Sydney, April 1 - Since 1995 Carter Holt Harvey has quietly transformed its Australian business from a small-time wood importer to leader in many value-added wood products. It has been successful with the softly, softly approach, expanding through partnerships and not rushing growth, but Carter Holt is now keen to increase its tiny Australian shareholder base. The century-old New Zealand firm now derives 45 percent of total revenue from its Australian operations. Yet only 3.2 percent of shareholders are Australian - compared with 25 percent from Asia, Europe and the United States combined. Sydney-based Deutsche Bank analyst Daniel Kang, who has a hold rating on the stock, said the Australian shareholder base was "very low". "It's certainly built a very strong business in Australia, strongly reflected in the numbers they're returning - the cost of capital, they've got very strong assets with very good market positions and brands, and low cost operations," he said. "The key driver for them is still going to be the cycle for the pulp and paper pricing. "Once that turns around or there is some certainty in the global outlook, that should lead to some increase in performance from their shares, and more interest from Australian investors." While pulp prices have been low, they are expected to appreciate during this year. "Until we get some clarity from the global outlook, pulp pricing in the short term has improved but unfortunately for Carter Holt it hasn't been able to really benefit from that because of the strike (at the Kinleith mill)." The month-long dispute involving about 270 workers is believed to have cost Carter Holt more than $10 million in lost production. "In the short term it is going to weigh on its share price. The spike in power prices in New Zealand and the higher currency is probably going to weigh against it." Carter Holt chief executive Peter Springford says his company is "very concerned" about New Zealand's energy market, which he believes has gone backwards in the last five years when he was based in Hong Kong. "Five or six years ago, energy was a competitive advantage - now it's a disadvantage," Mr Springford said. The Australian housing market is set to slow down after spectacular growth, "but only 40 percent of (Carter Holt's) sales are destined for new housing", Mr Kang said. Australian housing starts declined in the December quarter for the first time in 18 months, and new housing activity is expected to be 20 percent lower this year than last year. Carter Holt bought Australian tissue-maker Bowater in 1995, and has gradually increased the number of acquisitions across the ditch to include sawmills, packaging and panel operations. It is planning an $A11 million ($NZ12.1 million) upgrade over the next two years at its Highland Pine sawmill and wood products manufacturing plant in New South Wales, a joint venture with Boral. That follows a $A29 million upgrade of its processing technology at the plant last year. The company is keen to keep growing its Australian market share where it is number one in segments as diverse as flooring panels and toilet paper, but is also stepping up its drive into China. Mr Springford says he is confident Carter Holt can meet its target of $1 billion in sales in China within five years. Carter Holt has set up a marketing joint venture called IPPM with majority shareholder International Paper to sell into China. Carter Holt currently sells mostly pulp and paper into China - about $111 million in sales in 2002, followed by logs ($53.8 million), and wood products ($2.5 million). However, pulp and paper sales to China declined last year while log exports are taking off, from zero in 1999 to 600,000 tonnes last year. "China is a strong opportunity because we see it as a significant softwood market," he said. "The China market has changed dramatically in the last few years- domestic business is growing, and it is stopping the harvesting of its own forest resource for environmental reasons. "China is growing 15 percent per annum for logs: it can't continue, but that suggests it's an important market for Carter Holt," Mr Springford said. The value-added wood products are also taking off, with exports of MDF into China expected to reach 100,000 cubic metres in 2003.