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Re: Re: Re: [sharechat] carter holt whats up by macdunk


From: <philip@goodreturns.co.nz>
Date: Sat, 19 Jul 2003 20:53:24 +1200


Having spent a number of years reporting on the forestry industry I can share some views on the industry from Rotorua.

The first thing to realise about forestry in New Zealand is that we are almost solely reliant on one species p.radiata. However, this is a low value species, which the world isn’t beating a path to our door to buy. Historically it has only been good for things like boxing (for concrete) and making pallets.

Companies have tried quite hard to move the species up the value chain by “engineering” it. For instance they make laminated beams, nice mouldings etc however the success here has been mixed. The point to note is that we may be able to add value to some of the timber, however we will never ever be able to add value to all the current harvest, let alone the “wall of wood”.

Another major problem is that foresters spend bucket loads of money on the crop in the early years (pruning etc) to try and get better quality timber, however they have to wait twice as long after spending that money to capitalise on it. The economics aren’t that flash here. CAH took an innovative approach several years back and said instead of spending all the money up front, let’s just grow the trees and try to fix them in the factory through engineering. A good way to cut costs if nothing else.

The third big problem is that quite a few years ago Fletchers got into financial difficulty and tried to fix the problem by cutting down “immature” trees to beef up cash flows. The issue here is that the timber was inferior quality to trees that had been in the ground 30+ years, thus creating more headaches.

And to cap it off the forestry companies in NZ have never been able to work together in international markets.

CAH’s latest move is actually quite positive, the question is how long will they leave it in the ground and what price will they get for it in the future? One characteristic of the industry is that log prices move around heaps because of things like supply/demand, economic growth and currency. Predicting a future price is impossible.

Forestry is a speculative industry to a large degree and, NZ’s reliance on one species is a problem.

As a shareholder in CAH I can attest that making a profit ain’t easy!

 

Philip

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