What Are the Primary Investment Return Drivers and Market ... · Perez, D. 2007. Teakwood Prices...
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What Are the Primary Investment Return Drivers and Market Opportunities of Teakwood? by Rafael De La Torre, PhD
Transcript of What Are the Primary Investment Return Drivers and Market ... · Perez, D. 2007. Teakwood Prices...
What Are the Primary Investment Return Drivers
and Market Opportunities of Teakwood?
by
Rafael De La Torre, PhD
38% 38%
8% 8%
4% 4% 5% 5%
5% 5%
10% 10%
10% 10%
5% 5%
38%
46% 50%
55% 60%
70%
80% 85% 85%
0%
20%
40%
60%
80%
100%
OP2nd Gen
OPAdvanced
OPSelect
OPElite
MCPAdvanced
MCPSelect
MCPElite
VAR AGSeedlings
% I
nc
rem
en
tal G
ain
in
Vo
lum
e
2015 AG Seedling Performance
About ArborGen Global leader in tree improvement and production: 300 MM/Yr.
OP: STP 20-50%. Wide phenotypic variation
MCP®: STP 50-80% Less phenotypic variation
Varietals: STP >80% Least phenotypic variation
planting identical genetics
Product profiles
Southeastern U.S.
New Zealand & Australia
Brazil: new eucs’ nursery
Faster Growth
Improved wood quality
Improved processing
efficiency (pulp, biomass
& bioenergy)
Global operations
Tree productivity
http://arborgen.us/
2
Outline
• Back to Basics: Timberland Investments
• What are the Major Return Drivers for Teak Plantations?
• Teak Price History and Hardwood Price Trends
• Why Should We Care about the Teak Market?
• Survey Analysis
• Conclusion and Challenges
3
Timberland Investor Goal:
GWR: http://greenwoodresources.com/forestry-investments/
Maximize risk-adjusted returns at the asset level, while:
• Provides a good hedge against inflation
• Preserves capital
• Provides a low correlation with other assets
(Commercial Real Estate, Corp Bonds, Russell 3000, S&P 500)
• Improves the risk efficiency of a mixed-asset portfolio
• Can be a sustainable, environmentally-positive investment
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Risks and Rewards of Timberland Investments
Historical Investor Perceptions!
David Nunes, CEO Rayonier, TIC –UGA Amelia Island, FL, 2015
Risks to Returns
Illiquid asset:
“Hard to get in, hard to get out”
Fire/pests
Mill consolidation/closure
Regulatory risk in the West
Selection of outside manager and
total fee exposure
Opportunities for Returns
Portfolio diversification
Inflation protection and lack of
correlation with other asset classes
Biological growth
Ability to adjust harvest levels to market
Real log price appreciation
Abundant financing
Discount rate stability
5
Risks and Rewards of Timberland Investments
Current Investor Perceptions!
David Nunes, CEO Rayonier, TIC –UGA Amelia Island, FL, 2015
Risks to Returns
Underwriting errors
Rising discount rates
Delayed housing recovery
Weakening export markets
Investment performance
Contractor shortages
Currency risks
Fire/pests/climate change
Mill consolidation/closure
Regulatory creep
Opportunities for Returns
Accelerated housing recovery
Export market strength
Deferred harvest volume
Carbon credits
Biomass/pellets
Ability to adjust harvest levels to market
Inflation protection
Biological growth
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Back to Basics: Timberland Return Drivers
• Biological Growth: Unique to timber and very important
• Timber prices: Influenced by macroeconomy, market (Supply and Demand)
• Land Prices: Irrational? Bubble? HBU (Higher and Better Use)?
Caulfield, J. 1998. Timberland Return Drivers and Investing Styles for an Asset that Has Come of Age. Real Estate Finance. 14(4): 15.
• Diversification: More important than ever (Age class, species group,
geographic, investment strategy…)
• Leverage: Enhances returns as prices rise, but when prices fall…
• Timberland as an Inflation Hedge: Coming soon, implications on: short,
medium, and long terms
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Biological Growth: Stages in the Life of a Forest
Age Seedling Emerging Young Mature Establishment Growth Growth Growth
< 10 cm 10 – 30 cm > 30 cm
Gro
wth
• Biological growth is independent of financial market volatility, and the most unique and consistent determinant of timberland investment returns.
• Stumpage and land prices are subject to supply and demand conditions .
Bin, M., M. Clutter, and T. Harris. 2013. Timberland Return Drivers and Risks: A Simulation Approach. SJAF 37(1): 18-25
8
Source: Global Forest Asset Management, GFAM
Teak Growth Teak requires intensive silviculture
Wikle, Jeff . 2014. Global Forest Investment Valuation and Analysis. WWOTF10, TerraSource Valuation, Portland, 2014
Teak Growth (MAI reported by 26 countries) Properly nurtured is a valuable high-growth species
Kollert, W., and L. Cherubini. 2012. Teak Resources and Market Assessment 2010. FAO Working paper FP/47/E. FAO. P14 Wikle, Jeff . 2014. Global Forest Investment Valuation and Analysis. WWOTF10, TerraSource Valuation, Portland, 2014
3 2 3 5 5
10
21
14
12
30
12
27
0
5
10
15
20
25
30
35
Africa(7)
Asia(5)
Caribbean(3)
Cent. America(5)
Oceania(2)
South America(4)
MA
I M
in -
Max (
m3/h
a/y
r)
10
Seed BLV: $5,500/ha Clone BLV ~ 2 X Seed BLV
Ugalde Arias, Luis Alberto. 2013. TEAK: New Trends in Silviculture, Commercialization and Wood Utilization. (Ed.) Cartago, C.R: International Forestry and Agroforestry, ISBN 978-9968-47-716-1. 568p.
Opportunity to Use Clonal and/or Improved Trees Comparison of clone vs. seed plantation in teak 5.2 years (Brazil), Cycle: 20 years
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Opportunity to Use Clonal and/or Improved Trees Comparison of clone vs. seed plantation in teak 5.2 years (Brazil), Cycle: 20 years
Clone BLV: ~ $11,000/ha Clone BLV: ~ $11,000/ha
Ugalde Arias, Luis Alberto. 2013. TEAK: New Trends in Silviculture, Commercialization and Wood Utilization. (Ed.) Cartago, C.R : International Forestry and Agroforestry, ISBN 978-9968-47-716-1. 568p.
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Ecophysiology Studies
G&Y – Wood Quality
Silvicultural Regime
Fertilization
Genetics
Adapted from: Stape, JL., T. Fox, and R. Rubilar. 2015. FPC US Eucalyptus Working Group. Research Review, Revenelle, SC.
Pyramid of Forest Research
Applied
Fundamental
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Relative Importance of
Return Drivers
14
Biological Growth Mitigates Downside Return Volatility
61% 57%
151% 33% 25%
-88%
6% 17%
37%
14.3%
7.6%
-100%
-50%
0%
50%
100%
150%
200%
1982-1997 Pine(Caulfield)
1992-2007 Pine(Clutter and Mei)
1995-2010 Pine(Clutter and Mei)
.
Pe
rce
nta
ge
co
ntr
ibu
tio
n
of
tim
be
rla
nd
re
turn
dri
ve
rs
Biological growth Timber price Land price Timberland returns
(1) Caulfield, J.P. 1998. Timberland return drivers and investing styles for an asset that has come of age. Real Estate Finance, Vol. 14, No. 4. (2) Clutter, M. and R. Mei. 2008. Return drivers and investing styles in timberland investment. Internal FIA publication. (3) Mei, B. and M. Clutter. 2012. Financial Analysis in Forest Investment. Forest Landowner Magazine. 71(1):14-19. www.forestlandowners.com
Biological growth is
a dominant driver
of total timberland
returns, and for that
reason timberland
assets have long
been viewed as
potential diversifiers
of an investor’s
portfolio (Cascio and
Clutter 2008; Mei and
Clutter 2010; Mei et al.
2010)3
15
Is Biological Growth the Major Return Driver for Teak Plantations?
61% 57%
151%
21%
33% 25%
-88%
77%
6% 17%
37%
2% 14.3%
7.6%
17.6%
-100%
-50%
0%
50%
100%
150%
200%
1982-1997 Pine(Caulfield)
1992-2007 Pine(Clutter and Mei)
1995-2010 Pine(Clutter and Mei)
2005-2015 Teak(Central America)
Pe
rce
nta
ge
co
ntr
ibu
tio
n
of
tim
be
rla
nd
re
turn
dri
ve
rs
Biological growth Timber price Land price Timberland returns
(1) Caulfield, J.P. 1998. Timberland return drivers and investing styles for an asset that has come of age. Real Estate Finance, Vol. 14, No. 4. (2) Clutter, M. and R. Mei. 2008. Return drivers and investing styles in timberland investment. Internal FIA publication. (3) Mei, B. and M. Clutter. 2012. Financial Analysis in Forest Investment. Forest Landowner Magazine. 71(1):14-19. www.forestlandowners.com
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Case Study of Teak Plantation in Central America: Thinnings Yr. 10 & 15, Clearcut Yr. 20
Teak forest landowner challenges: Maximize ~ 20-40% of the forest asset value Teak biological growth does not dominate the contribution to total returns Implications Timberland as an Inflation Hedge Portfolio diversification Land appreciation value trends to “buffer” returns, with a lesser contribution
Primary drivers of timberland investment returns
Discount rate
1 Biological growth
2 Timber price
3 Land value
0% 21% 77% 2%
2% 24% 75% 2%
4% 26% 72% 2%
6% 29% 69% 2%
8% 32% 66% 2%
10% 35% 63% 1%
12% 38% 60% 1%
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Sewall 2014 Investor Survey
Vicary, B. Sewall VP. 2015. Understanding Risk in Global Timberland Investing. RISI Forest Products and Timberland Investment Conference. NY.
Risk Premium
over US
Forestland
~6% +
Basis points
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Teak Price History and
Hardwood Price Trends
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Projected Costa Rica Teak Value by Diameter and Age
This analysis provides a useful picture of the structure of average teak log prices by log quality and size.
Perez, D. 2007. Teakwood Prices 2000-2005: An Overview. In Processing and Marketing of Teak Wood Products of Planted Forests, Proceeding of the Regional Workshop held during Sept. 25-28, 2007, Kerala Forest Research Institute, Peedhi, India. pp. 318-328
20
Prices of Plantation Teak Imported to India $/M3
ITTO TTM Report - http://www.teaknet.org/newsletterlist C&F: Cost and freight
481
313
636
288
386
540
420
200
300
400
500
600
700
2009 2010 2011 2012 (e) 2013 2014 2015
Avg
. U
S$
pe
r c
u.m
C&
F
Guatemala Logs Ghana Logs Colombia Logs Costa Rica Logs Panama Logs Thailand Logs
Laos Logs Malaysian Logs Nicaragua Logs Brazil Logs Ecuador Squares
21
$27/m3
$42/m3
$100/m3
$133/m3
$210/m3
$319/m3
$0
$100
$200
$300
$400
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$ / m
3
Gmelina (15 - 20 cm) Gmelina (20 - 29 cm) Gmelina (30+ cm) Pine
Eucalyptus Teak Teak (30+ cm) Pilon
Costa Rica Timber Stumpage Price, $/M3
http://oficinaforestalcr.org/publicaciones-tecnicas-onf/precios-de-la-madera
22
424
587
644
742
901
933
1,433
1,442
1,463
1,679
1,747
2,459
0 250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750
Poplar, Hybrid
Sugar Maple
Cherry
Eucalyptus
White Oak
Teak
African Mahogany
Sapele
Jatoba
Walnut
Spanish Cedar
American Mahogany
Fine Hardwood Lumber Prices, $/M3 4/4", #2 Com, Hardwood Review
Hardwood Comparative Pricing, 2014 Teakwood is one of the most valuable hardwoods on the market
Wikle, Jeff . 2014. Global Forest Investment Valuation and Analysis. WWOTF10, TerraSource Valuation, Portland, 2014
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Pennsylvania Woodlands Timber Market
Stumpage Prices - Northwest Region, $/M3
$304
$240
$148
$125
$97 $83
$66 $79
$39 $31
$48
0
100
200
300
400
199
8-1
199
9-1
200
0-1
200
1-1
200
2-1
200
3-1
200
4-1
200
5-1
200
6-1
200
7-1
200
8-1
200
9-1
201
0-1
201
1-1
201
2-1
201
3-1
201
4-1
$/M
3 -
Stu
mp
ag
e
Black Cherry N. Red Oak White Ash Hard Maple White Oak
Cherry - The principal reason for the drop in the price is a change in consumer preference
24
Timber Mart-South, Hardwood ST Stumpage
Price Summary, Average Prices Listed, $/Ton
Timber Mart-South, Inc., The Journal of Southern Timber Prices, 2014
35.0
37.8
19.3 19.8
27.1
32.3 27.4
33.4
42.1
50.7
0
10
20
30
40
50
60
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$/T
on
- S
tum
pa
ge
Ash Sawtimber Hickory Sawtimber Red Oak Sawtimber
Sweetgum Sawtimber White Oak Sawtimber Yellow Poplar Sawtimber
25
Historic Hardwood Grade and Pulpwood Demand
Southeastern US, 2006 - 2015
Wood Demand Research Program, Center for Forest Business, Warnell School of Forestry and Natural Resources, University of Georgia, 2015
25.5 25.5
23.5 23.8 25.1
21.7 22.2
24.7
29.6
0
5
10
15
20
25
30
35
0
5
10
15
20
25
30
35
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015e
Stu
mp
ag
e R
eal
$/t
on
Gre
en
To
ns in
millio
ns
Hardwood Sawtimber Demand Green Tons, Q1 2006 - Q4 2015
7.1
7.7 8.0
9.0
10.2
6.7
7.4
8.7
10.5
0
2
4
6
8
10
12
14
0
5
10
15
20
25
30
35
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015e
Stu
mp
ag
e R
eal
$/t
on
Gre
en
To
ns in
millio
ns
Hardwood Pulpwood Demand Green Tons, Q1 2006 - Q4 2015
26
Why Should We Care about the
Teak Market?
27
Forest Investment Decision Pyramid
Adapted from: Dougherty, P., 2014. SESAF Meeting. Dougherty and Dougherty Forestry Services, INC. Panama City, Fl.
Genetics
Silviculture
Soil
Climate
Market
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Why do you care about the market? Consider a forest without a market…
Bob Flynn, Director, International Timber, RISI. UGA Timberland Investment Conference, February 19, 2015
• Loving trees is not enough (B. Mendell)
• A forester’s dream: “Plant it and they will come” (G. Manners)
• I love forestry, but… (B. Flynn)
• “Market-back” approach: to understand what kind of trees you
should be growing, and where, and how to manage, you have to
first understand the market
• What happens when you get it wrong: examples from Central
America and the USA
• Quick review about trade flows that matter to timberland investors
29
Gmelina plantations established in Costa Rica for woodchip exports: fantastic job on the forestry, not so much on the markets
Bob Flynn, Director, International Timber, RISI. UGA Timberland Investment Conference, February 19, 2015
5-year old Gmelina plantation in Southwest Costa Rica
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Dixie Pellets Located in Selma, AL. Production capacity: 500,000+ tons/year...
Forestry the Source:. 2010. Wood Pellets: Growth Industry or House of Cards? F2M, Suz-Anne Kinney, 2009. The Impact of Dixie Pellet’s Closure
“… In a July 2009 Wall Street Journal
article, it was featured as an example of
the booming wood pellet industry.
However, on September 1, 2009, Dixie
Pellets’ owners told their 70 employees
not to return to work the next day …”
Lessons learned from Dixie’s
1. Site location
2. Feedstock supply
3. Quality control / Meeting standards
Understand the market
31
Southeast Asia is a globally-important source of raw material for the
forest products industry, but trade patterns are changing
RISI ©, 2015. Southeast Asia: Regional Timber Supply and Market Outlook. All Rights Reserved.
12
40
26
12 12
0
10
20
30
40
501
96
1
196
3
196
5
196
7
196
9
197
1
197
3
197
5
197
7
197
9
198
1
198
3
198
5
198
7
198
9
199
1
199
3
199
5
199
7
199
9
200
1
200
3
200
5
200
7
200
9
201
1
201
3
Millio
ns o
f C
ub
ic M
ete
rs
Malaysia Philippines
Indonesia Myanmar
PNG Solomon Islands
Other
32
Export log supply has remained remarkably stable, but a sharply declining trend is starting this year
6.8
3.2
10.9 11.4
10.8 10.1 10.2
8.9 8.3
10.1 10.8 10.6 10.9
11.5
0
2
4
6
8
10
12
14
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E
Millio
ns o
f C
ub
ic M
ete
rs
Southeast Asian Hardwood Log Exports
Malaysia PNG Myanmar Solomon Islands Other
RISI ©, 2015. Southeast Asia: Regional Timber Supply and Market Outlook. All Rights Reserved.
33
Governments never give up trying to interfere with trade; Gabon banned log exports starting in 2010
Bob Flynn, Director, International Timber, RISI. UGA Timberland Investment Conference, February 19, 2015 © 2014 RISI, Inc. All Rights Reserved.
0
200
400
600
800
1,000
1,200
1,400
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Th
ou
san
ds o
f C
ub
ic M
ete
rs
China: Imports of Logs from West Africa
Gabon Cameroon Eq. Guinea Congo
34
Trade restrictions can boost value added, but is it really worth it?
Gabon’s total wood products exports in 2014 were down 57% since 2008
Bob Flynn, Director, International Timber, RISI. UGA Timberland Investment Conference, February 19, 2015 © 2014 RISI, Inc. All Rights Reserved.
166
415
19 4
108
161
0
100
200
300
400
500
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mil
lio
n U
S D
oll
ars
China: Imports of Logs and Lumber from Gabon
Log import value Lumber import value
35
Myanmar, the largest source of natural teak, banned log
exports as of April 1, 2014 (Reduction of annual allowable teak cut by 80%)
235
183
305
343
274
109
45 36
23 22 33
81
0
100
200
300
400
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
Th
ou
san
ds o
f C
ub
ic M
ete
rs
Imports of Myanmar Logs in India and China, 2014
China India
RISI ©, 2015. Southeast Asia: Regional Timber Supply and Market Outlook. All Rights Reserved.
36
Implications of Teak Supply Changes*
*John Turland, International Timber RISI. Outlook for Southeast Asian Timber Supply: Implications for Global Forest Products Markets and Timberland Investment. RISI Forest Products and Timberland Investment Conference. NY, March 31 –April 1, 2015. © 2015 RISI, Inc. All Rights Reserved.
• Myanmar log export ban and reduced natural forest teak harvest Severe short-term reduction in teak timber supplies in India and China has marked
impact on pricing and substitution
Marked global price increases for premium quality “Burmese” teak
Substitution of natural forest supply with plantation grown teak and other high-value
plantation species
Substitution of natural forest teak with high-quality tropical hardwood species
• Expansion of Southeast Asia’s teak plantation resource Significant potential increases in global supply capacity of plantation teak
Lower investment returns for teak plantation growers, accentuated in Latin America
and Africa
Substitution of natural forest tropical hardwoods with plantation grown teak
37
Teak investors in Latin America are happily watching exports to India grow, but watch out for plantation grown teak from Southeast Asia
42
108 90
104
152 148 142 153
286
339
388 403
0
100
200
300
400
500
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E
Th
ou
san
ds o
f C
ub
ic M
ete
rs
India: Teak Log Imports from Latin America
Central America South America
Bob Flynn, Director, International Timber, RISI. UGA Timberland Investment Conference, February 19, 2015 © 2014 RISI, Inc. All Rights Reserved.
38
India: Teak Log Imports from Latin America
2014(e)
1 9 11 15 36
58
116
158
403
0
100
200
300
400
500
Nicaragua Guatemala El Salvador Brazil Colombia Panama Costa Rica Ecuador Total
Th
ou
san
ds o
f C
ub
ic M
ete
rs
Bob Flynn, Director, International Timber, RISI. UGA Timberland Investment Conference, February 19, 2015 © 2014 RISI, Inc. All Rights Reserved.
39
EU: Overview of the different shares of illegally harvested wood .
The great ranges between these two estimates for many countries illustrate the uncertainties to which the illegal shares are tied.
Source: Dieter, M., H. Englert, and H. Weimar. 2012. Wood from Illegal Harvesting in EU Markets: Estimations and Open Issues. Landbauforsch. Appl Agric Forestry Res . (62)247-254
2009
Illegal global harvest of industrial roundwood: 103-284 MM m³ = 7–17% Imports of wood from illegal harvesting into the countries of the EU accounted for a volume of 15-34 MM m³ = 3-6%
Depending on the presumed low and high country-specific shares of illegal harvests
40
Survey Analysis Marketing strategies for Latin American teak producers
41
Teak Market Survey
https://www.surveymonkey.com/r/TeakSurvey
6
2
4
3
1
4
0 1 2 3 4 5 6 7 8
Latin America
Elsewhere in Asia
Africa
Middle East
Europe
North America
Market for teak, excluding India and China (1 is most likely alternative)
2
6
1
5
7
3
4
0 1 2 3 4 5
Decor
Construction
Flooring
Window & doorframes
Yachts
Decking
Garden furniture
Young fast-growing teak is suitable for which lumber grade products
1
3
2
7
5
4
6
0 1 2 3 4 5 6 7 8
Free of sapwood /color
Quality / size
Quality / shape-defects
Annual consumption(m3/year)
Certification
Price
Company's woodpurchasing policy
What are the most important considerations when retailers or distributor chains purchase
teakwood products (1 is most important)
42
Teak Market Survey, Key messages:
• Primary purpose of teak culture: to maximize tree diameter for a given rotation. Increased diameter
means increased heartwood (darker color) formation, which is the valuable part of the log.
• First log (best part of the tree) should be sold as boards or furniture to Europe. Second log (middle
quality, smaller size) should be sold to Asia, and the third – fourth – fifth logs should be sold locally.
• Serious consideration is required to develop uses for non-heartwood teak wood. There will be a
considerable amount of waste or chipwood produced due to thinnings, topwood in final harvest,
reject logs, pieces produced during furniture manufacture, etc…
• Pure teak wood cannot be imported from Southeast Asia without a huge effort due to restrictions.
• New products will need to be developed. Plantation teak wood products will be in the same range as
rubber wood products, more than the traditional old-growth teak products.
• Because of the smaller scale of production, teak producers will need to develop common marketing
strategies to break into large northern hemisphere markets.
• Preferred species in USA: Red Oak, only in North America, but requires complicated treatments
Preferred species in Europe: White Oak, which also exists in USA
• Teak does not compete with any specific hardwood; other hardwoods compete with teak.
43
Teak Market Survey, Key messages:
• Teak’s demand has existed for many centuries, in India and parts of Asia. Teak’s future seems to lie
with plantations and its future pricing will likely be correlated with how the plantation industry
develops.
• The teakwood price data of the last three years is more accessible than ever (which helps market
transparency and efficiency). Teakwood prices are expected to remain stable.
• Hardwood substitution is a constantly ongoing process. Teak is not immune to this, but is somewhat
insulated by the deep cultural preference in India, which absorbs a lot of the low to mid grade logs.
• Substitution for hardwoods is usually engineered/thermally/heat-treated softwood products (of course
pine and eucalyptus are definitely in the equation here) or even engineered wood/plastic composites;
the substitution for wood products in general are plastics, aluminum, concrete, etc., and pinewood
and other softwoods treated with colorants and preservatives.
• Global hardwood substitutable
• Yes: American mahogany, African mahogany, Spanish cedar, Walnut, Cherry, White oak
• No: Hard maple, Ash, Redwood, White cedar
• Teak has no substitution in India, like White Oak in Europe, they are used for everything.
• Teak has a high content of silica and physical superiority, does not have substitutes for yachting.
• Teak and Gmelina are verbenaceae, which are dimensionally very stable lumber.
44
Teak Market Survey, Key messages:
• We must review the management style of Nordic forests, full of long-term ecological concepts:
European Culture (German and Dutch) dominates in the management of teak, including multiple
thinnings (3-4). Preferable management with more business sense is that of the UK and France.
• Europe has always been a very popular destination for teak, long before China, India and Vietnam
were key markets – perhaps not in log form but in value-added products such as garden furniture,
harbor/ship/yacht building, outdoor applications and outdoor decking.
• Italy, UK, France & Germany have been popular destinations for the harbor/yacht/shipbuilding sectors.
• Denmark, the UK, Germany, Belgium and Sweden are popular for garden furniture/decking.
• Minimum Requirements – legality verification and/or Independent 3rd party certification such as
FSC/PEFC but this is only common in the more advanced Western European economies. The EU-
28 should be adhering to the EU Timber Regulation which specifies Legality Verification and Due
Diligence for the procurement of wood products. Unfortunately, only about 8 EU member states are
enforcing the EUTR to some extent. Some of the retail sector in particular in the remaining EU-20
are not doing so.
• EU is a very tough market due to import regulations and size requirements (over 40 cm diameter). It
would be only possible for final rotation sales (over 20 years age). Volumes quite high, over 1,000 m3
per month.
45
Teak Market Survey, Key messages:
• Recommended efforts to “standardize” teak terminology and grading system for lumber to facilitate
sawlog commerce.
• Field inventories are made for commercial purposes: Simplistic calculations are not valid for making
realistic volume calculations. Outside bark volume formulas are not acceptable for determining value
of plantation woods.
• Traditional Asian Hoppus Ton measurements for large diameter trees is completely unacceptable for
smaller plantation-grown logs. •
• Research is needed to determine % heartwood for different sawlog dimensions (i.e., What is the
minimum heartwood top diameter of a log?), as well as to have some indication of the % sapwood in
different log diameters or from different locations. How does % sapwood affect total wood value?
• FSC and PEFC are globally accepted and are attractive for capturing investors.
• Current growth rates for Southern US pine are similar to teak and but the teakwood price is 6-10+
times higher.
• Hardwood consumption is driven by fashion, old growth teak used in USA furniture was a fashion
product
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Potential Teak Markets
Mercados Maduros
4,559,000 ha 44%
Big
Picture
Founded 1978 1961 1943 1982 1967
Sales
USD Billions $83.2 $53.4 $31.2 $12.1 $3.4
# Retail
stores 2,200 1,835 315 1,200 381
Building
materials /
products
40,000 40,000 9,500 50,000
# Employees 300,000 260,000 147,000 79,000 8,400
Nitori Group
Source: Company Websites, Sustainability Reports, 2014
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Potential Teak Markets
Mercados Maduros
4,559,000 ha 44%
Wood
Specifics
Sourcing by
country
N. America
(95%)
USA (70%)
Canada (24%)
Poland (26%)
Germany (7%)
Asia, Europe
Middle-East
South America
Suppliers 360 1,002 9,000
Total
Products 13,000 13,000 5,700 15,000
Volume
MM m3/yr.
15.0 (e)
52 MM m3/yr
Round wood
10.2
35 MM m3/yr
Round wood
4.5
16 MM m3/yr
Round wood
?
5.2 MM m3/yr
RWE
Global
commercial
wood supply
3% 2% 1% 0.3%
Nitori Group
Source: Company Websites, Sustainability Reports, 2014
48
Commodities & Real Assets
Jon Caulfield – Director of Research, BTG Pactual . UGA Timberland Investment Conference, 2015
• Commodities: Goods supplied to a market without qualitative
differentiation. The market treats commodity goods as
equivalent or with no regard as to who produced them.
• Real Assets: Physical assets having value due to their
substance and properties; includes precious metals,
commodities, real estate, timberland and agricultural land.
• As we know, “Teak” is a brand, but is not really a
commodity, e.g. 8-year-old teak from thinning in Costa
Rica is NOT the same “Teak” as from an 80-year-old
plantation in Indonesia.
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Checkoff programs
50
These programs allow farmers, ranchers and other stakeholders to pool their funds and develop a coordinated program of research, promotion and consumer information to improve, maintain and develop markets for their products.
Checkoff programs
Commodity research and promotion programs
Current Research and Promotion Programs
Beef Hass Avocados Popcorn
Blueberries Honey Packers Pork
Christmas Trees Lamb Potatoes
Cotton Mangos Softwood Lumber
Dairy Products Mushrooms Sorghum
Eggs Paper – Packaging Soybeans
Fluid Milk Peanuts Watermelons
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Conclusions
• Sometimes the investment return drivers are not always obvious –we need to
really understand the resource base that creates a solid and stable value!
• The Asian market governs trends in the global teak market. So teak supply
changes will have significant market impacts
• Clearly India is the main market, but not the only market, and teak (of different
grades) will continue to find its way into new markets globally
• Given that teak is a high-quality timber and the quality of plantation material on
the market will improve (more later-age thinning & clearcut material), this is
expected be a strong competitor for a number of the natural forest hardwood
species on the market
• Government policies are always critical, and can influence trade in unexpected
ways
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Challenges
• How can we create more consistent messages?
• Speak with one industry voice to tell our story
• We are behind; we must be aggressive in taking advantage of new
communications technology
• Strong checkoff programs should increase success with
intermediate and final customers and policy makers
• Support and engage with trade associations on regulatory issues
• Encourage use of teakwood in commercial construction
• Assess diverse delivered values on teak products
• Dedicate resources to research and forestry schools
53
Acknowledgments
ZOBEL FORESTRY ASSOCIATES, INC.
William Ladrach, President 1011 Winwood Drive Cary, North Carolina 27511, USA
e-mail: [email protected]
www.zfaforestry.com
54
Thanks!
Gerald Koch – Neue Marktentwicklungen und Regelungen. Institut für Holztechnologie und Holzbiologie, 2011
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