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Clarky's Comment
 Our forest industry has been through a decade of declining log values and rising costs. There are some indicators on the horizon that this will change over the next few years, but to make the most of that changing environment we need to do some things a lot smarter.
All basic resource commodities have been experiencing rapidly rising values in response to limited supplies and rising demand, especially with increasing consumption in developing Asian nations. Wood product values have also risen, but to a much lesser extent than energy, steel, cement, coal and base metals. Wood price rises have been constrained by plentiful supplies from tropical rainforests (some illegally), Russia, Europe and Canada. Other than Europe, where growth in supply still outstrips demand, each of the other major producing regions is entering a period of supply constraint, or in the case of Russia high taxes on log exports. Combined with rising costs for steel and cement, and assuming demand Asian growth remains strong, we can expect wood products to rise in value. A large backlog of Australian housing construction is also emerging. Once interest rates fall a bit that will be good for our structural timber producers.
Will this help NZ plantation forest owners? Of course it will, but only to a limited extent unless we can develop new high-value Asian markets for our pruned timber, and get our supply chain costs down.
It is for this reason that I have been active in promoting what is needed from both the government and the forest industry players themselves at a range of forums over the last several weeks. These have included presentations to the Climate Change Leadership Forum, the NZIF/APPITA Rotorua Section and the Forest Industry Strategy Conference held in Rotorua. PF Olsen has been backing this up with my recent presentation to the Korea New Zealand Business Council in Seoul that promoted the case for moving some Korean pine log processing capacity to New Zealand to reduce energy consumption both within Korea (70% coal and oil generation) and in shipping logs. PF Olsen is also a financial supporter of the new Solid Wood Initiative (SWI) research programme, and a strong financial participant in all the research themes of Future Forests Research Ltd.
Some key messages are:
- Supply chain productivity is the key to improving our international competitiveness. Within this the low-hanging fruit is:
- increased weights and dimensions for heavy transport (not just logs but all road transport), and that means also investing in the national roading network.
- harvesting of steep country - research funding and business organisation need a step change, including long-term contracts for harvesting contractors to support investment in people and equipment.
- The Central North Island has geothermal steam, an environmentally benign energy resource that cannot be transported unless turned into electricity. The most efficient use of steam is directly as heat. Nearby are vast pine forests full of wet wood that is no use to anyone until it is dried. If we cannot match these two large resources up we are missing a big opportunity.
- We have a large volume of pruned logs maturing nationwide, and a mature US market, a share of which we compete on price with low-cost South American pine, painted MDF and finger-jointed boards. On the other hand we are closer to Asian markets, the high-end furniture and joinery portion of which is supplied by high-priced tropical hardwoods that are declining in both quality and availability. In addition we import clothing and manufactured goods from Asia that come in containers. Some of these containers go back empty. Filling them with dried clear grades of sawn timber seems logical to me!
 PF Olsen chose wood for our new Rotorua office, not only because of its lower environmental footprint, but also its lower cost than steel or concrete.
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Record Attendance at Safety Champs Meeting in Rotorua
More than 60 people braved the chilly early morning Rotorua air for the August session of the bi-monthly Safety Champs meeting. This is our best turn-out yet! Safety Champs are part of PF Olsen's integrated health and safety management system which has the primary aim of making sure all workers return home safely to their families each night.
The guest speaker was Chris Elphick, a self-employed industrial performance consultant from Picton (see photo). This session was kindly sponsored by the ACC which is pro-actively working towards minimising work-place accident and injury. 
"We all acknowledge that forestry, and harvesting in particular, is a hazardous occupation. That's why these sorts of programmes are so important", says Nic Steens, PF Olsen's Health and Safety Manager.
Chris shared a more personal perspective of work-place dynamics and advocated bringing more "love" into the work-place. "Not the lovey-dovey kind of love", Chris quickly explained, "But the kind that shows respect, caring and being there for other people". And despite the audience comprising well seasoned, work-hardened logging folk, Chris' message seemed to strike a chord. Chris urged us to think of how we work as teams, and how we can work together to exceed all expectations.
Thanks for those insights Chris.
Nic Recognised by Department of Labour
 A welcome and completely unprompted letter from the Department of Labour (DoL) arrived in August. The letter was to thank PF Olsen for its leadership and support for the pilot Workplace Culture, Leadership and Forestry project in the forestry sector.
In particular, Nic Steens' contribution was noted. "I would like to acknowledge the considerable work your health and safety manager, Nic Steens, has put into making this project happen, wrote Craig Armitage, Deputy Secretary, Workplace Group. "Nic's enthusiasm, industry knowledge and networks have enabled the project to engage a core group of influential contractors."
Thanks DoL, we're always willing to help out for good causes.
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Log Market
PF Olsen has been receiving an unprecedented level of direct log supply enquiry from Chinese log purchasers recently. "It is not unusual to receive a flurry of enquiry from offshore buyers from time to time", says Peter Weblin, PF Olsen's marketing manger, "However, I have not seen such a high a level of enquiry before." This is consistent with reports of Chinese log buyer enquiry being reported from big log suppliers such as British Columbia. B.C. forest company TimberWest Forest is reporting that Chinese delegations are sending out feelers to B.C. in their search for supply to replace Russian exports, should the tax go into effect as proposed.
PF Olsen has commenced supplying three new log purchasers in the past 6 months resulting in better prices especially from the smaller export ports. The container trade, in particular has opened up some supply opportunities that were previously unavailable and provided attractive export options for PF Olsen client logs.
North America
An interesting statistic from a recent Crows market report (in the US) suggests that the malaise in the U.S. housing sector may be drawing to a cyclical bottom. Unsold home inventory has been dropping by 10,000 units per month for the past 12 months, and dropped a huge 25,000 units in June. However, lumber consumption in the U.S (which dropped 15% in the first half of this year) is not expected to start growing until the second quarter of 2009. So on this basis, it will still be some time before improvement is felt in terms of NZ log business.
One interesting dynamic of the timber market is that supply of logs and production of lumber and processed timber products has reduced rapidly and helped to underpin prices. For example, lumber and panel production in the US, British Columbia and the rest of Canada is down between 20 and 30% this year compared to production levels last year. Prices are holding as inventories remain tight.
Asia
Despite the Korean economy close to recession and construction activity well down, a fragile balance continues between subdued demand and low volumes being shipped from NZ. In contrast Chinese demand is strong and prices are up accordingly, particularly for industrial grade logs. Russian logs remain very expensive and volumes are well down. This scarcity of Russian product has opened up markets in northern China for NZ Radiata, although it is too early to tell if this new business will be ongoing. Japan remains steady and India is recovering rapidly - post monsoon activity is picking up and the once high inventories have shrunk dramatically.
Turning to NZ, the NZX Agrifax Log Price Index, which measures returns from the whole forest, improved by almost $2 to $73 a tonne in its August report, thanks almost entirely to higher export returns. This is the fourth successive month that the index has risen and it is at its highest level in over a year.
New Zealand
Demand has been steady but the difficult U.S. trading conditions are hitting pruned sawmillers, such as Tenon, hard. The unpruned market is just holding its own with lower logs supply levels matching lower production levels and a weaker market-place. Consequently prices are holding, just. Pulp/chip log prices are set to firm as the sustained period of reduced logging and sawmill activity has cut supplies of logs and chip substantially. Also the export recovery is reclaiming some industrial grade logs that until now were ending up as chip.
Will the proposed Russian export log tariffs trigger a 1993-like price spike?
With the huge increase in the levy on export logs pending early next year, there is considerable speculation on both whether it will actually happen (to the extent announced), and what impact it could have.
Russ Taylor, a Vancouver consultant, in a recent report forecasts that the looming Russian tax on log exports could push markets for North American wood products into the most dramatic supply-side shock since the northern spotted owl crisis of the 1990s. Because Russia is such a huge exporter of logs, a restriction in the amount of logs coming out of Russia will create demand elsewhere. That can only mean increased demand for imported timber and be positive for New Zealand forest owners.
The Russians are on track to raise the export tax on raw logs from its current rate of 25 per cent to 80 per cent effective Jan. 1, 2009. That's going to squeeze European, Chinese and Japanese log supplies, sending a ripple effect into other log suppliers currently depressed log and lumber markets.
Russia is the world's largest exporter of raw logs, supplying 40 per cent of the world's softwood logs. The shock of such a price increase on Russian logs is not well understood because most Russian sales are to China, Finland and Japan.
But in today's global economy, a disruption in one supply chain has worldwide repercussions.
"The major question on many peoples' minds is how large the ripple effect will be beyond the main impacted markets," says Taylor
Measures taken to save the northern spotted owl by withdrawing timberlands from logging resulted in a log shortage in 1993 that pushed lumber prices to a record high of $495 U.S. per thousand board feet, almost double the current price of $282 US.
The impact on prices in NZ was even more dramatic (see chart of A grade prices). The peak A grade price, as recorded by this Ministry of Agriculture and Forestry series, occurred in September 1993 at NZ$332/m³.
That supply squeeze, however, was during a period of high lumber demand. With more subdued demand currently, supply-side changes are not likely to affect timber prices as much, although there is a strong consensus that prices will rise strongly. The unusually high level of log supply enquiry from China (see article above) at present is testament to tightening supply and growing concern about the impact of the Russian log tariff.
China continues to grow its role in global timber market
According to China's customs agencies, the total trade value of forest products n China (exports and imports) increased 14% (from the same period last year) to about USD31 billion in the first half of 2008. The total import value was USD14.1 billion, rising 21% from last year, and the export value was USD16.9 billion, up 8.8% from the previous year.
Nearly 16.36 million m³ of logs valued at about USD2.8 billion were imported in China during the first half of 2008, a downward trend of 18.2% by volume. This is broadly consistent with the lower harvesting activity levels experienced in New Zealand during the first half of this year (see last issue of Wood Matter).
With China importing over 10 million m³ of logs from Russia (64% of its total log imports) in the first half of 2008, you can see how important Russia is to the China timber industry (see accompanying table). This explains why the Chinese are so concerned about the impending increased Russian log export tariffs.
 It's interesting to see in contrast that China only imported 960,000 m³ of sawn lumber from Russia in the first half of 2008. It is this imbalance, reflecting relatively low value-added processing in Russia that has motivated Russia to introduce the big increases in log export tariffs.
Forest Products Annual Market Review Available
The UN Economic Commission for Europe (UNECE) and the Food and Agriculture Organization of the UN (FAO) has released the UNECE/FAO Forest Products Annual Market Review 2007, 2008. This is an excellent publication for those that wish to learn more about the drivers and trends affecting the global forest products sector. The following link will take you to their website where you have a choice of downloading the full report or selected highlights and executive summaries: www.climate-l.org
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FITEC announce their outstanding achievers at the 2008 National Training Awards
Over 500 finalists, guests and forestry and wood manufacturing professionals celebrated an evening of achievement at the Rotorua Energy Events Centre tonight - when they found out which of the 35 finalists won awards in 11 different categories.
Hosted annually by FITEC (the industry training organisation for the forestry, wood manufacturing, biosecurity and furniture sectors), the FITEC National Training Awards are recognition of the commitment individuals and companies have towards their careers and their industry.
FITEC Chief Executive, Ian Boyd, says "Our 35 award finalists were nominated from around 2000 trainees who completed National Certificates through FITEC during the past year.
"This is from a total of about 12,000 trainees within the broader forest and wood manufacturing sector, which consists of some 35,000 employees in total - so being a finalist is an achievement in itself.
"Our eleven winners are the best of the best. They are ambassadors for their industry and role models for others who want to achieve in the same way that each of them has."
Mr Boyd says the FITEC National Training Awards are also an opportunity to appreciate how significant their sector is to the New Zealand economy.
"We have businesses from forestry, sawmilling and remanufacturing to furniture, pulp and paper and wood panels - and roles as diverse as machine operators, manual workers, technicians, chemists, foremen, managers, engineers, marketers and many others - all contributing to annual earnings of around $3.8 billion."
"This places the forest and wood manufacturing sector as New Zealand's second largest primary industry export earner and means that education and training requirements within this sector are critical.
"FITEC believes that investing in training is one of the most important strategies an individual or company can have and the FITEC National Training Awards is one time during the year when we can celebrate the results of that investment."
The 2008 FITEC National Training Awards were sponsored by Matariki Forests, Checkmate Precision Cutting Tools, STIHL Group, Waiariki Institute of Technology, MAF Biosecurity, the New Zealand Forest Owners Association, NZ Wood, FITEC Furniture, and the New Zealand Institute of Management.
Winners have been judged as the nations best vocational education performers in the forestry, wood manufacturing, biosecurity and furniture sectors. They each received a certificate of achievement and a specially commissioned presentation box created by master carver, Lyonel Grant.
The 2008 FITEC National Training Awards winners (and finalists) were:
Category: Matariki Forests - Modern Apprentice of the Year (Forestry)
Winner: Colleen Cairns, Cairns Forestry Logging Ltd, Rotorua
Finalists: Edward Peet, Marshall Contracting, Tauranga
Papatukiteuru Simpson, R&S Dreaver Logging Ltd, New Plymouth
Category: Checkmate Precision Cutting Tools - Modern Apprentice of the Year (Wood Manufacturing)
Winner: Bobbi-Deen Ruki, Red Stag Timber Ltd, Rotorua
Finalists: David Pakai, WPI Sawmilling, Tangiwai
Craig Johansen, Juken New Zealand Ltd, Gisborne
Kelly Levy, WPI Sawmilling, Tangiwai
Matthew Burns, Findlater Sawmilling Limited, Invercargill
Category: STIHL Group - Trainee of the Year (Forestry)
Winner: Mahana Stone, Professional Forest-Tree Services Ltd, Gisborne
Finalists: James Emanuel, Moutere Logging Ltd, Nelson
Walter Johnson, Sobieski Contractors Ltd, Awanui, Northland
Category: Waiariki Institute of Technology - Trainee of the Year (Wood Manufacturing)
Winner: Mark Crofskey, Tenon Manufacturing Ltd, Taupo
Finalists: Mangu Kalman, Red Stag Timber Ltd, Rotorua
Quentin Quintal, The Laminex Group, Hamilton Operations
Category: MAF Biosecurity - Trainee of the Year (Biosecurity)
Winner: Laurie Meadows, MAF Biosecurity New Zealand, Auckland
Finalists: Andrew Chan, MAF Biosecurity New Zealand, Auckland
Prabhaker Somasekharan, MAF Biosecurity New Zealand, Auckland
Category: FITEC Furniture - Trainee of the Year (Furniture)
Winner: Adam Newby, Paterson Crafted Furniture, Auckland
Finalists: Troy Marshall, Natural Timber Creations, Kerikeri
Eden Simpson, Natural Timber Creations, Kerikeri
Rowan Dicks, Avant Garde, Palmerston North
Category: New Zealand Forest Owners Association (NZFOA) - Training Company of the Year (Forestry)
Winner: Johnson Forestry Services, Mosgiel
Finalists: Mid Pine Contracting Ltd, Napier
Hancox Logging Ltd, Whakatane
Category: NZ Wood - Training Company of the Year (Wood Manufacturing)
Winner: Norske Skog, Kawerau
Finalists: SCA Hygiene Australasia, Te Rapa, Hamilton
Northpine Limited, Waipu
Category: FITEC Furniture - Training Company of the Year (Furniture)
Winner: Jackson & Cole Ltd, Auckland
Finalists: Turnwood New Zealand Ltd, Tauranga
Molloy Furniture, Auckland
Category: New Zealand Institute of Management (NZIM) - Outstanding Business Performance through People Development
Winner: Sobieski Contractors Ltd, Awanui, Northland
Finalists: PJ & MJ Olsen Ltd, Tokoroa
Red Stag Timber Ltd, Rotorua
Nelson Forests Ltd, Blenheim
Category: FITEC Training Partner of the Year
Winner: Alan Gleason, SCA Hygiene Australasia, Kawerau
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End of an Era for Rayonier?
The announced possible sale of Matariki Forests could see the departure of Rayonier from the NZ (and Australasian) forestry scene. Rayonier is the forestry manager for the consortium whose shareholders include Rayonier Inc with 40%, AMP Capital Investors with 35% and the Rosenburg Real Estate Equity Fund (also known as RREEF, which is owned by Deutsche Bank) with 25%. The estate totals 140,000 hectares. The last large-forest sale in NZ occurred when Carter Holt Harvey sold 187,000 hectares to Hancock Timber Resources Group in late 2006.
Rayonier first burst onto the scene in 1992 when it purchased the majority of the Timberland estate from the NZ Government. Since then it has built an MDF plant at Mataura, Southland, formed various JV businesses, and invested (and then divested again) in forests in Tasmania, Australia.
One of Rayonier's greatest influences in NZ was the introduction of stumpage tendering. This was originally introduced over its whole estate in 1998 but has only been retained in Southland where this method continues today. The programme's relative lack of success relates to concerns about the method not realising the best return from the forest. The experience and learning gained from this programme has helped formed the basis of how PF Olsen today to evaluate the best sales method for individual forest owners.
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Freight Looking at Providing Relief to Beleaguered Forest Owners
There may be some respite for forest owners lamenting the impact of high freight rates on net returns from harvesting. There are real signs that weakening global growth and increased shipping stock is translating into sizable reductions in break-bulk shipping costs. Current freight rates are around US$66-69/JASm³, well off the highs of US$80/JAS m³ earlier in the year. And rates look set to go lower. The following is an excerpt from Galbraiths reflecting on the spot market at the end of August (Note: "Optimism" for shippers means higher freight rates. "Worsening/no good news" means lower freight rates - good for forest owners).
"Last weeks optimism in the Pacific very briefly spilled over into the former part of this week, but this was very short lived as charterers were spoilt for choice in the presence of the mounting tonnage in the region. Further west, the EC Indian market continued to fall rapidly as a result of there being a serious lack of cargo. Handy's seem to have been the worst affected in the Med and Black Sea, with the frequency of spot vessels being circulated increasing. The situation is set to worsen as more tonnage begins the ballast in this direction from the AG/Red Sea. No good news to report from the Atlantic either. A quiet start to the week quickly gained downward momentum, most noticeably in the USG as a result of a glut of spot tonnage and a severe shortage of cargoes to fill them. Very little grain is moving across the board which is certainly a ingredient which can depress any market segment quickly."
The following chart shows the trends in shipping costs. Whilst these figures relate to larger vessels than the Handysize used to ship NZ logs, historically there is a good correlation between Handysize rates and the larger tonnage vessels.
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NZ Wood Launches new Resource
The joint industry and government funded wood promotional programme to raise the market share of wood in the New Zealand market has begun a new phase as the following media release states…
Inspirational, Informative. Wood at your fingertips
A major new resource about wood is now available, with the release of the NZWood 'Resources' website. Consisting of hundreds of pages of comprehensive information about designing and building with wood, the site has been specifically developed for New Zealand conditions and timbers and is the by far the most comprehensive information resource available to the industry.
"The site has a strong sustainability slant as wood is our most renewable building material", says Geoff Henley, Programme Manager of NZ Wood. "To make that point we have installed a carbon calculator designed with the assistance of Canterbury University which calculates the CO2 emissions saved by using wood in building and construction."
"You just enter the square metre area of a building and the calculator does the rest. Wood gives some very impressive carbon savings," says Henley. The site highlights over 100 case studies of wood use in houses and buildings with sections designed for different professionals such as architects, engineers builders and DIYers.
It also features "How to" guides for work around the house, detailed species information on all the major species grown in New Zealand, including some natives, and a vendors database which directs the user to wood suppliers, particularly where more out-of-the-ordinary products are required.
"The sustainability connection with wood is common sense. People get it immediately because they know wood is produced by sunshine not fossil fuel. As a result people are coming back to wood, following a brief flirtation with other products, and this web site will provide them with the information on how to use wood to best advantage," says Henley.
Click on the NZ Wood Logo to view this new Website.
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Exciting New Logistics Initiative Provides $20/JAS m³ Cost Saving
Options for marketing logs in the wider Auckland and Northern Waikato regions have always been somewhat limited. The closure of CHH's structural sawmill at Kopu hasn't helped the situation and higher log transport costs have reduced forest owner returns for logs exported via the Port of Tauranga. That's why the commencement of containerised log export via Ports of Auckland presents such a great opportunity for forest owners in that area.
As featured in last month's Wood Matters, log export in containers (Logs in Boxes) is not only resulting in higher returns through lower freight costs, it is also opening up new logistics channels. Ports of Auckland do not have the space or facilities to handle break-bulk log export. Some research, however, revealed that it was feasible to receive and stow logs into containers at an off-port site and then transport the containers back to Ports of Auckland for shipping. Ports of Auckland is the largest import-port in NZ and handles the greatest number of in-bound containers. This means that container back-loading is very welcome with cost-competitive containers readily available. In contrast, we understand that the big growth in container log trade and limited in-bound container movements at Port of Tauranga is making it increasingly difficult to access containers for log exports there.
Pacific Forest Products have been first off the mark with this new initiative, setting up a log yard in Otahuhu, South Auckland. PF Olsen commenced supplying them with logs in August.
Waytemore Forests Limited is a long-term PF Olsen harvesting client. This is what they have to say about this new initiative.
 In August export logs from our Hunua-located forests started going to a log yard at Otahuhu for export in containers via Ports of Auckland. Previously they went to Port of Tauranga. PF Olsen has worked with log exporters to establish this new logistics initiative and reduce transport distance by over 100kms, providing a cost saving of some $20/JAS m³. Since we are getting the same log sales price at Otahuhu, that saving will flow straight onto our bottom line. Excellent work PF Olsen, we are really looking forward to our next harvesting cheque."
Vicki Manchester, Chief Financial Officer, Waytemore Investments Ltd
This is great opportunity for forest owners with mature forests of woodlots in the Auckland and Northern Waikato regions. PF Olsen is currently putting together a harvesting schedule to enable forest owners to capitalise on this opportunity. To get on this schedule, please phone Craig Fisher on 0274 955 853, or 0805 PFOlsen (0508 736 5736) or email us on info@pfolsen.com.
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