COURSE OF TIMBER PRICES.

Hokitika Guardian, 8 October 1921, Page 1

COURSE OF TIMBER PRICES.

HOARD OK TRADK RKVIKW. A review of saw-millers’ prices for New Zealand timlier lias been prepared by tbe Chairman of tile Hoard ol Trade (Mr \V. 0. .M’Donald) for the Minister of Industries and Commerce (Hon IC. I* Lee). The report states: - 1 “Since August, RMS. the Hoard of Trade in addition to enforcing restrictive measures in regard to ex|X>rt with a viuw to conserving the available timher supplies of the Dominion, has also exercised a control of the. price ol' limber in .New Zealand. Before ally increase in selling prices has been sanctioned inquiry lias ls>en made into the reason for such an increase, and the [Hoard has adopted the practice of refusing its approval to any increase unless such c-onUl be substantiated by reliable, cost data justifying the same. Notwithstanding this restraining influence price have shown an enormous increase, particularly, when compared with those prevailing in pre-war years but against this it must bo lmrne in mind that tliev would liave been considerably higher had they been govern, ed by export parity. The guiding factor in price fixation by the Hoard of Trade has lieen cost of production. “The board has recently made an investigation into the timlier-milling industry in regard to the production cost tbe selling prices, and the margins of profit. Owing to the carving nature of the industry .and tlie diversity of conditions of operating, a relation of profits to the capital outlay is not a true indication or results or a fair basis of comparison)! Tt has been attempted to reduce tbe cost and tbe. return to the basis of 100 superficial feet of output-. There 'are approximately doO mills at present operating in the Dominion. Thus an attempt to investigate the affairs of every mill would lie a task of a magnitude that the results would not warrant; hence several representative mills have been selected, and information has l>cen collated

iToascd cost has been concurrent with increased prices. It should he. explained that the conditions under which the various mills operate differ so widely that no general -stnl.-meat can Ih> made ns to l lie cost of production. Jiveii ill till- same district the costs vary considerably, and 'an average cost- of production’- if such could he accurately given unless ac-enllipaiiied by full details featuring lliti conditions of ouch mill concerned, would show the position unfairly from the point of view of any particular miller, unless a more uniform standard of arriving at the results weru adopted. ROYALTY CHARD H. “One of the most important items which millers ineliide in tile cost of production is the royalty charge payable in the owners of the standing timber, and in ros|K-ct to this item of cost remarkable variations are found -e.g. from :id to Ids per 100 feet, according to the nature of the bush an 4 the kind of timber. Some of the older established mills are now cutting hush which was acquired many years ago at comparatively low prices. In many eases the royalty charge, or “cutting rental," was adjusted on a basis of values ruling (say) twenty years ago. These mills have a decided advantage over mills that linvo acquired rights in recent years. In many cases the profits are made not oat of the milling operations, hut out of the increment in the ‘stumpago value,’ ami almost equally good returns could he obtained by merely selling the standing timber on a revised royalty basis. Thus for the purpose of arriving at a. reasonable rust of timber ‘off the saw’ it is essential that royally at current ruling rates shall he taken into consideration if tho results of the various mills are to ho at all comparable. “The life of a mill is also an important matter in its relation to depreciation charges, which must he allowed in respect of various assets which have a - small ‘break up or residual’ value, and it lia.s to he realised that j the ‘life’ tif a timber-milling proposition is in many eases indefinite, d Tn some eases it ia impossible to deter-

may bo made for depreciation of assets. The future prices for timber aiul the costs of production will determine the possibility of profitably working additional areas of timber country. Those factors must therefore be considered when estimating the ‘life’ of a particular enterprise. The widely varying nature of tin 1 cl.'iss of timber milled. and the varying ousts in the matter of transport to the market, are factors that render futile an attempt to present anything fn the notn.re of an average Dominion cost. In point -of fact, "the cost of production for each mill must be taken in; relation to the average price realised at mill-skids for timber produced at that mill. The value at mill-skids can only be ascertained by deduction of freight charges from prices realised at point of sale. The variation in freight charges thus influences largely the millers’ actual return. This is demonstrated bv the following instance: Actual cost, of a particular grade ot tint, let- in "Wellington is 2.1 s 2d per 1011 ft From the "West Coast this includes freight charges of 7s 2d. leaving a net fm.h. return of IGs per 1 (K>ft. as company! with a net price on trucks at Ohaknno of IPs Od with railage only ■ls 3d. “ONLY REASONABLE PRUf'TT.” “As already intimated, as the result of tko investigations made, tile Hoard is satisfied that when all the circumstances are taken into consideration only a reasonable profit has lieen made generally but those mills that are work ing on rights acquired on advantageous terms years ago are earning fairly lucrative profits as compared with the mills working under current royalty conditions. In order to demonstrate that high prices are not necessarily indicative of high profits, the variations in the production-cost figures, together with the average prices realised, are shown of a fairly representative mill during the throe years of the lon id’s exercise of control. Tin's case is typical of the way in which production costs have increased ill recent, years. The total cost, of production per H*lft ('including a proportion of overhead costs and land and income tax’) runs out at 11s Find in 1018-10. 13* P.oGd in 1010-20. and 17s o.fild i" 1020-21. Throughout that period royalties have been cinnpei atively constant at approximately 2s Id to 2s 3d per 100 ft. Felling. cross-cutting and hauling costs have increased from I7LI to over 31d. Mill wages have increased from •jot to 311, yard wages from Ml I<> nearly 2nd. mill salaries from STd to n 1,1 horse feed from Old to 13d r*piii rs aml maintennw r* from < \ to noarly lld .ovfrliojul expense's from l ;,( l tn approximately 20d. Other small items of cost have also shown increase. The average price realised for tinil>or sold lias increased from 11s O.OGil in 11)1811 j 1(1 ic,s -1.31 din 1010-20, and 20s G.,17 in 1020-21. At those figures tile margin of profit, for the year elided March 21st. 1021. lieing approximately 3s Id i< very close to the margin of profit, in PH!) and very little more than that in 1020. Figures with respect to this mill have since been submitted for the period April 1 to •f""e 18. 1021. andthese disclose a material increase in

-.II'STI KIF.D RY TN'C’R KA.SKD COST" "Another example is quoted front which for purposes of -mace. details are omitted. Imt the filial results show that tin- increase in selling prices has been justified by the increased cost. Tor the twelve months ended August hist.. 11)0(1, the average Hist per KHlft "'as IDs 10.S(1 and tin- average pi ice realised for the same period was 22s 8.1-Id. |-',it- the six months ended l-ebruary 28. 111-Jl. the average cost per 100 sup. fret was “Is. 0. lid and tie- average pri.-e realised for the simf period was •J.'js 11.7.1. It will he observed that.

although the selling prices have in. rcas- ,.,| (lien- lias been a reduction in the actual margin of profit. "Tim two mills already rcfciT.-.J to are North Island in ill- Hereunder are s.-t out the costs and the average prices realised of a typical South Island mill, the ellieicmy of which is pi ole ably al ove the average : i’l ocli.et ion < '..Sts per 100 ft C m ;| t Mill. | DID. |D2(>. ID'-’I Year. Year. Yeai 1 DID. 1021). 1021 I jigging Ti.j.’i 1K.07 OTDI’ Milling ...... HH.I7 Tl.ll “0.72 Ya i ding T.Sli 'O2 .TOD Loading ...... O.Do 1.21 1.88 Royalty 0.(11 0.00 0.10 Depreciation 0.77 -'.O' ( ’..S (U-.-rhead ... 1.’i.01l H'MKt R'-OO Income lax ... 0.00 l-1.110 LI.Of Total csl. .. 100.8-1 128.00 1 (hi.B7 (Ss I Oil) (10s 0.1) (Ids Ddi Average I'ri-c-s Realised oil Truck--at Mill. IDID 1020 1021 s. ,1. s. d. s. d First-,-lass 1.-i II 1“ 0 18 2 Second-class ... II 10 II I LI l 1 Third-,c-la-,s ... - - >- 8 All-over avge. 12 0 lb 0 K> “Til,, present resti ic-lion on stil--s. due pi'iinarilv to tbe stringency ol finance is in itself adding to the cost ol production. Hi many of the sinuUci mills it was customary to effect delivery Straight, off the saw. but now the mll - ler is put to the expense of stri qiiue am] stacking 11 1 - limber and fina'ieing the slocks held. It must nut, he- overlooked that, the timber industry i- one that- is subject to the law of diminishing returns. Hath year’s cutting u< -i-.-ssi tales an extension of the tram lines to the more remote parts of l lull n s I ■ am) thus involves heavier handling charges. LOSS IN (TTTI.NO. ■•‘fbe inc rease in the value of timber has given utility to much limber 1-hat lias hitherto -been discarded, it bc'ng considered unfit or too small fur mill ng purposes. There has thus been an acoretioln to the timber, resources of the Dominion; but although there lias

inillabb; timber, there is an increase ill the percentage of waste on this class of limiter and consequently an in-, crease in tho cost of production pet unit of useful timber cut out. The loss iu cutting is n factor in the cost of production of considerable importance. tine of tlie best tests of mill efficiency is tho small percentage ol loss ill cutting; but the nature of the bush has a considerable bearing on this aspect. It is estimated that on the I gross cubic content of a log (Hoppus ; measurement), with no. allowance for j Milk etc., tile loss ill saving is 10 j per cent. Const qm ally It) p*T cent of; the cost of milling timber is incurred in tho production of waste products. Of this ‘lO per cent approximately 22j per rent goes in s:« di.sl, including 2-1 per cent' for flit tiling (this is all absolute loss), and the remainder (17J per cent) is made up of slabs and dockings »f practically no commercial value. i ■‘Although, as a temporary phase, the present financial stringency may compel certain firms, not linaneiallv sound, to realise on their stocks at a sacrifice, it is evident that, until there is a reduction in tic past of production, no permunenl , decrease in timber prices can be expected. As a counteracting bill nonce to the

persistent effect of the law of diminishing returns, thereby attempting to prevent prices from going still higher, and with a view to the conserving of our timber supply by the elimination of waste, the. Hoard of Trade is going into the question of improving and standardising the system of costing with the object of impro, ing the ctli, ieiicy of the mill organisation generally, and i is also urging upon millers the adoption of a uniform system of measure-

ment with the idqa of establishing standards that will tend towards a reduction of the loss in cutting. The price of timber is approaching what may be termed the marginal utility point.; hence it is imperative, in the interests of the millers, of the industry generally, and of consumers, that no ellorl should be speed (~ increase the efficiency in product ion ami thereby bring alioul a lowering o£_tlm cost."