WoodWeek 10 November 2021
In related log export news, we’ve quote a market analysts’ phrase in today’s company results update that you are not likely to be hearing again for a while: “Pricing held up well at $112.” The toughest part of the latest market change is the speed and depth of the drop this time. The magnitude of this drop which is the largest in both percentage and dollar terms since the 90’s ‘Asian crisis’.
In environmental news, we report today on a $1.3m boost for study of erosion, sediment control measures in forestry sector - A seven-year forestry study aims to determine the most effective measures for reducing erosion and sediment in rivers from harvesting. The project is now in its second year at OneFortyOne's Donald Creek Forest.
Back to port news, as port logistics company ISO Limited has just announced the arrival of two world-leading mobile harbour cranes for safer and more efficient handling of cargo at its operation at Eastland Port in Te Tairāwhiti Gisborne. The world- leading technology continues ISO’s significant investment in innovation to transform its port logistics supply chain nationwide.
Finally, today encouraging news on young people coming into our industry. More young New Zealanders are making forestry and wood-processing their future with 7 more talented applicants joining the Ngā Karahipi Uru Rākau – Forestry Scholarship programme.
"It is fantastic to keep seeing young people embarking on their forestry career. The growth in the sector means more opportunities for highly skilled people due to research, innovation and increase mechanisation," says Debbie Ward, director, business and spatial intelligence, Te Uru Rākau – New Zealand Forest Service.
This week we have for you:
Forest 360 Export Market CommentaryIt might be time to park the gear up and shut for an early Christmas. The export log price slide has continued with November prices now in the mid $90’s for A grade in most ports, with the exception of Gisborne which is at the mid $70’s level. While prices in the $90’s are above breakeven in many regions, it’s only really forests very close to a port that will stack up to carry on if prices hold at these levels for an extended period of time.
While we all know we’re in the commodity game and part of signing up to this is the knowledge that prices fluctuate, sometimes wildly, in reaction to supply and demand imbalances. The scary part of the current situation is the magnitude of this drop which is the largest in both percentage and dollar terms since the 90’s ‘Asian crisis’. While most of us had conveniently blocked that fun part of history out of our memory, this situation feels very similar.
So, what’s caused this price drop and how long’s it going to last for? The drop can be attributed to a number of reasons. The Chinese market is very sentiment driven so any negative sentiment generally leads to reductions in price. It appears demand has significantly reduced in a period where seasonal demand is usually starting to ramp up. Trying to get any meaningful information around demand is very difficult as everyone has differing opinions and data sources, however, the general consensus is a vastly reduced offtake from most Chinese ports. Inventory across all Chinese ports have moved through the yardstick of 5Mm3 and is the highest inventory position coming into China’s construction season in memory.
Freight costs are around double that of the same time last year. While actual sales prices in China are still around $US20/m3 higher than the three-year average, freight has chewed up all of that and some. Much of this cost is in demurrage as Chinese ports have been struggling to handle freight resulting in wait times for a berth of up to 3 weeks. While freight does appear to be easing as wait times have reduced considerably on the back of reduced NZ supply, a bumper grain crop in Australia and poor grain harvests in the northern hemisphere has given vessel owners optionality.
Even if the demand was there from the construction sector, continued power supply issues in China from import restrictions on coal (veiled as an intention to reduce carbon emissions) have stopped many factories operating, including sawmills. Some that have diesel backup generators have switched them on which has put pressure on diesel supplies further complicating transportation and uplift issues. Let’s not forget about Covid, with China continuing with the elimination strategy there have been a reasonable number of sawmills closed in Shandong with outbreaks popping up all over the place.
The year ended September 2021, New Zealand delivered around 19.3Mm3 to China, up from 15Mm3 in 2020. Total China softwood imports rose around 7.5Mm3 to 50Mm3 in 2021 with NZ and Europe being the biggest suppliers by a country mile. During the same period, lumber imports dropped by just under 6Mm3 and, when the conversion factor from log to lumber is taken into account, the real lumber useage in China dropped by a magnitude of around 2Mm3 (3.8Mm3 log equivalent) for the 2021 year. These figures may suggest a slowing in real construction activity has been occurring over the past 12 months and there’s more than likely more to come. It’s old news that investors in China have been going pretty hard on speculative housing investment which has created a reasonable oversupply which is now coming to the fore with liquidity issues for Evergrande and a number of other aptly named development companies.
The domestic market continues to be the shining light with continued lumber shortages in retail outlets driving up prices. If I hear another builder complain about the increased cost of lumber being laid squarely at the feet of forest companies because we’re ‘exporting all of the logs’, I’ll go postal. To be very clear, most domestic sawmills are running at capacity with more than enough log supply. Sawmills could increase lumber output ‘simply’ by double shifting their operations (some already are), however, there’s not much appetite to do this as it would require additional staff and overhead costs for, more than likely, no additional margin and, in reality, who wants additional HR issues when most of the unemployed are probably unemployable anyway.
So, in summary, it’s ugly, it’s probably going to be ugly until February next year, at least. There’s a number of influencing factors that we haven’t seen before in the Chinese economy and it’s a crap shoot to see how these will affect log demand. Harvesting crews are being slowed or stopped nation wide and NZ supply is likely to drastically reduce for the remainder of the year. If you’re holding out for $150 A grade you may be waiting a while.
As the saying goes, history repeats, the last decent NZ recession was preceded by a pandemic and maybe this pandemic is a sign of things to come …
Funding boost for sediment control study$1.3m boost for study of erosion, sediment control measures in forestry sector - A seven-year forestry study aims to determine the most effective measures for reducing erosion and sediment in rivers from harvesting.
The project is now in its second year at forestry company OneFortyOne's Donald Creek Forest, near Tadmor in the Tasman district. It has just received $1.37 million from Ministry for Primary Industries through its Sustainable Food and Fibre Futures fund.
MPI's director of investment programmes Steve Penno said the only way to find out what erosion and sediment control measures worked best was through robust, real-world studies.
"This project is exploring the effectiveness of current best practice in sediment control as well as some new innovations. Later in the project, the researchers will construct a large sediment retention pond to see how that measures up compared to traditional methods."
"As well as the benefits of erosion and sediment control, the programme will also compare the costs of different practices." Penno said the data collected from the project would inform how the forestry industry meets new government freshwater management standards for suspended and deposited sediment. It would also provide scientific backing for the most effective forestry practices that had the best outcomes for the environment.
OneFortyOne's executive general manager New Zealand Brent Guild said as a long-term business, it made sense to invest in long-term studies like this one, adding, "The data will help us understand the impacts of our business. It will help us learn what works well and where we might do better."
It was working alongside Cawthron Institute, Envirolink, Manaaki Whenua - Landcare Research as well as the Ministry for Primary Industries. Two similar plantation catchments had been set up, including a control catchment that was exposed to the same weather, but would not be harvested.
Evergrande just tip of icebergIt is now clear that the Evergrande (terribly ironic name) is merely the tip of a very large dept ‘iceberg’. Reporting by The Guardian indicates one third of China’s property developers will struggle to repay their debts in the next 12 months, according to a new report, as the sector reckons with increasingly serious headwinds from falling sales, restricted access to credit and a wider downturn.
Even if the embattled developer Evergrande manages to meet its latest debt repayment on Friday and head off a potentially disastrous default, analysts at the credit rating agency S&P warned that many other property companies could be heading towards bankruptcy.
The financial contagion sweeping through the sector represents a serious risk for China – and the global economy – as its investment and construction driven model of growth begins to creak under the strain of mind-boggling debts.
China has suffered housing market downturns before but this one is set to be “unusually intense”, S&P said. Although Evergrande has emerged as the symbol of the debt-laden structure with liabilities of $300bn at home and abroad, the Chinese property sector as a whole owes an estimated $5 trillion, according to analysts at Nomura. That is one-third of the country’s entire GDP and roughly equivalent to the whole output of the Japanese economy, the world’s third largest.
Property companies must come up with $92bn as bond payments mature in the next year. This task has been made much more difficult because many were cut out of conventional borrowing channels after Xi Jinping’s “three red lines” crackdown on lending to the sector. Some have seen their credit-worthiness ratings cut to “B” or below, which denotes that the company is vulnerable.
Bondholders have been trying to extract information about Evergrande’s financial situation since its financial death spiral become clear in September when it admitted that it might not be able to meet all its debts, which include an obligation to finish up to 1.6 million homes in China that it has already taken payment for.
Rayonier Q3 ResultsRYN's Q3 in 100 Words: Strong Quarter, Driven by Real Estate
Key Points: New Zealand (NZ). Slight Beat — the Shippers Ate the Upside. Adj. EBITDA $19.9mm; BMO at $16.6mm. 3Q harvest vols -13.8% y/y (export -11.9%, domestic -16%) driven by two-week COVID-19 shutdown. Pricing healthy at $112.65. Chinese restrictions on Aussie logs helped prices. Strong export pricing largely offset by higher shipping costs. Port & freight costs in 3Q21: 2X year-earlier levels.
Bottom Line: 3Q EPS of $0.35, ahead of BMO/consensus at $0.12/$0.14. Adj. EBITDA of $114.6mm beat BMO/consensus at $74.7mm/$78.2mm. Large R/E transactions drove upside with timberlands performance in line. New Zealand and Pacific Northwest were slightly ahead of BMO, while U.S. South was weaker on lower volumes. Allowing for Q3 labour/freight/weather challenges, timber results looked very respectable to BMO. FY21 EBITDA guidance increased $15mm to $320-330mm. NZ should weaken sharply in Q4 with softer Chinese demand/prices. Maintain Market Perform rating and $36 target price.
Source: BMO Capital Markets
Lonza rebrands as ArxadaLonza rebrands as Arxada and agrees to merge with Troy - Arxada, a global specialty chemicals business, and Troy Corporation, a global producer of microbial control solutions and performance additives, announced that they have entered into an agreement to combine the two companies. This agreement represents the first strategic deal by Arxada, formerly known as Lonza Specialty Ingredients or LSI and owned by private equity funds Bain Capital and Cinven, since the purchase from Lonza Group in July 2021. As part of the deal structure, Troy’s owners will invest in the combined company.
The new name Arxada follows the company’s launch as an independent business in July 2021, after the completion of the sale of Lonza Specialty Ingredients from Lonza Group.
Scott Connor was appointed Director of Commercial Operations for the NZ Wood Protection business earlier in the year. Commenting on the changes Scott says, “2021 has been an extremely demanding year for our customers and the industry with no sign of a slow down on the horizon. Our highly experienced team are more passionate than ever, striving to add true value to our customers businesses.”
“We are excited to see a focus on investment come through from our new owners and we look forward to enjoying an even stronger supply chain.” As we all know, this is currently one of the biggest industry challenges and will be for the foreseeable future. The industry will continue see our trusted Tanalised brand out in the market. Meanwhile we endeavour to ensure the global supply chain complications don’t impact our loyal NZ customer base.”
Angelo Hrastov, Director Commercial Operations MCS Oceania commented, “This combination of Arxada and Troy represents an exciting time for not only for us as a business but for all of our customers. The combination allows us to leverage the differentiated and complementary strengths of each organisation to provide better products and services for our customers while enabling us to better meet the challenges that face our customers today. As one company we will have a stronger value proposition to offer our customers through greater innovation and marketing capabilities.”
Mobile harbour cranes for ISO NZThis week Mt Maunganui-headquartered port logistics company ISO Limited announced the arrival of two world- leading mobile harbour cranes for safer and more efficient handling of cargo at its operation at Eastland Port in Te Tairāwhiti Gisborne. The world-leading technology continues ISO’s significant investment in innovation to transform its port logistics supply chain nationwide.
Paul Cameron, CEO of ISO, says, “Our new mobile harbour cranes will help transform our operation at Eastland Port in Te Tairāwhiti. The new technology will remove our people from high-risk areas on the wharf and enable cargo to flow more efficiently through the increasingly pressured supply chain. With the implementation of the cranes we are upskilling and training staff we move out of high-risk areas into other machinery-based roles within the business.”
ISO commissioned the German-manufactured Liebherr mobile harbour cranes to suit its operating environment, with advanced technology and safety specifications designed by its technology team. The cranes arrived at Te Tairāwhiti Harbour earlier this week from Germany.
Eastland Port will be the second port to benefit from introducing ISO’s mobile harbour cranes, following the introduction of four cranes in Mt Maunganui in August 2020.
Andrew Davies, COO of ISO says, “We’ve seen significant improvements in safety and productivity in Mt Maunganui with the introduction of mobile harbour cranes, including a 75% reduction in incidents. The cranes provide a safer, more efficient and reliable method of loading logs directly from trailers into the vessel’s hold with mobile cranes instead of ships’ cranes. We expect to see similar results in Te Tairāwhiti. The mobile cranes allow us to handle all types of cargo for a wider range of vessels, which increases handling cycles, lift capacity and vessel turnarounds – which means a better result for our customers, our business, and the port.”
We also have an excellent video of ISO's first set of Mobile Harbour Cranes making their way from Liebherr Group in Germany to New Zealand. See video here>>
Lake Taupo Forest Trust plan for job creationWorking Together To Increase Forestry Value And Create New Jobs – Tupu Angitu Ltd, the commercial arm of the Lake Taupō Forest Trust, and NZ Bio Forestry Ltd have entered into a Memorandum of Understanding they hope will bring an increase the value of the forestry estate and create new regional jobs. They plan to achieve this on a zero-carbon footprint.
“Our Trust owns a sustainable forestry estate,” says Temuera Hall, the Chair of Tupu Angitu. “It controls over 33,700 hectares on behalf of its 14,000 Ngāti Tūwharetoa owners of which 28% is conserved in its natural state. Tupu Angitu is focused on diversifying our asset base and integrating throughout the forestry value chain.”
Hall also notes that Ngāti Tūwharetoa is a co-owner of the 170,000 hectares forestry estate in Kaingaroa, one of the largest production forests in the Southern Hemisphere.
NZ Bio Forestry has made it a priority to work with Māori in support of the forestry sector. “Forests are so much more than just structure and fibre,” says NZ Bio Forestry CEO Wayne Mulligan. “We view forestry through its living essence, its biologics or ‘mauri’. We term this the Mauri-Molecular Platform™. We understand forests as a huge resource of standing biochemistry that can provide alternatives to fossil fuels like coal and petroleum.”
NZ Bio Forestry was founded by NZ Māori and their Singaporean and Taiwanese partners. It provides advanced technologies to convert softwood into biochemicals that can replace petroleum and fossil fuel products. And while most comparable companies around the world use food sources, such as corn, to create bio-plastics and other bio-materials, NZ Bio Forestry exclusively uses renewable non-food sources including forestry waste.
The company has plans to establish as many as 12 bio-facilities across New Zealand. The first site is planned for Marton in the Rangitikei region. However, the relationship announced today also provides an opportunity to move quickly to locations around Taupō, the Central North Island and Eastern Bay of Plenty. “The resources are here, the market demand is growing, and the technology is available. It’s time to stop talking about transformation and start making it happen,” Mulligan says. NZ Bio Forestry’s relationship with Tupu Angitu has identified six key areas of collaboration including investments; development of a technically skilled workforce; forestry supply; growing forestry assets; building new technologies and intellectual property, and carbon offsetting.
“NZ Bio Forestry has already partnered with leading global players that understand the huge market opportunity in lowering CO2 and creating new products and systems that are fossil and petroleum free”, comments Paul Morgan, Director of NZ Bio Forestry. “Our intention is to increase the value of the forestry estate, to create regional jobs, and to achieve a zero carbon footprint. And we’re keen to work with other likeminded Māori and New Zealanders who want to join us.”
Who are NZ Bio Forestry? More>>
More young people being attracted to forestryMore young New Zealanders are making forestry and wood-processing their future with 7 more talented applicants joining the Ngā Karahipi Uru Rākau – Forestry Scholarship programme.
"It is fantastic to keep seeing young people embarking on their forestry career. The growth in the sector means more opportunities for highly skilled people due to research, innovation and increase mechanisation," says Debbie Ward, director, business and spatial intelligence, Te Uru Rākau – New Zealand Forest Service. "The scholarship programme offers students a pathway to higher-level study, where they gain the skills, expertise, and capabilities which the forestry and wood-processing sector needs now and into the future."
The successful scholarship recipients for the 2022 academic year are: Paula Tucker Camano from Hamilton, Phoebe Naske from Gisborne, Stephen Thompson from Rotorua, Emma Plomp from Invercargill, Joe Falloon from Masterton, Tyler Rowe from Wellington, and Whanarua Edmonds from Pukehina.
The scholarship programme, now in its fourth year, aims to grow the capability of the forestry and wood- processing workforce and, aims to increase the number of those that identify as female or of Māori descent, encouraging greater diversity in the industry. To date, 23 students throughout New Zealand have received scholarships since 2018, with the first students expected to complete their qualifications at the end of next year.
In addition to the existing Bachelor of Forestry Science and Bachelor of Forest Engineering degrees offered through the University of Canterbury, Te Uru Rākau – New Zealand Forest Service is also funding 3 new scholarships this year for the Diploma in Forest Management at Toi Ohomai Institute of Technology in the Bay of Plenty starting 2022.
To see what current scholarship recipients say about the value and benefits they are getting from studying forestry, and for more information about Ngā Karahipi Uru Rākau – Forestry Scholarships:
Call: 0800 00 83 33.
Source: Te Uru Rākau – New Zealand Forest Service
Ranger still tops the fieldHere in New Zealand ute sales the Ford Ranger retained the top spot for the month of October as the bestselling commercial model with 34% share (1,610 units) followed by the Toyota Hilux with 12% share (585 units) and the Nissan Navara in third place with 8% market share (383 units).
Buy and Sell
... and finally ... a funny finish
A very elderly lady went into the bank, handed her bank card to the cashier and said “I would like to withdraw
£10 please”. The cashier told her “For withdrawals less than £100, please use the ATM." The old lady wanted
to know why …
That's all for this week's wood news.
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