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A Closer Look At Our Pine Industry

The pine industry turnaround is now a well known success story for everyone. We keep getting one good news after another. We took time to interview the Executive Chairman of
11 Jul 2015 09:20
A Closer Look At Our Pine Industry
Pine Group of Companies executive chairman, Faiz Khan.

The pine industry turnaround is now a well known success story for everyone. We keep getting one good news after another.

We took time to interview the Executive Chairman of Pine Group of Companies, Faiz Khan. He explains about the markets for wood chip, the current trading prices, volatility, challenges etc.

This interview comes during a week when the group repaid $600,000 of a $12 million loan taken borrowed from Government between 1990 and 2001.

They are now not only funding ‘long term vision expenditures’ of replanting and capital upgrades from their current cash flow, but have vowed to repay the Government.

How would you describe the wood chip market?
Wood chip is like any other commodity trading in global market. There are umpteenth factors that determine its price and demand. A boom in the USA housing market will result in a glut in Douglas Fir wood chip from our competitors from the Western Coast of USA, and drive prices down. A weakening Australian dollar will make the Radiatta pine wood chip from Australia more competitive.
The lowering demand for newspapers as people rely more and more to internet for news, will drive the demand for our wood chip down.
A weakening Chinese economy will also drive demand down. The competitiveness of our wood chip to other international suppliers and local suppliers in Japan and China will have a significant bearing on our wood chip demand.
There are many more factors that determine the commodity dynamics but I have given you a few basic ones. And just like any other commodity such as oil trading in the world market the various factors that affect demand and price move in different directions at any one point in time.
No expert can truly predict with certainty as to how demand and price will move in future.
You have successfully entered the Chinese market. What effect has it had on demand?
Demand is related to our production capacity or our ability to supply. In June 2012 we added a wood chip production facility in Bua. At around the same time we reduced our wood chip production out of Drasa for sustainability reasons. At present we don’t harvest any pulp logs (of around 15 years) in Viti Levu for wood chipping.
The wood chip we produce in Viti Levu is either out of sawmill residues; or chipping of the smaller logs from sawlog plantations (of around 25 years) that are too small to be processed into timber.
So whilst we have had an increase in wood chip production capacity in Bua, we have reduced our production in Drasa.
Due to these offsets, our export capacity has marginally increased from 8 vessels per year to 10 vessels per year.
We entered the Chinese market from late 2012. 2014 was the first year we managed to sell our wood chip at full current production capacity of 10 vessels into the world market.
Business is largely about spreading risks. The Chinese market gives us a better chance to sell at production capacity but does not remove the risks completely.

What effect has entering the Chinese market had on price?
The volatility in price still remains the same. Our price still fluctuates by 30% from year to year. Our price over the last 3 years has traded in the same range with the same degree of volatility as it did 10 years ago.
Furthermore, China is a different market to Japan. In some instances the wood chip we export to China has to travel 500 km inland to get to the pulp and paper mills, whilst in Japan the pulp and paper mills are located on the coastline. Put simply, we are not trading at high prices by entering the Chinese market.

Would you then like to make any comments by some in media that you have been getting higher prices by entering the Chinese market and that is basically the reason for the turnaround in the pine industry?
You see, there will always be people who will complain when things are bad or will say how simple it was to bring about change when there is a turnaround. All I can say is that we draw motivation from both the positives and negatives.
We have a supportive Prime Minister and Government – that is a positive that motivates us. Our landowners and workers interest, our family are all positives that motivate us.
Then, you have people in any society who will always be negative. We draw motivation from them as well and we also wish them well.
What are the main challenges for the wood chip market going forward?
We are trying to spread our risk even further. In Japan we currently have only one end user in Oji San.  They are big and stable.
However, we have been working hard with our agents Itochu San to have multiple end users in Japan. In China we currently have two end users but are equally working hard with our Chinese agent Xiamen C&D Paper for more stability and spread.
Relationships of mutual benefit with our agents and end users will be one of the key success factors for future.
But even then what happens in the world market is sometimes outside the control of the best global planners. Just look at what is happening in oil market over last eight months.
To meet our future challenges Tropik will continue working on its cost efficiencies. Because when the wood chip market does collapse for reasons outside of our control we still want to be able to competitively sell, even if that be at break even for a period of time.
We cover our downside. Our model is based on our strategy that we want to always be in a position to continue to give benefits to our landowners, and look after our workers, in good and the not so good times.

Feedback:  rachnal@fijisun.com.fj

 

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