Clarky's Comment
Korea FTA
I joined a senior business delegation to Seoul this month to assist the Prime Minister and MFAT breathe life into the Free Trade negotiations with Korea. These have been stalled as a result of opposition from agriculture interests in Korea. Forestry gets lumped in with agriculture so we are also affected.
We have no tariff on logs sold into Korea but escalating duties of 6%, 8% and 10% on processed wood products. This is sufficient to stop any Korean interest in investing in wood processing within New Zealand.
The combined efforts of our Prime Minister, Korean President Lee Myung-bak and the business leaders has put new life into the FTA. A successful outcome should help encourage Korean log importers to switch some capacity to processing within New Zealand. This would be positive for both NZ forest owners and Korean end-users as we both become less exposed to high and volatile bulk shipping rates.
Safety Matters
On 15th July CEOs/GMs of 82 of New Zealand's largest companies met in Auckland with the Prime Minister John Key and Minister of Labour Kate Wilkinson to sign a personal pledge. See Zero Harm Workplace Pledge.
This commitment by senior business leaders is the culmination of 6 months work by a committed group of NZ business leaders, Department of Labour staff and ACC. Participant firms agree to submit safety statistics into a database that will allow them to see how they are performing against others. The Steering Group is also developing tools to assist CEOs to adopt world best practice in safety leadership. We expect to make a material change to the incidence of workplace accidents and fatalities in New Zealand. For more information see http://www.zeroharm.org.nz
Steering Group members with Hon John Key and Kate Wilkinson following signing of The Pledge
Quality Systems Matter
Remember the early/mid 1990s push by NZ businesses to learn about Total Quality Management and get their Quality Management System (QMS) ISO certified? Most larger NZ firms participated and many forestry contractors adopted the Telarc Q-Base quality system.
While the imperative of having a sticker to say your business has a functioning QMS is not a strong as it was a decade ago, the business case for maintaining a QMS is as strong as ever. At PF Olsen we have taken the view that we will continue external audits of our QMS. External audits act as both a motivator to maintain the system and to assure senior management and directors that we are doing so. See story later on. For comment on this article click here.
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Carbon Market
On the 1st of July 2010 the energy, transport and industrial process sectors joined the NZ Emissions Trading Scheme (ETS). They need to account for 50% of their emissions from 1 July 2010 through to 31 March 2012, after which time they will have to account for 100 % of their emissions. Alternatively, these industries can pay $25/tonne CO2e to the government in lieu of procuring units themselves. This will put an effective cap on the price of carbon in New Zealand for the next two and a half years.
Industries identified as 'at risk' [Emission Intensive and Trade Exposed - EITE] are being allocated 'free' units by the government.
In addition, the fishing industry will be allocated 700,000 NZUs as assistance for increased indirect costs from the ETS - e.g. increased fuel costs. Since not directly in the ETS, fisheries will be able to sell their NZUs on the market, increasing the supply-side.
The significance of the entry of these industries into the ETS is that there are now NZ compliance purchasers in the market, providing opportunity for NZ forest owners to sell their units domestically.
Domestic trading activity of New Zealand Units (NZUs) has increased as a consequence although at current prices there are more purchasers than sellers and trade is relatively thin. However the supply of NZUs will increase substantially later this year with the free allocation of units to industry (see above) and the free allocation/partial compensation credits to pre-1990 forest owners.
Spot NZUs are currently trading for NZ$18-19/unit.
Spot secondary CERs (units that NZ emitters could purchase for compliance purposes) are currently trading for €12-13/tonne in Europe (NZ$21-23 at 0.57).
The price of AAUs (units that forest owners can convert their NZUs into) are much harder to monitor as they are negotiated sales to government entities. It is understood the price of these units has typically been about half way between the price of 'greened Hot Air' AAUs and secondary CERs.
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Allocation of New Zealand Units (NZUs) to Pre-1990 Forest Owners
The pre-1990 Forestry Allocation Plan is expected to be released next week, along with the mapping standard. This will allow the processing of applications of the free allocation/partial compensation NZUs for pre-1990 forest owners from the 1st of August 2010.
All pre-1990 forest owners are encouraged to apply for this allocation as soon as possible. There will be a finite time window to apply and limited resources both within MAF and within forestry service firms to prepare and process the applications. There is no downside in applying for these units as the restriction on future land use will apply to pre-1990 forest land regardless of whether the units are taken up or not.
Buyers and sellers of pre-1990 land are advised to be cognisant of the Issue Date which is also expected to be announced next week. The Issue Date is the date prior to which the registered legal owner of the land will be the beneficiary of the allocated credits.
Purchasers of post-1990 forest land also need to fully understand the implications of the ETS on the future land-use options for the land.
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PF Olsen Busy with Carbon-related Work Initiatives
The pre-1990 forest land mapping standard is expected to be released by the Ministry of Agriculture and Forestry next week. PF Olsen will be able to maximise area claims within the mapping rules by remapping stand boundaries using a mix of technician's skills in photo-interpretation and the power of ArcGIS 9.3 in conjunction with PF Olsen's FIPS stand record system. Processes such as buffering the stand-edge will be important for maximising area. More area equals more NZUs claimed. For larger forests with complex boundaries the additional cost associated with accurate mapping has a payback many times over.
Work on pooling NZUs to increase returns for forest owners from carbon credit sales is progressing well with the first pool of units expected to go to market soon.
"What we are finding is that buyers are looking for larger packages, say 100,000+", says Peter Weblin, PF Olsen's Marketing Manager. "Being a commodity, we believe the price for carbon will be well-known and consistent across the market during a given time period. The key will be minimising the cost of sales by presenting attractive parcels direct to buyers. This will maximise the returns to the forest owner.
"Domestic purchasers have been very supportive of our approach and most of the major emitters have been approached and are keen on doing business with us".
The pool approach being developed by PF Olsen will not only canvass the domestic market but also the international market via the process of converting NZUs to AAUs. This will ensure that the best possible net price is achieved for the forest owner.
If you would like to find out more about how PF Olsen can help you maximise the returns for your NZU sales, please click on the Comment link below, or contact Colin Hercus on 07 921 7232.
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New ETS Guide for Forest Owners
After getting feedback after a presentation to the annual conference of the Society of Chartered Accountants, PF Olsen has prepared a set of Guidelines aimed at helping smaller forest owners and their advisors make better decisions regarding the NZ Emissions Trading Scheme (ETS).
"The feedback from the Society [of Chartered Accountants] was that what PF Olsen presented was interesting, but they didn't really know what to do with it", said Peter Clark, PF Olsen's CEO. "They wanted something more 'doing' orientated. And hence we prepared these guidelines."
The new guidelines are a mix of flow charts, guidance notes, definitions and frequently asked questions. They are aimed at simply and easily allowing a land owner, forest owner, or would-be forest owner to understand their obligations and opportunities under the ETS.
The feedback so far has been very positive, so we hope you will also find the material valuable. To access your copy of the Guide, please click here.
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Log Market and Ocean Freight
Export Log Market
Radiata log inventories in China have remained steady at around 750,000 m³. With consumption estimated at around 500,000 m³, this makes stocks 1½ months of consumption. This situation, whilst not necessarily serious in terms of the health of the log market generally, suggests further weakness in price is likely. This will be offset to some extent by reductions in ocean freight (see below).
Increased supply of lumber from Canada and logs from the USA are contributing to weak market sentiment for NZ Radiata, along with a slight slowing in the Chinese economic growth rate. The supply of North American logs and lumber is expected to ease in the medium-term as the salvage of the pine-beetle-affected forests comes to an end (along with reduced harvest volume in the future) and demand picks up (albeit slowly) from recovery in the US economy.
The overall consensus is that CFR prices will drift for the next few months and then begin firming from October onwards.
July saw a more dramatic decrease in export log prices than expected with most grades falling around NZ$8/JAS m³ at-wharf-gate. To put this in perspective, US$ CFR prices (prices of logs delivered to the destination port) have fallen from a peak of US$153/JAS m³ for A grade in March 2010 to US$125. The fall in NZ$ at-wharf gate prices has been partially cushioned by small improvements in ocean freight rates and the NZ$/US$ cross rate. NZ$ at wharf gate prices have fallen about NZ$20/JAS m³ from their recent peak in March/April 2010.
In conjunction with the weaker market in China, the Indian market has also softened, partly due to dramatic increase in shipments from New Zealand in the past few months as logs were diverted away from China.
The Korean market remains steady but is following price declines in the China market.
Longer-term demand and prices are expected to resume a bullish trend. Despite the reduction in price of Radiata logs in China, the level of enquiry for supply has not changed. There is still a major concern that the traditional Russian log supplies will become increasingly scarce and expensive, not only due to the Russian export log tariff, but also because subsidies applied to log transport in Russia are being reduced.
Looking to New Zealand for sustainable and reliable supply of Radiata pine logs is being adopted as a long-term strategy for many Chinese log processors.
Domestic Log Market
The domestic market is taking increased log volume as export log prices decline. This pattern of lower volatility in the domestic market is not uncommon and a timely reminder of the importance of a strong domestic log processing sector.
Both domestic and export demand for processed forest products appears to be in reasonable shape over most product classes with some engineered products in the Australasian market particularly strong.
Prices have remained stable with a roll over of 2nd Quarter prices into the 3rd Quarter for most grades. Prices for lower grade saw logs have reduced a little in conjunction with the reduction in export log prices.
Ocean Freight
A welcome and significant lowering in ocean freight has occurred recently. The US$55/JAS m³ seen in June has become a peak with rates falling to late US$40s currently and an expectation of rates in early to mid US$40s toward late July/early August 2010.
The Baltic Dry Index (BDI) has fallen to below 2000 points for the first time since May 2009 (see chart below - the BSI [yellow line] is the most relevant to the Handy-size vessels that carry NZ logs).
Daily Chart For Cape/Panamax/Handy 4 TC AVERAGE Values
Source: Dryships.com
The impact of the falling ocean freight rates may off-set any further softness in CFR price and allow NZ$ at wharf gate prices to stabilise.
Indicative Average Current Log Prices
| Log Grade |
$/tonne at mill |
$/JAS m³ at wharf gate |
| Pruned (P40) |
136 |
|
| Structural (S30) |
102 |
|
| Structural (S20) |
86 |
|
| Export A |
|
91 |
| Export K |
|
85 |
| Export KI |
|
80 |
| Pulp |
50 |
|
Note: Actual prices will vary according to regional supply/demand balances, varying cost structures and grade variation. These prices should be used as a guide only. For comment on this article click here.
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Biomass Surpasses Oil to Become Sweden's Number One Fuel
Wood Resources International LLC recently reported that biomass in Sweden now generates 32% of all energy. Whilst still supported by large subsidies currently, the huge reallocation of investment and research into delivering more viable renewable alternatives has the objective of making the "green" energy sector ultimately more competitive than gas, oil and coal. This objective will be supported as non-renewable energy becomes more expensive to produce and more expensive once the price includes a cost for contribution to green house gas emissions.
Sweden is one of the countries making the greatest progress in this switch to biomass. Its goal is to have renewable energy reach 50% of total energy consumed by 2020 and in addition, the country aims to be totally independent of imported fossil fuels for the transportation sector by 2030.
The implication for forest owners in Sweden is that wood processing by products (such as sawdust and wood chips) and pulp logs from the forest now have two viable market alternatives - the pulp and paper/reconstituted panel market, and bio fuels. This increased competition in the market place is increasing the price of fibre driving the price of pulp logs to new highs.
The implication for New Zealand forest owners is less immediate although we are already seeing purchasers of wood fibre such as Nature's Flame in Taupo increasing its wood pellet production significantly over the next few years. Of more importance, however, is the growing trend, globally, towards renewable energy. Whilst it won't happen overnight, it is a reasonable assumption that
as non-renewable energy becomes more expensive and technology increases the viability of utilising the stored energy in wood, forest owners will have increased options to market their fibre and maximise their returns from harvesting.
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Continued Work on Improving Phytosanitary Options for Export of NZ Wood
PF Olsen assisted the Ministry of Agriculture and Forestry (MAF) Biosecurity and Scion host a delegation of Indian scientists and officials touring New Zealand as part of a review of India's phytosanitary standards for the importation of wood products from NZ.
Currently, logs exported to India must be fumigated with methyl bromide to comply with phytosanitary standards. As mentioned in previously in Wood Matters, (see ERMA Recommends Continued Use of Methyl Bromide and Safer and "Greener" Biosecurity Treatment of Export Logs) despite its high efficacy (i.e. it kills bugs really well), methyl bromide is an ozone-depleting gas, is toxic to humans if not handled correctly and is relatively expensive to use. These characteristics have promoted the forestry industry, via its cooperative research and lobby group STIMBR - stakeholders in methyl bromide reduction - to carry out research into alternative fumigation treatments, such as the use of phosphine. This alternative treatment is already accepted by China, NZ's largest export log market.
Up to now, India has insisted on methyl bromide fumigation as they are doubtful of the efficacy of phosphine. The NZ visit was as opportunity not only update our Indian guests on the latest research proving phosphine's efficacy, but also outline the systematic approach NZ takes to biosecurity - including comprehensive forest health surveys, independent log inspections/verification and log traceability.
"Getting phosphine accepted for log exports to India is an important goal for the NZ forest growers", says Peter Weblin, PF Olsen's Marketing Manager. "India is emerging as a significant market for NZ logs and, along with China, is posting impressive economic growth. Acceptance of phosphine [by India] will increase the competitiveness and sales options to this growing market, and strengthen the all-important diversification of our markets."
Peter Weblin assisting with hosting the Indian delegation by presenting a overview of New Zealand production forestry.
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PF Olsen Taps into new Rainfall Prediction Programme
As part of its harvest planning and engineering management, PF Olsen is now utilising a new on-line predictive tool supplied by the National Institute of Water & Atmospheric Research (NIWA). High Intensity Rainfall Design System (HIRDS) is a web-based program that can estimate rainfall frequency at any point in New Zealand. It can be used to estimate rainfall depths for hydrological design purposes, and to assess the rarity of observed storm events.
Harvest planning and engineering is a careful balancing act between designing roads, landings and support structures such that they are fit for purpose but they must also be cost-effective. The other essential criteria is that they don't result in adverse environmental affects which can cause breaches of the Resource Management Act (RMA).
This new tool from NIWA will be very useful at assisting PF Olsen harvest planners and engineers design the optimum roading and landing configuration for prospective harvesting blocks. Whilst the vagaries of the weather will always pose a challenge, having tools to allow a more scientific basis for design is most welcome.
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NMIT shows Leadership in Use of Wood in Construction
The new Nelson Marlborough Institute of Technology (NMIT) Arts and Media building in Nelson is attracting international interest based on its design and widespread use of locally processed NZ Radiata pine.
The multi-storey building is considered a world-first for its innovative use of wood in the entire structure. Whilst traditionally muti-storey buildings have been the preserve of steel and concrete construction materials, this project proves that wood is more than capable of providing a cost-effective, strong and long-lasting construction alternative. In addition, wood has a much lower carbon footprint than concrete and steel and has excellent thermal qualities.
The building also incorporates a new generation of earthquake-resistant engineering technology which uses pairs of rocking timber walls joined with specially designed energy dissipaters. This will significantly improve the safety of the building during earthquakes.
In addition, the large laminated veneer lumber (LVL) beams used for primary support will be more fire resistant than steel beams.
To take a look at the construction progress take a look at the webcam.
If you would like to learn more about how "wood can be used for a better world", go to www.nzwood.co.nz
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PF Olsen Partners with Tuhoe to Provide Work Experience
PF Olsen was pleased to have the opportunity to offer Krissy Doherty of Tuhoe, work experience in the Forestry Industry in the form of a Summer Internship. During the Internship Krissy worked with various people and departments at PF Olsen and gained valuable insights into the many facets of production forest management in New Zealand.
Some excerpts from Krissy's report are reprinted below, courtesy of the Waikaremoana Maori Trust Board. You can see the full version of Krissy's report at www.tuhoe.iwi.nz/?p=3639
"The 2010 Summer Internship with PF Olsen Ltd has been an invaluable learning experience. Forest Management has many specialised and varied parts to its whole, and each separate department within PF Olsen Ltd's organisation are meticulously managed and coordinated to achieve a highly professional Forest Management service.
"My impression of PF Olsen Ltd's organisation is highly professional. The Founder and Senior Management have created a positive culture within its organisation, where all staff, in each department and levels of responsibility work as a team, there is no division between the layers of management. PF Olsen Ltd has employed highly qualified and experienced staff that all enjoy their work, which promotes a pleasant and productive working environment. I have enjoyed my working experience with PF Olsen Ltd, and I have been impressed with the PF Olsen Group. My knowledge and experience of the Forestry Industry had been very limited, this Summer Internship has provided me with the opportunity to look at all aspects of Forest Management and work alongside really talented people. From this experience I would like to be a part of Forest Management."
Thanks for those encouraging words, Krissy.
"Krissy was a pleasure to have in our team, and its great that it has nurtured her interest to pursue a career in forestry", says Peter Clark, PF Olsen's CEO. "The industry will benefit from more young people choosing forestry as a career option. In particular, PF Olsen support more Maori participation in managerial roles as a process of increasing Maori self-management of its increasing investment in NZ forestry."
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Cypresses get a boost from FRR Diverse Species Programme
 For quite a while, cypresses have been on the verge of becoming New Zealand's third major species, but they have been held back by the poor choice of genotype - in particularly with regard to canker resistance. With new knowledge on how to make a vast range of clones and hybrids - some of them intergeneric as well as interspecific. - there is real potential for an expansion of the cypresses.
 Under the FFR Diverse Species programme Scion has successfully developed a hybrid from the canker resistant 'ovensii' Leyland clone and there is potential to hybridise the canker resistant C. guadalupensis with the well-known C. lusitanica - the seed of this hybrid is just as viable as from pure lusitanica, and a hundred times more viable than from ovensii clones.
Although cypresses have been propagated vegetatively for centuries, large-scale clonal trials only started in 2001 and good comparisons are only now being made.
Further trials have been established to test the best C. lusitanica and macrocarpa clones and intergeneric hybrids of C. lusitanica x C. guadalupensis, C. lusitanica x Ch. nootkatensis, and C. macrocarpa x Ch. nootkatensis The programme will continue to make more hybrid crosses, including C. macrocarpa x C. guadalupensis (this combination is absent in the above hybrids). Some canker-resistant C. macrocarpa has also been identified and this will be used for making hybrids. Another clonal trial is planned for 2011.
There is one further development with cypresses. A new web-based cypress calculator has just been released and will be delivered to members via www.ffr.co.nz. It will give predictions of stocking, height, basal area and total standing volume. The calculator is set up so that the user defines the site index or the starting conditions of a stand, thinning regimes, stand information (e.g. area, altitude), discount rate, land values and overheads; the calculator then provides estimates of the mean top height, stems per ha, basal area and standing volume. The calculator will also provide volume harvested, gross value of the stand, as well as Net Present Value (NPV) for a specified discount rate and the internal rate of return (IRR). This exciting development is aimed at better management and better outcomes from growing this very promising tree.
Below is a screen shot of the new Cypress Calculator.
  Russell Dale
Chief Executive
FFR
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PF Olsen Passes ISO Audit with Commendation
PF Olsen has recently undergone an audit of its management systems by
Telarc. The assessment was carried out on the 8th and 9th July 2010.
Some excerpts from Telarc's report provide an independent third-party
view of the quality of PF Olsen's management system and its
commitment to continuous improvement.
In his covering letter, Dr John Bryden of Telarc said:
"No non-conformances were noted and your registration will continue.
The auditor was very impressed with the status of both management
systems and the company is to be congratulated on its approach. It was
very noticeable that the Contractors working in the field were extremely
conscious of all issues of quality, health and safety and environment
and were putting these into practise."
The Executive Summary of the Audit report went on to say:
"The management system was found to be extremely well controlled and
is very obviously a live system that is being used on a day-to-day
basis. Document control is done through the electronic system and is
regularly reviewed. Some examples of this were seen in the Harvesting
Manual and the Land Information areas.
"Mapping a forest provides many benefits to forest owners. It can save
money by ensuring accurate forecasting - meaning the forest owner only
ever has to pay contractors for the correct area they work on. Maps
also allow the owner to plan the harvest and identify any previously
unknown costs (like bridges, new roads, access, etc). Owners can
optimise road locations and identify any legal or boundary issues before
they become a burden. The PF Olsen Land Information maps are very handy
when applying for resource consents.
"The H&S system was briefly reviewed and found to be well managed.
"Compared with the last assessment the company has continued to make
improvements to the quality and environmental management systems and the
level of management commitment is extremely high."
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PF Olsen Welcomes Dean Neilson
 Newly appointed to the Rotorua senior team as National Engineering Manager is Dean Neilson, a civil engineer with 25 years experience in a range of settings, including local government, the forest industry, and private consulting firms.
Dean's considerable practical and technical knowledge of project management and roading design will be of significant benefit to all our clients. In particular Dean will increase PF Olsen's Forest Engineering capability so that cost-effective, safe and environmentally appropriate engineering solutions are designed and implemented.
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Marapiu Forest Owner Reflects on Recent Harvesting Work
"I have recently completed a logging project on my property at Marapiu, North Dargaville, using the services of PF Olsen Ltd. Olsens have, at all times, demonstrated knowledge, experience and expertise in the harvesting business. At all times I was kept informed and consulted on any issues that arose on a project that could have easily had serious difficulties. The contractors used by Olsens were able to maximise timber recovery as well being sensitive to indigenous forest conservation, while still protecting internal fence lines and access tracks. The tidy up was also satisfactory.
 "I would thoroughly recommend anyone involved in harvesting a woodlot to contact Olsens. This is the 4th time over the last 20 years that I have harvested pines and know how operators vary. This harvest was managed in an excellent manner."
Murray Williams
Marapiu forest owner
12 May 2010 For comment on this article click here.
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NZ Logger Seeking Information on old "Work Horse"
This enquiry may be of interest to our more experienced and learned
(i.e. older) Wood Matters readers.
Trevor Coker from NZ Logger magazine is working on an article about an American cable log hauler, called a Loggers Dream. It was powered by a 100hp Ford V8 side valve engine. Three drums drove a main line, a tail rope and a straw line. It had a 35 foot high retractable jib. The unit was mounted on a GMC truck chassis by the NZFS Waipa workshops in 1952. It worked in Kaingaroa and Maramarua forests. Trevor is keenly seeking both information and photos about this machine so he can bring some interesting NZ harvesting history to life in NZ Logger. If anyone can help please click on the link below.
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Help Spread the Word
If you enjoy reading Wood Matters, why not introduce a friend to it. Its easy, just go to the bottom of the newsletter and click on the button "forward to a friend". You can forward that issue to one or many people, along with a covering note. Don't forget to remind them to self-subscribe if they wish to continue receiving more issues in the future.
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