88 | Softer demand The softening of both the export and domestic markets has presented Rayonier with a number of opportunities including a joint venture with Manulife Forest Management called AVA Timber. T T from page 86 Rayonier Matariki Forests FORESTRY While increased interest rates have contributed to reduced building activity, Jason suggests the period of high activity also resulted in significant cost inflation of all elements in the building supply chain, including cement, roofing iron, gib board, insulation and timber. “Timber is actually a small proportion of the total build cost, but it is actually cheaper now to buy an existing home than what it is to build a brand new one, so there has been a switch in market preference based on economics. That has translated to softer domestic demand and price for our products. The beauty of forestry is that you can reduce production and the trees will still be there to be harvested tomorrow, but we’re very mindful about how we do that. We rely on contractors to undertake the forestry work and so we are relatively limited as to how we can reduce production because of contractual commitments to both customers and our contractors, as well as the strong relationships we have with those contractors. We’re not overproducing and we’re not building inventory, other than inventory on stump.” The softening of both the export and domestic markets has presented Rayonier with a number of opportunities including a joint venture with Manulife Forest Management called AVA Timber. The JV was formed with the purpose of undertaking the export logistics and marketing the partners logs from forest estates in New Zealand, Australia and North America into Asia. “AVA Timber is looking to actively diversify into other Asian markets,” explains Jason. “The JV provides real scale and with it significantly improved supply chain efficiencies, providing the ability to access diversified markets more consistently. Scale is one of the challenges facing all primary industries in New Zealand. When you look at a single forest and see the number of trucks on the road, or logs stacked at the wharf it looks big, but on the international context we’re not large at all. So it’s important for us to gather scale to enable supply chain efficiencies including ship chartering. AVA Timber’s operations have already commenced selling into Asia and it’s going very well. That scale and sustainability of supply that we can present to customers is a very important part of preserving volume at a time like now when demand is depressed.” AVA Timber has also been working with a range of agencies and customers including MPI, MFAT, and Indian officials to restart export activities into India. “India is an emerging economy in terms of GDP and its demand for product, and that excites us, as it does all primary producers. As countries become wealthier, they consume more wood and wood products and therein lies the opportunities.” From a domestic perspective, Rayonier continues to support a diverse range of domestic customers, and one of the exciting things is the emergence of biofuel and bio-energy demand. “We’re working in that space with several customers across the country. Some are existing industrial users, and there are potential customers looking to develop new plants and products such as wood pellets. The current supply to these customers is either post-harvest waste, plus low quality logs which might previously have been exported as pulp logs or it is displacing domestic pulp logs.” Log Cartage PROUDLY SUPPORTING RAYONIER NZ Invercargill & Dunedin 03 215 9460
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