The controversy that this industry has generated may be hot, but its growth will be warm at best in the foreseeable future, with several factors coming into play. By JASON BAKER of IBISWorld.
By Jason Baker
Amid the controversy created by the proposed pulp mill in the Tamar Valley in Tasmania to be built by woodchip market leader Gunns, the woodchip industry is looking ahead to moderate growth.
IBISWorld estimates that the $725 million woodchip industry will grow at an average annual rate of 3.2% during the five years to 2012-13.
The industry has grown at an average annual rate of 3.8% over the five years to 2007-08. With demand having fluctuated over the past five years from Japan, operators have been forced to find new markets for woodchips during 2002-03, opening up the markets in Korea and China.
This translated into a high revenue increase early on, which then settled back slightly during 2003-04. Hardwood sales volumes were up during 2004-05, however the opposing trend in the softwood industry had a stabilising effect on the revenue increase.
Growth slowed further during 2005-06, due to inconsistent orders from the two main exports, Japan and China. Demand from domestic markets also slowed towards the end of this period. As the Australian dollar fell in value during 2007, the industry enjoyed higher export volumes.
The strong demand for woodchips from Japan also benefited from a higher negotiated price during this time.
Revenue growth is anticipated to intensify over the 2008-09 period, with the depreciation of the Australian dollar. Demand for woodchips is predicted to rise during this time from Japan, China and Korea.
The slow down is anticipated during the 2009-10 period as demand slows from Japan. Depreciation of the Australian dollar is also expected to slow, as it reaches a cyclical low during the year, ending the price advantages enjoyed by Australian exporters.
Weaker revenue is predicted in the three years leading to 2012-13, as export demand from the Japanese and domestic paper manufacturers settles and lower growth is expected.
Revenue will continue to be export driven with markets straying from the reliance of Japan after the recent diversification into the Asian markets. However, the stronger growth in Korea and Taiwan are unlikely to significantly affect export performance as these markets still account for a small portion of total export volumes.
The key sensitivities affecting the performance of the wood chipping industry include:
Availability of plantation trees. As access to native forests is restricted, the industry has to develop plantations to supply its raw materials.
Domestic goods prices (timber, woodchip, Tasmanian hardwood export chip). The industry is highly sensitive to the world prices paid for woodchips, since pulp and paper manufacturers aim to minimise costs while woodchip exporting countries are less likely to continue the extraction of hardwood if prices received are too low.
GDP growth; Japan. Japan is a key market for Australian woodchips, and positive economic conditions within the country will ensure a steady demand for woodchips.
Legislative compliance requirements. The industry is sensitive to any change in industry policy pertaining to logging of native forests for wood chipping. Community opposition towards the wood chipping industry has to some extent affected the industry, but has not succeeded in closing it down.
World demand for paper. Demand for paper products, including packaging, printing, writing and newsprint, will drive the demand for wood chips. The demand for high quality products will increase demand for the finite old growth hardwood resource. This is especially so in the Japanese and Korean paper making industries.