European Timber Quickly Changing the China Market
In 2019, the most notable change in China’s softwood log and lumber market was the significant growth of such imports from Europe. This was mainly due to an infestation of spruce bark beetles and windstorms that have led to a massive timber salvage program in Europe. This has hampered the competitiveness of other softwood species in the Chinese market.
Softwood log exports
In the first 11 months in 2019, European softwood log exports (excluding Russia) to the Chinese market were a whopping 6.8 million m3 – the pace for the last three months was over one million m3 per month. This represented an increase of 484 percent over the same period of 2018. On the contrary, the softwood log supply from North America was 4.9 million m3, down 27 percent year on year.
Softwood log exports from Europe were led by Germany (3.1 million m3, up 2,764% year on year) and the Czech Republic (1.9 million m3, up 1,277% year on year). The current Cost and Freight (C&F) at China’s main ports (by containers) is about Euro 95-100/m3 (US$ 105-110/m3). The C&F for New Zealand radiata pine log is around US$123/m3, and Canadian hemlock is about US$120/m3.
European spruce logs are gaining market share at Chinese sawmills in the production of construction lumber and are displacing radiata pine logs and especially North American softwood logs. There are several reasons for this. First, the log scaling in Europe allows for at least a 5 percent gain in volume for Chinese importers — this contrasts with North American logs, where there are normally no gains or even a volume loss for Chinese importers. Second, European spruce logs are longer (mostly 5.7m to 11.5m with over-length tolerances). Better yields are achieved in Chinese sawmills with Central European logs compared to using North American logs. Last, European spruce logs are now the cheapest species in Chinese wholesale markets – even cheaper than radiata pine logs. As a result, European log imports have soared, thus pushing down the prices of North American and radiata pine logs.
It’s difficult to predict how long this trend will continue; however, we expect the supply of European spruce logs will remain strong for several years, although this does depend on weather conditions. Furthermore, more Chinese players are investing in log yards in Europe to ship logs to China at competitive prices. This will create a tough challenge for other softwood log suppliers to compete – including North American logs.
Softwood lumber imports
In terms of softwood lumber, the supply from Europe (excluding Russia) has reached 4.2 million m3 during the first eleven months of 2019, up 61 percent from the same period of 2018. In the meantime, European lumber imports accounted for 15.3 percent of the market share in China (vs. 11.3 percent in the same period of 2018).
Finland and Sweden, and now the Ukraine and Germany, are the four largest suppliers. Softwood lumber imports from Ukraine reached 764,000 m3 during the first eleven months of this year, an increase of 94 percent from the same period of last year. The softwood lumber supply from Germany has reached 641,000 m3, a dramatic growth of 375 percent compared with the same period of last year.
The growth of the Central and Eastern European softwood lumber supply in China is largely driven by low-grade lumber applied in construction, including:
- Ukraine red pine lumber: offered at flexible sizes (mainly 36×86 mm or even 35×85) with a size tolerance price of around US$162-165/m3 for air-dried (AD) deadwood lumber grade – this competes with SPF lumber in construction lumber applications.
- German spruce lumber: offered at flexible sizes (based on Chinese importers’ requirements) at price of around US$170-175/m3 for AD, ABC grade (cut from storm and beetle logs).
- Stock volume to be offered from various European mills at prices of US$ 130-150/m3 for KD lumber, but at fixed specifications offered in the stock listing.
Essentially, the volume of low-priced spruce lumber from Central Europe in China was relatively small compared with other main suppliers. Furthermore, for the market ahead, this rapid pace of low-grade lumber exports from Central Europe is expected to slow down, considering sawmills have limited ability to add shifts and some non-favored specification issues.
About the writer: Jane Guo is the China Operations Manager for Forest Economic Advisors. In this role, Jane is responsible for conducting market research, information assessments, industry evaluation as well as logistics organization for market trips, conferences and tours in China. The focus of the China office is on softwood log and lumber products, but a variety of other products is also covered (some hardwood and value-added products).
For further background information, please contact: Russ Taylor [email protected].