Forestry investment bucks the trend

MANY LEADING personal finance blogs in Europe and the US have been buzzing with discussion centred around the question of what are the best alternative investments in the current climate. Why are timber and forestry investments cropping up so often?
Bill Martin of Bullmarket.com reveals that the latest stock to catch his eye is Plumb Creek Timber (PCL) – the largest owner of timberland in the United States. “Earnings have been stunted in recent quarters by the housing slump, but the company sports a strong balance sheet and an asset base that thanks to nature only gets larger and more valuable as time goes by.”
Indeed, the unique feature of forestry as an investment is that if demand is down at any point in time, it does not really matter in the long run. If the timber is not harvested right now, the assets only become more productive as they grow.
Greenwood Management, a Dublin-based firm with several offices around Europe, offers forestry investment services to private investors. Spokesman Joe Randall says that there is a lot of interest in forestry, possibly surprisingly to some given the state of the stock markets.
“But then again, forestry is just so unlike other investment products, it has a fundamental stability. Forestry stocks in the US have been doing really well compared to most other sectors and against the Dow Jones index. In the UK, the latest research from the IPD (Investment Property Databank) shows that forestry has outperformed every other asset class including stocks, bonds and commercial property,” said Randall.
In fact, the IPD UK Forestry Index outperformed equities by a factor of six, returning 31.6% in 2007.
Certainly the global recession is affecting nearly every industry to a degree, and construction is no exception, slowing uniformly around the globe. But what needs to be taken into account is the choice of raw building material: timber is gaining share as the most environmentally friendly and sustainable option.
There is also a growing demand for eucalyptus trees in Brazil to help power the massive steel industry. Brazil’s steel industry is led by companies owned by Arcelor Mittal, the world’s richest man, and other steel manufacturers there are following Mittal’s lead in switching from coke to charcoal.
This is a boon for the environment in two respects.
Firstly, coal mining has been a leading cause of deforestation in the region. Alongside cattle grazing and agriculture, coal mining is one of the chief threats to the Paraguay River Basin and the Brazilian Pantanal, the leading hydrographical drainage of the South American continent.
Secondly, powering steel plants with eucalyptus charcoal is carbon neutral because the trees consume more CO2 while growing than they exude when burning. The country subsequently earns valuable carbon credits from the Kyoto Agreement.