Tough times for woodchip industry

Haidee Vandenberghe and Kate PollardCountryman

A perfect storm of market conditions has sent WA's woodchip industry into a nosedive, as both demand and prices slump.

Japan has traditionally been the nation's largest woodchip market, sourcing about 40 per cent of its one-time 12.1 million tonnes of demand from Australia.

But Japanese demand for woodchips has fallen by more than a fifth since the global financial crisis (GFC) and last year the country sourced less than 30 per cent of its woodchips from Australia.

In its 2011 report to growers, Elders Forestry stated declining paper consumption, the Japanese tsunami, the ongoing impact of the GFC, the closure of Japanese paper mills and a surplus stockpile of woodchips had caused a significant decline in demand.

Combined with the strength of the Australian dollar and the fact that China, which looks for a lower quality and cheaper product, is poised to become the world's biggest woodchip importer, and it means the State's 282,000 hectare blue gum industry is on the slide.

The scenario makes it uneconomical to even harvest blue gum plantations near Esperance and figures show the industry is shrinking.

ABARES statistics show that during 2011, just 8000ha of new broadleaved plantations were established across Australia compared with 21,000ha in 2010.

Across Australia the 2010-11 financial year had the lowest number of plantations established since the early 1990s and between 2009 and 2010 the overall area of plantation forestry fell 0.6 per cent.

In early 2011, Elders Forestry had negotiated a woodchip price with Japanese customers of $207.40 per tonne for product from Esperance - the same price for the preceding four years.

But even with a price locked in, falling demand meant the trees were unviable to harvest.

Elders Forestry said it would continue to investigate potential markets, but conceded it was unlikely Esperance's trees would be harvested in the short to medium term.

"The current and foreseeable market conditions for woodchips are poor in terms of the price at which harvested timber can be sold and the ability to sell large volumes of woodchips in a market that is oversupplied," an Elders spokeswoman said.

"The price at which woodchips can be sold has materially declined over the past two years due to a combination of increased supply from Australian managed investment scheme (MIS) plantations and other suppliers such as Vietnam and reduced demand from Japan in particular."

The spokeswoman said rumours of Chinese interest in containerised woodchips from the Esperance port were not true.

"While China is emerging as an alternative market for export woodchips, pricing is considerably less attractive," she said.

Forestry Minister Terry Redman admitted the lack of interest in harvesting the Esperance plantations was disappointing for the sector.

"No one wants to see land wasted, or land planted into a crop that's not going to be used to get an outcome for the farmer," he said.

But Mr Redman remained upbeat about the sector's future.

"While the MIS are a little tainted in terms of the sustainability of that mechanism, what it has done, particularly in the South West, is establish an industry that wasn't there before," he said.

"I believe that the economics of that industry are sound. Right now everything is going through a GFC, not just the plantation sector."

Albany-based Plantall Forestry Consultants principal David Wettenhall said plantations low in productivity or remote were likely to be returned to agriculture, but new owners of plantations would put in trees on a more economically sustainable basis.

He said current plantations could be used for other forms of forestry, or carbon farming if the legal parameters were changed.

While Australian woodchips have lost market share to South East Asia and South American suppliers, Mr Wettenhall was confident there would be an ongoing woodchip export industry out of Albany.

Albany exports for the past two years were around 1.4 million tonnes, but the port has capacity for more than 2.5 million tonnes.

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