Arbor Resources Blog Updates
New Zealand’s Forestry Minister Shane Jones announced this week the first set of improvements to the Emissions Trading Scheme (ETS) – the country’s main tool for reducing greenhouse gas emissions – following extensive public consultation.
“The ETS should be able to deliver effective emissions pricing, be simple and credible to encourage new forests and discourage deforestation” Shane Jones said. “Cabinet has approved the first set of improvements, which includes the addition of permanent forests to the scheme. This will provide more incentives for landowners to integrate trees into their landscapes, enable them to them to diversify their income while also providing long-term environmental benefits”.
“We’re making good on our promise to encourage more forestry and make better use of land, especially on erosion-prone land. By establishing a permanent forest, with indigenous or exotic species, land owners will be able to better optimise their non-productive agricultural land and enjoy income from the sale of New Zealand units, while also increasing biodiversity and reducing erosion.
“Other changes are geared towards helping reduce both complexity and the barriers to forest owners being part of the ETS. These provide a solid foundation for future planting efforts, which could see us double the number of trees planted.
“We’ve listened to extensive feedback, and I think forest owners, businesses and landowners will welcome these changes, which will come into effect after the final round of ETS improvements have been made next year.
“We have also consulted on a new accounting option for post-1989 forests in the ETS – known as averaging. Cabinet will consider this and other improvements early next year,” Shane Jones said.
- A new permanent post-1989 forestry activity within the ETS will replace the current Permanent Forestry Sink Initiative.
- Currently it’s not possible to enter a post-1989 forest as a permanent forest in the ETS, even if it will never be harvested.
- The changes will not come into effect until the amendments to the Climate Change Response Act 2002 go through Parliament.
- Current participants in the PFSI will not be adversely affected by the conversion of the PFSI into the new Permanent Forestry activity within the ETS. Te Uru Rakau will be in contact with these landowners to advise them about their options, including to support their transfer into the ETS.
- The operational improvements will remove barriers to participation and compliance. Changes to offsetting and tree weed provisions will increase land-use flexibility while ensuring that the ETS supports afforestation and discourages deforestation.
- The changes also address a long-standing issue which relates to multiply-owned Maori land and the challenges they face accessing exemptions from pre-1990 deforestation liabilities.
Ships operating in New Zealand might soon be liable to tough new rules on air pollution and greenhouse gas emissions. International shipping is responsible for about 2.5 per cent of global greenhouse gases, but is not covered by the Paris Agreement. New Zealand is one of the few countries without restrictions on air pollution from ships.
However, the Ministry of Transport is now calling for submissions on whether the country should sign up to air pollution provisions of the International Convention for the Prevention of Pollution from Ships (known as the Marpol Convention).
“The benefits of signing up to Annex VI include reduced carbon emissions and improved air quality around our ports,” said MOT international connections manager Tom Forster. “It would align our maritime regulations with our trading partners, and give investment certainty to domestic ship owners and fuel suppliers.”
If the provisions come in, domestic and international ships in New Zealand waters will be restricted to using fuels with a sulphur content of less than 3.5 per cent. The sulphur restriction is expected to drop to 0.5 per cent in 2020.
Forster says that marine fuel produced in New Zealand has a sulphur content of less than 3.5 per cent. “The vast majority of our domestic ships use diesel fuel which complies to both standards – the ships directly impacted will be ferries, and large trading and fishing vessels,” he said. Submissions close in February.
The Indian log market is slowly adjusting to a new exchange rate of Rs 73 to 1 USD.
Two of the main New Zealand log exporters to India decided to not ship logs for October and this will help deplete unsold inventory. However, some of the more determined NZ exporters continue to ship without respite, putting immense LC pressure on the buyers. Many buyers have had to use third party LC opening agencies to stay afloat in terms of cash flow.
The Indian market for New Zealand logs closely follows the China market dynamics and an increase in the log price in China in should lift the morale of importers and spur renewed activity.
Log exporters feel a turnaround in demand and pricing should occur in Dec/Jan. However, this is contingent on stability of the INR against the USD, and no more surprises on the trade war situation between China and USA. The NZ pine inventory in Kandla sawmills is not very high (20-25 days stock) but there are recent arrivals of NZ cargo being discharged in the port where sales have been agreed, but LCs not received. Furthermore, there is more than 30,000 JAS m3 unsold stock being moved into the custom bonded area in Port of Kandla. This will be cleared from Custom Bonded Zone only when LCs are received.
Indian Banks continue with a generally cautious approach and LCs in USD are hard to obtain across different import categories in the country. The merger of Bank of Baroda, Vijaya Bank and Dena Bank- to cover up large quantum of Non-Performing Assets (NPAs or bad debts)- has not changed sentiments for Public Sector Banks. The need for good governance in the Indian banking sector has become paramount
Late last week Port of Tauranga reported that first quarter trade volumes grew 8.3% on the same period last year. From 1 July 2018 to 30 September 2018, the Port handled more than 6.6 million tonnes of cargo.
The increase was driven by log exports, which were 14.7% higher compared with the previous corresponding period, and trans-shipped containers, which increased 11.4% in volume.
Dairy exports decreased due to seasonal fluctuations and were 7.1% than the same time last year. Overall container numbers increased 0.7% for the three month period, to just under 296,000 TEU (twenty foot equivalent units).
Port of Tauranga Chief Executive, Mark Cairns, told the company’s annual meeting of shareholders the unaudited Group net profit after tax for the first quarter was up 4.6% on the previous corresponding period.
“Based on the first quarter’s performance, and notwithstanding any significant market changes, we expect full year earnings to be between $96 million and $101 million,” said Mr Cairns. This compares with a record Net Profit After Tax of $93.4 million for the year ended June 2018.
Mr Cairns says the port is now looking to the next stage of cargo growth and has ordered a ninth container crane for delivery in 2020. It also intends to extend its container berths south of the existing wharves on existing port-owned land.
Of its 190 hectares in landholdings, Port of Tauranga has approximately 40 hectares of land still available to accommodate cargo growth.
New Zealand’s primary industry export revenue is forecast to reach $43.8 billion for the year to June 2019, an increase of 2.5 percent from 2018.
The Ministry for Primary Industries (MPI) has just released its Situation and Outlook report for September 2018.
“The latest update gives an encouraging assessment of our major primary sectors which continue to grow - up $1.1 billion from the previous year,” says Emma Taylor, a MAF policy director.
It’s a promising outlook and builds on the strong growth seen in 2018, when export revenue increased 11.8 percent. The year ended 30 June 2018 saw continued strong demand for logs in China bringing record export prices and volumes.
Forestry exports are expected to remain stable at $6.4 billion for 2019. Log prices are expected to remain near record levels as Chinese construction activity is forecast to remain strong.
Horticulture and dairy are the driving forces behind the increase forecast for 2019. Horticulture exports are forecast to rise 13.1 percent to $6.1 billion for the year ending June 2019. Dairy exports are forecast to rise 2.1 percent to $17.0 billion for the year ending June 2019, consolidating gains made in the last two years.
After an impressive gain in meat and wool exports in 2018, exports are forecast to decrease by 1.3 percent to $9.4 billion in 2019.
“Overall, the latest outlook for our primary industries gives plenty of positives as we work to sustainably reposition primary industries up the value chain and deepen sector partnerships,” say Taylor.
MPI’s Economic Intelligence Unit has published a new webpage designed to make MPI’s data and analysis more accessible. For more information see:www.mpi.govt.nz/EIU
The next Situation and Outlook for Primary Industries report is due to be released in mid December.
New Zealand's export log market took a hit from the trade dispute between the US and China as the declining value of the yuan crimps the buying power of the country's largest log market.
The average price for New Zealand A-grade export logs dropped to US$133/JAS from US$141/JAS in August, and US$145/JAS in July, and is now the lowest since June 2017, according to AgriHQ's Forestry Market Report for September.
"The Chinese log market has again dominated talk in the NZ forestry industry amid its sudden depreciation these past two months. Purely from a data perspective August and early September don’t make for pretty reading," AgriHQ analyst Reece Brick said in his report. "All of this weakness is directly related to the reduction in Chinese buying power, itself due to the depreciation of the CNY:USD."
The yuan has depreciated 7.5 percent since mid-June, recently trading at 6.8763 per US dollar. Still, Brick said that despite the fall, market sentiment has stayed "quite positive" as factors such as port-level inventories, offtake rates and shipping rates otherwise point towards healthy fundamentals for New Zealand log trading in China.
"Consensus among the majority of traders is that we’ve settled at the bottom of the market for at least the time being," he said. Chinese demand for New Zealand logs has been strong over recent years after Asia's largest economy clamped down on the harvesting of its own forests and reduced tariffs on imported logs to meet demand in its local market. However, trade tensions between the US and China have dented the value of the Chinese currency and traders fear rising tariffs will hurt economic growth and dampen demand.
"What the future looks like will largely be dictated by the actions of the Trump administration," Brick said. "The latest round of 10 percent tariffs covering US$200 billion of Chinese products is yet to be felt within the log industry. The main headache, however, is that there’s no end in sight for the trade war. It’s expected the latest tariffs will be lifted to 25 percent by Christmas, while Trump has threatened to extend these tariffs to another US$267 billion worth of Chinese products.
"Given log demand is so closely tied to economic growth, we can only hope these two power-houses can settle their differences sooner rather than later. Just don’t count on it," he said.
Brick noted that neither India nor South Korea, New Zealand's other major log markets, have provided any significant relief for exporters either. However, he noted the weaker New Zealand exchange rate against the US dollar had offered some protection for local export traders against the depreciation within China.
Southwest China to see investment in timber ports and processing zone – A cooperation and investment agreement was recently signed between China Forestry Group Corporation and the administration in Ba’nan district of Chongqing municipality. An investment of RMB23 billion will be used to build timber trade ports, a timber processing zone and a wood products demonstration and trading centre in Western China.
Currently in China the timber ports and industrial zones are mainly distributed in coastal areas and along the border areas and there is a gap in the southwestern regions of China.
The new infrastructure will result in large volumes of imported timber entering the southwestern regions and this will cut transportation costs for enterprises in the region and will also expand employment opportunities. It is forecast that demand for timber would expand to 100 million cubic metres in the southwestern region including Yunnan, Sichuan, Guizhou, Guangxi provinces, Xizang Autonomous Region and Chongqing municipality.
Chongqing municipality is the distribution centre in southwestern China and the technology for timber processing mills is well established and production costs are very competitive, say analysts.
Traders in China are complaining that the landed cost of imported North American logs has jumped by around 30% as a result of the depreciation of RMB and the trade frition between China and the United States.
Although shippers in the US have been lowering log prices to maintain market share in China the higher costs continue to be a major challenge to Chinese importers. The reason behind this is that, even with price reductions, landed costs are still higher than previously which means competitiveness in the domestic market is weakened and traders are losing out to alternative timbers.
At present, the price for grade A processing general materials (2-4m) North America hemlock and fir in the Guangdong market is between RMB1680-1760 per cubic metre. The price for grade A processing general material (2-4m) southern pine is between RMB1580-1660 yuan per cubic metre.
The operator of southern Tasmania's only direct freight service has announced it is pulling out of the state in two weeks, forcing customers to transport goods to northern ports by road or rail. Singapore-based company Swire Shipping has been operating out of Hobart every nine days since 2015, but are stopping the service due to charter and bunker costs making the service "commercially unviable".
The end of the service is expected to seriously affect the forestry sector, with one industry leader saying "a number of communities would be holding their collective breath knowing this will have a significant impact".
Chief executive of the Tasmanian Chamber of Commerce and Industry, Michael Bailey said the biggest loser from the move was the southern Tasmanian forest industry, which had been using Swire's service to export to international markets.
"We know that for our Southern forest industries, this is a really important way of getting their residues into a profitable market, so this is a problem," he said. "There's really no other option but for the southern industries to freight their products now north. We know the impact that has on their bottom line, and that's going to be a problem for them."
Forest Industries Association of Tasmania chief executive Craig Jones said the decision would be "a problem for the Swire's customers who are using that and then also the customers for the wood overseas". Mr Jones said the Tasmanian timber industry was sustainable into the future, but was in need of proper coordination. "It's another illustration of the issue around residues in the southern forestry estate. Unless we find a manageable solution for that, it's always going to be difficult," he said.
A State Government spokesperson said logs could still be exported from Hobart through bulk shipments, and the loss of Swire would only affect containerised shipping. She said the Government would work with Swire customers to discuss the impact and alternative freight solutions and had engaged Evan Rolley to examine all forest residue options as a priority.
But Labor's shadow minister David O'Byrne said forestry companies that relied on the Swire service to ship their product to Melbourne would be significantly affected. "It will mean they have significant extra costs to get their product to the northern ports or they'll need to seek another exporter to move their products," he said.
Data from China Customs shows that in 2017 total value of China’s wood products trade (imports and exports) rose 10% to US$156.4 billion. The growth in wood products imports rose 21% to US$ 52.6 billion, significantly higher than the growth in exports (1.3%).
The US is the main importer of China’s wood products but anti-dumping and anti- subsidy policies in the have resulted in a sharp fall in exports to the US.
China’s wood products enterprises are facing considerable challenges in the US market. The value of foreign trade in wood products between China and the US in 2017 was US$29 billion, accounting for 19% of China’s total wood products trade.
However, tensions between the United States and China are increasing over trade issues after tariffs on US$50 billion worth of Chinese goods were announced by the US.
The US recently released a list of tariffs on US$200 billion of Chinese goods and wood products are affected including wood chips, wood charcoal, logs, other wooden products, sleepers, sawnwood, veneer, wooden flooring, particleboard, fibreboard, plywood, laminated wood, wooden doors, wooden windows, bamboo and rattan, wood pulp and waste paper, paper and board, pulp and paper products and wooden furniture and seats.
In 2017 the value of China’s exports of wood products now included in the list attracting tariff was US$16.365 billion. The value of China’s imports wood products included in the list attracting US tariffs was $8.27 billion. China imports mainly waste paper, sawnwood, wood pulp, logs and paper products.
The changes to US tariffs, if implemented in full, will create a major challenge for Chinese enterprises. The tariffs will not immediately go into effect but will be subject to a two- month review process beginning in August.