Another day, another casualty of the high Australian dollar, weak domestic economy and construction industry downturn in Australia – not to mention another company of more than one hundred years of age being in receivership and another 645 jobs being in doubt across Tasmania, Victoria, South Australia and Western Australia.
The latest developments with regard to Gunns Ltd, the Tasmanian forestry and timber products company which yesterday went into receivership, highlights many things on a number of different levels.
But two of the most prominent revolve around just how much of an impact the weak domestic economy and the downturn in the construction industry has upon workers and upstream industries as well as the risks to the industry of a hollowing out in its supply base.
To be sure, much of the troubles with Gunns, especially the difficulty it has had with environmentalists with regard to its proposed Bell Bay Pulp Mill as well as its levels of debt, have been specific to the company.
And to a large extent, the fall of Gunns reflects conditions in the broader forestry and timber industry as a combination of weak demand in overseas markets and the high value of the Australian dollar have led to a collapse in woodchip prices and a flood of imports into the domestic timber market, which have eroded profit margins and caused massive write-downs of the value of the company’s forestry assets.
But more broadly, this also shows how wide and how far the impact of the construction industry downturn, especially when combined with the strong currency, is spreading throughout different sectors of the economy. Already, we have seen this with steel, another vital construction input, whereby the industry has undergone massive restructuring and job losses. We have seen it in bricks and tiles, where manufacturing volumes are way down. Now, we are seeing it in forestry and timber.
Gunns timber used in flooring and decking
This underscores the importance of both a recovery in the housing market and the urgent action which the housing industry has long called for. Unfortunately, neither seems likely soon. Whilst the latest forecasts from Australian Construction Industry Forum talk of opportunities and threats within the industry, they talk of more downside that upside, especially in non-resource rich states. And in residential construction, Housing Industry Association is most certainly not optimistic about the near term future.
And whilst there has been some progress on planning reform of late in some states, persistent calls for easing the tax burden in the housing industry are unlikely to be heeded in an environment of cash-strapped governments.
Furthermore, the latest developments also highlight reverse fears within the building industry of a hollowing out in the supply base. No matter how much reassurance BlueScope gives about its commitment to the domestic market, the fact is that it has had to close plants and OneSteel (now Arrium Ltd) has shifted its focus well away from the steel making. Now, with the Bell Bay Pulp mill surely less likely to proceed, we are seeing the same in timber. No matter how much of a globalised world we live in, the construction industry still needs a strong domestic supply base. Having yet another big supplier go into administration is hardly encouraging.
Finally, the latest developments spell disaster for the Tasmanian industry in particular, which is reliant on the pulp mill project going ahead and being built in order to have any kind of a decent construction outlook in coming years.
The building industry downturn is spreading far and wide. Its significance cannot be understated.
Another day, another 137 year-old company in administration. And another 645 jobs in jeopardy.
