Global supply decline boost for local sandalwood stocks

Western Australia is poised to become the world’s biggest producer of sandalwood early next decade, on the back of diminishing global native supplies and growing demand from India and China.

WA Sandalwood (Santalum spicatum) dominates the southern half of the state, with Rewards Group managing a plantation in Pingelly and the Forest Products Commission overseeing the harvest of natural and plantation stands in the southern rangelands.

The FPC, which harvests about 2,000 tonnes per year, estimates the current total area of distribution of WA Sandalwood at 161 million hectares, 49 per cent of which is protected from harvesting.

Plantation Indian Sandalwood (Santalum album) is concentrated in the Ord Valley region, home to managed investment scheme players TFS Corporation Ltd and ITC Ltd.

The Kimberley is home to about 85 per cent of the world’s total plantation grown Indian Sandalwood, with TFS representing more than 40 per cent of the total Kimberley resource.

TFS Corporation chief financial officer Quentin Megson said the company was looking to plant 650ha of sandalwood this year on the expectation of project revenues of about $43 million ex-GST.

This is up from the previous year’s MIS raising of between $33 million and $34 million on the sale of 558ha, and will take the company’s total planting since its first planting in 1999 to 2,330ha.

Mr Megson said Indian Sandalwood was superior to other species of sandalwood, including the native Australian species, due to the unique properties and aroma of the Indian Sandalwood oil.

The warm, sweet and woody notes of the Santalum album oil are prevalent in a number of fine fragrances, as well as skincare lotions, soap, candles and incense.

Indian Sandalwood oil also has stronger fixative properties, helping bind the finer perfumes to the skin, causing the scent to last longer.

These qualities are reflected in the premium paid for Indian Sandalwood, with the current price received at auction in India up to $A107,000/tonne, at 5 per cent oil.

Australian-grown Indian Sandalwood is likely to sell at a lower price due to its lower oil content, about 3 per cent.

Sandalwood oil is currently fetching about $US1,900/kilo.

But while the price has been increasing at a compound rate of about 20 per cent each year, Mr Megson said he didn’t expect that level to be maintained once plantation supplies came online in about 2012-2014.

This is despite the supply from traditional supplier India drying up.

“We expect that, by the time we get to market, there won’t be too many strands of [sandal]wood available in India,” he said.

TFS is also working on plans to build a demonstration processing and distillation plant in Kununurra.

Last June, TFS signed a cooperation agreement with French essential oils and extracts company, Albert Vieille, to provide technical assistance and advice for the pilot plant.

TFS is currently holding studies of its wood samples at Albert Vieille’s Spanish processing plant, with the result of the testing to determine the dynamics of the Kununurra plant.

In addition to the current growers, a new entrant, Emerald Peak Plantations Ltd, is planning to establish a WA Sandalwood plantation in the Avon Valley.

The company released its prospectus last July to raise $5 million for the purchase of 550ha of land in the Avon River Basin with the intention of a plantation of 495ha of sandalwood trees.