China Economy, Construction & Lumber Shipments

2017Q3 highlights[i]:

  • GDP growth in Q3 is 6.8% (YOY), maintaining strong growth between 6.7% to 6.9% consecutively for 9 months.
  • Consumption is 64.5% of GDP, increased by 2.8% compared to 2016.
  • Fixed-asset investment in Q1-3 is 45,847.8 billion RMB, grew 7.5% (YOY).
  • Investment in real estate development in Q1-3 is 8,064.4 billion RMB, grew 8.1%. New construction started over Q1-3 is 1,310 million m2 (floor space), grew 6.8%.

PMI (Caixin) indexes dropped to 51.0 in September 2017 from 51.6 (August) which was the weakest expansion since this June due to the slow growth of output, new orders and export sales in the past three months[ii].

China Consumer Price Index (CPI) has increased 1.6% year-on-year in September compared to the 1.8% rise in August and both under 3% which is Beijing’s 2017 target.[iii] USD/CNY decreased continuously from 6.78(July 1st) to 6.72 (August 1st) to 6.56 (September 1st) and slightly came back to 6.65 (October 1st) [iv]; CAD/CNY fluctuated from 5.23 (July 1st) to 5.35 (August 1st) to 5.29 (September 1st) to 5.34 (October 1st)[v].

Building material prices

Cement price moved from RMB 308.33 to RMB 320.00 per metric ton (up 3.78%%) over September [vi]; Rebar steel price dropped by 3.89% from RMB 4,049.33 per metric ton on September 1st to RMB 3,892.00 per metric ton on September 30th [vii].The log price index in September was 1,106.30 which increased 1.81% more than this August and grew 5.54% YoY; the lumber price index in September was 1,102.98 with 0.85% growth MOM and 1.89% growth YoY[viii].

Wood import of China[ix]

From January to August 2017 the forestry fixed asset investment was worth RMB 144.89 billion which increased 7.1% year-on-year. During the same period around 7.76 million m3 of Russian wood were imported through Manchurian Port with 8.1% growth year-on-year. In the second quarter of 2017 the Swedish softwood lumber inventory was predicted to be 2.1 million m3 with a 21% decreasing year-on-year. Canadian lumber output was 5.2 million m3 in July 2017 which showed -1.9% year-on-year and -9.1% month-on-month; its lumber shipment quantity was 5.5 million m3, down 0.8% year-on-year and down 5.2% month-on-month.

 [i] Yawen Chen and Ryan Woo (October 4th, 2017). China September data to show steady growth ahead of key Communist Party congress

[ii] Trading Economics (September, 2017). China Caixin Manufacturing PMI

[iii] Trading Economics (September,2017). China Consumer Price Index (CPI)

[iv] XE Currency Charts: USD to CNY

[v] XE Currency Charts: CAD to CNY

[vi] Sunsirs (September 2017). Spot Price for Cement

[vii] Sunsirs (September 2017). Spot Price for Rebar Steel

[viii] BOABC (September 2017). China Wood and Its Products Market Monthly Report

[ix] BOABC (July to September 2017). China Wood and Its Products Market Monthly Report

Changing competitive landscape of China’s wood market

In 2016, China’s commercial timber trade volume (including logs and sawn lumber) is about 160 million m3, of which 93 million m3 or 58% is imported representing an increase of 13.5% year-on-year (YOY).

The volume of China sawn lumber import continues to grow and reached 32 million m3 in 2016, increased by 18.57% YOY. Canada maintains its position of the second largest suppler to China although with a decrease of 6.28%, while Russia ran further apart as the largest suppler with an increase of 35.53%. China’s sawn lumber imports from other suppliers such as Finland, Sweden and Vietnam have increased significantly by 54.48%, 33.23%, 128.11% respectively.

The development of China’s wood market has been stable but some new changes have taken place in the first half of 2017. Mr. Zhu Guangqian, the Chief Expert of China Timber and Wood Products Distribution Association summed up with three observations: [1]

  • The increase of sawn lumber import is 8.2% higher than the increase of logs. Sawn lumber will be a mainstream trend for importing timber as the manufacturing cost in China is getting higher and higher.
  • The increase of coniferous timber imports is far greater than that of hardwood timber due to low inventory level of coniferous timber and the effect of logging ban.
  • Unit price rises generally.

Rising Finnish Sawn Lumber

Finland exported nearly one million m3 of sawn lumber to China in 2016, increased by 54.51% YOY. The strong growth continues in 2017 and reached 800 thousand m3 YTD July and has become China’s fifth largest softwood lumber supplier.

Back in 2015 Finland initiated “Wood from Finland” Program. It is a national promotion program for Finnish sawn timber operated by Finpro and Finnish Sawmills Association. The purpose is to expand opportunities for Finnish forest products to global emerging markets. The Program has achieved good results in last two years.

The main forest products promoted in China are sawn timber, planed timber, impregnated timber and glulam. They can be applied on construction and interior decoration. More information about Wood from Finland: http://www.woodfromfinland.fi/wood-inspiration

Value proposition of Finnish Sawn Lumber

  • Highly automated wood manufacturing process
  • Sustainably managed forestry
  • Good industry development environment built by the government
  • Complete forest industry education to reserve personnel
  • Reliable lumber supply throughout the whole year
  • Focusing on furniture and interior decoration

Market Potential for Wood import in China

China is the biggest timber consumption country in the world. However, China’s forest resources are very limited and far from self-sufficiency and the huge gap has to be filled by importing timbers.

The commercial logging ban of natural forests effective from early 2017 has further increased the need of timber imports.

Other drivers for China’s wood demand includes the rising middle class and household income which will be reflected by demand for upgrading / renovating of apartments, décor items and furniture, etc. Increasing consumption in tourism and leisure will drive the demand of higher-quality and unique-designed resorts or holiday facilities.

Extending urbanization in central and west China including Government’s drive of developing small township in suburb areas generates continuous demand for general construction as well as wood buildings which aligns with policies of green development, energy efficiency and industrialized construction.

The market potential in China has obviously attracted various lumber exporting countries who are expanding export to China. Following further development in China’s construction’s “go green” and development of mass timber and CLT buildings in China, further dynamics and changes in competitive landscape are expected.

 

[1] http://www.forestry.gov.cn/portal/xdly/s/5201/content-1025315.html

Canadian lumber steps into furniture market

left to right: Qian Ruiwei, Canadian Trade Office in Chengdu; Armstrong Chu, Business Developmenet director, Canada Wood China; Eric Wong, managing director, Canada Wood China; Xie Suming, general manager, Sichuan Guodong; Caoli, vice-general manager, Sichuan Guodong; Wen Jiaxin, general manager, Yan’an Fengyuan Technology Company

On August 25th 2017, Canada Wood China (CW China) signed a strategic cooperation MOU with Sichuan Guodong Construction Holding Co., Ltd (Sichuan Guodong) on “jointly promote the applications of Canadian qualified lumber on furniture markets in China” in Chengdu. Eric Wong, managing director of CW China and Mr. Xie Suming, general manager of Sichuan Guodong signed the MOU on behalf of each side.

This MOU signing indicates that Sichuan Guodong will participate in CW China’s promotion on Canadian wood in furniture application with its over 20-year rich experience in furniture and door-sets.

Nowadays, demands for solid wood furniture is continuous to rise with cities’ rapid development in China. According to China Statistics Bureau’s data, the income of furniture manufacturing business was 761 billion RMB in January to November, 2016, an increase of 8.4% year-on-year. The total profit is 46 billion RMB, an increase of 10% year-on year. [1]China’s furniture will keep a consistent growth. This brings tremendous business opportunities for solid wood.

Recent years, several furniture industrial clusters have been formed in China. One of China’s biggest furniture manufacturing base is located in Sichuan Province. And Chongqing, as the closest neighbour city to Sichuan, has China’s largest door-sets industrial base. This area has been identified as one of the focuses in CW China’s WIM strategy for 2017/18.

The MOU signing is a milestone for CW China to promote “Wood in Manufacturing”, especially in such industrial cluster area. We want to explore more opportunities in various markets for Canadian wood. We realize softwood might not be suited for all applications, but we have recognized the most potential ones such as doors, windows and bed ribs. The suitable lumber species can be higher-grade SPF, Hemlock and Douglas fir.

Sichuan Guodong Construction Holding Co., Ltd.

Sichuan Guodong Construction Holding Co., Ltd. Is under Sichuan Guodong Construction Group. The group was established in 1982. Guodong Construction was founded in 1993.  Annual report as of 2011.5, Guodong construction to 590.44 million RMB registered capital, total assets of more than 3.1 billion yuan, mainly involving general contractors for wood-based panel and its processing, glass processing, construction, municipal engineering, wall decoration, real estate development and other services. Products related to medium/high density fiberboard, wooden suit door, laminated wood floor, plywood insulating glass, laminated glass and so on.

[1] Source: http://house.qq.com/a/20170220/021123.htm

Five furniture industrial bases in China, account for 90% of China’s furniture production capacity

There are five furniture industry bases generated in China, after years of development in furniture industry. They are:

  1. Pearl River Delta Furniture Industrial Base
  2. Yangtze River Delta Furniture Industrial Base
  3. Bohai Sea Rim Furniture Industrial Base
  4. Northeast China Furniture Industrial Base
  5. Southwest China Furniture Industrial Base

The first four bases are mainly consisting of furniture importing and manufacturing companies, which supply domestic and overseas markets. Whereas the fifth one – the West China Furniture Industrial Base targets domestic market.

The Five Furniture Manufacturing Regions of China.

1. Pearl River Delta Furniture Industrial Base

Representative cities: Guangzhou, Shenzhen, Dongguan, Shunde, Foshan

Advantages: industry cluster, industry chain and brand advantage

The Pearl River Delta Base is the biggest furniture industrial base in China. This area is close to Hong Kong and Macau, sharing abundant labour resources. As a result of long history of furniture manufacturing, it gathers lots of industry clusters with completed supply chains, well-developed market and brand advantage. The output value of furniture accounted for one third of the country. Most products are exported to Americas market.

2. Yangtze River Delta Furniture Industrial Base

Representative cities: Jiangsu Province, Zhejiang Province, Shanghai

Advantages: high product quality and operation management

The Yangtze River Delta Furniture Industrial Base is the fastest growing cluster in China. This area enjoys a good manufacturing foundation, including: a well-developed infrastructure, distinctive history and culture, and highly educated and qualified labour. The furniture market in this area has distinctive features, such as huge capacity of high quality products and well-managed companies. The output value of furniture accounted for one third of the country’s total. Most products are exported to the Americas and European markets.

3. Bohai Sea Rim Furniture Industrial Base

Representative cities: Beijing, Tianjin, Hebei Province

Advantages: company scale and market demands

The Bohai Sea Rim has a long history of furniture manufacturing, abundant resources and a convenient location. The size of furniture companies, in general, is large. The group of consumers is huge as well. Mature and professional sales market and intensive companies make the industrial chain increasingly improved and perfect. The products mainly are sold to the domestic market.

4. Northeast China Furniture Industrial Base

Representative cities: Shenyang, Dalian

Advantages: solid wood furniture and wood resources

As this base is close to Russia and has plenty of forest resources, it focuses on developing solid wood manufacturing. It is the leader of solid wood manufacturing in China and mainly exports to Northeast Asia and European markets, taking a smaller domestic market share.

5. Southwest China Furniture Industrial Base

Representative cities: Chengdu and Chongqing

Advantages: supply 3rd level market

Chengdu of Sichuan Province is the priority area of Southwest China Furniture Industrial Base, supplying furniture to 3rd-level market in mid-west China. The local government takes furniture industry as a pillar industry. It increasingly supports the industry, issuing relevant preferential policies and solving problems faced with furniture companies such as, land expropriation, bank loan and labour. The mature and convenient logistics foundation of this industrial base is preferred by coastal companies, plus increasing demand for furniture from inland cities as fast development. The furniture companies there win market share by taking the advantage of convenient logistics.

We can see China’s furniture is a mature industry with a huge market and many consumer groups, and competitive labour costs. In addition, over 30% of wood used in China goes into producing furniture, doors and windows. It is a good opportunity for Canadian wood industry to move up the value chain by offering higher grade products to this sector. This is also one of the strategic priorities of Canada Wood China for 2017/18.

Pilot CLT Plant in China

CLT Production Line

We visited a CLT plant in Ningbo, Zhejiang Province on August 31st. This plant is the company’s first pilot plant – Ningbo Sino-Canada Low-Carbon Technology Research Institute Co., Ltd. whose CTO used to be a senior scientist at FPInnovations – Dr. Brad J. Wang.

As a professor who has been studying the CLT technology for several years, Dr. Wang has abundant knowledge of it. He was involved in writing CLT Manufacturing Chapter II of CLT Handbook (both Canadian and USA versions) in June 2012 and 2013. Two years later, Dr. Wang led a group back to China

Glue application

and built this first pilot CLT plant and made the first batch of Canadian hemlock CLT. The plant covers an area of 13,500 m2 in Ningbo and was put into use in November 2015.

At the plant, we saw a mature and professional production line of CLT. Hemlock pieces are glued together with imported glue, then rolled to press process. The operation is strictly in accordance with Canadian manufacturing process. The company held a patent for its hemlock CLT and bamboo-wood composite CLT in China.

CLT press

“If we take 5% market share, the market for prefabricated wood construction will be about 25 billion Canadian dollars every year. And nowadays, there is a big push in China toward off-site construction. Two standards have been officially published in 2017 related to prefab wood construction”, said Dr. Wang. CLT can be used not only for construction, but also for indoor/outdoor furniture and access mat, and so on.