outlook for asian forest products markets: logs, lumber

Outlook for Asian Forest Products Markets: Logs, Lumber and Woodchips

Bob Flynn

Director, International Timber

RISI

Western Forest Economists Conference

Seattle, Washington

May 2016

Agenda

• China remains the dominant market

• India and other points of interest

• Historical trends and outlook

© Copyright 2016 RISI, Inc. | Proprietary Information 2

China accounts for over 75% of the Asian softwood log import market, but the fastest growing market???


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Asia-Pacific Softwood Log Imports, 2015E

China also dominates softwood lumber imports in Asia, with 64% of the total, but these markets are

more diverse than the log markets


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Japan remains the largest woodchip import market in Asia, but Chinese demand is growing rapidly


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Over the past 20 years, China’s need for imported timber has grown at a CAGR of 14.6%, while real GDP growth averaged 9.4%


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China's Growing Timber Deficit, 1997 - 2015

Woodchips

Pulp

Wood Panels

Lumber

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Russia’s decision to rapidly increase its log export tax greatly benefited timberland investors, especially in New Zealand


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China: Softwood Log Imports by Source

Other

Canada

Australia

United States

New Zealand

Russia

The slowdown in China has meant much lower pricing for logs, with high-priced suppliers like the USA losing market share


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China: Average Prices for Softwood Log Imports

New Zealand

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USA

Viewed in terms of local currency, prices for New Zealand logs still look attractive, and Russian prices are greatly improved


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New Zealand and Russia: Softwood Log Export Prices to China, FOB

NZD per m3, Left

Rubles per m3, Right

Russia has continued to expand softwood lumber shipments to China, despite a stagnant market in 2015


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China: Softwood Lumber Imports by Source

Canada Russia Other Europe USA

European softwood lumber exports to Asia are sizable, with more and more heading to China


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Europe: Softwood Lumber Exports to Asia-Pacific

Korea

Japan

China

In 2016, softwood lumber continues to gain market share in China; on a log-equivalent basis, half of softwood imports are in lumber form


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China: Imports of Softwood Logs and Lumber, First Quarter

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The much weaker ruble will not result in a flood of Russian softwood entering the Asian markets, but will permit Russia to maintain volumes


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China: Imports of Russian Softwood Logs and Lumber (RWE)

Lumber (RWE)

Logs

Russia boosted its log export tax to encourage more “value-added processing”, but the value of wood products exports in 2015 was still 28% less than in 2007


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Russia: Export Value of Logs and All Other Wood Products

Logs Other Wood Products

How changes in China’s market impact timberland investors depends on what kind of timber is being grown and its location


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US Log and Lumber Exports to China

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US hardwood shipments to China are 70% lumber, while softwood shipments are 76% logs


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US Hardwood Log and Lumber Exports to China

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Over the next decade, RISI projects that growth in China’s timber imports will slow to less than 3%


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China's Timber Supply Deficit

Forecast

Woodchips

Pulp

Wood Panels

Lumber

Logs

China’s Real GDP growth rate is unquestionably slowing down


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China: Real GDP Growth Rate

In 2010-2013, housing starts exceeded sales by almost 40%, leading to a large glut of unsold properties on the market


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China: Residential Housing Starts and Sales

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The orgy of over-construction in China’s housing sector is unlikely to be repeated in the future; construction will remain within government goals for the economy


Forecast from Dragonomics

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China: Residential Construction Starts Forecast

Forecast from Dragonomics

China’s working age population began to decline in 2012; in 2014 it fell by 3.7 million, and in 2015 it fell by 4.9 million


Urbanization is continuing in China, but at a much slower pace


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China: Increase in Urban Residents

China continues to be the world’s largest furniture exporter, but growth is slowing, in part because of rapidly rising labor costs in China


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China: Export Value of Wooden Furniture

China is also by far the world’s largest exporter of plywood, but again the sector is facing escalating costs for both logs and labor


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China: Plywood Export Value

25© Copyright 2016 RISI, Inc. | Proprietary Information

What about domestic Chinese timber supply? Is there a threat from increased harvest in plantations?

• China has reportedly established the largest area of plantation forests in the world.

• Harvest from fast-growing eucalyptus plantations is increasing, but not nearly as fast as the area of planting might indicate.

• Natural forest harvest “ban” --- maybe not what you think.

• Softwood timber harvest--- no potential for increase

The primary decline in China’s timber harvest is occurring in the softwood timber region, which will limit domestic softwood supply

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China's Timber Harvest Quotas

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Total softwood imports in China will likely level off in a couple of years; log imports may have peaked in 2014


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China: Imports of Softwood Logs and Lumber

Logs Lumber (RWE)

By the end of this decade, India will be a larger market for softwood logs than Japan


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India: Imports of Softwood Logs by Source

Other

Australia

New Zealand

The market for softwood timber in India is just in its infancy; less than 10% of India’s log imports were softwood prior to 2005, today the share is one-third


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India's Log Imports

Softwood Teak Other Hardwood

Imports of woodchips in Asia have set record volumes for the last six years in a row


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Asia-Pacific Woodchip Imports

Japan China

Korea Taiwan

India

Since 2000, 86% of the growth in hardwood chip imports has been from Vietnam, but for how much longer?


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Asian Hardwood Chip Imports, Vietnam and ROW

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There has also been a revival in exports from Australia


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Asian Imports of Australian Hardwood Chips

Japan China Taiwan Korea/India

Total wood pellet imports in Asia remain below 2.0 M tonnes per year; in 2015, the UK imported 6.5 M tonnes of wood pellets, but Asian demand could grow quickly


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Japan and South Korea Wood Pellet Imports

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Historically low ocean freight rates levels and weak bunker fuel prices have reduced transport costs to historically low levels – it’s all up from here!


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Summary• Growth in China’s demand for imported wood fiber

will continue, although at a much slower pace than in the past 5-10 years

• The USA will continue to have a tough time competing in the China market because of the strong dollar and relatively high timber prices

• Other markets like India present excellent long-term growth potential, but will not repeat the explosive growth seen in China

• Woodchip markets are still setting new records, but most of the growth in Asian fiber imports will be in the form of pulp, rather than woodchips, in the future


Mark your calendars: 9th International Woodfiber Resources and Trade Conference to be held in Da Nang, Vietnam, February 13-15, 2017!

36

The only conference focused

on international trade in

woodchips and biomass,

and the first one to be held

in the Vietnam.

Previous conferences have

proved to be valuable

business networking events

for those involved in the

trade, attracting buyers,

sellers and traders from

more than 30 countries.

For details contact:

Bob Flynn

[email protected]

1-360-471-6578

© Copyright 2015 RISI, Inc. | Proprietary Information

outlook for asian forest products markets: logs, lumber

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