Summary
Sawlog prices in China declined for the second consecutive quarter in the 1Q 2009 because of reduced demand for lumber, panels and paper products both domestically and from export markets. Softwood sawlog prices were by about ten percent from the peak in the 3Q/08, while Eucalyptus pulpwood prices only have fallen three percent during the same period.
Analysis
Production in the forest industry in China has declined the past six months because of reduced demand for most forest products both domestically and from export markets. As a result, softwood log imports were down again in the 1Q for the second consecutive quarter. China’s importation of logs in the 1Q was the lowest level in more than six years.
Practically all of the decrease was due to falling importation of logs from Russia; other suppliers have actually increased their presence in China. New Zealand has doubled its shipments of pine logs the past 12 months. The market share has gone up from five percent in early 2008 to as much as 14 percent in just 12 months. Log imports from North America have also increased the past year, although the total volume is still relatively small.
Despite the downturn in the economy and reduced demand for logs, China still imports large volumes of logs to supply its forest industry sector. An estimated 45% of the total softwood log consumption and 22% of hardwood log demand was sourced from outside China in 2008.
It is interesting to note that while imports of softwood logs have fallen, softwood lumber imports increased by almost 30% from 2007 to 2008. The transition from importing processed products rather than raw-material can partly be explained by the higher Russian log export taxes and by the substantial increase in costs of domestic sawlogs the past few years.
The reduced demand for sawlogs in China resulted in the first reduction in log costs in the 4Q/08 since 2005. Average costs for Chinese fir sawlogs in Southern China were down 10 percent from 3Q/08 to 1Q/09 as reported by the Wood Resource Quarterly. Costs for other domestic species throughout China also peaked in the 3Q last year and started to decline in late fall.
It was not only domestic log prices that fell in the 1Q/09, but also prices for imported logs. Average softwood log prices have their greatest Q/Q reduction since at least 2002 ever. This recorded downward price trend is likely to continue but at a slower pace to reach a bottom later in 2009.
