NCT has entered the start of the new NCT supply year (1 November 2022) and it is certainly worth reflecting on the current circumstances facing the co-operative, a marketing organisation, representing independent timber growers and suppliers from within the South African forestry industry and those of our fellow forestry industry organisations.
We are all arguably in the best market position that we have ever been in. Illustrating this from our own perspective we find that literally every tonne of our available supply is being absorbed into the market demand meaning that we are technically sold out for the year and this before our supply year even kicks fully into gear!
Global demand and competition for timber has peaked in recent months. Events in Europe have seen timber shortages due to a lockdown of critical Russian supply and of course the war has created a significant demand for energy translating into a call for green biomass as fuel.
High global oil prices have increased diesel prices exponentially and the steep cost of transport and freight is forcing buyers to become even more focussed on reliable, efficient supply to reduce or at least control time and distance related costs. This places severe pressure on us as timber and product suppliers to perform optimally and is the reason that NCT and fellow organisations, continue to make repeated calls on timber suppliers to ensure reliable and quality supply.
We all just cannot afford to slip up in this regard.
High performance timber suppliers certainly stand to benefit from good timber pricing, certainly over the medium-term. Biomass prices are incredibly robust at present and are likely contributing towards pulpwood prices having to also maintain high levels. Biomass is no longer regarded as the second damaged cousin of the pulpwood industry and there is a dawning realisation of the reality of biomass competing ever more with grown pulpwood. NCT has achieved some success with recent forays into the European and Japanese biomass markets and hope that the positive trend continues.
Many of our long-standing global clients are facing severe economic hardship. Japan is a case in point. The devalued Japanese Yen has increased input (raw material) costs significantly year-on-year and the overall demand for paper has reduced considerably due to several factors (COVID, economy driven reduction in consumption, high production costs). Many paper producers also do not have the luxury of an array of products such as tissue, packaging, or cellulose products to offset the reduced paper demand situation.
Despite the economic hardships it faces, Japan must maintain its paper production industry and does realise the need to maintain its clients, supply channels and presence, to remain relevant and competitive on the global stage. Fortunately, South Africa has certain preferred species and a quality offering that that are cost-effective to our clients due to their density, high pulp yield and product quality. Pulp producers get real bang for their buck via this material.
Further in Asia, Chinese companies have seen high value in South African grown pulpwood and their interest in mixed gum is good news for our gum producers. Still on the topic of gum, it must the highlighted that the psychological barrier mill delivered price of R1000/tonne for gum was recently breached. Who would have thought that this would ever happen?
On the domestic front, it is pleasing to see the ever-growing hunger for pulpwood (and biomass) from the larger corporates. Various mill expansions and refurbishments are seemingly reaching their conclusion and we look forward to healthy domestic market outlets. Local market stability is critical during this time of uncertainty in which no one can really predict the longevity of the global opportunities presenting.
So…we have good overall demand for our timber and sales prospects are positive but there is always a negative to any positive.
In South Africa’s case, we have some interesting and concerning challenges to overcome. Our biggest single most important risk is that of the service and infrastructure decline of the state-owned enterprises upon which we are so reliant to get our timber to mill (roads and rail) and timber and various timber products loaded and dispatched at port.
This service decline is causing massive losses for export commodities in general and dealing with these challenges takes up a huge amount of “forestry incorporated” time and money! Here we do have to recognise the efforts by Forestry South Africa in supporting industry organisations and making our plight known to the state decision makers and authorities.
We don’t have to emphasise the concerning state of our road network and adding further pressure to that is the influx of coal trucks impeding road and port access and creating further damage and delay. Port infrastructure decline is also very much cause for concern. Within NCT, we started referring to these outlandish occurrences as “black swan” events, however, ironically, these debilitating occurrences have now become so commonplace within the South African landscape, that perhaps “hadedah” events is the more appropriate term.
NCT and our industry colleagues must remain determined to do everything possible to try and mitigate or get around the very real challenges presenting. The markets have dealt us all a good hand, particularly when compared to the agricultural sector. It is up to us to do everything possible to capitalise on these opportunities whilst we can. We would be doing ourselves a disservice not to recognise the long way that we have come together, as an industry, and the wherewithal that we have, as a collective, to continue to ensure South African forest industry success even in the most challenging of times.
Compiled by: Rob Thompson, NCT’s Assistant General Manager