UPDATED INFORMATION OF TIME LINES BELOW IN RED FOR YOUR SPECIAL ATTENTION. 

​Dear all valued customers
As per company plan, Arbor factory relocation will be starting and carried out in the 4th Quarter this year.
While this project is happening, all the kilns and plant will be uninstalled.  As a result, it will affect the processing and production.
Therefore, we would like to post this notice to make you all aware of this schedule, and meanwhile we request that all orders are to be confirmed before 30th Sept 2019, so that we can prepare the products for you and store at our place for shipments in the months of October and November 2019.

AS PER SCHEDULES, THE PLANT WILL BE UNINSTALLED IN EARLY TO MID NOVEMBER, WHILE THE KILN DRYING FACILITIES ARE TO BE TAKEN DOWN AT THE END OF OCTOBER.

RELOCATION WILL LIKELY BE COMPLETED AT THE END OF JANUARY 2020.  AFTER THE KILNS BEING TUNED FOR PROPER DRYING PROCESSING, OUR EARLIEST NEW SHIPMENT SCHEDULES WILL ONLY BE ETD NZ IN MID-LATE FEBRUARY 2020.

THEREFORE WE WOULD APPRECIATE IT IF YOU CAN CONFIRM YOUR ORDERS FOR HT DRY TIMBER WITH US BEFORE THE END OF SEPTEMBER FOR ALL SHIPMENTS ETD NZ PORTS REQUIRED FROM NOW UNTIL MID-LATE FEBRUARY 2020.

IT IS IMPORTANT TO INFORM YOU THAT DURING THE PERIOD OF TIME WHEN KILNS ARE DOWN, THE ONLY PRODUCTS WE CAN SHIP ARE GREENSAWN PRODUCTS AND PART OF AIR DRY PRODUCTS WITH FUMIGATION (STILL ISPM 15 COMPLIANT, BUT THEY ARE NOT HT KILN DRY).
There will be no shipments in the month of December 2019.
 
Important Cut-Off Times:
Order Acceptance Cut-Off:  Monday 30th September 2019. We must have your LC or deposit payment received on or before this date as a confirmation of your order.
Shipment Cut-Off:  Saturday 30th November 2019.  All orders must be shipped on or before this date.
Please review and prepare your orders if you have demand.  Thank you.

You will be aware that in early July, following the significant reduction in export log prices, we carried out a full review of our harvest operations.  We subsequently instructed our forest managers to place harvest production caps on their contractors of approximately 25%.   Over the past two months, we have monitored the export log markets and as advised in July, have now undertaken a further review of our harvest operations now that we have the September prices from the exporters.
 
What has happened to pricing since then?
 
You will have seen from the abbreviated August review that log prices have risen from their July lows. Recent September prices have also shown another incremental increase.  Overall prices have risen approximately 10% from the July lows and have recovered more than 25% of the June to July fall.  This is welcome news for all harvesting forests.

The market summary 
This month we engaged once again with our two major log exporters to obtain a market update.  Between them they export approximately 30% of New Zealand’s logs. The overall sentiment is that the Chinese markets have stabilised since the dramatic price decreases in July.  While our exporters expect further incremental price increases into the end of 2019, they remain cautious in their longer-term view.  We discussed the many drivers for those log price reductions in our July correspondence, below is an updated summary of changes since that July review.
 

• European Log Supply into China via Rail – This remains an issue with Russian lumber arriving at inland and coastal areas (part of the Belt – Road initiative) where radiata has traditionally been the predominant supply.  Subsidies have been reduced recently and the competitiveness of Russian lumber has decreased.  The total volume of these European arrivals is around 2 million tonnes, about equal to one month’s log exports from New Zealand to China.
• United States and China Trade War – The exporters express the most caution around the current trade war between the US and China.  This is slowing the Chinese economy.
  
•   RMB and NZD Exchange Rates – The offshore Chinese Yuan has depreciated more than 4% against the US Dollar since our July update, largely as a result of the trade wars.  This depreciation has a significant impact on Chinese buying power with one exporter suggesting that every 1% decrease in the Chinese Yuan results in USD $2 less buying power.  Fortunately, the surprise 50bp rate cut from the Reserve Bank has helped drive a larger fall (more than 5% over the same period) in the NZD/USD exchange rate.  This increases the New Zealand exporter’s return which helps offset the decrease in the Chinese Yuan. 
  
• Wall of Wood Supply from New Zealand – There is no doubt that supply of logs from New Zealand has increased over recent years and NZ Inc was exporting a record number of logs into China at the outset of the price fall of July.  The exporters allude to a two-tiered supply market from New Zealand with the small to medium sized suppliers reducing their overall cut while some of the very large corporates are continuing to harvest at near full production to fulfil supply contracts and keep supply chain infrastructure intact.  Supply constraints will be a significant factor in helping prices to rise again and it would seem logical to us that NZ should take a combined view as to supply volumes to export markets if we want to maximise our income.  One exporter monitors vessel movement from NZ and has noted a reduction of approximately 18% (from 110 vessels to 90 vessels) between July and August.  This will be taking effect now by shortening supply and the RDNZ efforts to cap harvest production by 25% are playing a part in this. 
  
• Demand from China and Inventories – The exporters have noted that log off takes from Chinese ports have increased by approximately 13% over the last month as the seasonal lows (due to warmer and wetter weather) are coming to an end.  The off takes are now close to outstripping the supply to ports however, inventories remain high at around 4.6 to 4.7 million m3.   The exporters expect we shall start to see a reduction in inventory later in September or early October as off takes begin to outstrip new landings of logs.  This will be a result of tightening supply and a seasonal increase in demand.  One of our exporters was very firmly of the view that we needed to see wharf inventories drop before we would see significant log price increases. 
  
• Shipping Freight Rates – Despite the lesser demand for vessels, the shipping market remains tight and increases in fuel costs for regulatory reasons are pressuring prices higher.  Log exporters expect we will continue to see higher freight rates across 19Q4 and 20Q1 due to the higher fuel costs.

 
Price expectations from here?
 
The unfolding supply/demand pressures are creating positive tensions and exporters expect this theme to continue and for log inventories to decrease. This should be the key driver for prices to continue with incremental moves upwards. There appears to be a consensus that log prices could move toward $120-$125 over the next three months as a result of supply and demand pressures. Most caution remains around the trade wars and the medium-term impact this is having on both the Chinese and USA economies; it is for this reason that price increases are expected to remain modest.
 
RDNZ initiatives going forward
 
Given the modest recovery and upward trajectory of export log prices since we last reviewed them in July, RDNZ has decided to take the following initiatives.  Please note the viability and extent of these initiatives may vary from forest to forest for a variety of reasons.  The specifics for your forest will be discussed subsequently.  Key initiatives are:
 

• Retain harvest production caps of approximately 25% for another month.  Because there is a six to eight-week time lag from harvest until our logs are added to wharf inventory in China, most commentary suggests that the real supply/demand impact should take hold in the next few weeks. RDNZ will review the price changes and market dynamics in one month’s time. 
  
• Where possible, harvest crews will move to road lining operations which is a more effective process over the dryer summer months.  Road lining generally involves reduced production per month and allows the forest roading infrastructure to be set-up ahead of time.  This gives the newly formed roads time to settle and stabilise, increasing their durability for harvest traffic during winter months.  The earlier the road lining is carried out the lower the average harvest roading costs for your forest will be. It is important that the roadlining continues so that we can move to clearfell operations when prices recover. This is in line with what other similar sized Forest Managers are doing. 
  
• Drive harvest efficiencies to reduce costs.  The Forest Manager will engage contractors during this period of low pricing to negotiate reduced harvest rates in exchange for an easing of harvest production caps.  This will not occur until it is decided the harvest production caps can be lifted.  
  
• Engage regulatory bodies in discussion on NZ Inc log supply management.  RDNZ plans to work with exporters and forest owners through NZFOA to engage regulatory bodies and help drive better co-operation in supply management. 

Log prices in NZ have improved slightly, after falling to their lowest level in four years. In July a backlog of imports into China, a downturn in demand, and nervousness over its trade war with the United States pushed prices down about 25 per cent to their lowest point in four years. 

AgriHQ forestry analyst Reece Brick said A-grade logs, which were considered the benchmark grade, had for six months been sitting around $150 - $145 per JASm3 (Japanese Agricultural Standard cubic metre), but in the space of two weeks fell sharply to $105. 

Mr Brick said the wider forestry industry was still feeling the strain from the recent Chinese log price re-adjustment. But he said prices had recovered slightly, helped by a small decrease in port-level inventories. Latest figures from August showed A-grade log prices were now sitting at $110 per JASm3. 

Mr Brick said while it was hard to quantify, it was estimated there had been a 20 per cent drop-off in harvesting while some in the industry opted to wait for prices to improve. Most of the people that have stopped harvesting now are those with woodlots planted 25-30 years ago and who are looking to cash. 

"They can only really make money in one go. The bigger companies, which have constant harvesting rotations, they're just going to keep on going as per usual more or less." 

Mr Brick believed those in the sector were cautiously optimistic that prices would start picking up in the short term, although they were still a long way from the record high levels seen earlier in 2019. 

"Volumes leaving New Zealand shores are already tightening, which is expected to impact on China from September/October, when Chinese log use usually increases. This is creating some level of confidence that the market should rise from here to the end of the year," he said. ​

​

New Zealand’s wood processors say the international log price war and protected overseas economies are crippling the New Zealand trade. The Wood Processors and Manufacturers Association told a meeting in Nelson that distortions in international trade were starting to make it difficult for local processors to be competitive globally. 

The industry worked to add value to New Zealand's raw timber and supported 25,000 jobs nationwide, but it was fighting to survive. The association's chief executive, Jon Tanner, said the global playing field was tilting less in New Zealand's favour. 

That was because international competitors were playing by a different set of rules. "And all this, we believe, is being caused primarily by subsidies that are being paid out across the world, and that are supporting the industries we are competing with," Mr Tanner said. 

"MFAT (Ministry of Foreign Affairs and Trade) likes to call them non-tariff barriers - let's just call them the covert world of subsidies because they're really, really, really hard to see." They were focused on finding ways to tackle the problem, but the elephant in the room was log supply and prices, he said. The global manipulation of pricing was hurting New Zealand processors and timber growers. 

The government recently commissioned an inquiry into the log market, which was looking into barriers to fairer international competition. Mr Tanner said it was a good start. 

“We’ve certainly made the case for the issue. What officials are doing now is drilling into what we can understand about the sector and what’s supporting it around the world because we really don’t - as a global industry, understand that.” 

The government was also working on securing a range of trade agreements, but warned it would not be a quick-fix. The Minister for Trade and for Export Growth, Damien O'Connor said agreements in principle with ASEAN member countries - from South East Asia - were expected to be in place by the end of the year. 

"We won't get all the things we want but if we can get in place rules of trade that all those countries have to adhere to, around e-commerce, around investment and around goods, then we'll be in a safer space," Mr O'Connor said. ​

What are the reasons for this?
There are a range of reasons. I have listed them below in no particular order.
     The Spruce Bark Beetle in Europe (now has two breeding seasons each year because of climate change) is overwhelming Spruce forests in Europe causing significant losses. As well massive windstorms in Europe have added to the volume of wood that needs to be salvaged. The outcome is a dramatically accelerated harvest and these low-priced salvaged logs are being exported by rail up to 8,000 km to China under the One Belt – One Road Policy, the freight is government subsidised. Apparently up to 30 trains per week arrive in Germany under the Belt and Road initiative, the train trip is 12 days vs shipping 45 days.
       Devaluation of the Chinese RMB related to the Trump Trade War.
     The Trump Trade war with China (25% tax on Chinese goods into USA) is bringing about a slow down in the Chinese Economy
       Wall of Wood supply chain infrastructure issues. The so called “Wall of Wood” is moderated in New Zealand by the lack of harvest and trucking infrastructure plant and labour availability. However, there are also supply chain infrastructure issues in China.
       The summer is traditionally the low season in China for construction and therefore demand as the weather is very hot in areas and warm and wet in other areas.
       Some sellers of logs in China have noticed under the present premier Mr Xi, there is more state involvement in log purchasing entities.
What is the effect of the log price decrease?
Export log prices are set monthly. On 1st July one large New Zealand exporter dropped prices for A grade logs (The bench mark price –which is then related to all log grades) from NZ $135/mᶾ at Wharf gate (AWG) to $97/mᶾ and $105/mᶾ (different North Island ports). Another exporter has dropped prices to $95/mᶾ and $100/mᶾ. 1 mᶾ approximately = 1 tonne.
 
As forest owners, we join the world of many other producers, where our profit margin is the money left after all other suppliers of services are paid.
An example of the effect of the price decrease is:
A forest located say 80 km from an export port before the prices dropped might have had an average gross income of NZ $130/tonne with average costs of say $80/tonne (90% plus of this is logging/loading, engineering and cartage). Logging, cartage and engineering costs have risen by almost 30% in the past 18 months due to demand and supply pressures, plus higher local wage costs. Some distant and lower yielding forests could have costs of closer to $100/tonne because of lower yields or much higher freight costs.
What this means is that if your costs were say $80/tonne, then under the June prices you would have had a cash surplus of say $50/tonne. Under the July export prices this could be $18/tonne (based on Napier July AWG prices).
Another way of putting this. Assuming 700 tonnes of logs are sold per ha, last month you would have had a cash surplus of say $35,000 per ha. Under the July pricing schedule, this could be reduced to $12,600 per ha.
This $22,400 per ha reduction in stumpage has drastically reduced the surplus to owners, and in some cases has pushed stumpages into negative territory.
What actions should we take in response to the log price decrease?
    Experienced producers and exporters agree we need to immediately shorten log supply to China. As the supply chain is six to eight weeks long, the market will not feel the shortfall for some time.
    If we stop harvest, this will quite quickly decimate the viability of many of our harvest operators. This will create significant medium term consequences as the re-establishment of the harvest crews and their plant and equipment will be hampered by the number of crews able to raise the necessary capital or be able to locate experienced staff to man the crews once they have moved on to other jobs.
    We have canvassed a large portion of the forest owning industry and it is evident that we, in line with the other foresters we have spoken with, should be taking immediate steps to reduce harvest.
    Accordingly, we have instructed our forest managers to reduce the harvest operations of their contractors by approximately 25% overall. This may vary slightly from forest to forest depending on their individual circumstances however, this action should help to shorten up the export supply chain while keeping the contractors alive until the prices recover. We will review the situation in two months.
   If a forest takes 24 or more months to harvest, then low log prices for a short period (i.e. three months) makes very little difference to the average stumpage.

Is there any good news?
Fortunately, there is:
   Chinese log buyers love New Zealand Radiata pine for its consistency, its evenness in quality and its ability to saw easily.
    We have had downturns in price at this time of year before, the last one in 2015 affected one of our forests but the prices quickly recovered.
     By shortening the market, our Chinese log salespeople say we could quite quickly bring about a change in the demand/supply ratio that will lift prices. Chinese buyers know that prices can rise quite quickly as well, and they will not want to be caught short of supply.

Dear All,
​
This message is to bring you up to date with ARBOR GROUP activities.
Reman Factory:
The activities of Arbor Remanufacturing currently sited at 9-11 Kere-iti St, Maunganui, will cease Remanufacturing operations on the 30th November 2019, and  we will relocate our entire plant and  equipment to a new site in Rotorua in the Eastgate business park opposite the Rotorua airport
 
The new address is 2-130 Wahanga-A-Rangi Crescent, Rotorua.
 
Reman will be selling off some of its surplus plant and equipment, and we will, of course, be looking to reduce stock before the move in Nov/December.
 
SUPPLIERS:
To our very valuable supplier sawmills;  please bear with us as we work our way through this relocation as our buying patterns will most surely alter but rest assured we are not out of business and we expect to be back buying aggressively in January 2020.
 
TO ALL OUR CLIENTS export and domestic
Please be aware of the shutdown and get orders  in well in advance for supply over this time and we will do all we can to ensure we forward process material to meet your needs
 
I want to take the opportunity to thank you for your support over the last 20 years, and I look forward to more of the same at our new premises.
 
Regards
ARBOR GROUP
Frank T Davis  CEO
KCMH

An arrangement signed by New Zealand and China this week paves the way for future forestry cooperation and boosting bilateral trade, NZ Forestry Minister Shane Jones says. The arrangement was signed on Monday in Wellington by Shane Jones and Mr Zhang Jianlong, the Administrator of China’s National Forestry and Grasslands Administration. 

“The updated arrangement supports and strengthens links between government, industry and research institutes in New Zealand and China. It provides a framework to address matters such as sustainability, wood processing and utilisation, and trade and investment,” Shane Jones said. 

“The forestry sector is an important and growing part of our bilateral trade with China, with export revenue topping NZ$3.2 billion in the year ending 2018. Much of this growth has come from increased Chinese demand for New Zealand forestry products, supporting both continued high prices and record export volumes”. 

“A number of Chinese companies choose to use wood sourced from New Zealand for their manufacturing, and I’m keen to see how we can grow the relationship further, especially for our respective wood processing industries”. 

“With my Chinese counterpart, I have agreed that officials will cooperate to encourage increased trade, including in value-added wood products. I’m pleased to announce that we will hold talks in China later this year, which industry will be invited to, to promote government-to-government and industry-to-industry collaboration”. 

“Ensuring an end-to-end value chain for our logs and forest products, along with our relationships with trading partners, including China, are an important part of achieving these aspirations,” Shane Jones said. ​

​NOTED ecologist and former leader of Greenpeace Dr Patrick Moore has been elected chair of the CO2 Coalition, a US conservative think tank. 
The board of directors will explain how the increase in CO2 in the atmosphere from human emissions is spurring increased growth of forests, crops and plants. They will also focus on discussing how CO2 is also a very weak greenhouse gas that may have the added benefit of slight warming of the climate.
US government data showing that the modest warming, even if caused in part by industrial CO2,  has resulted in no increase in extreme weather such as hurricanes and droughts or changes in the rate of sea-level rise.
Former chairman Dr. William Happer, an atmospheric physicist, recently left the CO2 Coalition to become a senior director on the National Security Council, where he has proposed a presidential commission to review the science behind claims that climate change threatens national security.
Dr. Moore is a co-founder of Greenpeace and served in the leadership for 15 years, including as a director of Greenpeace International from 1979-1986. He received the Einstein Society’s National Award for Nuclear Science and History in 2009.
Commenting on his new role, Dr. Moore said: “We aim to position the CO2 Coalition as the go-to source for information on the benefits of CO2 for the environment and civilisation.”
He said human CO2 emissions were causing a “greening of Earth”, which will increase agricultural and forestry production, as well as increasing the fertility and abundance of global ecosystems.”