Timber – no investment has a better record in a crisis.
As billionaire investor Jeremy Grantham likes to point out, the price of timber rose at a steady rate of 3.3% above inflation for every year of the last century. And during the four major collapses, it actually rose in value in three of them.
That made timber a hugely popular investment during the recent meltdown. Investors have poured huge money into forestry in recent years – happy in the knowledge that if they just leave the trees to grow on the stump, they will be worth more every year.
But there’s a crisis in forestry. If China keeps devouring forests to feed its construction boom, we won’t have nearly enough trees to maintain CO2 levels in the atmosphere – and stave off global warming. Demand for wood is forecast to rise roughly in line with the global population, implying a 40% increase by 2050.
The fact is that we badly need to find a way to replace the forests that we are clearing. And we can’t wait around for new ones to grow.
But don’t panic just yet. Because I think I may have just discovered the perfect solution to this mounting crisis.
A shocking report about the deforestation crisis
A report by The Forestry Department of the United Nations, blessedly free of the sort of environmental hysterics that generally colours this subject, spells out the scale of the problem.
“Annual demand for tropical hardwoods is roughly 90 million cubic metres, equivalent to filling New York’s Empire State Building more than seven times per month throughout the year.” That is a heck of a lot of floorboards.
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According to the UN, the ‘scale of annual deforestation that supplies most tropical hardwoods is equivalent to clearing a country the size of Bangladesh each year, and has gone on relentlessly over the last 15 years.’
There are two problems with the speed of this deforestation. First, there’s the fact that it is destroying trees that can’t be replaced quickly. Felling soft wood species is bad enough. These trees can take 20-30 years to grow. But much worse is felling tropical hardwoods, which can take a century to climb above their neighbours and feel the sun’s rays.
The other problem is that a subsequent crop of trees does not necessarily match the yield of the original. In Bolivia, tropical forests have seen recoverable volumes in the second harvest fall approximately 4% to 28% of the harvest first time around.
The UN concludes that “a sufficient area of high-grade tropical forest and hardwood plantations is currently not available and must be established in the coming years if demand for tropical hardwood timbers is to be satisfied on a sustainable basis.”
How do we solve this problem?
The miracle wood that could help solve global warming
One answer would simply be to allow the market to do its work, allowing hardwood prices to rise until we could no longer afford them. One flaw in this argument, though, is that the full benefit of trees to the wider climatic and ecological environment is not properly reflected in the market price of wood. And the second problem is that increases in the price of hardwood only encourage the illegal felling of tropical rain forest.
Another option is to seek alternatives to wood to use in construction. But it’s a tough one. More than one hundred times as much energy is required to produce an aluminium window frame as opposed to a wooden one for example. And PVC is derived from our precious and depleting supply of oil. So demand for wood is forecast to rise roughly in line with the global population, implying a 40% increase by 2050.
But this type of impending crisis always sparks innovation and, down in the penny share market, I have come across one invention that could make a big difference.
For years we have tried to enhance the properties of wood. From creosote to veneers we have come up with ways of making wood last longer and look better. But one AIM-listed penny share has come up with a product that it believes beats anything that has gone before – a new miracle material that is rapidly becoming the most celebrated material in construction since concrete.
If you have ever played conkers you might know what I am talking about…otherwise the secret is in the August issue of Red Hot Penny Shares.
• This article was first published in Tom Bulford’s twice-weekly small-cap investment email
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