The relentless growth of China has been one of the big factors in the world economy for many years.
Despite predictions of a slowdown in the coming years, the growth that China is currently enjoying is still substantial compared with that of many world economies.
China’s economy expanded 6.8% in January-March, with property investment and consumer demand strong.
Construction and manufacturing grew 6.3% from Q1 last year, according to official statistics, with easing of winter pollution restrictions helping the manufacturing sector. The services sector grew 7.5%.
China’s construction and manufacturing accounted for 39% of gross domestic product in the first quarter.
But economists are predicting Chinese growth will moderate in coming quarters as the government cuts back on infrastructure projects to contain their debt, and as property sales slow down because of government controls on purchases to fight speculation.
The Financial Times reported earlier this year that Chinese president Xi Jinping had called for a “new era” in which local governments were to focus less on rapid growth and more on reducing financial risks, improving environmental protection, and on “people’s demands for happier lives”.
Projects that were once encouraged because they would boost growth are being subjected to greater scrutiny, with three further subway projects cancelled.
But timber building is an area earmarked for significant growth. Since 2016 the Chinese government has released documents to promote prefabricated buildings in China.
Up until 2020, China will build 2,000 campgrounds for recreational value and most will use wood buildings.
Wood buildings, according to the China Timber and Wood Products Distribution Association (CTWPDA), will be the largest timber market in China in the future.
It also said China would continue importing timber in large quantities over the next decade.
Softwood Import Growth
The increase in China’s softwood purchasing and consumption has been one of the big recent stories in international timber markets.
New timber markets are appearing in inland China under the policy of Yangtze River Economic Zone implementation, with the wood processing industry gradually moving from east to west, the CTWPDA says.
According to the European Timber Trade Federation, China imported 21.3 million m3 of lumber in January-July 2017, a 16% year-on-year increase, with a 24% growth in value.
The statistics show China imported 14.6 million m3 of softwood lumber during the period, a 14.7% increase on the same period in 2016. The softwood lumber value was US$2.8bn, up by 28.2%.
The big four exporters of softwood lumber to China are Russia, Canada, Finland and Sweden, with the latter the most recent country to pass the 1 million m3 mark. Russia and Canada continue to be the major suppliers, but their total market share has shrunk from 81% in 2015 to 76% in 2017, with Nordic mills in particular increasing their presence in this fast-growing market.
China is now the largest export market for Finland, while European softwood exports to China reached 3 million m3 in 2017.
Prices for imported softwood lumber to China have been steadily rising and in January 2018 reached their highest levels since March 2015, with timber from Sweden, Chile and Finland generally at the higher end of the price spectrum.
At the recent Timber Trade Federation Softwood Conference in London, speaker Sampsa Auvinen, president of the European Organisation of the Sawmilling Industry (EOS), showed a slide of Asia, including China, India and Indonesia and how more people were living in that zone than outside it.
He said the growth of China’s sawn timber consumption and demand had become extremely important for Scandinavian sawmills.
Mr Auvinen accepted that Chinese growth would start to slow, but that any growth in China was still significant.
And, he said, the recent first trainload of timber from Finland to China demonstrated new logistics solutions to assist the trend towards Chinese customers.
Building Regulations
The Canadian timber industry, he added, was also trying to build wood volumes in China by helping the Chinese to change building regulations so they could build more in wood.
Sweden’s timber industry promotional body, Swedish Wood, believes China will exceed the US as the world’s largest importer of softwood within a couple of years.
“There has been a dramatic increase [of shipments to China] in recent years,” said Mr Auvinen. “Even if China is just increasing a very small amount it is a still very large volume.”
He pointed out that impending new Chinese build standards allowing for taller timber buildings would be another market dynamic, giving possibilities for crosslaminated timber (CLT) exports.
A CLT handbook has been translated for the Chinese market.
Hardwood Log Buying
Chinese hardwood lumber import volumes totalled 6.7 million m3 in the first half of 2017, a 21.3% growth. Values were 20.1% up at US$2.8bn. Hardwood log import volumes totalled 9.6 million m3 for the period, up by 5.6%, with a value of US$2.6bn.
And the latest figures, for the first quarter of 2018, show hardwood log imports rose 25% to 4.93 million m3. Of total hardwood imports in the period, tropical hardwood log imports totalled 2.65 million m3, up 23% over the same period of 2017 and 18% of the national total.
The level of Chinese oak imports from Europe has been such that Europe’s hardwood mills have expressed concern that it will impact their own supplies of logs. Industry calls for export controls have been sounded, particularly in France. Some have highlighted that there could be repercussions for French downstream businesses and jobs.
At the Timber Trade Federation’s European oak conference in mid-April EOS secretarygeneral Silvia Melegari pointed out that European sawn oak exports to China had risen 34% in the last seven years, while log exports had risen 244%.
In 2001, 63% of EU oak roundwood exports were to other EU countries, but today 50% went outside the EU, with 42% to China, she said.
A French government measure stipulating that a certain threshold of state forest timber had to be further processed in Europe is thought to be having some impact. French hardwood sawmillers have also reported selling more sawn timber to China. “Asian flooring and furniture producers are now our main industrial qualities customer and we’re supplying them beams for lamellas and cutting to their specified thicknesses,” said one mill.
And Germany’s sawmilling sector is also worried (see page 9), issuing a new call to its government to help stem the tide in hardwood logs to China.
Meanwhile, US-based market analyst RISI believes China’s role as the driver of global timber demand is set to fundamentally change over the next decade.
Imports of hardwood and softwood logs could decline by 15% or more, it says, while import growth in lumber slows.
“China’s forest industry, and their demand for imported wood fibre, is entering a new stage,” said Bob Flynn, RISI director for International Timber.
“Changes in government policies, highlighted at China’s 19th National Congress in October, will have a direct impact on the industries that drive demand for logs and lumber.
“Lumber imports will keep growing, but at a much slower rate, and log imports are set to decline – which is almost unprecedented,” he said.
Environment Control Impacts
Mr Flynn said Beijing’s move to reduce financial risk and pollution would slow both the building construction sector and the factories that make wood products, such as plywood, flooring and wooden furniture.
The plywood sector is one of the industries affected by the environmental controls.
A UK trade meeting earlier this year heard that “most of the smaller mills have been driven out of business because they do not have the ability to upgrade their technology”.
Their market share has been taken by large-scale factories. The development, combined with exchange rates, has contributed to a spike in plywood prices.
TTJ spoke to Chris Williams, director of Panda Panels, about the situation.
The company has a long background in the UK-China forest products trade and deals with about 10 Chinese plywood mills. Mr Williams has traded in Chinese plywood for 17 years, lived in the country for five years and married a Chinese woman.
He said China’s Blue Sky campaign was aimed at reducing air pollution in the main Chinese cities.
“There are terrible pollution problems. Sometimes you can hardly see the building opposite,” he said. “They are making significant strides but in doing so they are causing significant problems and not only for the plywood industry. Chemical and steel factories have closed.”
There is a move away from coal-fired to gas-powered boilers but during winter there was not enough gas to supply factories because priority was given to domestic users.
One of Mr Williams’s FSC plywood mill suppliers had to close for 10 days as a result. “The air pollution problems started a year ago,” he added. About 3,000 plywood mills in one northern province closed.
Inevitably, it is the smaller mills that have faced closure and the larger, stronger and more financially secure mills that are managing to rise to the challenges.
“The plywood industry has changed so much over the years,” added Mr Williams.
“Chinese plywood has changed from poplar core to hardwood (eucapyptus) core or a combi (eucalyptus / poplar) product.”
Broader Product Range
He said a much broader range of products was being produced, with significant volumes of film-faced plywood, as well as veneer plywood, melamine-faced product, UV lacquered ply and large dimension plywood also being produced.
“Prices have risen quite significantly since the end of last year – 15% because of the dollar exchange rate and the restrictions imposed on manufacturers.”
The EUTR was important, he said, with Chinese mills gradually moving to compliance, although he said buyers had to be careful. He recounted one example where he was handed CE certification for household electrical goods as compliance.
Like many commentators, Mr Williams said the Chinese economy was gradually slowing, with neighbour India making the growth strides seen by China a few years ago.
But what growth there is will still have a big impact on timber markets for the foreseeable future.
