Chinese Softwood Market Report
Aug 2021
Anna Ni
Global market changed during Covid19. In the first five months of this year, the top 20 countries for Finnish sawn and planed softwood exports account 91% of the total exports and the main growth came from Europe. Strong DIY and construction market in Europe and USA during Covid19 pandemic stimulate the rapid increase in price. However, Chinese market does not keep up with the price of global market during this period.
Here’s the updates of Chinese softwood market.
1. Finnish sawn timber has been replaced by different material in different sectors
Other material to some extent replaces not only Finnish timber, but also the sawn timber from Sweden and Northwestern Russia. For example,
– Children Furniture: Radiate pine, rubber wood, some cheap wood from Africa
– Cladding: wood plastic, bamboo products
– Sofa frame: Recycle wood, wane timber cut from log
– Picture frame: Chinese local wood
– Keel/slat: timber cut from log
The trading companies, which are focus on Nordic timber, have been affected heavily as well. The Nordic timber trading volume of the biggest wholesaler in Nankang dropped 90% in this year. Besides, the trading business of the biggest one in Dongguan decreased 20% because they purchased some volume from Russia to replace in Q2.
Though the Nordic timber inventory is very low in China, but the general local sales price for SF Nordic spruce hasn’t reached RMB 3000 incl. VAT yet (Around USD 390, deduct other costs) Most of the regular customers cannot afford this price, only very few high-end ones can afford.
2. Imported sawn timber business goes down while log business is prosperous
During the first half of 2021, China imported 9.3 million cbm sawn softwood from the world (-26.4% yoy) and imported 24.8 million cbm softwood log (+40.6% yoy) in the first half of 2021.
China is one important log consumption country since it has great further processing capacity of logs. The timber cut from log has replaced many imported sawn timber usages as long as the moisture demand of the products is not so strict.
New Zealand and German are the two biggest log suppliers for China. New Zealand is the traditional biggest softwood log supply channel for China for years and the whole supply chain is mature already. However, the German is the new one and its dramatic growth started since the beetle problem. Thus, the channel competition is very aggressive since China is lack of cheap sawn timber material this year. In the first half of this year, Central Europe log price to China was very dramatic under this background. Before Chinese New Year, it was around USD100/m3. Later it went from USD110 to USD 150 just in a dozen days, and hit the peak USD 190 in May and Jun. While in the end of Jun, the price collapsed quickly. July was around USD 150-155 and currently is around USD 160-165/m3. The beetle log harvesting difficulty in German starts to increase which means the harvesting cost will increase.
China suspended to import log from Australia in the end of last year. The annual importing volume from Australia was around 4 million per year. At first the people from industry were worried about this gap. However, in reality this gap was easily and quickly be filled by New Zealand, Uruguay, Brazil and Argentina in the first of this year.
Comparing to these countries, Russia supply is quite ordinary. The log supply volume declined every year since the log-exporting ban. The Russian sawn timber volume declined as well due to the price gap between the log products.
So in the first half of 2021, lots warehouse for imported sawn timber in Taicang changed to service other products. In the end of July, Taicang sawn timber inventory was only around 900 000 cbm but the existing warehouses were already full.
Many private trading companies for imported sawn timber nowadays are the clients of log importers or the local log planning mills.
Currently the softwood log inventory in China is more than 6 million cbm which is the third highest record in the history. Summer is always a market off-season for wood industry. Besides, the recent outbreak of covid 19 from Nanjing, Jiangsu Province led some of the port suspending its operation and affected the land transportation in Jiangsu. If the log price dropped, it will influence the sawn timber as well.
3. Domestic demand is still quite flat. Manufacturing companies are suffered by the high raw material price.
The domestic demand has been quite flat since last year due to lack of consumption ability and confidence. Besides, since the end of July, our real estate market has entered the toughest control era in the history.
On the other side, because of the rising prices of all kinds of raw materials, wood product manufacturers are not actively promoting sales even during the 618 shopping festival period. 18th June was the most important shopping festival for the first half of year (like double 11 in the second half of year). Not only wood, but also the painting, hardware, packaging etc. have been raised 30%-50%. So for the wood end-users which targeting domestic market they do not do much inventory this year as long as the market situation won’t change.
Normally the autumn is a good season for domestic demand. However, under current situation, it might be a little bit hard to get a clearly recovery.
4. The export demand of wood product is still good, but hindered by high sea freight rates
The exporting demand is still quite good. China’s export value is already back to the pre-pandemic level and even higher than 2019.
The export demand is the main one that supports the imported Nordic sawn timber material during the past months. Now they suffered the extremely high sea freight rates. The sea freight rate is too high comparing the margin of most wooden products, which is hard to competing with other high margin export products.
The logistical disruptions affect the entire upstream supply chain. Some of the factories already suspended the production for weeks.
5. Chinese clients are waiting for the price drop and pay attention to US market
The US market abrupt and steep fall and the European companies, which sell to US market, have reacted quickly, e.g. SCA quoted USD 580 for SF in July and now the newest quote was USD 380. Russian companies are flexible and followed the market, e.g. ULK’s quotation went from USD 430 to USD 400.
Though Taicang government tighten the log further processing mills operation and reduced the sawn lines in Taicang, but there’re still back-up areas in Jiangsu province (around far away from Taicang) which eager to replace Taicang role and welcome the wood industry. Therefore, the timber processed by local mills will still be the main competitor for the imported sawn timber for non-structure usage.
The New Zealand Radiate pine sawn timber and the further processed products from Central European log are the main competitors for Nordic sawn timber currently.
According to a survey by the Federal Ministry of Agriculture, the German Federal States expect in 2021 a reduction for defect wood by almost 40% to 39.6 million cbm in comparison to the previous year. (Softwood 35.1 million cbm, hardwood 4.5 miilion cbm)
In the years 2018 to 2020, the amount of defect wood in Germany was 170.6 million cubic meters. If including the forecast for 2021, it comes to 210.2 million cubic meters.
Conclusion
Under the pandemic, it’s hard to predict the future market scenario since it affects too many factors, not only the demand and supply of global sawn timber and log, but also the logistics, policy, currency etc.
In general, the global wood supply will not go down except the defect wood from Central Europe. Meanwhile USA and Europe has advanced part of its future demand especially on DIY market. Chinese market is stable and its wood consumption ability is still important for the global wood supply. However, it will be price sensitive for quite long time.
China entered the toughest control era of real estate market since this summer. The underlying logic is the great trend of reducing profits and monopolies in real estate, finance, education and the internet companies, meanwhile developing manufacturing, hard technology, new energy, new infrastructure etc. The government eager to promote 3-children policy to ease the rapid decline of birth rate. This is the significant will from the central government.
In short term, the weak real estate market is not good for wood industry. However, in long term, as long as the housing and education cost can be reduced, the purchasing power unleashed in China would be considerable.