China market changes in 2019

Wednesday 12 Feb 2020

In 2019, the most notable change in China’s softwood log and lumber market was the significant growth of such imports from Europe. This was mainly due to an infestation of spruce bark beetles and windstorms that have led to a massive timber salvage program in Europe. This has hampered the competitiveness of other softwood species in the Chinese market.

In the first 11 months in 2019, European softwood log exports (excluding Russia) to the Chinese market were a whopping 6.8 million m3 – the pace for the last three months was over one million m3 per month. This represented an increase of 484 percent over the same period of 2018. On the contrary, the softwood log supply from North America was 4.9 million m3, down 27 percent year on year.

Softwood log exports from Europe were led by Germany (3.1 million m3, up 2,764% year on year) and the Czech Republic (1.9 million m3, up 1,277% year on year). The current Cost and Freight (C&F) at China’s main ports (by containers) is about Euro 95-100/m3 (US$ 105-110/m3). The C&F for New Zealand radiata pine log is around US$123/m3, and Canadian hemlock is about US$120/m3.

European spruce logs are gaining market share at Chinese sawmills in the production of construction lumber and are displacing radiata pine logs and especially North American softwood logs. There are several reasons for this. First, the log scaling in Europe allows for at least a 5 percent gain in volume for Chinese importers — this contrasts with North American logs, where there are normally no gains or even a volume loss for Chinese importers. Second, European spruce logs are longer (mostly 5.7m to 11.5m with over-length tolerances). Better yields are achieved in Chinese sawmills with Central European logs compared to using North American logs. Last, European spruce logs are now the cheapest species in Chinese wholesale markets – even cheaper than radiata pine logs. As a result, European log imports have soared, thus pushing down the prices of North American and radiata pine logs.

It’s difficult to predict how long this trend will continue; however, we expect the supply of European spruce logs will remain strong for several years, although this does depend on weather conditions. Furthermore, more Chinese players are investing in log yards in Europe to ship logs to China at competitive prices. This will create a tough challenge for other softwood log suppliers to compete – including North American logs.

Source: Forest Economic Advisers & Canada Wood Today

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