Global consultant Russ Taylor travelled in Europe for one week and in China for two weeks during October to obtain a first-hand view of current industry and market conditions.
From these travels, my personal view and observations on the European and China log and lumber markets is that the real situation is probably worse that what is being reported. European demand will be about 11% lower in 2023 vs. 2022 and lower again in 2024. China’s consumption levels are completely stalled from a construction market in chaos. Consequently, it is going to take until some time next year for a recovery to occur.
The trip included field work in China where over 40 interviews and meetings were conducted. This work was part of the background to a new multi-client and joint report, China Timber, Log, Lumber Outlook to 2030/2035, available in February 2024. See: https://russtaylorglobal.com/report-china-log-lumber-outlook-to-2035/
The analysis below is essentially a summary of two articles on the China industry and market by RUSS TAYLOR GLOBAL – one released to subscribers of Timber-Online, and one upcoming in the Truck LoggerBC Magazine.
China Industry & Market
Overall consumer sentiment in China is at a 12-month low as there continue to be lingering concerns over the future of the Chinese construction market. This has been not only a key driver of the economy (up to 24% of GDP but now closer to 19%), but a key driver in the wealth of Chinese citizens. With the construction industry awash in massive debts and no clear path ahead, this is having a negative impact on end users’ demand for imported logs and low-grade lumber for use in construction.
Inventories of logs and lumber at ocean ports and distribution yards are very low in China, especially when compared to previous years. Some Scandinavian and Russian lumber exporters thought that October was a good time to raise lumber prices in China and sawfalling (appearance) grade quotes were increased from US$220/m3 to US$260/m3. These high prices were not at all tied to demand, although the furniture and decoration markets were at least stable.
The low inventories simply reflect a general lack of business and limited interest in holding inventories! Consequently, by early November, prices had settled back to US$230/m3. The higher priced lumber purchased by some of the smaller operations may squeeze some manufacturers as they cannot raise prices to their customers, but perhaps the squeeze will not be enough to force any significant curtailments in the short term.
The plight of the low-grade W-SPF (and Hem-Fir) lumber importers in China is one that I heard often during my travels. W-SPF #3 lumber prices reached a high of US$280/m3, CIF China, in April 2022 (right after Chinese New Year). After that, prices consistently moved lower month-over-month and one year later were US$160/m3, where they have remained. This constant price decline has meant huge losses for W-SPF importers and distributors in China and is a symptom of the declining construction and concrete forming business.
Of course, Chinese importers would welcome increased lumber prices if they were sustainable. However, most importers in China are worried about what happens after Chinese New Year in 2024. They remember very clearly what happened in 2023, as everyone thought there would be rising demand and higher prices after the COVID lockdowns were removed. The opposite occurred, and many overbought high-priced lumber in all grades in first quarter 2023 and have been licking their wounds ever since.
Inventories of logs and lumber are clearly well below historical levels. However, they are low because of weak demand and the prospects of little upside going forward, especially for use in the construction segment. Sawfalling lumber for use in furniture and decoration is probably the exception, but demand is not increasing, it is only holding.
If there are more shocks to consumer confidence, then all bets are off for any increases in imported logs or lumber or prices until well after Chinese New Year in 2024. Many buyers are carefully watching their purchases and are planning to conservatively manage their inventories so they are prepared for any potential market slump after Chinese New Year. Of course, if their bet is wrong and demand picks up, the ultra-low inventories in China would mean that exporters could raise their prices to take advantage of the importers’ need to buy. In a sense, this could be a win-win, but only if it is sustainable and not a three-month hiccup.
This all means that lumber exporters to China should be also careful on their shipment volumes, as their future business in China could be negatively impacted if prices decline from weaker demand and/or there are excessive inventories after Chinese New Year.
Longer term, the story is going to be much different, as some supply shortages are forecast, according to our upcoming report. RUSS TAYLOR GLOBAL (Canada) and Margules Groome (New Zealand & Australia) have teamed up to present a strategic analysis and outlook of China’s plantations, and log and lumber supply/demand/prices in: CHINA FOREST, LOG & LUMBER OUTLOOK: SUPPLY, DEMAND & PRICES TO 2030/2035. We also have some expert contributors to our report.
Fieldwork in China has been conducted by both firms, and a joint log and lumber price forecast will be one of the report’s highlights. This will also include a supply/demand analysis and outlook for hardwood woodchips in China’s rapidly expanding pulp sector.
A full report brochure with a Table of Contents and Subscriber Prices for the CHINA FOREST, LOG & LUMBER OUTLOOK: SUPPLY, DEMAND & PRICES TO 2030/2035, can be viewed here:
https://russtaylorglobal.com/wp-content/uploads/2023/11/China-Outlook-Report-Brochure-Final-006.pdf
Early Bird prices are in effect until December 31, 2023. The report is scheduled for February 2024.
Russ Taylor, President
RUSS TAYLOR GLOBAL
Tel: +1-604-897-5666
Email: russtaylor@russtaylorglobal.com
Website: www.russtaylorglobal.com