Building projects across Australia ground to a halt
WELL-KNOWN North American forest market specialist Russ Taylor reported that at May 1 US sawntimber prices have soared approaching $US1000 per cubic metre ($AUD1300/m3).
The same could happen here.
Not everyone will agree with me and it is my personal opinion, but I have been watching the supply and demand dynamics of wood products in Australia and around the world for the last thirty years and this time I think it is different.
Australia has always been a net importer of forest products including timber and we are now paying a huge price for under investing in new softwood plantations and reducing the log supply from our natural forests.
Our past solution of just importing the balance to meet demand is now proving very hard.
The reasons are complex. A lack of surplus supply from Europe, China’s huge demand is soaking up New Zealand log exports, a significant lift in prices and demand in North America combined with logistical challenges with shipping and containers that has coincided with Australia’s new housing boom. Together they have all worked to create this timber shortage.
I don’t know any sawmiller who can keep up with demand at the moment.
Supply is king and if you do not have secure supply, you are likely to be left out of the supply chain.
This means that home builders via frame and truss fabricators and sawmillers need closer connections with growers to maintain supply.
It is not about price anymore; it is about supply.
A potential timber price of $,000 per cubic metre should yield softwood sawlog stumpages around $130 to $150 per cubic metre and log prices from natural forests could be even higher due to the premium qualities of our local hardwoods and consumer choices for these natural products.
While these prices may look “eye wateringly” high, their impact on the cost of building a new house will be relatively minor possibly less than 5%, but they may be enough to recommence softwood plantation establishment he said
Importantly, doubling the price of timber will not double the price of a new home. This is because timber is a critical element in building a new house but it is not the major cost.
Sadly, I am still hearing stories of perfectly good plantations (previously established by managed investment schemes) being cleared for agriculture. This will continue unless we improve the transparency of log prices so that they are freely and publicly available for potential investors in forests to observe. Otherwise, they will look to alternative investments for their funds.
Money for new forests is not the problem.
Agricultural prices are booming, so we need to compete openly in the market so we give ourselves a chance.
To grow new plantations we need access to land and so we must develop a more open and trusting relationship with farmers. Forget indexes, farmers need to see real log prices and examples of successful plantation and natural forest investments!
We cannot wait for government assistance as they do not have any significant areas of cleared land, and have more urgent funding priorities in other sectors.
Carbon credits will be important but we cannot over-rely on them as they are not a silver bullet and they could easily distort the market with serious social consequences in rural communities.
Just look at the disputes in New Zealand between forest growers and farmers, we must not end up there.
Our fundamental aim must be to get the profitability of growing trees and managing forests right, then the market will take care of the rest.
In developing my opinion, I know some people will disagree with me and I would not use these figures as the basis for any investment, but if we don’t use this surge in demand to reset the wood market we will be losing an amazing opportunity to fix a two centuries old problem of not being able to grow enough domestic wood to meet Australia’s future demand.
Our industry has a great opportunity to be part of the climate change solution by growing more trees and encouraging more people to build healthy, carbon storing wooden buildings.
Hopefully this opinion is the beginning of a wider consideration of the value of wood.
The above is a personal opinion of Rob de Fégely and not necessarily a position taken by Margules Groome Consulting P/L.