FORESTRY company OneFortyOne Plantations has revealed there is little excess sawlog in its estate to sustain any growth in the region’s structural timber processing sector.
The news comes as concerns heighten over unprecedented high log exports, fears over long-term supply security to regional processors and a State Government investigation into whether it has breached contractual conditions.
OFO chief executive officer Linda Sewell – who was in Mount Gambier this week – has revealed a third of all the logs being exported by the company were
sawlogs.
But she denied it was necessary to redirect these logs back to the domestic market given there had already been a significant upswing in log supply to processors.
She said it was not in the company’s interest to see the domestic market collapse.
Responding to concerns stemming from the processing sector, Ms Sewell revealed there was “very limited” volume available for expansion.
“We are now operating 45pc higher in the domestic market – there is a limit,” she said.
“There is not enough fibre to satisfy every processor’s expansion plans.”
Ms Sewell also rejected claims sawlog exports could be redirected to regional processors given this resource was usually at the smaller end.
Although conceding some customers could use these logs, they already had an opportunity to tender for this fibre.
She argued companies wanted to expand because of the buoyancy in the marketplace.
“Processors would prefer we left the wood on the stump – not for an Ash Wednesday event but for when they wanted it,” Ms Sewell said candidly.
“But we need to keep the forests cycling and we also need to get an economic return.”
Ms Sewell said the export market was crucial to keeping the forests turning over.
“You need a balance, but at the end of the day we are 80pc domestic market,” the industry executive said.
“The majority of export is pulp log and if you look forward we will see the percentage of pulp log increase because more and more of the sawlog is being used here domestically.”
Under the forward sale contract, Ms Sewell said the contractual restrictions only applied to sawlog, not pulp log.
“We don’t have to offer to processors the sawlog fibre first, we just have to offer it to them at the same time so they have the equal ability to participate in the sales process at the same time as export,” Ms Sewell said.
“But we actually offer to them first – if they don’t take it or we can’t reach agreement as to the commercial terms of that, only then it goes to export.”
Responding to concerns about the packaging of wood for processors, Ms Sewell said the company could never package quantities that suited everyone.
“What we chose to do was to offer the whole amount available in that particular timeframe and then they could participate based on some or all of that,” she said.
Queried about growing concerns over supply, Ms Sewell said processors would prefer they had “very long term contracts” at “historically” low prices.
Ms Sewell conceded the export price for sawlog was “very strong” at this time.
“If the customer was prepared to pay that price, there would be no issue,” she said.
Regarding contracts, the forestry company chief said it inherited some “very long” contracts and this was not best practice in the industry now.
“These contracts varied from five to 25 years,” said Ms Sewell, who revealed a number of processors were heading towards the end of these contracts.
While denying the company was slashing contractual timeframes across the board, she conceded the days of 20 year contracts were over.
“But we have signed a 13-year contract in our tenure to support investment,” she said.
“A long-term contract in today’s market is probably 10.”
Responding to concerns OFO was not leaving a reserve for a major fire event such as Ash Wednesday, Ms Sewell said this was an impossible scenario to plan for.
“How can you ever reserve for something catastrophic such as Ash Wednesday? The better thing we can do is do everything we can to prevent an Ash Wednesday.”
She revealed the company had a “significant” firefighting capability after increasing resources.
“If you have an Ash Wednesday, it depends whether the trees are young or old and whether it is even OFO trees,” she said.
“If we were to reserve volume, we wouldn’t have enough supply and there wouldn’t be a domestic market.”
Ms Sewell claimed the processing industry was making this argument because it did not want the company to export.
The company also rejected speculation it wanted to slash the rotation lengths, revealing the contractual lease mandated 32 years.
Ms Sewell said the company did not plan to approach the government to reduce this to 28 years.
