Category Archives: Prices

IST Tender Results 2016-17 addendum

https://blackwoodgrowers.com.au/2017/07/27/ist-tender-results-2016-17/

Looking at how small some of the IST tendered logs are, I thought I’d create a chart showing average sold log volume.

ISTSoldVol

For some context to this chart, the target plantation blackwood log is 1.5 cubic metres in volume (DBH 60 cm pruned to 6 metres).

So you can see from the above chart that IST sold logs are pretty small. In fact given that the chart shows the average volume, some of them are downright tiny (less than 0.1cubic metres).

That these small logs can command such high prices is quite extraordinary.

I’ll include this chart in future reports.

 

Advertisements

IST Tender Results 2016-17

ist

http://www.islandspecialtytimbers.com.au

Back in December last year I wrote my first report summarizing all tender results for Island Specialty Timbers given that IST itself provides little market information.

https://blackwoodgrowers.com.au/2016/12/13/island-specialty-timbers-tender-results/

So here is my half yearly update and financial year summary of their tender results.

A separate report looks specifically at IST blackwood tender results, given that blackwood is the only specialty timber species for which this information might have some use for market and investment purposes. No one is going to invest money based on the tender results for the other specialty species, which are too slow growing to allow for profitable investment.

https://blackwoodgrowers.com.au/2017/06/12/ist-blackwood-log-tender-results-2016-17/

Six-monthly update

The last 6 months have seen 4 IST tenders with total volume of 83 cubic metres of specialty timbers put to tender of which 58 cubic metres were sold, and total revenue of $49,100.

Financial year

The 12 months to June 2017 saw IST conduct 8 tenders with total volume of 166 cubic metres of specialty timbers of which 107.5 (64%) cubic metres sold for total revenue of $114,300.

This 166 cubic metres represents about 1% of the annual harvest of special timbers from Tasmania’s public native forests. The rest is sold at Government prices on long term sales contracts.

For harvesting the 166 cubic metres of special timbers in the year Forestry Tasmania received an additional $14,000 from Tasmanian taxpayers as compensation.

Compare this with the 3,000 tonne of specialty timbers auctioned by the Western Australian Forest Products Commission every year:

https://blackwoodgrowers.com.au/2017/05/01/special-timbers-in-western-australia/

IST2017pricechart

The above chart shows the log volumes and average unit prices paid per tender.

The price spike for December 2016 reflects a tender of 7 Huon pine lots.

The highest unit price for the year was a small black heart sassafras log of 0.49 cubic metres that sold for $5,100 per cubic metre!! This is an extraordinary price for such a small log.

The highest total price paid for a log was for a Huon pine log of 1.75 cubic metres that sold for $5,160.

These results show that when subject to competitive forces even the little southern Tasmanian special timbers market can afford to pay very good prices for quality logs.

Three species attracted strong demand and high prices over the year, these being black heart sassafras, huon pine and banksia with average log prices over $1,000 per cubic metre. Celery top pine sold for an average price of $630 per cubic metre. All of these species take 400-1,000+ years to reach maturity so I suspect even these prices are cheap.

Black heart sassafras made up 25% of the successful tendered volume but made up 44% of the sales revenue. Blackwood, the dominant special timber, made up 7% of the successful tendered volume but only 5% of the revenue. Huon pine made up 20% tendered volume and 11% revenue.

Black heart sassafras, blackwood, myrtle and wattle comprised 15%, 24%, 16% and 20% respectively of unsold log volume.

The low volume and variable quality of products tendered by IST makes it difficult to draw conclusions from these results, except to repeat that quality wood is worth big money.

Remember these prices are equivalent to mill door log prices, so harvesting and transport costs are theoretically included in the prices.

And don’t forget these public native forest specialty timbers come to you courteously of an $86.27 per cubic metre direct taxpayer subsidy.

https://blackwoodgrowers.com.au/2016/11/13/special-timbers-subsidised-charade-continues/

Tasmanian taxpayers certainly have abundant generosity (and deep pockets) when it comes to the forest industry.

IST Blackwood Log Tender Results 2016-17

1617logs

In the interests of greater market and price transparency in the forest industry here is my annual summary of blackwood log tender results from Island Specialty Timbers (IST) for the 2016-17 financial year.

http://www.islandspecialtytimbers.com.au

This is the only publically available competitive market price data for blackwood logs.

During the year 20 blackood lots, totalling 20.4 cubic metres, were put to tender over 5 of the 8 tenders held by IST. That equates to 1 single truck load of blackwood material! Of the 20 lots put to tender only 6 were sold, totalling 7.2 cubic metres!

It’s been a quiet year for the local blackwood market.

Last year (2015-16) Forestry Tasmania sold 9,580 cubic metres of blackwood logs and craftwood, with the vast bulk of this volume sold on private long term sales contracts. The tiny volume sold through public tender by IST represents just 0.07% of the blackwood harvested from the Tasmania’s public native forest.

http://www.forestrytas.com.au/about-us/publications

For the August and September 2016 tenders IST put to tender 7 lots comprising pairs of blackwood logs. In the August tender the pairs were logs cut from single trees, whilst in the September tender the pairs were from different trees. All were plain grain logs. Only 2 of the pairs from the August tender sold.

None of the 11 blackwood lots from the September and November 2016 tenders sold!

Then came the March 2017 tender where 2 large blackwood logs from the same tree featuring tear drop grain were put to tender. Total volume for these two logs was 2.59 cubic metres. The larger butt log went for $1575 per cubic metre whilst the smaller head log sold for $1625. Total value for this single blackwood tree totalled $4130!! These logs provided the highlight in an otherwise quiet year.

Actually despite the low volumes sold plain grain blackwood logs didn’t do so bad. The 4 plain grain lots that sold averaged $418 per cubic metre for some reasonable quality logs, with prices up to $550 per cubic metre. I regard that as a good price.

The table below summarises the IST blackwood tender results for the 2016-17 financial year:

IST 2017 BWD summary table

The 20.4 cubic metres of blackwood put to tender compares with the total of 166 cubic metres of specialty timbers that IST put to tender in 2016-17, or only 12% of the total volume. This is despite the fact that blackwood is by far the dominant specialty timber harvested in Tasmania.

The chart below shows the average blackwood tender prices and total volumes for the past 4 years.

IST BWD pricevolume trend

Unfortunately the volume of IST blackwood tender material is too small and the quality too variable to allow meaningful market/price comparisons between years. Also IST generally only caters to the local southern Tasmanian craftwood market.

Large volumes of large, good quality logs from blackwood plantations should generally command better prices than shown by the IST result.

The blackwood market desperately needs more tradability, more transparency and more commercial credibility.

The only basis for a successful forest industry is profitable tree growers within a competitive, transparent marketplace.

Caveats:

  1. Island Specialty Timbers (IST) is an enterprise of Forestry Tasmania established in 1992 to increase the recovery, availability and value of specialty timbers from harvesting activities in State forests.
  2. Forestry Tasmania manages its special timbers operations (including IST) as a taxpayer-funded, non-commercial, non-profit, community service. Last year each cubic metre of blackwood log harvested by Forestry Tasmania received a taxpayer subsidy of $86! No private blackwood grower received any taxpayer subsidy.
  3. Note that all logs and wood sold by IST come from the harvesting of public native old-growth forest and rainforest certified under AFS (PEFC).
  4. It is unlikely that this tiny set of market-based blackwood log prices is representative of the broader blackwood market.
  5. The dataset is too small and variable in quality to allow any analysis or correlations to be made between price and log quality apart from the obvious result that feature-grain logs attract a significant price premium over plain-grain.
  6. These tender prices are effectively mill door prices that already include harvesting and transport costs. They are not stumpage prices.

So whilst Forestry Tasmania, the State government and the State parliament all regard the special timbers industry as a taxpayer-funded community service and political play-thing rather than a commercial opportunity, then blackwood’s commercial future remains difficult.

“The lack of price transparency for forest products, particularly from hardwood forests/plantations [in Australia], represents an impediment to the uptake of farm forestry. Unlike other commodities, price information for forest products is not published through the newspaper or accessible online. Better price transparency is required to encourage smallscale investment in trees” (p. 71. FWPA Report PN: PNA243-1112/2, 2013).

http://www.fwpa.com.au/rd-and-e/market-access/229-the-case-for-renewed-development-in-plantations-identifying-forest-values-and-the-constraints-to-attainment-stage-one-and-two.html

This quote from a recent forest industry report says it all. Even the forest industry recognises price transparency is a major issue, but then does nothing about it. One of the authors of this report was none other than the Director of Forestry Tasmania!

For previous years IST tender reviews see:

https://blackwoodgrowers.com.au/2016/06/23/ist-blackwood-log-tender-results-2015-16/

https://blackwoodgrowers.com.au/2015/06/18/ist-blackwood-sawlog-tender-results-2014-15/

https://blackwoodgrowers.com.au/2014/06/14/blackwood-sawlog-tender-results-2013-14/

 

Island Specialty Timbers Tender Results

ist

http://www.islandspecialtytimbers.com.au

For the past three years I’ve been collecting, analysing and reporting blackwood log tender results from Island Specialty Timbers (IST) as, despite the miniscule volumes and generally poor quality, these are the only competitive blackwood log prices that are publically available.

Just for the fun of it I thought I would start collecting and analysing all the tender results. You never know what might turn up!

This data doesn’t have much market value. Besides blackwood, no one is going to invest money based on the tender results for the other specialty species, which are too slow growing to allow for profitable investment.

The best value this data has is to show what the marketplace might pay for premium quality timber. When Tasmanian public native forest oldgrowth and rainforest timbers are no longer available, will the marketplace come to better appreciate farm-grown Tasmanian blackwood?

Forestry Tasmania and the Tasmanian Government consider the management and harvesting of public native forest specialty timbers (including blackwood) as a taxpayer funded community service. So why does Forestry Tasmania/IST put these tiny volumes to tender and publish the results? What is the point?

Forestry Tasmania’s major product Tasmanian Oak has no price or market transparency. Why the need for competitive markets and price transparency for community-service specialty timbers, where there is no competitive markets and price transparency for eucalypt hardwood? It makes no sense!

IST was established ”to increase the recovery, availability and value of specialty timbers from harvesting activities in [Tasmanian] State forests”. Does IST achieve its stated objectives? Does it operate at a profit? We will never know!

Island Specialty Timbers has been operating for 25 years. In that time it has never produced a market report; and only in the last 3 years has Forestry Tasmania included IST sales highlights in its Annual Report.

http://www.forestrytas.com.au/about-us/publications

So far as I’m aware these are the only publically available competitive market log price results available anywhere in Australia!

30 million cubic metres of wood is harvested in Australia every year and all we have are competitive price results for less than 200 cubic metres! Isn’t that extraordinary??

Does the forest industry really want to encourage investment?

isttender-chart

The size and quality of products tendered by IST varies enormously so it is difficult to draw conclusions from these results.

Remember these prices are equivalent to mill door log prices, so harvesting and transport costs are theoretically included in the prices.

All up over the 15 months 210 cubic metres of logs were sold by tender with total revenue of $162,000. An additional $18,100 revenue was received by Forestry Tasmania directly from Tasmanian taxpayers to compensate for the costs of harvesting this 210 cubic metres.

87 cubic metres remained unsold from the tender process. Few of the logs tendered were of premium (Category 4) grade, most of which are sold under private long term sales agreements, including virtually all of the Huon pine.

Five species attract strong demand and high prices, these being black heart sassafras, plain white sassafras, king-billy and huon pine and leatherwood with average log prices over $1,000 per cubic metre. Celery top pine sold for an average price of $530 per cubic metre. All of these species take 400-1,000 years to reach maturity so I suspect even these prices are cheap.

And don’t forget these public native forest specialty timbers come to you courteously of an $86.27 per cubic metre direct taxpayer subsidy.

https://blackwoodgrowers.com.au/2016/11/13/special-timbers-subsidised-charade-continues/

Black heart sassafras and blackwood made up 25% each of the successful tendered volume over this 15 month period, but made up 46% and 6% of the sales revenue respectively. Blackwood comprised 55% of unsold log volume, perhaps suggesting that the local Tasmanian market for plain grain blackwood is saturated. This is not surprising given you can buy plain grain select blackwood timber in Tasmania for the same price as Radiata pine.

https://blackwoodgrowers.com.au/2016/11/12/blackwood-timber-price-list-summary-2016/

The harvesting of specialty timbers from Tasmanian public native forests is neither profitable nor sustainable.

I will provide an update on IST tender results every six months.

Competitive Neutrality in Forestry

pc-competitive-neutrality2

In 2001 the Productivity Commission released a report into the competitive neutrality of the State government forest agencies in Australia.

http://www.pc.gov.au/research/supporting/forestry

The report makes for interesting reading 15 years after it was published.

So what is competitive neutrality?

Competitive neutrality (CN) means that state-owned and private businesses compete on a level playing field. This is essential to use resources effectively within the economy and thus achieve growth and development.

CN policy forms part of the 1995 Council of Australian Governments’ agreement on National Competition Policy (NCP).

CN policy aims to promote efficient competition between public and private businesses. Specifically, it seeks to ensure that government businesses do not enjoy competitive advantages (or suffer from a competitive disadvantage) over their private competitors simply by virtue of their public ownership.

The fact that the Productivity Commission felt the need to write such a report says a great deal about the forest industry in Australia. Remember this was in 2001 immediately after the Regional Forest Agreements (RFA) had been completed and signed.

Why weren’t competitive neutrality issues covered as part of the RFA reforms?

It is certainly my belief one of the major reasons we don’t have a thriving blackwood industry in Tasmania is the absence of competitive neutrality.

Here’s my precise of the report by chapter, and what I regard as some of the more salient points from a blackwood growers perspective.

1 Introduction

Forest products industries source wood from both public and privately managed forests, although public forests have traditionally accounted for the overwhelming bulk of wood supplies.

The situation has changed dramatically over the past 15 years with most wood grown and sold in Australia now coming from private forest growers. But State forest agencies continue to exert a significant influence on the industry especially around policy and politics.

Also the privatization of public plantation assets has introduced new distortions in the marketplace such as new owners being exempt from paying local Government rates and charges, competing against other private forest growers who do pay rates and charges. Local communities are now forced to subsidize the new private forest owners.

As forestry agencies are deemed to be significant government businesses, they are subject to CN. This requires them to:

  • charge prices that reflect costs;
  • pay all relevant government taxes and charges;
  • pay commercial interest rates on their borrowings;
  • earn commercially acceptable returns on their assets;
  • and operate under the same regulatory regime as their private sector counterparts.

 

To this list I would add:

  1. receive no direct or indirect taxpayer subsidies;
  2. harvest all timber on a fully commercial basis. Undertake no community service timber harvesting;
  3. provide complete and separate annual accounts for all Government-funded community service activities (CSOs).

There would certainly be other CN principles that could be added to this list.

2 Forestry background and institutional framework

Competitive neutrality is about a level playing field but the report provides little insight into the nature of the forest industry playing field and the numerous factors that impact the quality of the playing surface. For example there is a section in Chapter 2 discussing employment in the forestry sector, but no discussion on how sector employment impacts CN and the quality of the playing surface!

Chapter 2 provides a background summary of the industry and its institutional framework. There is discussion about “recent reforms” (many of which never eventuated, or were implemented only to be undone at a future date), National Forest Policy and the Regional Forest Agreements (RFA), the 2020 Plantation Vision, National Competition Policy, and Australian Accounting Standard for Self-Generating and Regenerating Assets (AAS 35). But within all this discussion there is little said about competitive neutrality. For example the discussion about the RFAs says nothing about if or how CN was dealt with within the RFAs.

As for the 1995 National Forest Policy it has never been implemented; and it contains no discussion at all about competitive neutrality.

In fact one of the key objectives of the RFA process should have been to set the State forest agencies on a level competitive playing field with each other AND private forest growers; with the objective to become profitable or cease to exist.

Unfortunately that did not happen; in my opinion a major failure of the RFA process.

There is considerable discussion in the report about Australian Accounting Standard AAS 35 ending with this classic quote:

AAS 35 provides a consistent framework for forest asset valuations across jurisdictions, but gives forest agencies considerable flexibility in implementing it. This has led to differences in asset valuations between agencies, and has particular implications for the implementation of CN by forest agencies.

In other words, never mind the level playing field!!

3 Application of CN to forestry

Chapter 3 talks about the implementation, monitoring and reporting of CN across Australian State forest agencies.

Progress in implementing CN is mixed. Jurisdictional differences in the application of CN to forestry agencies include the:

  • institutional models within which CN compliance is being pursued;
  • pricing and log allocation mechanisms;
  • transparency of CSO funding;
  • determination of target rates of return;
  • allocation of overheads to commercial wood outputs (see box 3.1);
  • approaches to achieving regulatory equivalence;
  • monitoring arrangements; and
  • asset valuation methodology used.

 

In other words the State forest agencies cannot even create a level playing field between themselves, let alone with private forest growers. So much for National Forest Policy!

[CN] Monitoring arrangements vary across jurisdictions [States].

In Tasmania, Forestry Tasmania is subject to monitoring by the State’s Prices Oversight Commission [now the Office of the Tasmanian Economic Regulator]. It also provides quarterly reports to Treasury on performance against agreed indicators.

Clearly no one is doing any monitoring or reporting in Tasmania. Go to the websites of either of these organisations (OTER or Treasury) and you will find NO information about CN monitoring or reporting by Forestry Tasmania. Forestry Tasmania’s own website contains NO mention of CN policy, objectives or performance.

http://www.economicregulator.tas.gov.au/

https://www.treasury.tas.gov.au/

All State government forest agencies should be required by law to have the exact same competitive neutrality policies, objectives, monitoring and reporting procedures. Otherwise the National Competition Policy is just wasted paper.

The report spends considerable time discussing whether logs are being sold at their ‘full’ market value, without the obvious answer that full contestable market value of public forest assets needs to be regularly and transparently determined “by the market”.

4 Log pricing issues

Over the last twenty years, there has been considerable evidence to suggest that forest agencies have frequently sold logs at less than their full market value. … evidence suggests that, in the past, royalties for sawlogs from State forests have often been some 20 to 70 per cent below their market value.

This doesn’t mean log underpricing began in the 1980s. It’s just that in the 1980s some people began to think this was a serious issue. Some people still think it is still a serious issue.

In 2016 the issue of log prices and marketing from State Government forest agencies remains unresolved. Deliberate underpricing continues unabated. Both Western Australia and Victoria started to go down the road towards market-based log sales and pricing, but changes in State governments saw those policies reversed.

In a fully competitive market environment, a sawmill [or other wood processor] will compete against other processors for log supplies from growers…. In practice, the market for logs sourced from State forests [or other growers] cannot always be regarded as fully competitive.

This market situation is no different to any other primary industry [cows, milk, apples, cabbages, etc.].

One of the issues around State forest agencies is that only wood processors are allowed to purchase public forest assets. Organisations that may wish to purchase public forest assets such as carbon sequestration or conservation are deliberately excluded from the market. This is not the case with privately owned forests in Australia. This is a deliberate breach of CN principles. Why can’t public forest assets be sold to the highest bidder (subject to certain management constraints)?

The Report talks about the various difficulties of determining real market prices for logs.

The Report fails to discuss issues around market and price transparency.

Section 4.3 (p. 36) discusses the impact of underpricing on private forest growers.

The major concern expressed about the price of logs sold by forestry agencies has related to underpricing. Whatever the underlying reason, allegations of underpricing [by State forest agencies] have frequently been cited as a factor impeding the development of private wood growing enterprises.

And

Recent reforms have created incentives for forest agencies to price logs on a more commercial basis. Consequently, it is possible that other factors may now have a greater impact on private growers than underpricing by forest agencies.

In 2001 that was wishful thinking. In 2016 it’s a bad joke!

The Report then discusses how underpricing of logs has left the Australian wood processing industry inefficient and uncompetitive, and therefore unable to pay full market prices for logs. It’s a debilitating spiral to bankruptcy.

A priori, the application of CN would be expected to reduce the incidence of log underpricing, because it requires forest agencies to act more commercially by charging prices that cover all the costs of growing and managing the forest, including a commercially acceptable return to the land and timber assets. This should help ensure that the full market value is realised for logs sold by State forestry agencies.

Lots of hope and optimism with little evidence in 2001 that CN reforms were really being implemented. In 2016 we know that hope was misplaced.

5 CN and the broader policy context

The implementation of CN in forestry will contribute to better cost recovery and pricing policies, and hence a more efficient and better managed public forest estate.

We haven’t seen any evidence of this in the last 15 years!!

It is often argued that the use of competitive tendering (or auctions) for the sale of logs would lead to higher prices because processors would be forced to pay the ‘true’ valuation of the logs.

Outcomes from the relatively few auctions held to date suggest that a competitive market could also lead to greater differentials in log prices.

In other words premium timbers like blackwood would achieve much higher prices than they do under the current system of Government-set prices. Either that or hardwood sawlogs and pulpwood would be at give-away prices.

The role of secondary markets for harvesting rights may be of greater significance in achieving more competitive log pricing in such [one seller/grower, one buyer] markets. Competitive secondary markets for log entitlements would strengthen the processing sector’s incentive to operate efficiently.

Currently, harvesting rights [to public native forest] can only be held by wood processors. However, there would seem to be no reason why parties other than wood processors should not be able to bid for, and hold, such rights. If a timber right was modified to become a right to appropriate all the values of the forest, then holders may be better able to balance all possible uses — particularly in light of the potential development of some markets for environmental services.

Private forest growers are not subject to such market restrictions so why are State forest agencies?

There is very little published information on [log] prices realised by forest agencies. …[log] pricing policies and the terms on which harvesting licenses are allocated are generally confidential.

These are public assets being sold and the public has absolutely no right to understand the basis on which they are commercially managed!!

In the United States, the Department of Agriculture regularly publishes detailed information on stumpage prices (royalties), fob mill prices, harvest rates and sustainable harvest rates by species and region (Warren 2000). While the relatively small size of the Australian industry may prevent the publication of statistics in the same level of detail without breaching confidentiality, the limited information available in Australia denies the community information on a very significant natural asset and inhibits scrutiny of the pricing practices of State forest agencies. This increases the difficulties in assessing the performance of these agencies. At the same time, the absence of public information on market prices and conditions itself may constitute an impediment to private investment in forestry — information about farmgate or market prices is readily available to potential investors in most other natural resource and primary industries.

Overall it is not a great report. It could have been better.

Here’s my thoughts on a few other CN-related issues not discussed in the report:

Public benefit

The NCP allows State Governments to ignore CN principles if they claim public benefit overrides commercial interests. In 2001 when most wood grown and sold in Australia came from State forest agencies this was pretty easy. However in 2016 the reverse is now true, most wood now grown and sold in Australia comes from private forest growers. The public benefit from being a minor player in the forest industry is much more difficult to argue. Growing trees for wood production is now very definitely a commercial business not a community service.

Transparency

One of the fundamental issues around competitive neutrality is that it must be transparent. Private businesses that compete against Government businesses must be able to clearly and readily see that they are operating on a level playing field. The PC Report says:

The focus on cost recovery, and the trend toward greater transparency and accountability of public agencies in their management of public resources, has encouraged forest agencies to evaluate their forest management practices in terms of their impacts on efficiency and financial performance.

Otherwise the Report is generally critical of State governments and State forest agencies in their lack of CN transparency.

Log Export

There always seems to be strong community concern around the export of native forest logs. But the concept of competitive neutrality means that whatever markets are available to private tree growers must also be available to public forest managers. That is the level playing field. If private forest growers look to improve their profitability through log export markets, then the same must be available to the State forest agencies, including the export of sawlogs and specialty timbers. If high value log exports are banned then the viability of commercial native forest management may be compromised. Unfortunately the PC report does not discuss this issue.

Resource Security

Any legislation, regulation or policy that seeks to create a distinction between the public and private commercial forest is in breach of competitive neutrality principles. For example the concept of “resource security” is by definition a breach of competitive neutrality principles, because the concept is only applied to the public forest resource, never to the private resource. The Report even mentions resource security (p. 15) but fails to identify it as a breach of CN!

In New Zealand, where 100% of the forest industry is privately owned, they don’t talk about resource security. They do talk about the tensions between supply and demand, and how to manage fluctuations in supply and demand, but resource security is never mentioned.

 

State governments and State forest agencies continue to ignore their commitments and responsibilities under the National Competition Policy.

The so called level playing field has never been realised in the forest industry.

Vast sums of taxpayer’s money continue to be squandered on the industry. The most recent example is the Western Australian Government’s announcement of investing $21 million of taxpayers money in softwood plantation expansion without a business case. Presumably “public benefit” overrides the need for wise investment.

https://au.news.yahoo.com/thewest/wa/a/32691021/wa-leads-nation-in-forestry/#page1

Blackwood

Of course with blackwood in Tasmania competitive neutrality has been thrown under a bus with the Government and Forestry Tasmania declaring “public benefit”; blackwood is officially a taxpayer-funded community service not a commercial activity.

It is time for the Productivity Commission to revisit and review the issue of competitive neutrality in the forest industry in Australia.

When will Tasmania get a fully commercial, profitable forest industry?

IST Blackwood Log Tender Results 2015-16

IST 0815 log23double

In the interests of greater market and price transparency in the forest industry here is my annual summary of blackwood log tender results from Island Specialty Timbers (IST) for the 2015-16 financial year.

This is the only publically available competitive market price data for blackwood logs.

http://www.islandspecialtytimbers.com.au

Unfortunately IST does not produce any market reports or annual summaries of their sales or other activities, which is why I produce this report every year.

During the year 15 lots were tendered across 9 separate tenders. These comprised 11 individual blackwood logs, and 4 log parcels totalling 70.4 cubic metres (100 logs at an average volume of 0.70 cubic metres per log). Total volume tendered was 91.1 cubic metres. This is less than 1% of all blackwood harvested from our public native forests.

This volume compares with 32 and 20 cubic metres of blackwood logs tendered in 2015 and 2014 respectively.

In addition to the IST tenders there were two tenders by Hydrowood during the year, run through IST, one of which included 16 premium blackwood logs totalling 21.4 cubic metres.

http://hydrowood.com.au/

You can read my review of this Hydrowood tender result here:

https://blackwoodgrowers.com.au/2015/12/11/tasmanian-blackwood-sawlogs-at-625-per-cubic-metre/

For the IST tenders the best result for the year was a small (0.68 cubic metres) plain-grain blackwood log (show in the above picture) that sold for $850 per cubic metre.

The worst result for the year was a 30 cubic metre parcel of 44 plain-grain logs that sold for a very low $100 per cubic metre.

One highlight for the year was a very large blackwood log that measured 4.35 cubic metres, with a length of 7.5 metres and a large-end diameter of 98 cm! Unfortunately this log had spiral grain and was deeply fluted so the sale price was only $275 per cubic metre.

Of the four parcels of logs tendered only 2 parcels sold totalling 34.6 cubic metres for an average price of $135.50 per cubic metre, average log volume of 0.72 cubic metres. These are small logs. The average volume of the Hydrowood blackwood logs that sold for $625 per cubic metre was 1.5 cubic metres. An average plantation grown blackwood sawlog contains 1.5 cubic metres.

The table below summarises the IST tender results for the 2015-16 financial year:

IST_Annual table_16

All up the IST tender results for 2015-16 are a mixed bag with indications of a soft market. This is indicated by the low prices for the figured grain logs, by the fact that half the volume put to tender failed to sell, and total blackwood tender sales revenue ($10,096) was 50% down on last year. The real stand out result for the year was the Hydrowood tender at $625 per cubic metre for a large parcel of good size plain-grain logs.

For what it’s worth here is a chart showing IST blackwood log tender price trends for the past 3 years:

IST_Annual chart_16

Unfortunately the volume of IST blackwood tender material is too small and the quality too variable to allow meaningful market/price comparisons between years. Much of the material is of poor quality, or in the case of the log parcels, the logs are of small size compared to what would be produced in a well managed blackwood plantation. Large volumes of large, good quality logs from blackwood plantations should generally command better prices than shown by the IST result.

Wouldn’t it be great if this chart represented more meaningful data?

So whilst an increasing (if still miniscule) volume of blackwood log is being put to public tender by IST, the volume of quality blackwood sawlog from public native forest continues to decline. Half of the volume of special timbers now harvested from public native forest in Tasmania constitutes “non-millable” material in order to make up the politically correct headline figure.

Despite the fact that blackwood comprises over 80% of the volume of special timbers harvested from Tasmania’s public native forests, it comprises only 15% of the volume put to tender by IST. The blackwood market desperately needs more tradability, more transparency and much more commercial credibility.

Caveats:

  1. Island Specialty Timbers (IST) is an enterprise of Forestry Tasmania established in 1992 to increase the recovery, availability and value of specialty timbers from harvesting activities in State forests.
  2. Forestry Tasmania manages its special timbers operations (including IST) as a taxpayer-funded, non-commercial, non-profit, community service. Last year each cubic metre of blackwood log harvested by Forestry Tasmania received a taxpayer subsidy of $82! No private blackwood grower received any taxpayer subsidy.
  3. Note that all logs and wood sold by IST (excluding the Hydrowood logs) come from the harvesting of public native old-growth forest and rainforest certified under AFS (PEFC).
  4. It is unlikely that this tiny set of market-based blackwood log prices is representative of the broader blackwood market.
  5. The dataset is too small and variable in quality to allow any analysis or correlations to be made between price and log quality apart from the obvious result that feature-grain logs attract a significant price premium over plain-grain.
  6. Remember also these tender prices are effectively mill door prices that already include harvesting and transport costs. They are not stumpage prices.

So whilst Forestry Tasmania, the State government and the State parliament all regard the special timbers industry as a taxpayer-funded community service and political play-thing rather than a commercial opportunity, then blackwood’s commercial future remains difficult.

“The lack of price transparency for forest products, particularly from hardwood forests/plantations [in Australia], represents an impediment to the uptake of farm forestry. Unlike other commodities, price information for forest products is not published through the newspaper or accessible online. Better price transparency is required to encourage smallscale investment in trees” (p. 71. FWPA Report PN: PNA243-1112/2, 2013).

http://www.fwpa.com.au/rd-and-e/market-access/229-the-case-for-renewed-development-in-plantations-identifying-forest-values-and-the-constraints-to-attainment-stage-one-and-two.html

This quote from a recent forest industry report says it all. Even the forest industry recognises price transparency is a major issue, but then does nothing about it.

  1. One of the authors of this report was none other than the recently appointed Director of Forestry Tasmania. Does this mean we will see greater transparency and competition at FT?

When will Tasmania get a fully commercial, profitable forest industry, based on profitable tree-growing?

For previous years IST tender reviews see:

https://blackwoodgrowers.com.au/2015/06/18/ist-blackwood-sawlog-tender-results-2014-15/

https://blackwoodgrowers.com.au/2014/06/14/blackwood-sawlog-tender-results-2013-14/

Tasmanian blackwood sawlogs at $625 per cubic metre!

HydrowoodLanding.jpg

Ring the bells! Break out the champagne!!

The first Hydrowood tender results were much better than I was expecting.

https://blackwoodgrowers.com.au/2015/11/29/first-hydrowood-tender/

The 17.7 cubic metres (13 logs) of plain grain blackwood logs sold for an average of $625 per cubic metre mill door.

These were large good quality logs equivalent in size and quality to what can be grown in a well managed blackwood plantation.

The 3 feature grain blackwood logs sold for $547 per cubic metre.

So that’s $13,100 for one truck load (21.4 cubic metres) of blackwood logs.

At $625 per cubic metre a mature blackwood plantation has a mill door value of $180,000 per hectare!

Why aren’t Tasmanian farmers interested? Why isn’t the TFGA interested? Why isn’t the Government supporting this obvious commercial opportunity?

The standout feature of this tender was the price paid for good quality celery top pine logs at $2,846 per cubic metre. This price far exceeds any price that Island Specialty Timbers have achieved for Celery logs.

The results of this first Hydrowood tender clearly demonstrate that the market is prepared to pay very good prices for high quality special timbers logs.

All up the 35 cubic metres (38 logs) of high quality logs at this first Hydrowood tender fetched over $30,000!!

Congratulations to the Hydrowood team!

The Hydrowood tender results are going to show the lies and deceit of State forest policy as expressed at the recent LC scrutiny committee meeting.

https://blackwoodgrowers.com.au/2015/12/09/legislative-council-gbe-oversight-committee-2015-forestry-tasmania/

The Government and Forestry Tasmania say that growing special timbers can never be a profitable commercial business because the market can’t afford to pay good prices! That the special timbers industry is a community service and has nothing to do with commercial opportunities.

What pathetic lies!

No one is going to invest in planting Celery top pine, Huon pine, Myrtle or Sassafras for wood production. These species are just too slow growing.

Blackwood however is fast growing and can be grown successfully in commercial plantations. Research in Australia and New Zealand has proven that speed of growth does not negatively impact on wood quality in Tasmanian blackwood.

A second tender of Hydrowood logs and milled logs will commence in late January. To discover more about this innovative venture go to http://www.hydrowood.com.au.

Now who is interested in creating and supporting a profitable sustainable future for our special timbers industry?