FOREST ACTIVITY AND CORONAVIRUS UPDATE

We published a Coranavirus update to let you know we had stood down the crews in our forests from the 4th of February.

As the Chinese New Year is now officially over there has been some increased activity on the Chinese ports and we have, for now, resumed the crews on a reduced production level (around 60%). We have been in discussions with most of the New Zealand Forestry owners right through from the 189,000ha Kaingaroa Timber forest owners, Earnslaw, Forest Enterprises, China Forestry Group and several other forest owners. At this stage they are all in a similar position to us where the immediate objective is to minimise harvesting but maintain a small amount of work to retain the harvest infrastructure. Ongoing harvest decisions are being considered and made daily.

​It is still too early to determine what level the Chinese activity will reach - this will guide our decisions.

Our priority as always is to maximise returns for investors and it is a fine balancing act between protecting the crew infrastructure that we have built up over the years and maximising investor returns.

We are monitoring the situation on a daily basis and if we find there is no improvement in China, and the expectation is that the situation will take a long time to rectify, we will at some point make the decision to completely stand down our crews. This is not a decision to be taken lightly as we expect some harvest crews will go out of business and once the China situation improves, we anticipate long delays in attracting harvest crews again – they just won’t be around. We have already had some crews go out of business during the previous imposed reduced production periods.

The exporters are still negotiating the February log prices but we expect the average A grade log price could be around the $100-$105 range. This is a drop from last month’s average price of $122 This negotiation is longer than usual as the banks in China have only come back to work in a reduced capacity this week. The banks are required for LCs (Letters of Credit). Affecting the price is the larger port inventories in China. Inventories are currently sitting around 6 million tonnes, a comfortable level for this time of the year is around 4.5 million tonnes. As well, the beetle damaged wood continues to supply the Chinese market from Europe.

We will update you again when we have more information.

Attached is an update from the Forest Owners Association explaining the current situation.

Kind Regards
Will Dickie


11th February 2020

FOA, FICA and Te Uru Rakau have been working collaboratively to monitor the situation and provide as much up to date information as we can on a very fluid situation. The summary messages below follow the briefing provided at the end of last week.
Coronavirus and the forestry sector situation as at 11 February, 2020.

• Now that the Chinese lunar New Year is officially over supply chain activity has picked up again in China as hoped but it is not a business-as-usual level of activity.
• Coronavirus restrictions are still impacting some businesses and the level of impact varies regionally. The central government is encouraging workers to return after the extended holiday period but, depending on the area, local jurisdiction restrictions may remain in force including self-quarantining in some instances. Working from home will be also be used by a number of companies.
• NZTE have established a web link to provide people with what information they have access to. The URL is: https://www.nzte.govt.nz/coronavirus
• The resumption of pre-coronavirus market conditions is likely to be gradual and take time. If the coronavirus spreads within China this recovery could rapidly reverse and become very serious for all exporters – growers and processors.
• The resumption of activity in China post the lunar New Year extension has led to a pick-up in activity in New Zealand but this is also not universal. The export activity represents a slow easing of pressure on the system and is influenced by existing commitments. The extent to which this is maintained or improves will be influenced by a number of factors that have still to resolve themselves including very high inventory levels on the Chinese ports, the approval of fresh lines of credit and what happens to prices which have already fallen.
• The situation for NZ log suppliers and traders varies. PFP have taken the decision to resume purchasing and some companies in Gisborne and Southland that had curtailed operations are following suit by also resuming production but at a reduced level. As is usually the case the corporates will all be maintaining a level of production that will reduce the impact on the workforce as much as possible. The reduced level of harvesting, however, is likely to be in place for some time.
• Woodlot owners and smaller forest owners have less ability to even out the market highs with the lows and thus be more likely to cease operations until more favourable market conditions return. The stalling of a lot of woodlot purchasing is also affecting roading set-up work. The latter is a concern as this is a prerequisite to allow woodlot crews to operate through the winter.
• The impact on the contractor workforce mirrors the variability in grower response - for some there are manageable reductions in activity; at the other end of the spectrum some are facing losses of jobs and/or businesses.
• Te Uru Rakau, FICA and FOA are investigating what support may be made available to that section of the workforce who are facing a total loss of income or unsustainable cashflows. This is only a proportion of the forest industry and is being looked at in other areas of the economy.

Regards
David Rhodes