China Wood Products Prices

16-31th March 2005

Economic Issues in 2005 

The Director of China National Development and Reform Committee, Mr. Ma Kai, is on record as saying that macro-economic cooling mechanisms introduced in 2004 established a good basis for steady economic development in 2005.  

However, China will, he said, face some economic difficulties in the year ahead. These stem from global security issues, rising oil and energy prices, the weakening US dollar exchange and the increase in international trade protectionism measures.  Mr. Ma identified the following important domestic issues which will challenge the government in 2005. 

It will be progressively more difficult to increase grain yields and, as a result, farmer incomes in 2005 may not grow at the same pace as in past years. The amount of available land for planting is now becoming an issue, as is difficulty in further increasing yields per hectare.  Also, it will be more difficult to keep expanding the financing to farmers at past rates and it will be more difficult to sustain the increases in grain prices seen in recent years. 

The current scale of investment in fixed assets is still too large in China and some industries are over-expanding. Investment in newly establishing projects are too large and local authority investments are getting out of hand to the point that some, previously closed, small steel and cement workshops have restarted operations.  

There is a growing problem of supplies of coal, electric power and oil and an over capacity in the transportation sector. The opening of new coal based power plants has led to the over-exploitation of coal mines. Coal production was 1.9 billion tons in 2004 and is expected to reach 2~2.1 billion tons in 2005. The uninterrupted supply of electric power will continue to be a problem in some areas. 

Price of raw materials will continue rise in 2005 which will result in an increase in the cost of production. Additionally, production costs will increase as energy; labour and water will increase.  

Social conflicts may become more serious as unemployment grows, as the unequal distribution of wealth expands widening the gap between the wealthy and the poor.  

The domestic issues of uneven economic development have to be resolved if there is to be stable economic development says Mr. Ma. 

Changes in log Imports since 2000 and prospects for 2005 

Because of the rapid economic development and increased income levels, demand for wood products in China has grown rapidly. Log imports have increased year after year (see the following table). In 2002 imports of logs jumped 44% in terms of value and by 26% in value terms year on year. The following table shows the trends in China's log imports

China Log Imports (2000~2004)  

 It will be seen that the annual rate of growth in log imports has been very high. The volume and value of imported logs increased from 10 million cubic metres (valued at US$1.25 billion) in 1999 to 26.2 million cubic metres (US$2.80 billion) in 2004. 

Logs imported by China are mainly from Russia. Russian log imports have recently accounted for a large proportion of total log imports.  

For example, the volume of logs imported by China increased by a factor of about seven from 3.19 million cubic metres in 1996 to 26.31 million cubic metres in 2004.  Over the same time period, the proportion of Russian logs changed from 16.6% to 64.7% and since 1998 Russia has been the largest log supplier to China.  

The rate of growth of log imports has been steady since 2003. Log import volumes and values increased by 4.6% and 14.5% respectively in 2003 over 2002. In 2004 imports grew by 3.1%(volume) and 14.3% (value) over 2003.  

The price of imported logs has been rising. In recent years more log supply countries, especially tropical supply countries, have adjusted national forest sector strategies and have begun to restrict log exports.  

This has led to a scarcity of logs raw materials being traded internationally and, as a consequence, to price increases. In addition, increase in oil prices and a global shortage of shipping capacity has meant that freight costs have risen pushing up the cost of importing logs.

For example, while the volume of imported hardwoods in 2004 was 10.3 million cubic metres slightly down on 2003 levels, the total cost of those imported logs increased by US$121.5 million.  

For 2005 Chinese analysts expect the following scenario for 2005 log imports: 

It is expected that in 2005 China's log imports will continue to grow but less dramatically as in past years because of efforts to curb consumption.  

The Chinese government is expected to continue with measures to implement a 'cooling' financial policy in 2005. Macro-economic control measures over investments in capital assets will continue and efforts will be made to increase the recycling of resources. 

Also having an impact on the level of imports is the fact that, after six years of declining domestic timber supply since implementation of "Natural Forest Protection Program'', the production of domestic commercial timber reached 47.6 million cubic metres in 2003, a year by year increase of 7.3%.  

The production of domestic commercial timber reached 50 million cubic metres in 2004 and it is forecast that China's dependency on imported timber will decline in 2005. 

The Chinese government is acutely aware of the criticisms leveled as it consumes large quantities of imported timber and is paying more attention to the development of recycling of resources and expanding domestic production. Analysts expect greater emphasis to be given to increasing coniferous log and sawnwood imports and to reducing imports of tropical timber. 

The coniferous timbers include mainly Russian timber (Scots and Korean pine) and New Zealand Radiata pine. In addition, it is expected that timber trade will develop rapidly in south-west of China because of the implementation of the " Western Development Strategy" and because of regional cooperation in Lancang River and Mekong basin areas as well as the establishment of the Union of China and East Asia Countries (Myanmar and Cambodia). This Union aims to strengthen the cooperation between China and East Asian countries and create a economic pact to promote the development of trade between China and East Asian countries. 

Log and Sawnwood Supplying Countries  

According to the latest statistics from China Customs, in 2004 China's timber (including log and sawnwood) imports totaled 32.3 million cubic metres, of which, log imports totaled 26.3 million cubic metres (tropical log imports accounted for 27.6%) and sawnwood imports totaled 6 million cubic metres. In terms of imports, the main log and sawnwood supplying countries are as followings:

 Timber Processing in Putian, Fujian Province 

The opening ceremony for the Putian Xiuyu national timber processing area was held recently. This new development is a dedicated purpose built timber reception, handling and distribution area integrating quarantine, processing and trade.  

The processing facility is a part of a quarantine and treatment area approved by the general bureau of quality inspection. The advantage of this new area is that it is the only combined quarantine and treatment area for timber imported through a seaport.  

The area will be an environmentally sound imported timber processing area with an efficient layout, professional staffing and complete functional capacity, operations and service.  

The total area, when fully completed, will reportedly be about 20,000 mu (one hectare equal to 15 mu) just 5,000 mu will be developed in the first stage. The total investment in infrastructure will reach Yuan 180 million and some 50~100 timber processing and related enterprises will be functioning in the first developed area.  

Mr. Huang Jianxing, the Director of Fujian forestry bureau, pointed out that the bureau would provide preferential policies for the new Putian Xiuyu timber processing area. This will involve setting up quarantine and treatment stations and simplifying procedure for timber transportation certification and quarantine certification.  

Guangzhou City Imported Timber Market 

Shanghai Furen Wholesale Market 

Hebei Shijiangzhuang Wholesale Market  

Shandong De Zhou Timber market 

Tian Jin City Huan Bo Hai timber Market 

Abbreviations

LM        Loyale Merchant, a grade of log parcel	Cu.m         Cubic Metre
QS         Qualite Superieure	Koku         0.278 Cu.m or 120BF
CI          Choix Industriel	FFR            French Franc
CE         Choix Economique	SQ              Sawmill Quality
CS         Choix Supplimentaire	SSQ            Select Sawmill Quality
FOB      Free-on-Board	FAS            Sawnwood Grade First and
KD        Kiln Dry	Second
AD        Air Dry	WBP           Water and Boil Proof
Boule    A Log Sawn Through and Through	MR              Moisture Resistant
the boards from one log are bundled	pc         per piece
together	ea                each
BB/CC  Grade B faced and Grade C backed	MBF           1000 Board Feet
Plywood	MDF           Medium Density Fibreboard
BF         Board Foot	F.CFA         CFA Franc
Sq.Ft     Square Foot	Price has moved up or down