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Update on Current Market Situation - Forico Pty Limited 16 July 2020

During the first half of 2020 Forico’s overseas customers had indicated their forecast of slightly reduced but still strong woodchip purchases for H2 July to December.

The forecast sales were around 800,000 green metric tonnes (gmt) of Eucalyptus nitens woodchips.

Unexpectedly during June our customers advised of the deferral of two vessels from H2 into 2021,  and the cancellation of another 6 vessels.  In total more than 400,000 gmt of woodchips were not required in H2.

The sudden downturn has been caused by a number of factors,  most notably the 45% drop in market pulp prices over the last 12 months,  the US/China trade war impacting China exports to the US, and now the global recession emerging as a result of COVID-19 and its impacts on consumption of pulp and paper products.

In response Forico has implemented every measure available to reduce activity across the whole supply chain – harvesting, haulage, woodchip production and sales – in order to bring the situation under control.

Harvesting contractor quotas have been reduced to around 65% of normal levels and both forestry operations and mills will take several weeks of shutdown to assist manage high inventories of both logs and woodchips that had been prepared in advance of the earlier sales forecasts for H2.

The effective operating level for H2 is likely to be around 50% of normal levels.

There is no indication yet as to what may happen in 2021. The global recession is only just beginning and the impact may not be known for quite some time yet.

The industry is being supported by various Government economic stimulus packages and forestry contracting businesses impacted by this downturn should maximise their use of any assistance that is provided. We commend the State Government for extending the Forestry Contractor Resilience Program which can provide financial advice and some funding to forestry contractors facing financial difficulties during this downturn.

It is essential for Forico and the forest industry generally that our supply chains are preserved as much as possible to enable increased activity when the inevitable recovery gets underway.

We are encouraged by international industry analysts whom continue to predict strong demand for certified plantation wood fibre in North Asia in the medium to long term.

Our challenge as an industry is to ensure we can survive to be able to take advantage of that demand when it crystallises into purchases of wood fibre.

Bryan Hayes

CEO, Forico Pty Limited

Chair, Tasmanian Forest Products Association