United Forestry Group, backed by Australian timber marketer Pentarch and China's Xiangyu Group, is targeting small forest owners in New Zealand in a bid to cash in on a looming 'wall of wood' it estimates will generate $30 billion over the next two decades.
The Wellington-based company wants to consolidate the country's 14,000 small forests, which account for just over a third of New Zealand's plantations, and use its forestry management skills and supply chain to achieve a more efficient network and boost returns for the owners, it said in a statement. Acting managing director Malcolm McComb told a briefing in Wellington the company aims to build a 30,000 hectare plantation, and is initially eyeing trees ready for harvest in the next 10 years.
United Forestry, which counts Pentarch and Xiangyu joint venture Superpen as a cornerstone investor with 60 percent, is offering to buy small forests outright, or buy a combination of land and trees. It will also offer advice on harvesting and marketing mature forests.
Forest owners will also have the ability to take cash and shares in the company, and McComb said the company hopes to grow the number of New Zealand investors by doing so.
"We are taking a whole new approach to this emerging problem, and are committing major resources to be in a position to buy forests outright, control shipping services and consolidate forest output through the country to give the participating small forest owners a strong hand to play with," he said. "We will have the financial strength, expertise and presence in the local and Asia markets to offer them a much more comprehensive range of options."
New Zealand sold $4.04 billion of logs, wood and wood articles to overseas markets in the year ended July 31, up 20 percent from a year earlier, making it the country's third-biggest export commodity. Global log prices have come off the boil in recent months after surging through 2013 on strong demand from China.
United Forestry's move comes as a spike in plantation activity between 1992 and 1998 nears maturity, which will ramp up supply in a bid to meet demand coming from increasingly wealthy Asian nations.
McComb said that small forest owners face higher costs, and "there is a real risk that export earnings from forestry and the return to investors will be very disappointing."
The company will focus its efforts on forest owners in the south of the North Island and north of the South Island, he said.
While it hasn't signed up any owners, McComb said it has "got a few forest owners ready to commit in a foundation group."
Superpen partners Pentarch and Xiangyu have made funding commitments, and McComb said the company would be open to other investment partners further down the track.