Friday Offcuts 25 July 2014
The good news is that it’s expected to run for a few more years yet. The key drivers are pent-up demand coming through strong population growth (the country’s population is growing at a rapid 1.7 per cent per annum, which is among the fastest in the developed world) and the lowest interest rates seen in 50 years. BIS are estimating that it’s going to take at least another five years to eliminate the unmet demand for housing and they’re not expecting to see the housing shortfall tapering off until 2018.
China’s housing market isn’t though quite as rosy – as most local log exporters, forest owners and contractors will be able to tell you. We’ve got a more in depth look this week into China’s cooling property market. Official figures are showing property sales, new construction, price growth and property investment all falling in the first half of this year with some analysts now predicting that it may well get worse in the upcoming months.
More good news to finish the week on includes the announcement earlier in the week that the Southern Cross Forest Products operation that’s been in receivership since early May has been thrown a lifeline by one of New Zealand’s largest forestry and timber products companies, Pan Pac Forest Products. They’re planning on heading South to pick up one sawmill and the assets from the dry mill of a second nearby operation. The Independent Forestry Safety Review panel in New Zealand have also just completed their round of regional meetings speaking to over 540 forestry workers, contractors, forest managers and owners, trainers and assessors. They now plan on completing their final report around the end of September to the middle of October. Enjoy this week’s read.
This week we have for you:
Housing construction expected to smash record highsThe volume of residential construction activity in Australia is set to smash record highs as the nation prepares for two more years of a home building boom, a key industry research firm suggests. In its latest report, BIS Shrapnel says the number of dwelling unit commencements has already bounced back from a shocking low of 145,300 in 2011/12 following the end of federal government stimulus measures to reach an estimated 184,350 in 2013/14.
Moreover, going forward, the forecaster expects ground to break on construction of 190,000 houses and apartments in 2014/15 (breaking the previous record of 187,000 set in the mid-1990s), and for this to be followed up by a further strong year of 186,850 starts in 2015/16.
Still, BIS says the nation has a shortfall of around 100,000 homes and does not expect this to be eliminated in the short term notwithstanding the rise in activity and an anticipated slowing in population growth.
“Home building has been punching below its weight for about a decade, and has not kept pace with population growth for some time now,” BIS Associate Director Dr Kim Hawtrey says. ”We estimate that it will take the next five years to eliminate the unmet demand for housing. We therefore do not see this housing shortfall closing until 2018.”
Importantly, BIS says the recovery in home building activity is spreading beyond high-rise apartments through to the detached housing segment (in which starts are expected to grow by eight percent in 2014/15) and beyond cities into regional areas, with growth largely being driven by investors, upgraders and downsizers.
Still, the forecaster notes there are few signs of significant recovery in renovations activity, whilst the apparent absence of first home buyers remains a concern.
Outside of the residential sector, BIS expects growth in the value of non-residential building activity of five percent in 2014/15 following an estimated five percent in 2013/14 as strength in commercial building (offices) and industrial building offsets lower spending levels on social and institutional buildings, but warns activity in that sector will contract for three years thereon after as the volume of major public sector building contracts eases back.
In terms of major states (residential building), according to BIS: - A combination of strong investor demand and underlying stock deficiencies will see New South Wales and Queensland, with growth rates of nine percent and three percent expected in these states respectively.
- Victoria (growth of three percent in 2014/15) will see another twelve months of strong activity as investor demand prolongs strong market conditions but will see a contraction thereon after as oversupply associated with strong home building levels of recent times catches up with the market.
- Having ridden high on the mining boom, activity in Western Australia will contract by five percent in 2014/15 and continue to drop back thereon after until growth resumes in 2018/19.
Click here for the full BIS release.
Southern Cross Forest Products sale announcedThe receivers of New Zealand’s Southern Cross Forest Products Ltd this week confirmed the sale of the company’s Milburn sawmill and Millstream dry mill assets in Otago to Pan Pac Forest Products Ltd. Receiver, Brendon Gibson from KordaMentha, said the sale – which is subject to approval from the Overseas Investment Office – was good news for the local forestry industry.
“We are pleased to have negotiated a sale to an experienced wood processor that is going to reinstate production. When production recommences, Pan Pac has advised it expects to employ up to 30 people. This will provide an opportunity for SCFP’s former employees to re-enter the industry,” Mr Gibson said.
Pan Pac Managing Director, Doug Ducker said the company planned to make a significant investment to increase the mills’ production capacity prior to recommencing production in early 2015.
“This is a strategic move to enhance Pan Pac Lumber’s position as New Zealand’s leading supplier of appearance grade radiata lumber to global markets. These mills will complement and supplement our current output from our sawmill at Whirinaki, Napier. The additional product will be sold into our existing customer base to meet increasing demand and to further enhance sales into Asia”.
The Receivers are now starting sale processes for other SCFP assets in the Otago region.
Wood treatment leaders in Australasia in September
Like it or not, thermally and chemically modified wood along with wood plastic composites (WPC’s) are now a commercial reality. They’re already being produced in commercial quantities in both Australia and New Zealand. They’re competing - but can complement - traditional preservative treated wood products in the local market.
Wood Innovations 2014 will be providing local timber treatment and wood manufacturing operations with a rare global insight into these new technologies. What are they, just how much does it cost to set up manufacturing or treatment operations, what are the market trends and what are the opportunities for your own business?
These and other questions are going to be answered by an incredible line-up of local and international specialists. Look up the programmes on www.woodinnovations2014.com to check out the content – and presenters lined up for this biennial programme.
Just a taste of who’s presenting
- Edward Pratt, Director of Business Development for Accsys Technologies, UK. Eddie founded Accsys Technologies (then named Titan Wood) in 2003 and led the development of the business from the acquisition and development of its original intellectual property through to the company’s flotation on the London stock exchange and start-up of its full-scale production plant in 2007.
- Duncan Mayes, VP R&D & Technology, StoraEnso Oyj, Finland, was one of the original developers of the ThermoWood product in Stora Enso and has had an active involvement in both its and other wood modification technologies development.
- Tam Tekle, President & CEO, Tekle Technical Services, Canada who heads a fibre products development company specialising in the commercialization of natural fibre-based composites, including North America’s only biocomposite fibre mat plant.
Designed specifically for local companies, Wood Innovations 2014 will run in Rotorua, New Zealand on 17-18 September and again in Melbourne, Australia, in the following week on 23-24 September 2014.
Further details can now be viewed on the event website, www.woodinnovations2014.com. Remember discounted early-bird registrations FINISH on Friday 15 August. Group discounts and industry association discounts are also available.
New Zealand Log Prices - July 2014In-market log prices are reported to have flattened off, and the data from Agrifax’s survey supports this view. The average A-grade price is US$127/JAS, with most exporters reporting a US$125/JAS level. This is 8% lower than last month’s average, and US$33/JAS below the peak in March. There are some prices reported lower than this, but the spread of prices collected in the Agrifax survey has tightened significantly, which indicates a level price being found, rather than the large spreads that had been seen in recent months.
Anecdotal evidence suggests that inventories in China are showing the first signs of reducing, but it’s still finely balanced. There’s been increased off-take activity in ports in China but it’s too early to tell if it’s a genuine sign of a recovery in demand. It still requires a reduction in supply for the inventory level to correct but this is now starting to show in China’s import data, and in recent reports from China. It’s also reported that there has been a very large reduction in logs delivered to ports in NZ, which means that supply drops will be seen in China shortly.
This means that real reductions in inventories in China will start to be seen in August, but there’s still a significant reduction needed to put any pressure on prices. Anecdotally it’s been reported that off take sits at about 60,000-65,000t per day. May import statistics showed 2.7 million t imported to China, about 2.2 million t of which was delivered to ports. This suggests that May imports were still outpacing demand by about 12%, and even if August deliveries dropped by 30% on May, it would still take at least five months at that supply to bring inventories down to the levels seen in January this year.
The Agrifax Log Price Indicator fell 5 points this month, as unpruned log prices fell in both the domestic and export markets. Export log prices continued declines, but it’s expected that prices are now near the bottom. There are slightly more positive signs in China, with the first signs of decreases in inventory levels seen in the Shanghai and Nanjing area. However, the housing market in China is still slowing, and there will need to be further reductions in supply before any real reduction in inventory levels is seen.
The domestic log market eased due to pressure being let off from the export market this month. The largest drops were in the utility and industrial log types. There was a $7/t average drop in structural log prices, which are still underpinned by the strong construction activity in NZ. The drop in harvesting due to the export price decline has meant that prices needed to be kept high for structural logs to maintain supply.
There was some ability to absorb price, and supply, drops, because of a normal winter slowdown in building activity. Pruned logs, however, are now reported to be in very tight supply in the North Island, caused by the reduction in harvesting. Pruned prices were fixed flat for the quarter, and are expected to rise by the fourth quarter as supply is now very tight.
The Agrifax log price data is a weighted average of prices collected each month from a range of New Zealand log buyers and sellers. Log prices shown in the table will vary regionally and by supplier and should only be used to provide a broad trend of log price movements.
A closer look at Chinese housing constructionChina’s banking regulator said on 30 May it was stepping up oversight to prevent risks from some failed property developers from spreading into the broader financial system, but said overall risk from property loans was controllable.
The China Banking Regulatory Commission (CBRC) also urged commercial banks to work out emergency plans to mitigate risks stemming from the property sector, in a bid to ease investors’ worries that the cooling real estate market could fuel an increase in bad loans.
Chinese property developers are feeling the pinch from slowing property sales and climbing borrowing costs in recent months, with some smaller players reported funding difficulties or even cash chain breaks over the past months.
Official figures showed home price growth in China slowed to a near one-year low in April while property investment also lost steam in the first four months, fanning concerns of a further downturn in the sector, which has become a drag on the broader economy.
Growth in real estate investment in China slowed in the first five months of 2014, while property sales and new construction fell, adding to signs of cooling in the property market that has become a persistent drag on the broader economy. The sluggish performance in real estate comes as the world’s second-largest economy faces its weakest pace of growth in 24 years this year.
Real estate investment, which affects more than 40 other sectors from cement to furniture, rose 14.7 percent in the January to May period from the same period a year ago, down from an annual rise of 16.4 percent in the first four months, official data showed.
Newly started property construction fell 18.6 percent in the first five months from a year earlier, the fourth consecutive period of decline. Analysts predicted the worst is yet to come. “The trend of slowing property investment growth is likely to continue in coming months as more and more home buyers stay the sidelines,” said Tang Jianwei, an economist at Bank of Communications in Shanghai.
Property sales dropped 7.8 percent in the January-May period from a year earlier in terms of floor space and fell 8.5 percent in terms of value, the National Bureau of Statistics also said in a statement on its website, www.stats.gov.cn. That compared with annual drops of 6.9 percent and 7.8 percent, respectively, in the first four months.
As the sector accounts for more than 15 percent of China’s annual economic output, a prolonged cooling of property market will likely influence whether the economy suffers a shallow or deep downturn. “The biggest uncertainty in the economy this year is the property sector,” said Tang.
Source: Canada Wood Today, Reuters and Economic journals
North American log exports on the riseNorth American log exports to Asia over the past several years have boosted profitability for timberland owners while challenging the domestic solid wood sector mainly in north western US and Coastal British Columbia. In the 1Q/14, the North American export volume was 14% higher than in the 1Q/13 and 30% more than the same quarter in 2012, as reported by the North American Wood Fiber Review (NAWFR).
Almost 53% of the overseas exports have been shipped from the US Northwest with 41% was from British Columbia. Coastal British Columbia is also a major supplier of logs to the Asian markets, with a majority of the timber originating from private timberlands on Vancouver Island. Over the past year, shipments have been approximately 1.5 million m3 per quarter, which is up from an average of 1.2 million m3 per quarter during 2011 and 2012.
Perhaps the most interesting development the past year has been the sharp increase in shipments of logs in containers from the US South. These exports have been mainly to China and India. Although the total volume is still relatively small as compared to the US West Coast export volumes, the US South share of total overseas exports from the US was over six percent during the first five months of this year as compared to only two percent for the same period in 2012, as reported in the NAWFR (www.woodprices.com).
Source: Wood Resources International LLC, www.woodprices.com
Website for bio-resource processing technology set up
The Bioresource Processing Alliance’s (BPA) new website provides a gateway to some of New Zealand’s top scientists, engineers and economic specialists in biological resource processing.
The BPA, an alliance between four of the country’s national research providers – AgResearch, Callaghan Innovation, Plant & Food Research and Scion, aims to expand New Zealand’s export opportunities by adding value to biological resources. Many of these resources are low value secondary by-products and waste streams from primary industries.
According to the Chair of the BPA Board, Garth Carnaby, the website will enable businesses and investors to tap into some of the best technical facilities, research and processing knowledge available in the country.
“Our aim is to add value to the secondary by-products from New Zealand’s agricultural, horticultural, forestry, marine and microbiological industries. We can use our collective expertise to help businesses reduce processing costs and utilise greater volumes of their primary resources to make a wider range of products. This could potentially mean a reduction in the volume of imported goods and reliance on petrochemicals, increased employment and the generation of less waste.”
Each of the BPA’s research partners has specialised science capability and infrastructure and is already actively researching ways to increase the value of biological waste streams. They also collaborate with a range of other research and industry partners nationally and internationally. This means investors can tap into the collective and multi-disciplinary scientific expertise and pilot plant facilities within the wider alliance network.
“Our new website will make it easier for businesses and investors to access a platform of enabling technologies, such as extraction, reconstruction and transformation, high value processing and deconstruction,” says Mr Carnaby.
“Once a new product has been proven at a laboratory level, its feasibility as a commercial investment can be assessed at pilot scale from within our database of pilot plants, along with other robust decision-making tools we have developed.”
To find out more about the Bioresource Processing Alliance, visit: www.bioresourceprocessing.co.nz.
Greenpeace in trouble with forestry company campaignFor some time Greenpeace Canada has been mounting a campaign to bring SLAPP legislation into Canada, the idea being that the corporations should be legally discouraged from taking legal action against aggressive environmental activists.
SLAPP stands for Strategic Lawsuit Against Public Participation, a concept swallowed whole by Ontario’s Liberal government, which produced a bill that would prevent a corporation from responding to defamatory statements made by groups such as Greenpeace. The green groups, after all, are said to be acting “in the public interest” and should therefore be above the laws of defamation that might prevent them taking on private corporate interests.
Well, Greenpeace just suffered a major defeat in Ontario court that goes way beyond the narrow confines of defamation and SLAPP legislation. In a recent decision, an Ontario Divisional Court tribunal ordered Greenpeace Canada to pay $22,000 in legal costs to forest giant Resolute Forest Products. The court also ordered Greenpeace “to deliver its statement of defence within 10 days of this decision.”
For more information on the case and potential implications, click here
Update on NZ’s Independent Forestry Safety ReviewThe formal consultation process for the Independent Forestry Safety Review being undertaken in New Zealand has now been completed. The Panel says they had received feedback on its consultation document including 111 written submissions from government agencies, forest industry stakeholders and individuals with an interest in the Review.
While in the forestry regions, the Panel spoke with over 540 individuals. These included forestry workers, contractors, forest managers and owners, trainers and assessors and a range of other stakeholders. As part of the consultation phase, a forestry worker survey was undertaken. So far, over 340 surveys have been completed. They are still being returned to the Panel so the final numbers are not yet known.
The Panel is now working on developing practical recommendations for change in the forestry sector for its Final Report. The focus will be on recommendations that will help ensure the forestry work place becomes a safe place to work. It is anticipated that the final report to be completed sometime between the end of September and the middle of October.
It will take the Panel this time to review the submissions properly, talk to those who will be required to lead change in the sector and write the Final Report. In the interim, it is expected that an update on the content of the submissions will be provided in early August.
NZ farmers miss out on $120m a year windfallNew Zealand farmers would be paid to pollute if they participated in the country’s emissions trading scheme under current policy settings, University of Canterbury forestry expert Professor Euan Mason says.
If farmers had joined the scheme, they would have received about NZ$120 million to pollute each year, he says. This rather strange outcome is a direct consequence of Government policy that allows unrestricted imports of carbon credits, including hot air credits from former Soviet countries. Farmers do not participate in the scheme right now, but it was proposed that they would have been liable for only 10 percent of their greenhouse gas emissions, which are currently around 35 million tonnes of carbon dioxide equivalent a year.
They would have been gifted New Zealand units, which are our domestic carbon credits, for the remaining 90 percent so that they could submit credits to account for all their greenhouse gas pollution each year. This practice of gifting is known as grandfathering and it is happening for all emission intensive and trade-exposed enterprises apart from farming right now.
New Zealand emissions trading scheme is failing but could be fixed. However, the scheme allows imported credits to be submitted to account for pollution instead of New Zealand units. The vast majority of imported credits are hot air emission reduction unit credits imported from former Soviet countries.
These credits represent no change in people's behaviour in response to climate change and they are so numerous that they are currently worth 11 cents each in New Zealand. New Zealand units on the other hand are worth NZ$4. So polluters are effectively paid to pollute in our emissions trading scheme. They are grandfathered credits worth NZ$4 and can submit instead credits worth 11 cents.
If farmers had been in the scheme, we would have paid them the equivalent of 90 percent of their emissions multiplied by the difference between the price of grandfathered New Zealand units and imported emission reduction units. Between 2010 and 2012 we grandfathered credits to other trade exposed industries such as the Tiwai Point smelter enough credits to effectively pay them more than NZ$36 million to pollute at today's credit prices.
Professor Mason says that by changing a few key policy settings the emissions trading scheme could be made to work really well. These include stopping imports of hot air credits, ceasing grandfathering, requiring New Zealand unit surrenders each year only for target greenhouse gas reductions, and treating all productive sectors equally. He says New Zealand has so far failed to respond adequately to climate change and its emissions are among the fastest rising in the world.
Lumber market updateUS trade higher
US imports of lumber increased 4% year-on-year for the three months to May, as there has been strong building activity in the second quarter so far. Canadian supply has been holding steady at about a 97% share of imports. Over the same period NZ supply has dropped 1%, but supply from Chile is up 76%. Mouldings imports have increased from South America, which has pushed the total imports up to 12%, but imports have dropped from elsewhere. Canadian supply was down 1%, while NZ and European supply was down 18% and 16% respectively year-on-year.
Canada’s lumber exports during May were the largest since June 2007, due to the release of a flood of lumber from what had been massive stockpiles at Canadian mills. Stocks had been rising due to a lack of available railcars and trucks. This was brought on by the harsh winter there slowing train movement down, and a strike at the port of Vancouver during March. The clearing of these stockpiles, with significant exports has allowed the Canadian SPF lumber price to increase to $340/ mbf, up $30/mbf in the past month. This is now the highest price for SPF lumber since May 2013.
NZ lumber exports increased during May, in particular to China and Japan. However, exports were still well below year ago levels. The average value of exports, however, is up across the board, with the largest increases in export unit prices to South East Asia. In the year to May 2014, lumber exports to South East Asia have increased to 24% of NZs total exports, from 21% over the same period in 2013.
Meanwhile the proportion of lumber exports going to China has reduced from 29% to 26% in the same time period. The absolute difference though is 50,000m³ drop in exports to China, and just a 5,500 m³ increase in exports to South East Asia.
Timbercorp investors back to courtInvestors in Timbercorp say they will fight 'increasingly unreasonable' legal attempts to force them to repay money they borrowed to put into the failed forestry company reports the Sydney Morning Herald. A first batch of 16 investors in managed investment schemes run by Timbercorp is expected to appear before the Victorian Supreme Court on August 15, and more are expected to be hauled before the courts in coming months.
Timbercorp liquidator KordaMentha is seeking orders that they repay loans they took out to finance their investment. Investors who held out on repaying their loans owe a total of about AU$515 million. A KordaMentha spokesman said more than 4000 growers had accepted their obligations to pay back the money and hold-outs were rejecting "substantial discounts" offered on the face value of their loans. "Three court judgments have ruled against other growers' attempts to avoid their responsibilities," he said.
TIMO timberlands management drops slightly in 2013Timberland Investment Management Organizations (TIMOs) managed slightly less timberland globally in 2013 than they had the year before, according to research released by TimberLink LLC in April, Timber Mart-South reports. The global decrease of about 430,000 acres to 30.2 million acres represents a drop of around 1.4% compared with 2012.
In the U.S., TIMOs were managing about 22 million acres by the end of 2013, a drop of 1.1 million acres compared with the previous year. Of TIMO timberland holdings in the U.S., about 12.8 million acres are in the South though on a region-by-region basis, TIMOs lost the most holdings in the South and the U.S. Northwest in 2013, gaining ground in South and Central America, according to Timber Mart-South.
Timberland investments outside the U.S. have grown gradually as investments within the U.S. have declined, though TIMO holdings globally have been relatively stable in the past three years.
Source: Industry Intelligence
Buy and Sell
...and one to end the week on...a walk in the woods
And on that note, have a great weekend. Cheers.
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