[graffis-l] CHINA AND TREES....., AND MONEY

[Guest guest]

Investors Embrace Trees to Tap China Boom

 

 

 

Posted by: " Mark Graffis "

mgraffis

mgraffis

 

 

Mon Nov 19, 2007 3:16 am (PST)

http://www.planetark.org/dailynewsstory.cfm/newsid/45399/story.htm

Investors Embrace Trees to Tap China Boom -------------------------

INDUSTRIAL HEMP ANYONE???

CHINA: November 19, 2007

 

HONG KONG - Investors looking for new ways to cash in on China's

strong economic growth are turning to its emerging forestry industry,

which is flourishing amid a clampdown on the global trade of

unsustainable rainforest timber.

 

China is the world's largest importer of soft and hard woods. Total

forest product imports more than tripled between 1997 and 2005 to 134

million cubic metres, accounting for around half the log exports from

Papua New Guinea, Myanmar, Indonesia and Russia. But with campaigns against deforestation prompting tighter rules on

international trade, a handful of listed logging firms are looking to

exploit China's 960 million hectares (9.6 million sq km) of forests, of

which only 5 percent is in plantation use.

The fledgling industry is planting fast growing, high-yield trees

such as eucalyptus to feed demand from explosive growth in home ownership

and construction -- and trying to soothe investors by battling

accusations it is harming the environment by using timber taken illegally

or unsustainably from the world's forests.

China's insatiable demand for raw materials has helped push up the

price of commodities from iron ore and palm oil to copper and milk powder

and wood products are no different. Benchmark NBSK pulp prices have risen

more than 30 percent in two years.

Analysts say firms such as Temasek-invested Sino-Forest Corp and

China Grand Forestry Resources Group can cash in on rising demand and

tighter supply.

" With China's significant imbalance of wood supply, upstream

players should benefit from rising wood prices, " said Chuan Tang, an

analyst at Deutsche Bank.

China Grand Forestry, which transformed itself from a garments maker

formerly called Good Fellow Group, has seen its market value balloon

nearly 18 times since the beginning of 2006, when it announced the

purchase of Beijing Wan Fu Chun Forest Resources Development Co Ltd.

 

" Despite early scepticism, the market now recognises that the

company's earnings model is sound, " HSBC's Ken Ho said in a research

report.

China Grand signed an agreement with Lee & Man Paper last month

to supply the container board maker's pulp facilities in China with raw

materials from its fast-growing, genetically modified paper mulberry

trees.

China Grand also agreed this week to pay US$820 million for Yunnan

Shenyu New Energy, a Chinese company that plans to make biodiesel from

Jatropha Curcas trees.

DODGY LOGS?

But some analysts say investing in Chinese forestry firms is risky,

as they are small and could be hit by unpredictable changes in government

policy -- common for any nascent industry.

China is just beginning to regulate its forestry industry and

detailed laws are lacking in many areas.

" They're mainly small-caps and investors may see difficulties

when they want to offload the stocks, " said Alex Tang, a research

director at Core Pacific-Yamaichi International.

There is also the risk the highly cyclical pulp and timber markets

fall, denting what forestry firms can get for their logs.

Chinese companies also face competition for forestry assets from both

global timber operators and pension funds, which view growing trees as a

good match for their long-term liabilities.

The world's top paper and board producer Stora Enso, which began the

development of plantations in China's Guangxi province in 2002, has plans

to plant a 160,000 hectare forest to support the establishment of a pulp

and paper/board mill in the province, boarding Vietnam. It spent US$37

million buying suitable land for a mill in April.

Morgan Stanley singled out Sino-Forest among its best China materials

plays, initiating coverage of the Chinese forestry and paper industry

with an attractive view.

" Not only do we forecast demand growth for industrial wood to be

robust for many years, but China's dependence on increasingly scarce

imported wood should ensure strong pricing power of at least 10 percent

per year through the end of the decade, " Morgan Stanley's Charles

Spencer wrote recently.

Apart from more established names such as Sino-Forest, a clutch of

up-and-coming producers is getting in on the act.

At least half a dozen Hong Kong firms, such as China Timber and

Venture International Investment, have either been bought by forestry

operators or shifted their focus to logging and wood products

manufacturing in the last two years.

They reason that with 42 percent of logging land owned by the state

and the rest operated in deals with local governments, there is plenty of

room for the private sector to expand.

And if their new plantations are eligible for carbon credit trade

under the Kyoto Protocol, that could bring in extra cash.

" This is a sector with great potential, but it's new to many

analysts and involves technical and government regulation requirements,

so investment risks are relatively high, " an analyst with a major

European house said.

Firms are also dogged by environmentalist complaints about

deforestation and illegal logging in tropical forests, often far from

China.

Omnicorp Ltd -- which is buying a tropical rainforest in Suriname in

South America -- has insisted it will practise " sustainable forest

management " , cutting selectively to maintain biodiversity.

But another Hong Kong-listed firm, Malaysia-based Samling Global,

said last month one of its units was fined US$470,000 by the Guyana

Forestry Commission for regulation breaches, including under-invoicing

the trees harvested.

The firm denied the allegations and will appeal against the

sanctions, which include the suspension of its sub-contracting operations

relating to the concessions. But the stock has fallen more than 30

percent from a July peak of HK$3.55. (US$1=HK$7.765) (Editing by Dominic

Whiting & Lincoln Feast)

Story by Alison Leung At 08:11 AM 11/19/07, you wrote:

Investors Embrace Trees to Tap

China Boom

Posted by: " Mark Graffis " mgraffis

mgraffis

Mon Nov 19, 2007 3:16 am (PST)

http://www.planetark.org/dailynewsstory.cfm/newsid/45399/story.htm

Investors Embrace Trees to Tap China Boom

-------------------------

CHINA: November 19, 2007

HONG KONG - Investors looking for new ways to cash in on China's strong

economic growth are turning to its emerging forestry industry, which is

flourishing amid a clampdown on the global trade of unsustainable

rainforest timber.

China is the world's largest importer of soft and hard woods. Total

forest product imports more than tripled between 1997 and 2005 to 134

million cubic metres, accounting for around half the log exports from

Papua New Guinea, Myanmar, Indonesia and Russia.

But with campaigns against deforestation prompting tighter rules on

international trade, a handful of listed logging firms are looking to

exploit China's 960 million hectares (9.6 million sq km) of forests, of

which only 5 percent is in plantation use.

The fledgling industry is planting fast growing, high-yield trees such as

eucalyptus to feed demand from explosive growth in home ownership and

construction -- and trying to soothe investors by battling accusations it

is harming the environment by using timber taken illegally or

unsustainably from the world's forests.

China's insatiable demand for raw materials has helped push up the price

of commodities from iron ore and palm oil to copper and milk powder and

wood products are no different. Benchmark NBSK pulp prices have risen

more than 30 percent in two years.

Analysts say firms such as Temasek-invested Sino-Forest Corp and China

Grand Forestry Resources Group can cash in on rising demand and tighter

supply.

" With China's significant imbalance of wood supply, upstream players

should benefit from rising wood prices, " said Chuan Tang, an analyst

at Deutsche Bank.

China Grand Forestry, which transformed itself from a garments maker

formerly called Good Fellow Group, has seen its market value balloon

nearly 18 times since the beginning of 2006, when it announced the

purchase of Beijing Wan Fu Chun Forest Resources Development Co Ltd.

 

" Despite early scepticism, the market now recognises that the

company's earnings model is sound, " HSBC's Ken Ho said in a research

report.

China Grand signed an agreement with Lee & Man Paper last month to

supply the container board maker's pulp facilities in China with raw

materials from its fast-growing, genetically modified paper mulberry

trees.

China Grand also agreed this week to pay US$820 million for Yunnan Shenyu

New Energy, a Chinese company that plans to make biodiesel from Jatropha

Curcas trees.

DODGY LOGS?

But some analysts say investing in Chinese forestry firms is risky, as

they are small and could be hit by unpredictable changes in government

policy -- common for any nascent industry.

China is just beginning to regulate its forestry industry and detailed

laws are lacking in many areas.

" They're mainly small-caps and investors may see difficulties when

they want to offload the stocks, " said Alex Tang, a research

director at Core Pacific-Yamaichi International.

There is also the risk the highly cyclical pulp and timber markets fall,

denting what forestry firms can get for their logs.

Chinese companies also face competition for forestry assets from both

global timber operators and pension funds, which view growing trees as a

good match for their long-term liabilities.

The world's top paper and board producer Stora Enso, which began the

development of plantations in China's Guangxi province in 2002, has plans

to plant a 160,000 hectare forest to support the establishment of a pulp

and paper/board mill in the province, boarding Vietnam. It spent US$37

million buying suitable land for a mill in April.

Morgan Stanley singled out Sino-Forest among its best China materials

plays, initiating coverage of the Chinese forestry and paper industry

with an attractive view.

" Not only do we forecast demand growth for industrial wood to be

robust for many years, but China's dependence on increasingly scarce

imported wood should ensure strong pricing power of at least 10 percent

per year through the end of the decade, " Morgan Stanley's Charles

Spencer wrote recently.

Apart from more established names such as Sino-Forest, a clutch of

up-and-coming producers is getting in on the act.

At least half a dozen Hong Kong firms, such as China Timber and Venture

International Investment, have either been bought by forestry operators

or shifted their focus to logging and wood products manufacturing in the

last two years.

They reason that with 42 percent of logging land owned by the state and

the rest operated in deals with local governments, there is plenty of

room for the private sector to expand.

And if their new plantations are eligible for carbon credit trade under

the Kyoto Protocol, that could bring in extra cash.

" This is a sector with great potential, but it's new to many

analysts and involves technical and government regulation requirements,

so investment risks are relatively high, " an analyst with a major

European house said.

Firms are also dogged by environmentalist complaints about deforestation

and illegal logging in tropical forests, often far from China.

Omnicorp Ltd -- which is buying a tropical rainforest in Suriname in

South America -- has insisted it will practise " sustainable forest

management " , cutting selectively to maintain biodiversity.

But another Hong Kong-listed firm, Malaysia-based Samling Global, said

last month one of its units was fined US$470,000 by the Guyana Forestry

Commission for regulation breaches, including under-invoicing the trees

harvested.

The firm denied the allegations and will appeal against the sanctions,

which include the suspension of its sub-contracting operations relating

to the concessions. But the stock has fallen more than 30 percent from a

July peak of HK$3.55. (US$1=HK$7.765) (Editing by Dominic Whiting &

Lincoln Feast)

Story by Alison Leung

 

******

Kraig and Shirley Carroll ... in the woods of SE Kentucky

http://www.thehavens.com/

thehavens

606-376-3363

 

 

 

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