Port of Tauranga

Port of Tauranga will make a statement early next week on its proposed merger with Ports of Auckland, with one analyst suggesting it is likely to call the whole thing off.

Goldman Sachs JBWere said in a research note that it believed the port, buoyed by winning extra shipping services from Hamburg Sud, would not be prepared to wait any longer for the support of Ports of Auckland owner Auckland Regional Holdings.

In October the ports announced they were in merger discussions. But in February ARH said it needed a more detailed analysis of the business case and had hired investment bank Cameron Partners to help. On the same day Tauranga said it would make a "final decision" on the merger by the end of March.

Tauranga port chief executive Mark Cairns said the board would meet today and make a public statement on the merger early next week. As of yesterday the port still had not received a final decision from ARH. "We are still in discussions with ARH."

The Goldman Sachs JBWere note said: "Buoyed by solid operational outlook, including additional services from Hamburg Sud and potential higher export duties on Russian logs, we believe PoT is not prepared to wait any longer for ARH support."

Goldman Sachs JBWere ports analyst Marcus Curley said Hamburg Sud's announcement this week that it would shift its North Island southbound port call from Auckland to Tauranga made a merger less likely.

Hamburg Sud had suggested reasons for its shift were cost savings, better service and more efficient logistics, he said.

"You could read cost savings as being lower pricing of port services. It seems a little odd if you were sure a merger was going ahead that you would be aggressively looking to attract new lines into your port using price."

ARH chief operating officer Peter Casey would not say when ARH would make its decision but implied it was not imminent.

"We have never talked about time frames," he said. "The PoT's statements about deadlines may be giving people the impression that the merger is an easy thing to do. We did a lot of homework when we took the port private in 2005 and this thing is five or 10 times bigger than that."

Mr Casey said even if the ports agreed to the merger it would face significant competition hurdles.

Port of Tauranga shares have been trading as high as $6.45 in recent weeks and closed 15 down at $6.30 last night. Goldman Sachs JBWere values the shares at $6.40 to $6.60 if the merger succeeds but only about $5.30 if it does not go ahead.

New Zealand's forestry industry - already enjoying rising world log prices - is expected to get a further boost as Russia imposes heavy duties on its own log exports.

Russia, a major log exporter, has said it will lift its export duty from 6.5 per cent to 20 per cent by July, then to 25 per cent in April next year and to 80 per cent in January 2009. The rises are aimed at encouraging Russian domestic log processing.

The higher duties promised to have a significant influence on the Asian log trade and could greatly improve returns for New Zealand log exporters, First NZ Capital analyst Rob Bode said. In the short term, however, there could be a surge of Russian log exports to Asia, ahead of the July increase, which could disrupt the market for New Zealand exporters, he said.

Key forestry gateway Port of Tauranga stands to benefit in a ramp-up of log volumes from central North Island forests. First NZ Capital revised its profit forecasts for the port upward after its strong interim result last month. It is forecasting Port of Tauranga's after-tax profit to rise from $28.8 million in 2005-06 to $34.5 million for 2006-07, $36.6 million in 2007-08 and $41.1 million in 2008-09. Mr Bode said the news from Russia gave him added confidence in those numbers. "They could be exceeded but there are lots of unknowns."

New Zealand forestry, battered for years by low log prices and high transport costs, has seen its fortunes turn around with international prices lifting strongly during the past year or so. According to BNZ's latest Commodities Wrap, export log prices jumped 37.1 per cent in the year to December, domestic log prices were up 4.5 per cent, pulp and paper prices were up 7.2 per cent and wood products prices rose 3.5 per cent. Forestry generates about 9 per cent of New Zealand's goods export revenue.

Wood harvesting also looks to be picking up, with the high value of farmland and the possibility of a deforestation tax from next year also thought to be contributing to more cutting.

The volume of wood harvested in the September 2006 quarter was 6.6 per cent up on the June quarter and 2.2 per cent above year-ago levels. It was the best annual growth result in 312 years and the BNZ suspected the December-quarter figures, due soon, would show continued growth in harvesting, BNZ economist Craig Ebert said.

The combination of strong international markets and robust domestic construction amounted to a tailwind for the forestry processing sector, he said. "The bigger question is whether production can actually respond to any meaningful degree, with the forestry sector ... already running close to full steam in terms of machines and people."