GNS facing pressure on all sides with falling woodchip returns, rising costs, strong AUD, competition from plantations and South America.
Japs dont want the old growth chips, and the regrowth chips are being marked down.
Not sure if the new pulp mill is going to improve the situation.
certainly some tough times ahead for both GNS and the industry
article;
"AUSTRALIA'S emerging plantation-based woodchip export industry has negotiated higher prices for its product this year while the native forest-based industry is suffering flat prices and falling volumes.
Woodchip export prices to the major market, Japan, have traditionally been negotiated by Gunns, the Tasmanian giant, with about 80 per cent of the export market. The nascent plantation sector has ridden on its coat tails and used that price as a benchmark.
However, this year for the first time, the hardwood plantation sector negotiated on its own and won higher prices while Gunns copped a freeze in price and a cut in volume. Exports of Gunns' native forest woodchips were down 20 per cent.
"This year the plantation guys went out and negotiated their own prices and got a small increase," said Andrew Crowther, an analyst with Linwar Securities.
Robert Eastment, director of economic research group IndustryEdge, said the Gunns benchmark price this year was $162 per dry metric tonne from Japanese buyers, the same as the year before. The plantation sector normally gets around 10 per cent more than Gunns for its export chips but this year, said Timbercorp forestry chief Tim Browning, the sector got a $2 rise to $181 per dry tonne as well as volume increases, while the native-forest sector got no rise.
Timbercorp, as the sector's largest exporter, did the negotiations. The difference between the two negotiated outcomes was simple, Mr Browning said: "We've got better wood."
That result for plantation producers comes at a time when the chip market is difficult.
Greg McCormack, president of the Victorian Association of Forest Industries, said the exchange rate and international competition were working against the industry. "The Australian dollar has been unsustainably high for the last three to four years," he said. "It needs to be between (US) 60 and 70¢, not between 70 and 80¢."
Demand for woodchips has been growing because, as with other commodities, the Chinese market is growing dramatically. Mr McCormack said that a few years ago China consumed the equivalent of 15 kilograms of paper products per head of population a year. That figure is now 40 kilograms.
Despite the Chinese growth, chips are not in short supply as plantations in Chile and South Africa come onstream and, ironically, can produce bluegum chips more cheaply than Australia. Lately, Mr Eastment said, the balance had moved a little in Australia's favour. The dollar has fallen and high oil prices and Japan's proximity to Australia, when compared with South Africa or Chile, mean the differential in transport cost is in Australia's favour.
This abundance of woodchips has made buyers more selective, and the losers have been those chips coming out of native forests, particularly old-growth forests. Major buyers such as Mitsubishi have said they no longer want to take old-growth chips, and some of this reluctance is affecting regrowth forests as well.
As a result, regrowth forest chips were increasingly being marketed as "seeded plantations", Mr Eastment said.
The decline of the native-forest chip market is due to a mixture of political and economic factors. The campaigns of environmentalists against old-
growth logging have been heard in Tokyo, making both paper mills and their customers wary about buying products from that source. "Nobody wants it," Mr Eastment said. "It makes awful pulp, it doesn't look good on your books and producers get a very low price for it."
But old-growth chips are not really the issue because they make up only about 5 per cent of chip exports. The bigger issue economically is regrowth chips, which, despite their better environmental credentials, still come off second best.
"Native forests have trees of range species and ages while plantations consist of uniform species and ages," Mr Crowther said. "That results in a consistent fibre length, and younger trees have paler wood, so native forests have higher bleaching costs."
Add to that the fact that plantation timbers have about 55 per cent wood fibre content compared with as little as 45 per cent for old growth, and plantations look even better.
Native-forest exports have their advantages, however. Harvesting costs are perhaps 33 per cent of plantations, and Gunns has a strong record in efficient operations. As a result there is likely to be a market for lower-cost native-forest chips. Gunns is setting up plantations and planning a $1.5 billion pulp mill in northern Tasmania.
At the end of the day woodchips were a commodity, Mr Eastment said. Unlike mineral resources, they have had no price kick-up in recent years and so have been declining in value in real terms. The sun now shining on the plantation sector might soon turn to shade as a looming oversupply cut prices, Mr Eastment said.
Mr Browning disagrees, saying Chinese growth will help the sector prosper.
GNS Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held