Pulp mill wood supply

By Managing Director Bob Gordon


The proposed Wood Supply Agreement between Gunns Limited and Forestry Tasmania will secure a long term future for the timber industry.

Forestry Tasmania and Gunns have reached written agreement on the pricing mechanism and quantity of pulp wood for 20 years, but the deal will not be executed as a contract for another month.

Forestry Tasmania’s Managing Director Bob Gordon said the release of the terms of the agreement was a watershed moment in the Tasmanian forest industry.

“In the past, these agreements have been kept confidential to protect the commercial interests of Forestry Tasmania and its clients.

“However, both Gunns and FT agreed to release the information, given the enormous public interest in the project, and the importance of it to the future of the Tasmanian forest industry.

“Forestry Tasmania harvests native forests and plantations to supply the industry with 300,000 cubic metres of saw and veneer log – but to continue to do so requires a long term market for pulp wood.

“The Heads of Agreement between Gunns and FT provides the long term security needed by the industry.

“Under the HoA, Forestry Tasmania will supply 1.5 million tonnes of pulp wood annually from regrowth forests and plantations for 20 years.

“The volume represents about half of the 2.8 million tonnes that is available from State forests each year,” Mr Gordon said.

“I am also delighted with the price and security that Forestry Tasmania has been able to achieve during the negotiations.

“It reflects a recognition by both parties that the community expected a fair and reasonable return for the state owned resource.

“The base price we will achieve is above current rates and will provide a secure income for FT for two decades, Mr Gordon said.

Key Outcomes of the Agreement

• 25 per cent price increase for regrowth pulpwood to around $17p/tonne
• 85 per cent price increase for plantation pulpwood
• FT’s operational profit forecast to rise by $15m to $20m
• Benchmarked to international pulp price
• floor price established to limit FT’s exposure to downward pressure on the international pulp price
• Provision for a third Rotary Peeled Veneer mill using logs that would otherwise be exported as woodchips
• New arrangements will provide improved security for contractors
• Security of supply for sawmillers and processors other than Gunns.

Mr Gordon said under the pricing mechanism, FT can take advantage from increases in the pulp price, but is protected from big falls.

“The price is significantly higher than the $12 to $14 predicted by uninformed commentators.

“As FT-owned plantations mature, the proportion of plantation wood compared to regrowth will increase in the years ahead,” Mr Gordon said.

“I want to make it absolutely clear the rate of harvesting in native forests will remain the same, irrespective of whether there’s a pulp mill or not.

“We do not and will not harvest native forests beyond sustainable levels.”

Mr Gordon said he was confident the major issues had been considered but FT would be consulting major industry stakeholders in the weeks ahead before finalising the arrangements.

“We have also commissioned an independent analysis of the pricing structure, which should be available in the next few days.”

ENDS
Date October 19 2007

Media inquiries:
Meaghan Newson, Corporate Relations, Ph: 6233 7052

Attachments:

Pulp mill wood supply agreement fact sheet [39KB]


Premier’s media release: Wood supply negotiations on track [31KB]


Heads of Agreement: long term pulpwood supply agreement [52KB]


Pulp mill wood supply agreement - interview [1496KB]




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