Construction and Housing: Softwood Timber Sector Overview March 2017 - New Forests
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Construction and Housing: Softwood Timber Sector Overview March 2017
Disclaimer
© New Forests 2017. This presentation is issued by and is the property of New Forests Asset Management Pty Ltd
(New Forests) and may not be reproduced or used in any form or medium without express written permission.
This document is dated 31 March 2017. Statements are made only as of the date of this document unless otherwise
stated. New Forests is not responsible for providing updated information to any person.
The information contained in this document is of a general nature and is intended for discussion purposes only. The
information set forth herein is based on information obtained from sources that New Forests believes to be reliable,
but New Forests makes no representations as to, and accepts no responsibility or liability for, the accuracy,
reliability or completeness of the information. Except insofar as liability under any statute cannot be excluded, New
Forests, its associates, related bodies corporate, and all of their respective directors, employees and consultants, do
not accept any liability for any loss or damage (whether direct, indirect, consequential or otherwise) arising from
the use of this information.
The information contained in this document may include financial and business projections that are based on a
large number of assumptions, any of which could prove to be significantly incorrect. New Forests notes that all
projections, valuations, and statistical analyses are subjective illustrations based on one or more among many
alternative methodologies that may produce different results. Projections, valuations, and statistical analyses
included herein should not be viewed as facts, predictions or the only possible outcome.
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Commission and is the holder of AFSL No 301556. New Forests Asset Management Pty Limited (ACN 114 545 283)
is registered with the Australian Securities and Investments Commission and is an Authorised Representative of
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2
Softwood Timber
• Softwood timber is supplied from a
range of natural and plantation
coniferous trees and represents a third of
the global harvest of industrial
roundwood, being 1.3 billion cubic metres
out of a total global harvest of 4 billion
cubic metres.
• Australia and New Zealand have 2.7
million hectares of softwood plantations,
representing around 1% of the global
plantation area of approximately 200
million hectares. These plantations
produce around 44 million cubic metres
of roundwood per annum representing
approximately 3% of global softwood
industrial roundwood production.
Sources: www.fao.org/3/a-i3274e.pdf,
www.fao.org/faostat/en/#data/FO, RISI Global Tree Farm Study 2017,
www.nzfoa.org.nz/resources/publications/facts-and-figures,
www.agriculture.gov.au/abares/forestsaustralia
Image: Softwood logs from New Forests’ Penola Plantations managed in
Australia’s Green Triangle region. 3
Radiata Pine in Australia and New Zealand
• Radiata Pine (Pinus radiata) has been
widely established as a plantation
species due to its relatively high
biological growth rate in temperate
climates and the wide range of uses of
the timber it produces.
• Radiata Pine is a highly versatile species,
used for structural and appearance
applications, engineered wood products,
plywood, reconstituted panels, pallets
and packaging, furniture, posts, poles,
paper, pellets and burnt as a source of
commercial energy.
• Of the 4.2 million hectares of the species
planted globally, over 3.9 million
hectares are in the Southern Hemisphere.
• 2.3 million hectares of Radiata Pine
plantations have been established in
Australia (0.8 million hectares) and New
Zealand (1.5 million hectares).
Source: www.fao.org/3/a-i3274e.pdf
Image: Penola Plantations
44
New Forests’ Softwood Assets
• In this presentation, New Forests focuses on how its Australian and New
Zealand softwood assets supply the domestic construction and housing and
the Asian export market.
• Further more, we discuss how the timber industry is seeking to optimise
softwood utilisation and innovate beyond traditional forest products,
extending product life cycles. This in turn improves diversification through
value-added products and applications, and creates further market
opportunities.
Image: Radiata Pine
5
Global Softwood Markets Are Tightening
Demand is shifting to Asia and supply sources are re-aligning
• Softwood supply sources have
traditionally been Scandinavia, Russia, Softwood Roundwood Producers
and North America selling into US, 350
European and Japanese markets.
• Over the past 10 years economic 300
growth and urbanisation occurring in
China, and increasingly India, has been 250
Millions Cubic Metres
the driver of new demand for
softwood.
200
• Northern hemisphere softwood timber
has come from predominantly 150
managed natural forests where
available supply is reducing, most
significantly in Canada. 100
• Australia and New Zealand have
gradually increased production from 50
planted Radiata Pine forests, taking
advantage of reducing production 0
from North America, geographic 1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
proximity to growing Chinese and
Indian markets, favourable growing Australia & New Zealand
conditions and climate, and forest Canada
Scandinavia
management certification. Russian Federation
United States of America
Source: www.fao.org/faostat/en/#data/FO (calendar year) 6
Growth in Chinese Softwood Demand
China’s urbanisation and construction drives softwood log imports
• Between 1982 and 2015 China’s
Chinese Softwood Log and
urbanisation rate increased from 21% to Lumber Imports
56%. 80
• China’s urbanisation rate is projected to
increase to 60% by 2020 due to 70
increased housing demand from an
60
additional 100 million migrant workers.
Million Cubic Metres
Chinese Completed Construction 50
1200
40
Million Square Metres
1000
800 30
600
20
400
200 10
0 0
Residential Non-Residential Logs Lumber (Roundwood Equivalent)
RISI’s forecast of total Chinese floor space completion peaks in 2018-2020. Residential construction is
expected to slow as urbanisation and the working age population declines. Diversification into other
markets, e.g. furniture, and throughout the bio-economy will be an important driver of future demand.
Sources: news.xinhuanet.com/english/2016-04/19/c_135294134.htm, www.bloomberg.com/view/articles/2016-07-19/has-china-reached-
peak-urbanization, RISI China Timber Outlook Study 2015 (updated, calendar year) 7
Changing Chinese Softwood Log Supply Sources
• In 2004, China imported 16 $1.20
AUD and NZD Exchange Rates
million cubic metres of softwood
logs. By 2016, this had grown to $1.10
33.7 million cubic metres.
• The source of softwood logs has $1.00
diversified. New Zealand
overtook Russia as the largest $0.90
softwood log supplier to China in
2013. (See graph on slide 9). $0.80
• Recent changes in currency
exchange rates have reduced the $0.70
competitiveness of US log
exports, further supporting $0.60
2009 2010 2011 2012 2013 2014 2015 2016
increasing market share for New
Zealand as well as other
countries, including Australia.
USD:AUD USD:NZD
Sources: RISI China Timber Outlook Study 2015 (updated), OandA (calendar year)
8
New Zealand Market Dynamics - China
China is now the major market for New Zealand timber
Chinese Softwood Log Imports from
• New Zealand exports around Russia, New Zealand, United States,
50% of its softwood roundwood Canada and Australia
production as raw material.
35
• Asian demand for New Zealand
timber products is expected to
increase due to continued 30
urbanisation and increased per-
capita consumption of wood
products. 25
• New Zealand has gained
Million Cubic Metres
significant market share over 20
traditional supply regions,
accounting for 6% of Chinese
softwood log imports in 2000, 15
rising to 35% in 2016.
• 38% (NZD 1.95 billion) of New 10
Zealand’s forestry products went
to China for the financial year
ending June 2016. 5
0
2000 2002 2004 2006 2008 2010 2012 2014 2016
Russia New Zealand United States Canada Australia
Sources: RISI China Timber Outlook Study 2015 (updated, calendar year), mpi.govt.nz 9
New Zealand Market Dynamics - India
Indian imports are trending upward and likely to continue due to
economic growth and urbanisation
• India is one of the fastest growing New Zealand Roundwood Exports
economies in the world. India’s annual to India
growth rate according to IMF 2016 2,000
estimates was 6.6% and the 2017-18 1,800
outlook is 7.2-7.7% (compared to China’s
1,600
6.5% and 6.0%, respectively).
Thousand Cubic Metres
1,400
• India is expected to become the third
largest economy in the world by 2030. In 1,200
2016 it was ranked fifth. 1,000
• India’s urbanisation rate in 2015 was 33%
800
and is expected to reach 39% in 2030.
600
• Approximately 110 million houses are
forecast to be required by 2022 in urban 400
and rural India. 200
• Between June 2006 and June 2016, New
-
Zealand’s total forestry product exports
to India increased from NZD 57.2 million to
NZD 310.8 million.
Sources: imf.org, assets.kpmg.com/content/dam/kpmg/in/pdf/2016/08/urban_realestate.pdf,
statisticstimes.com/economy/projected-world-gdp-ranking.php, mpi.govt.nz
10Australian Softwood Market Dynamics
Australian Softwood Lumber
Supply and Demand
5,000
4,000
Thousand Cubic Metres
3,000
2,000
• Australia runs a softwood lumber
deficit, part of an AUD 2.1 billion trade
deficit in wood products, with 1,000
domestic consumption outstripping
production and imported softwood -
timber required to service the
domestic construction and housing
industry.
Imports Exports
• Softwood production in Australia is Annual Production Apparent Consumption
focused on meeting the domestic
deficit in lumber, with exports
generally being of lower grades of • Australia exports around 25% of its
logs unsuitable for structural or softwood roundwood production as
appearance lumber production. raw material, primarily to China.
Source: ABARES Forest and Wood Product Statistics
Image: Timberlink Australia
11Australian Residential Demand
A strong residential housing sector will continue to support domestic softwood
lumber demand supported by forecast immigration and population growth in
Australia.
Building Approvals:
300,000 Total Dwelling vs. Detached Dwellings
250,000
200,000
150,000
100,000
50,000
-
Oct-01
Oct-02
Oct-03
Oct-04
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Dwelling Approvals - Moving Annual Totals
Detached Dwelling Approvals - Moving Annual Totals
Source: BIS Shrapnel
Image: Young replant area at Penola Plantations
12Australian Alterations and Additions
Housing alterations and additions represent a less cyclical market (but more
seasonally driven) than new housing construction for softwood lumber.
Increasing house prices have increased equity in homes, allowing homeowners to
re-invest in their property through renovations. Long-term growth is expected in
this market.
Total Residential Alterations, Additions, and
Conversions (All Sectors)
2,300
Value of Work Done, AUD Millions
2,200
2,100
2,000
1,900
1,800
1,700
1,600
1,500
Trend
Source: ABS Building Activity Value of Residential Building Work
Image: Timber grading at Timberlink Australia
13Australian Softwood Exports to China
China continues to import increasing volumes of timber, and the Australian timber
market has responded to this sustained appetite. A declining AUD/USD has
allowed Australia to direct small and low grade softwood logs to the export
market. Around 25% of Australia’s softwood roundwood production is exported.
Australian Roundwood Exports to China
4,000
3,500
3,000
Thousand Cubic Metres
2,500
2,000
1,500
1,000
500
-
Source: ABARES Forest and Wood Product Statistics
Image: Harvest slash at Burbyng, Green Triangle
14Innovating Towards a Bio-economy
Bio-products are being developed as alternatives to non-renewable raw
materials, such as fossil fuels, and allowing for sustainable use of biological
natural resources to produce goods, energy, food, and services. These markets
provide diversification opportunities for softwood investors.
• The bio-economy refers to a growing body of
economic activity based on the use of biological
inputs to develop sustainable materials and
products, including those described in the image to
the right. Timber fibre now provides sustainable
inputs for a range of products in the bio-economy:
• Engineered materials such as plywood, glulam,
cross laminated timber (CLT), and oriented strand
boards (OSB) are sophisticated and viable building
materials. Commercial tall-building projects are
now starting to be constructed across the world
with engineered wood products.
• Biomaterials include diverse materials, ranging from
rayon for clothing to pseudo-plastics.
• Biomass can be used to create both bioenergy and
refined biofuels; biomass must be sourced
responsibly and total life cycle analysis is important
for bioenergy and biofuels to be sustainable
• Biorefinery products can be created directly and as
by-products of industrial processes, making more
sustainable resins, chemicals, and polymers
15Softwood Market Exposure and Opportunity
Australia New Zealand
• Long track record; mature forestry industry • Long track record; mature forestry industry
Country • Attractive and safe operating environment • Attractive and safe operating environment
Risk • Open to foreign investment • Open to foreign investment
• Domestic-oriented market: softwood lumber is the • Export-oriented market
major portion of apparent domestic consumption
• Linked to China and India‘s booming construction
(over 90%). This is linked to domestic housing
and housing markets
demand and population growth
• Export industry is supported by good infrastructure,
• Net importer of wood products
multiple ports, and a skilled workforce
• Timber market exposure through economic ties,
• Softwood timber prices can be more volatile than in
Timber e.g. Free Trade Agreements
Australia due to its primary exposure to export
Market • Exposed to Asian economic growth and markets
Exposure urbanisation story
• Innovation in forest products, technology and bio-
• The Australian market is structurally supportive of economy increases applications and market
prices due to strong domestic demand and opportunities
geographic isolation
• Innovation in forest products, technology and bio-
economy increases applications and market
opportunities
• Asian commodity demand and mining investment • Linked to the USD
inflows helped drive a strong AUD between 2010 –
• A high NZD/USD affects competitiveness of
2014. Although the AUD has since eased, any future
exports. However, as the New Zealand currency has
AUD strength changes the competitiveness of
Currency exports.
recently eased, exports have become more
Risk competitive.
• As AUD weakens, softwood imports will become
more expensive for Australian building industry,
favoring domestic softwood timber suppliers.
16Want to Learn More?
To learn more about New Forests’ investment programs related to
softwood plantations in Australia and New Zealand, contact Radha
Kuppalli at rkuppalli@newforests.com.au.
Image: Penola Plantations
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