Asian wood demand drives $319m Japan investment in New Zealand

The growing need in emerging markets for building materials and fuel has spurred Japanese trading houses to expand their forestry operations.

Sumitomo Corp. plans to spend about 25 billion yen (SGD $319 million) on acquiring more pine forest in New Zealand, one of the Asia-Pacific region’s major timber exporters, looking to double its acreage by 2021.

Wood is in increasing demand to build houses in emerging markets as incomes grow. Forest waste is also emerging as a renewable energy source to replace coal.

Sumitomo harvests in 30-year cycles, allowing time for trees to regrow, with the cut wood shipped as lumber to China and elsewhere.

The group also will invest about 6 billion yen to expand a lumber mill in Russia’s Far East run by Terneyles, a logging company in which Sumitomo holds a 49 per cent stake. Terneyles manages 2.85 million hectares of forest in the region and exports building materials to East Asian markets.

Rival trading house Marubeni will revamp its tree-planting operations in Indonesia to boost timber output by 50 per cent to more than two million tons a year around 2025. That is expected to be the peak harvest period for the company’s eucalyptus trees there, which take six or more years to mature.

The wood from this plantation goes to a nearby pulp and paper plant. Marubeni now looks to tap markets for other applications as well, such as biomass power.

Forestry is becoming an earnings source for both groups. Sumitomo’s New Zealand and Russian forest operations generate just over two billion yen in annual net profit, a figure it aims to boost to nearly five billion yen by 2022.

Marubeni’s forestry and paper and pulp operations earned a combined 6.2 billion yen in net profit during fiscal 2018. This could rise to more than 10 billion yen in the mid-2020s, depending on market conditions, a company source said.

Global production of industrial roundwood rose to 1.96 billion cu. meters in 2018 from 1.55 billion cu. meters in 2009, United Nations data shows.

Research into new technologies using wood could boost demand for timber further. Japanese developer Sumitomo Forestry announced plans last year for a wooden skyscraper, while strong yet lightweight wood-derived nanocellulose draws attention as a potential alternative to plastic.