FM Group Newsletter

ETS - Carbon Price Update

The Emissions Trading Scheme (ETS) is a market-based policy tool designed to reduce greenhouse gas emissions by putting a price on pollution. Participants are required to buy carbon credits (NZUs) to offset their emissions. Each NZU equates to 1 tonne of carbon dioxide.

NZUs were volatile throughout 2023 with the NZU price trading between the low $30s and a high of $88.50. This volatility has continued into 2024 with the market initially opening and trading above $70 /NZU earlier this year.

During 2024 the government ETS auctions failed due to the bids failing to meet the confidential reserve price requirements. The first 2024 ETS auction in March partially cleared with 2.974 million NZUs sold at the minimum reserve price of $64.

Following the first ETS auction, we saw a reasonable amount of NZUs appear on the market and this selling pressure dropped the price as low as $49.99 / NZUs. Price recovered slightly and has been currently trading around the $45 - 55 / NZU range.

The second ETS auction in June failed to clear with no units sold above the $64 floor price. Demand was non-existent for the auction volume as NZUs were available on the secondary market at $10 - $15 less than the auction floor price.

Outside of the NZ ETS auctions we continue to watch for announcements that relate to the ETS. Of note recently is the Ministry for Environment opened consultation on the

second Emissions Reduction Plan ("ERP2") for the 2026 - 2030 period. The plan outlines that this Government remains committed to achievement of our climate change targets. The plan outlines the role that offsets from forestry (both exotic and native) will continue to play. It also proposed opportunities that may exist for other types of carbon removals (non-forestry sources) including wetland restoration, on-farm vegetation, coastal vegetation management, marine ecosystems, carbon mineralisation, carbon capture, utilisation and storage ("CCUS") and more.

On land-use, Forestry Minister (Watts) outlined that there will be further announcements later in the year.

"Specifically, exotic forestry is an affordable and scalable way to lower net emissions, and an essential part of reaching New Zealand’s climate targets. However, forestry competes with agriculture for land. The NZ ETS creates powerful incentives that could result in largescale afforestation on productive farmland and whole-farm conversions. To manage this risk, the Government intends to introduce limits on the entry of new forests into the NZ ETS on productive farmland. Existing forests already in the NZ ETS will not be affected."

Despite this the ERP highlighted the ongoing role of forestry in the ETS and inidicated they are looking to introduce additional incentives for forestry removals.

"The Government will also investigate options to create durable incentives for forestry removals outside the NZ ETS, in addition to existing NZ ETS incentives."

The document acknowledges that markets are future focused and targets the credibility of the ETS as a key mechanism to drive down emissions.

"Providing regulatory predictability is a core priority for this Government. That is why one of the Government’s first actions was to end the review of the NZ ETS and why it is committed to:

• no vintaging of NZUs

• no differential treatment of forestry NZUs in the NZ ETS – one tonne of carbon dioxide equivalent (CO2-e) emissions reduction will continue to be treated as equivalent to one tonne of carbon dioxide removed from the atmosphere."

Consultation on the ERP is open until 21 August. You can have your say directly or contact us to share your thoughts to feed into our submission.

As always the longer term fundamentals still point towards a higher carbon price being needed to drive the emission reduction change required to meet our 2030 and 2050 goals. The recent CCC recommendations have maintained consistency with proposing a pathway of increasing prices for NZUs supplied from the government auctions.

If you have any questions please give Adrian a call on 027 266 0414.

Log Market Update

Perhaps we are getting used to the world of change as we are now seeing a small period of stability in some markets. China’s imports have been consistent from NZ at 1.4mil jasm3, and it appears supply is almost equalling demand with uptake of logs around the 55k per day, or 1.3mil per month.

It appears that on the back of this we have seen a lift in sales prices in China for Q3, and a steady demand for A grade in particular. This has followed in Korea.

India has also taken 2 successful vessels from a large NZ Forest company, and with plans for further shipments into 2025. From all accounts this has been successful, and it is good to see the industry diverting wood from China, but China will still remain a big market.

Ocean freight is still a challenge, but has also stabilised compared to April. There is an imbalance from the number of handy size vessels in the Pacific compared to the Atlantic (more in the Atlantic) which is expected to put demand up for vessels to NZ in Q4 of 2024. Also forecast demand for coal from China to India means we could see this also soaking up handy size vessels due to India ports being able to handle these types of vessels only and not the larger Supermax vessel.

The Red Sea shipping crisis continues to disrupt the global supply chain of products.

Overall an encouraging lift of $10 - $14 for our AWG prices in Q3 compared to Q2, which is positively received for logs into Asia.

With the forecast overall, cut from NZ down to possibly as low as 26mil m3 compared to 35mil m3 pre-covid. NZ supply is well in check with demand and other competing countries supply is not as competitive price wise as NZ volumes.

Most forecasts are, however, flat in terms of price/shipping and supply which at least is better than a drop.

On the domestic front, we are seeing also a slow down for Winter, as expected. In Canterbury this will not be so much price effected but volume related. This is typical of this time of year, here’s hoping lower interest rates will help for demand in Q4 of 2024 and early 2025.

Our Winter, or Asia’s wet season, are often a bad time to sell export grade volumes, a lot affects our log prices that are outside our control. The change for NZ is the reduction of demand in China, and now the USA is our biggest export market over the NZ exports. Not sure if this is better, given the tariffs a possible Trump administration would render on NZ exporters compared to China?

I still maintain that if it takes $30 NZD per tonne approximately to cart logs 100km in NZ, it seems cheap to spend $36 USD to ship it to China from a NZ port. NZ’s advantage is we can supply at competitive rates as long as we don’t push too high on sales prices, compared to what other countries like South America or the USA need. Supply from Russia/Europe to Asia or India is diminishing due to internal demands.

Stand Record System

Introduction

Forest Stand Record Systems are not new in the NZ forest industry and are used to record a range of data attributes that individual stands possess within a larger forest setting. Government and larger private estate companies have utilised various systems since the beginning of plantation forestry in NZ, dating back to the early 1900s.

From the 1980s through to the current year, government grant schemes and the rise of the Emissions Trading Scheme (ETS) has seen a large volume of private forest blocks planted across NZ, ranging from 1 to 1,000+ ha. The net result being a patchwork quilt of forest blocks planted on private land. FM Group have recognised the need to record this forest data for individual clients, from planting through to harvest and utilise this information to maximise crop and carbon yields.

Development of the FM Group Stand Record System

FM Group has spent the previous 14 months developing and refining a unique SR system that captures all forest, ETS, and applicable land data for clients. Client logins can be purchased and gives the ability to scroll over each forest area and click to view specific attributes of that stand or scroll out to see higher level summary of their forest estate. For those not wanting to purchase a login, client data is captured and available on request.

Why Capture your Forest Data & Engage in the FM Group Stand Record System?

• All forest information is stored and summarised in one place and is easily

• Accessible for all forest stakeholders. Accessible and up-to-date forest information allows accurate cashflow planning.

• FM Group staff can easily access client information and apply best practice industry knowledge to individual forest stands.

• Timely advice around tending (pruning/ thinning), ETS returns and notification to MPI if registered forests become damaged through adverse events, this results in optimal forest outcomes and maximising income streams.

• Notification of any forest disease or pest incursions within your specific region and appropriate treatments. This will become more important as we see climatic change effecting forest stands.

• Linking forest owners resources together within a region gives us the ability to build a stable contractor workforce. This will be important in the coming 3-10 year period, as large areas of young forests require tending. For mature harvestable wood it allows us to aggregate volume within a region, and negotiate fixed log price deals with domestic and export traders, reducing the risk of price fluctuations over a harvest period.

Further information will be sent out to current FM Group clients providing more detail on the structure of the Stand Record System and invitation to gain a personal login.

Please talk to your regional manager if you have any questions or would like a detailed demonstration.

2025 Planting Season Orders Are Open

We are currently taking orders for our 2025 planting season.

Our Services:

Pre-planting assessment

Planting forest areas is often a key part of sustainable land management on farms and rural properties. These areas of forest can deliver multiple benefits to the landowners.

Contact our experts who will develop a plan tailored to your unique block of land, outlining the preferred species choice and mixes to ensure you are planting the right tree in the right place. Through careful planning, we can also ensure you focus these planted areas to maximise their potential eligibility for carbon credits through the Emissions Trading Scheme.

Planting

Forest Management has a large portfolio of clients who rely on our team of experts to deliver the maximum value from their forest establishment.

New planting and restocking

We engage professional planting contractors to ensure optimal seedling survival for both new land and cutover planting.

Species choices

We ensure the choice of tree species is suited to the site and the seedlings are high-quality stock sourced from local nurseries.

Survival counting

We undertake survival assessments on all planting operations to ensure establishment success.

Release spraying

We ensure the correct use, and application of chemicals to control weeds and grasses. We undertake both aerial and manual release spraying depending on your site’s environmental requirements.

Please contact your local manager to confirm your tree stock orders.