market fluctuations.
Ric leaves the company in a strong position following the recent independent review that strongly endorsed our performance, the signing of a new 10 year funding agreement with the Commonwealth Government and the development of a new strategic plan.
Industry: Lockdown Plans ignoredIndustrial lockdown plan fell on deaf ears, business leader says – The first Level 4 lockdown hit big manufacturers hard. But when one came up with a plan to allow plants to stay open safely, the Government wouldn’t listen.
Last year, after New Zealand came out of our first Covid-19 lockdown, Tony Clifford went to the Government with what he thought was a pretty good idea. An idea which might save manufacturers millions of dollars if we went back into Level 4.
Clifford, managing director of big forestry and wood products company Pan Pac, proposed a Covid certification system.
Government would draw up a set of standards which a manufacturer had to meet to operate under Level 4 lockdown. Companies would be audited independently and if they passed, they could stay open through lockdown. Think of it like a Covid WoF for factories.
“I advocated for it strongly,” Clifford says. “But there was no appetite at all.”
Otago farm for conversionAustrian company given consent to buy 2018ha farm for forestry conversion - Information released in the latest Overseas Investment Office update shows more farmland is set to be converted into forestry in the Waitaki. An Austrian company has been given consent to buy a 2018 hectare sheep and beef farm at Mount Trotter, near Palmerston.
The Overseas Investment Office approved the sale of the farm to 100% Austrian-owned company Cerberus Vermogensverwaltung GmbH, from Peter and Susan Lawson, as trustees of the Lawson Family Trust, for $8.5million.
The consent states the company intends to develop about 1524ha of the land into a commercial forest, principally in pine trees, and has received resource consent to do so. Planting is expected to start next year, and the trees would be harvested in 26 to 32 years.
It was one of five sales of forestry land or farmland for conversion to forestry in New Zealand to overseas companies approved by the Overseas Investment Office in July. Other sales included a breeding and finishing farm in the Clutha district and a sheep, beef and deer farm in Waikato.
The sales were approved under the special forestry test, which was introduced to smooth the way for increased forestry investment but has prompted concern from some farming communities, which fear population decline and the loss of jobs if farms are blanket-planted in pines.
North Otago farmer Jane Smith said the environmental risks of large-scale production and carbon forestry had not been modelled, and the "next generation is going to pay the price". She was also concerned about the more immediate social and economic impacts of forestry conversions.
While she was "much more open" to production forestry than permanent carbon forestry, she was frustrated conversions did not come under the same amount of scrutiny as other land-use changes.
More >> https://www.odt.co.nz/rural-life/rural-life-other/austrian-company-given-consent-buy- 2018ha-farm-forestry-conversion
Tigercat Releases 880E LoggerThe 880E introduces several new features including an updated operator’s station and various grapple configurations to tailor the machine to your specific needs. The 880E is powered by the Tigercat FPT N67 engine, producing 230 kW (308 hp). The F7-163 undercarriage is designed and built to withstand rigorous, full-time forest duty with exceptional stability for heavy timber applications.
The spacious cabin has a new heated operator’s seat. Controls are integrated into both sides of the joystick pods, eliminating the need for any bolt-on control pods. The optimally positioned controls and large machine control system touchscreen interface improve ergonomics and machine monitoring.
ANZ Commodity Index”Losing elevation” – ANZ’s latest commodity index update shows the forestry index fell relatively sharply in August with prices back 6.6% from the previous month, but export prices are coming off exceptionally high levels. Earlier this year a greater-than-normal proportion of logs were exported due to the high returns on offer but this has since corrected as domestic demand has remained strong while export returns eased.
Shutdowns both in harvesting and milling of timber during the recent lockdown have again disrupted the industry but will start to return to normal as most of the harvesting and processing activity occurs outside of the Auckland/Northland region.
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Mum replied in a calm voice: "Ten new pairs of shoes."
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