Forest Sector holding up in Covid-19 lockdown

April 16, 2020

By Chris Chapman

How the SA Forestry Sector survives through lockdown and an uncertain future …

The Forestry South Africa (FSA) team, which represents timber growers, estimates that somewhere between 60% to 70% of businesses in the South African Forest Sector have been able to continue operating through the lockdown period – albeit at reduced levels due to staff restrictions, operational challenges and falling global and domestic demand.

This is thanks to the fact that the Forestry Sector has been declared an essential service insofar as it supplies goods and services used for the manufacture of essential items like hygiene and energy products, packaging for food and pharmaceuticals, and pallets and bins for the storage and distribution of essential items.

Most of the pulp, packaging and woodchip mills are operating but at reduced levels as markets across the world have been severely disrupted by the pandemic.

The curtailment of orders from established customers has forced woodchip mills to find new customers, and there have been some successes in this regard. This will stand woodchip exporters in good stead going forward as it spreads the risk of having too many eggs in too few baskets.

Sappi has announced that it has halted work on its expansion and upgrade project at Sappi-Saiccor mill, which is set to increase the mill’s dissolving wood pulp production capacity from 780 000 tons/year to R890 000 tons/year. This is a consequence of the lockdown restrictions as well as the challenging trading environment and uncertainties and disruptions in the market. It is likely to have implications for external suppliers of fibre into Sappi-Saiccor going forward.

FSA reports that there has been a 21% to 30% decrease in demand for Forestry Products across the sector. In particular, domestic demand for almost all products (except pulp) has declined as a result of producers further down the value chain struggling to maintain production.

Large vertically integrated forestry businesses who have their own timber resources are reducing the volume of timber sourced from external suppliers as they seek to curb costs and protect their cash flows.
This is not good news for the private tree farmers, community-owned forestry enterprises and small-scale growers who are reliant on those markets.

However, if there is a silver lining to the current Covid virus pandemic scenario it is that trees keep growing through the lockdown so there is more timber volume to harvest when business stabilises and demand picks up again.

Despite the lockdown challenges between 91 – 99% of industry payroll for March was met, according to FSA. However this is offset by a reduction in numbers of temporary and part-time workers being retained by the sector.

FSA expects 81-90% of the Forest Sector payroll to be met at the end of April, when the lockdown is scheduled to move to Stage Four.

Forestry contractors
Most of our 300+ forestry contractors are still managing to operate, although orders are dipping. A colleague travelling in KZN recently reported seeing timber piling up on roadside depots. Mills are committed to taking timber that has already been felled in terms of existing supply agreements, but are advising suppliers to stop harvesting fresh timber going forward until firm orders are secured and logistics in place.

Jaap Steenkamp, CEO of the SA Forestry Contractors Association, told SA Forestry that silviculture contractors in particular have been badly disrupted due to the requirements of adhering to social distancing regulations making these labour-intensive operations much more difficult to manage. Consequently some companies have stopped silvics operations on their plantations during the lockdown.

A large harvesting contractor I spoke to said their operations, which are fully mechanised, are continuing pretty much as normal. They have been providing transport to help operations staff get to and from site to avoid them having to use taxis, while admin staff are working from home.

One of the issues affecting contractors and other suppliers to the sector is that in some areas authorities will not accept or are reluctant to accept the documentation that their staff are carrying as they don’t see a clear link with an essential service. This is an ongoing challenge across the sector as local authorities struggle to apply lockdown regulations consistently.

Equipment suppliers
Suppliers of harvesting, processing and land preparation equipment used in forestry are still ticking over through the lockdown period. Two prominent equipment suppliers I spoke to said they were still supplying parts and technical services to contractors operating their machines, and one has even received an order for a new harvesting head mid-lockdown.

The picture in the sawmilling sector is bleak. Those sawmills whose primary products are deemed to be contributing to essential services, like boxes, bins, packaging material and pallets used for transport and distribution of food, pharmaceutical products, are continuing to operate. However sawmills focused on producing non essential items like timber for the construction and shopfitting industries, are closed. Some of the big sawmills are among those that are closed for the duration of the Stage Five lockdown as their products are not deemed essential.

The sector is however optimistic that the tide might turn if government - through the Department of Human Settlements - does implement the proposed low cost housing scheme to ease population density in certain areas.

Roy Southey of the SASA says the employment situation in the sawmilling sector is “grave”.

“Most sawmills are dramatically cutting back production”’ said Roy. “Many of them are applying for UIF relief funds to enable them to keep paying staff, but how long can this go on?”

Treated poles
The treated pole industry is in the same boat. “The industry is bleeding,” says Bruce Breedt, Executive Director of the SA Wood Preservers Association.

Treated pole manufacturers supplying the agriculture market are considered essential services, and are still receiving some orders, though volumes are way down, he said. Pole manufacturers supplying into the construction, fencing and furniture markets are all closed for the lockdown.

Producers of transmission and telephone poles are still operational, but demand is way down. This segment of the industry is very dependent on export business into Africa, which was severely depressed even before the Corona virus pandemic.

Uncertain future
Now with the lockdown scheduled to move to Stage Four (partial lockdown) at the end of April, there is some good news as restrictions will be lifted on manufacturers of paper (100% workforce) and construction materials (trusses, engineered wood and board) – 50% workforce. However the key challenge occupying the minds of government and business owners alike is the uncertainty of the future. How will this Corona virus pandemic play out over the next few months, and indeed over the next few years? How to survive through the turbulent present, and how do we re-engage and kick-start an economy that has tumbled into free-fall over the past month and a half?

Already the phrase ‘force majeure’ has cropped up in the global forest products sector as businesses are unable to honour their contractual obligations due to circumstances beyond their control.

The Covid-19 infection statistics in South Africa are showing signs of slowing down, so hopes are high that we will avoid a massive surge in infections and life will gradually return to normal. However a week is a long time in a Covid-19 pandemic, so we will have to wait and see what happens.

The socio-economic impacts of the pandemic will be another curve ball with major implications for the Forestry Sector and for the entire country going forward. Correction – for the entire world!

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