For the last decade, forests continued to be a stimulating asset class for a growing range of investors. Forest transactions are the starting point of a sustainable forest sector development and are now an integral part of the forest and wood processing sector.
A thought-provoking trend of declining discount rates for forest transactions has been developing in Australasia over the last couple of years. Margules Groome reviews the historical developments of the market discount rates.
Massive timber elements – such as CLT, Glulam, LVL and SIP as well as timber prefabricated building systems are attracting significant interest from the Australian and regional building sector. Constantly, questions are asked from Margules Groome about regional market development potential, product specifications and availability or building codes change to name just a few.
Recent changes in the Chinese design and building codes are challenging the traditional timber processors while providing opportunities for those able to adapt, change and be competitive.
With its first-quarter almost over, 2018 looks to be another record beating year for the wood pellets trade, with imports into EU and Asia continuing their growth. Globally the markets are moving strong. Eurostat shows that European Union countries imports of wood pellets from the US over the period Jan-Nov 2017 increased by 10% over 2016 levels. Japan and South Korea produced robust growth in their pellets imports.
At the end of 2017, Margules Groome was successful in winning a bid from the Asian Development Bank to assist the National Directorate of Forests, Coffee and Industrial Plantations to develop a National Forestry Plan for Timor Leste. Margules Groome Director, Rob de Fégely, is the project team leader for the engagement. Rob said that while the project is exciting, there are some considerable challenges as well as significant opportunities for forestry in Timor Leste.
The Tasmanian Forest Practices Authority celebrated its 30th anniversary in 2017, and Margules Groome Director Rob de Fégely was asked to present a paper to their celebration conference in November. He was asked to comment on whether the Tasmanian system might be applicable in the other Australian States.
Forestry in Australia has a habit of constant change especially the degree of management and governance affecting natural forest management. Therefore, achieving 30 years is a very commendable achievement when considering the tumultuous changes that have occurred in Tasmania since the late 1980’s.
Margules Groome looks back at 2017 and reviews the current and potential state of Australian sawmilling sector based on structural changes that have occurred and/or are likely to happen in 2018.
After a positive performance in 2016, 2017 has been an excellent year for some industry players and a challenging journey for others. 2017 will probably be remembered as the year featuring many announcements of investment intentions and M&A activity; also with a long-time in the making conversation about Cross Laminated Timber (CLT) and timber prefabricated systems developments.
Consequently, the traditional wood processing sector have proved that moving forward is actually possible!
The reconstituted wood panels processing sector has continued its dynamic changes that began in 2016. First, Borg Panels announced its intention to invest in new Particleboard (PB) capacity in Oberon (New South Wales) while OneFortyOne Plantations unveiled plans to establish a new PB capacity in the Green Triangle region.
Margules Groome maintains the view that the PB market outlook remains positive. However, the newly planned capacities and the change in ownership for some plants will alter the Australian PB sector structure and market dynamics.
With an average demand growth of 1.9% for the next 2-3 years, incremental production capacity planned to come online in 2018-2019, assuming both investments proceed, will create a 20%-35% production surplus. Will the exports be an opportunity or a challenge?
Recent legislative changes in Indonesia have the potential to create disturbance in the logs and woodchips markets as well as opportunities for regional players.
The Indonesian President Joko Widodo in January 2016 announced President’s Regulation 1/2016 affecting tree plantation developed on deep peat soils in Indonesia. The presidential decree established the Peatland Restoration Agency (Badan Restorasi Gambut – BRG) to oversee the new regulations.
Significant areas of pulpwood plantation are affected by the decree and if converted to conservation land, will have significant wood supply implications for Indonesia’s pulp and paper sector. Plantation rotation length in Indonesia is very short (4-5 years) meaning that the consequences of this change will impact the market soon.
The Asia-Pacific region continues to be dominated by the Japanese and South Korean large-scale energy producers taking advantage of generous government subsidies as well as solid green energy policies.
In Japan, a country with an ambitious biomass renewable energy target of 4.6% by 2030 (it reached 1.8% by March 2016), there are more than 800 projects that have won government approval. These projects are targeting to establish of more than 12 gigawatts capacity, the equivalent of 12 nuclear power stations – ambitious developments that are facing potential challenges.
What is the market potential for CLT in Australia? There is continuous strong interest in Cross Laminated Timber (CLT) in Australia/New Zealand and around the world.
New CLT facilities plans have been announced and some are getting ready to start-up production in APAC region. Which markets would those new CLT producers target?
Margules Groome’s view is that the CLT market potential in Australia is hard to define. Part of the reason is the absence of longer-term historical trends as the use of CLT for domestic consumption only started in 2012. Based on the observation that most of the decline in apartment approvals in Australia comes from the 8+ storey buildings, CLT is well placed to take advantage of the 4, 5 and 6 storey apartments sub-sector which still looks promising.