Oct 2, 2009
Further growth tops Malaysian's agenda
by Graeme KennedyMalaysian-owned forestry company Ernslaw One has spent much of the economic downturn investing in new forests and processing plants in a bid to improve its position as New Zealand’s fourth-biggest operator.
Managing director Thomas Song Chai Leng said the company made the acquisitions, which included another 17,000ha of Crown licences, while most of the industry wanted to divest assets. The latest purchases took Ernslaw’s holdings to 100,000ha of Crown licence forests and 27,000ha in marginal farmland planted mostly with radiata and scheduled for harvesting in about 10 years.
“We will acquire more land and grow even bigger,” Mr Song said. “I don’t know if we will become the biggest but we hope and keep working at it. We are still clearing Crown licence forests and producing 1.8 million cubic metres a year, demand is high and prices are starting to go up.
“When the downturn began, premium pruned logs fell to $US80 a tonne but they have now risen to $US118 and could reach $US14O as the recovery is under way and huge demand remains. Our log and lumber markets are Korea, Japan and China and at this stage we could not supply any other markets as China is taking everything we can produce.
“There is very little in the domestic market as there is not much building going on due to the recession but we tend to re-invest in New Zealand - thats why we are growing so quickly.”
Ernslaw One topped the forestry sector in The National Business Review’s monthly Exciting Companies series with a 78.1 rating in surveys conducted by strategic business consultancy New River.
Tenon, Rayonier, Solid Energy and Forest Distribution were next on the list (see table).
Mr Song said Ernslaw One, a name of no significance or relationships to the Lake Wakatipu steamer Earnslaw, was formed in 1990 by the Tiong family’s multinational Malaysian corporate Rimbunan Hijau.
The company, he said, was one of Malaysia’s biggest timber harvesters, processors and marketers and has other interests in shipping, newspaper publishing and optical fibre cable manufacturing.
“I was international division manager when the business expanded its forestry operations overseas,” Mr Song said. “In Malaysia, the company used indigenous forests and wanted instead to create sustainable resources. We went into PNG [Papua New Guinea] and I came to New Zealand to look at the potential opportunities here.”
Ernslaw has the same family share-holding as Rimbunan Hijau
— which means Forever Green — and became the first foreign bidder to acquire Crown forest licences, starting with five totalling 20,000ha in Coromandel, Manawatu and Otago.
Mr Song said the company in the early 1990s took over the Conical Hill sawmffl near Gore, renaming it Blue Mountain Lumber, and later purchased the Winstone pulp mill at Ohakune. Its investment arm Oregon Forestry acquired land developer Neil Group and in 1995 bought Regal Salmon, which it merged with Salmond Smith Biolab's aquaculture division to form the NZ King Salmon Co.
Mr Song is managing director of Oregon, executive chairman of Winstone Pulp International and a director of NZ King Salmon and Neil.
“But forestry is our major focus,” he said. “We have been accruing carbon credits since January 2008 as we plant new trees and now have the equivalent of 570,000 tonnes of emissions to sell to the Norwegian government. Norway produces a lot of North Sea gas and oil and is short of credits, so has to buy them to offset emissions.
“We are trialling wood pellets made from sawdust at our Otago pilot plant — they are a very hot and efficient wood-burner fuel very popular in Europe.”
IMPROVED OUTLOOK
Conditions in the forestry sector have improved dramatically in the past few years due to unprecedented demand from Asian markets, particularly China.New River’s survey indicates 35% of respondents are finding business buoyant, a major turnround from the 75% who said it was either difficult or very difficult in the previous examination of the industry in 2005.
New River says the higher demand is being driven by increased construction spending by the Chinese government and higher prices from China’s traditional sottwood market Russia due to exchange rates.
Exporters have also been helped last year by the weak New Zealand dollar and low shipping rates but both have been rising and are unlikely to maintain their advantage.
The survey finds forestry companies are excited by the Emissions Trading Scheme due to be finalised soon with saleable carbon credits generated from tree planting — one respondent says the scheme could double returns to the industry.
Business conditions
Respondents’ rating of current business conditions in the FORESTRY SectorVery buoyant =5%
Buoyant =35%
Neutral =35%
Difficult =25%
Very difficult =0%
Top 10 FORESTRY
Rank / Company/ Excitement rating1 Ernslaw One 78.1
2 Tenon 67.0
3 Rayonier 66.0
4 Solid Energy 63.7
5 Forest Distribution 62.5
6 Scion 62.0
7 Forest Owners’ Marketing Services 61.5
8= Future Forest Research 58.0
8= Juken Nissho 58.0
10 Hancock Forest Nianagement 57.0
