The forestry sector is keeping a close eye on the US-China trade war, which has created uncertainty in the market, according to Bob Tate, Executive Director of the Papua New Guinea Forestry Industry Association. He told Business Advantage PNG that China remains PNG’s dominant export market.

Bob Tate claims the timber processing sector is in decline. Credit: Cloudy Bay Sustainable Forestry

With 88 per cent of Papua New Guinea’s timber exports sold into China for processing and on-selling into the US, the sector is keeping a close eye on the US-China trade war, says PNG Forestry Industry Association Director, Bob Tate.

Of PNG’s total timber exports of 3,260,501 cubic metres in 2017, 2,869,240 cubic metres went to China.

Over the last year, he says, volumes rose slightly and prices are averaging out at around the high $US90 per cubic metre.

‘So far, those trade wars have not directly affected forestry nor forest products,’ he told Business Advantage PNG.

‘But they’ve created a high degree of uncertainty and caution in forest products markets.

‘The US, Russia, Canada and New Zealand are the four biggest exporters of logs into China.’

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‘It has been talked about that the US in particular would impose tariffs on Chinese imported manufactured wooden products. Of course, that tends to disregard or ignore the fact that the US is significant exporter itself of forest products, particularly logs, to China.’

Exporters

The Forest Industries Association’s Bob Tate

Tate says the US, Russia, Canada and New Zealand are the four biggest exporters of logs into China.

Much of those imports are remanufactured into finished products and shipped from China back to the US to Home Depot and similarly large chains.

‘I think it has more to do with US domestic employment and sector policies than it does with the US position in the world.

‘So, there’s a lot of caution in the markets to see how this trade war pans out.’

Domestic market

PNG’s government plans to ban round log exports by January 2021, according to its recently released Medium Term Development Plan III for 2022.

It aims to promote ‘downstream processing to add value to forest products and increase forest by-products’.

But Tate points out that the processing sector is in decline.

‘There are now seven mills operating in PNG and there has been no new mills established in the last 15 years.

‘Currently, it’s a dog’s breakfast of regulation, red tape, and duplication of process.’

‘Forest plantation development has fallen from 65,000 hectares to 40,000 hectares since the 1990s. The public sector has largely abandoned its plantations due, significantly, to land tenure issues.

He also says the ban was tried in 2010 and failed.

The current minister, he says, has stated that if and when the new ban comes in, it will apply to new forest projects.

‘So if the government is to achieve this goal, it needs to institute a fair and equitable fiscal regime and fiscal stability. Forestry could no longer be regarded as the cash cow it is treated currently.

‘Secondly,’ he says, ‘there needs to be trade regulatory reform to enable efficient and cost-effective exports of products.

‘Currently, it’s a dog’s breakfast of regulation, red tape, and duplication of process and approvals involving five different government departments and agencies and requiring two discretionary approvals by Cabinet Ministers.’

Real estate

Tate says there’s a ‘very real’ place for PNG forestry products in the demand for housing by the country’s rising middle class.

‘Most new housing demand is for residents in Port Moresby, and the trend has been for the construction of housing estates, 50 to 60 houses at a time.

‘Unfortunately, a lot of them are steel- or aluminium-framed units and they are not using locally-sourced timber.

‘One factor is cost but, while some PNG industry producers such as PNG Forest Products adopt Australian and PNG standards for termite control, many do not.

‘So builders regard the local product as suspect, because compliance with PNG standards is only voluntary.

‘There’s a need to rebuild trust in the product.’