Monday, April 6, 2020

BEWARE OF FALSE PROPHETS

There have been calls for 'value added' to be the driver for our export industry as long as I can remember.    Much of that directed at the timber industry.   All well in theory.   Reality trumps (bad word) theory most times.

So let's look at timber.   Some would argue the export of raw timber (logs) should be discouraged/banned in favor of the processed product.   That this would lead to an increased number of jobs in the industry particularly now with the economy predicted to contract.

Last year China took 80% of our log exports worth $2,909m.   Compare that with our export of sawntimber to all countries which last year raked in less than a quarter of that ($722m) with just 17% going to China.    The reality is that raw timber is in greater demand than processed product.    Not rocket science ... many countries prefer to process raw timber in-country as a means of generating employment for themselves.

Our timber industry has grappled with this for years.    The result is what it is.    Coming out of Covid-19 and one suspects international demand will be down (initially at least) while burgeoning unemployment in buyer countries will ensure that the demand will be weighted towards the raw product.

As I said, fine in theory, but we need to remember that we're sellers in a buyers market.


7 comments:

Wayne Mapp said...

You make a fair point. the demand has been for raw logs. but i reckon just about every country will be looking to increase onshore processing in part to deal with unemployment.

Much of Trump's appeal is that he is committed to more US industry. It is the basis of a large part of the US China dispute. The covid induced crisis will accelerate that.

China is going to find that nations across the world will be wanting a better balance between themselves and China. Just take pharmaceuticals for instance.

So trade wont simply revert to the old patterns. This crisis has been too much of a disrupter for that

I am not suggesting a complete ban on log exports, but rather a change in the balance. And that will take some government measures aroundthat, perhaps a levy on export of logs with the levy invested into production plants. I know that breaches the FTA, but some modification will be required. Trump certainly has been keen to change all the US FTA's. Admittedly he has the weight of the US economy to do so. But we in New Zealand do have some levers.

Andrei said...

Well Chinese workers get paid a lot less than Kiwi ones from the get go

And they don't have the moronic ETS to contend with, which adds costs without adding anyy value

So obviously processing the raw logs in China results in a cheaper end products.

I had an aha moment when Mærsk Mc-Kinney Møller was launched in South Korea back in 2011 - a marvel it was but I was sad that such a beautiful and functional example of human ingenuity can no longer be built in the West :(

But even worse she arrived in Felixstowe, her final port on that voyage was Hamburg, but in Felixstowe over a thousand containers were due for discharge there containing consumer goods from the Far East, China predominantly and then she loaded containers for the return voyage - many of which were empty but hundreds were filled with "recyclables" to be returned to China to be trasformed into new consumer items to be shipped back to Europe.

It was like some sort of metaphore for the decline of the West - I may have even blogged on it at the time, can't remember now.

You go into any engineering school in the West today and you will be confronted with a sea of Asian faces and they will also tend to be the top students - sad but true.

Dr Mapp itroduced Tesla cars into the discussion on another thread and I mentioned how shoddily they are made. I've only seen a few in real life but my eye can see how badly they have been put together and it is obvious they are going to be money pits in a very short order.

I have a Kia, a budget brand but beautfully assembled, boring perhaps but trouble free. A highly uilitarian vehicle.

I have actually wondered in my bleaker moments if this retreat into our homes and the cessation of product work as a result in the face of the coronavirus panic is the event that spells the end of the West

Andrei said...

"I am not suggesting a complete ban on log exports, but rather a change in the balance"

Dr Mapp there are 3,900,000 km2 of unharvested timber in the East Siberia Taiga - we can't really call the shots. To be sure it is getting the workforce to harvest it that is the problem but given hard times and opportunities that might change

gravedodger said...

Wayne it will only happen if The State does it and I have no wish for a Kiwi Forest Products under the watchful eyes of say Minister Twyford to arise from the Funeral Pyre of the current plunge over the cliff, anyway are toilet rolls not the new wave, we already do that quite well. Make them I mean.

I am guessing the framing criteria in Southern China will be very different to the North for both thermo and strength requirements.

The main uses of our Pine logs will be processing into fibre boards, framing and paper / cardboard, dont we already do those.
If so then why do the plants already doing that not increase their production? maybe they see barriers to marketing perchance.

If James Patrick Anderton invested so much time in suggesting what I see as economic nonsense, that alone should be a warning.

Anonymous said...

The lack of regulation that allows unfettered export of raw log is the prime reason no one will invest in further processing in New Zealand. Why would you invest in processing when an overseas competitor can rock up and pay double the realistic price for a raw material? The owners of the trees will jump to that opportunity. It used to be low risk backed with letters of credit and was the easy lazy way to manage your forests. You had no direct feedback on whether the trees were actually fit for purpose, it was fibre and you got paid handsomely for a broad range of grade that did not easily fit in New Zealand's processing mix.
The regulation of raw log export can and should be done to ensure the necessary confidence for investors to put money into at least a rudimentary processing level.
Simply processing logs into baulks (the old Jap Square) will provide 1200 jobs per million cubic metres. If we process half our current log export we create 12,000 jobs in rural locations. The buyers of these large section timbers can then resaw them and create job opportunities at their end as well.
The caveat to the regulation is that it only applies until the (pine only) forest reaches age 32. At that age the end use is not restricted, use it or lose it.

The Veteran said...

Anon 2.06 ... I admire your optimism. Were it that simple if would have happened a long time ago. You forget we're in a buyers market and for the next few years at least it's likely to be stagnant at best and more likely a declining buyers market reflecting the world economic reset.

The buyer preference has clearly been for the raw product and If the buyer can't get what he wants from NZL he will go elsewhere

Wayne Mapp said...

Andrei,

I am aware of the Siberian forests, and used to wonder why we could sell anything at all given that huge resource. I presume it is because the extraction costs of the Siberian forests are too high.

Gravedodger,

I was not envisaging the state doing the processing, rather a regulation that requires at least a percentage of the work to be done here.

The Veteran,

Yes, the market will dictate, and there would not be much point of more processing if the market dried up. But in these times it is worth investigating whether regulation can be done that will boost onshore processing without destroying the market. As I noted earlier, just about all countries will be investigating how much (Employment promoting) regulation can be imposed without destroying the market. The old rules (pre Feb 2020) are not cast in stone. Ask Donald Trump!