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Tense Times For Timber

5 Minute Read
Written by Lily Bedford
23 April 2024

New South Wales is under pressure to align with other states and to cease native forest logging. Victoria has already called a halt to such logging this year following decisions by the former Andrews’ Government.

The repercussions of the Russia-Ukraine war reverberate across global industries, and the timber markets are no exception. Russia, previously a major source of softwood lumber and hardwood, has experienced a significant drop in exports due to bans imposed by Western nations on commodity exports. This conflict has helped to propel the Global Hardwood Fibre Price Index (HFPI) to its highest level in over a decade.

China, a significant driver of global wood product demand, is grappling with a real estate crisis, exacerbated by the collapse of its largest developer, Evergrande.

In 2023, Canada faced its most devastating wildfire season in modern history, resulting in over 18 million hectares of burned forest, as reported by Natural Resources Canada. The Quebec Forest Industry Council (QFIC) estimates a financial impact of approximately C$13.5 billion on Quebec’s sawmilling industry alone. Some European countries are already compensating for the drop in Canadian production by increasing lumber imports to the US.

Researchers at the University of Queensland have identified that a mere 5% improvement in timber production efficiencies could facilitate the construction of an additional 8,000 homes annually in Australia.

Mass timber is in high demand globally due to its competitive pricing, its contribution to rapid construction, and prefabrication, and assembly systems. However, the drive towards achieving net zero emissions by 2050 may lead to a surge in global demand for timber, potentially exacerbating illegal logging in developing countries due to supply constraints, according to the World Bank.

The building industry in Australia is currently experiencing high levels of insolvencies, largely driven by factors such as fixed-price contracts that did not anticipate inflation in building materials.

Although many of these contracts have expired, builders’ net profit margins and cash flow have been severely impacted over the past two years, with lingering cash flow issues persisting.

The Australian Taxation Office (ATO), the country’s largest creditor, reports tax arrears amounting to $50 billion as of December 31, 2023. Consequently, the ATO has established a task force to liquidate companies with tax arrears if they fail to comply with repayment plans. ASIC reported a 40% increase in companies entering administration in February, the highest monthly figure since October 2015. Over the past year, 9,700 companies have entered external administration. Notable insolvencies in the building industry include Langdon Building, Porter Davis Homes, Mahercorp/Urban Edge Homes, GCB Constructions, and RFC Group.

Building approvals in Australia declined by 1.9% to 12,520 in February, with private sector dwellings, excluding houses, experiencing a 24.9% decrease to 3,771, while private sector houses saw a 10.7% increase to 8,404. NCI received 129 claims in March and 145 debtor incident reports for the March quarter, encompassing issues such as cash flow problems, repayment plans, and dishonoured payments.

In conclusion, the intersecting forces of environmental advocacy, geopolitical conflicts, economic downturns, and industry challenges are reshaping the landscape of timber markets and construction industries globally. As nations navigate these complexities, there’s a growing imperative for sustainable practices, innovative solutions, and robust risk management strategies to ensure the resilience and viability of these vital sectors. Collaboration among stakeholders, investment in research and development, and proactive measures to address emerging threats will be essential in steering towards a more stable and sustainable future for the timber and construction industries worldwide.

MGAIBA collaborates with NCI to offer a program for members aimed at safeguarding trade receivables from debtor insolvency, non-payment, and preference demands. Inquire today for more information.

As Australia’s leading trade credit insurance broker, NCI is uniquely placed to report on the ‘ups and downs’ of the country’s inter-business trading climate. With frequent media reports on the fluctuations of business trade credit factors, NCI’s is ideally placed to demonstrate the extremes of Australia’s economy.

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