Despite the fact that in the last three quarters of this year, log imports grew by 14.5%, while lumber imports grew by 0.3%, Chinese timber market was not very optimistic. Due to the fall of the yuan by 10% against the dollar, the price of imported wood is rising, while within the country the prices of sellers do not rise and sales go badly. This ultimately leads to the fact that most distributors in China suffer losses.
Due to measures introduced by the government to protect the environment, small and medium-sized furniture and woodworking enterprises are closing down. Thus, 3,000 furniture factories have recently closed down in Jiangxi Province, in Chengdu, Sichuan Province, 4,000 small and medium-sized enterprises engaged in the production of furniture and woodworking have ceased operations. This, in turn, affects sales of forest products in the domestic market. The exports of wood products amounted to US$20.4 billion, down 0.8% from the same period last year, and this has never happened before.
The positions of the leading suppliers of timber and timber products in the Chinese market have also changed. In the first half of 2018, the average unit price of Russian coniferous logs was 118/m3, while that of American coniferous logs was US$166/m3. One prominent change is the import of Canadian coniferous lumber dropped sharply and its market share in China decreased rapidly. In 2014, China bought almost identical volumes of sawn timber in Russia and Canada. However, in the first half of 2018, Russia's share in the Chinese market reached 60.9%, while the share of Canada declined to 15.8%, which is equivalent to 1/4 of Russian lumber sales. This is due to the shortage of raw materials in Canada and the growing demand in the United States. However, the Canadian government, unlike the Russian, has invested and made a great contribution to the establishing of the Chinese construction industry. Besides strongly involved in forming Chinese building codes, from 2005 to 2012, Canadian government initiated 16 wood frame demonstration projects in different areas in China. It contributed tremendously to the promotion of wood building system and successfully positioned Canadian graded SPF as the main certified building material in Chinese building codes.
Much has changed in trade with the United States, which imposed tariffs on imports from China worth about $ 200 billion, of which $ 75.4 billion fall on timber products. Thus, tariffs cover almost all timber products shipped from China to the United States, including wood chips, charcoal, wood products, wood flour, sawdust, veneer, flooring, particleboard, fiberboard, plywood, reinforced wood, doors, windows and wooden building form work, cork, wood pulp and waste paper, paper products, furniture etc. In 2017, exports of these wooden products to the United States amounted to $15.99 billion, accounting for 91.7% of China's total exports to the United States ($17.44 billion). However, it only accounted for 23.4% of China's total exports of forest products ($74.65 billion) globally. On the other hand, the total value of forest products in Chinese anti-American list is $1.83 billion.
Trade war will inevitably affect the domestic market of China. The impact on the timber industry is not yet destructive. In terms of market demand and supply, the country's market and the structure of international trade will inevitably be restructured and adjusted. If tariffs for high value-added forest products, such as wood flooring and furniture, are within 10%, then due to the exchange rate effect, their impact on US suppliers and Chinese enterprises will not be so significant. If the tariffs grow to 25%, those and others will incur costs. Tariffs will also greatly affect Chinese exports of plywood, furniture, flooring and doors to the United States. Accordingly, China will face industry restructuring.
Overall China's economy is running down and the economic growth rate is slowing. As a result, upstream real estate industry is depressed and distribution channels are divided. Tariffs on timber exports in the United States and Canada will continue to rise, creating short-term market and price volatility and a tighter supply and higher exports. It is difficult to tell the trend in short term, but in the long term, under the Belt and Road Initiative, more overseas markets may open up for the Chinese timber industry.
Belt and Road Initiative has changed the structure of the wood market in China. This year marks five years since President Xi proposed this initiative, which timber merchants welcomed positively. In recent years, there has been great development of timber transportation in central and Eastern Europe. In order to meet the needs, China and Europe have launched a "timber customization regular trains". So, 300 lines are expected to open this year. There are also regular trains in Xi'an and Zhengzhou. It is estimated that there are about 400 to 500 special trains for timber transportation in China, including fast trains. The number of timber transported is between 800 and 1 million m3; it is mainly Russian lumber. Thanks to these newly opened trains, the transport time was greatly shortened, and the shipping was generally about 13~15 days. Russia's main shipping locations include Tomsk, New Siberia, Krasnoyarsk, through Manzhouli, Suifen River, Erlian and Xinjiang Alashan Pass into China. Europe has nearly 20 shipments. At present, Chengdu -Central Europe line has surpassed 2000 times in June 2018, ranking first in the country. Some Timber Merchants originally in Manzhouli, Xiufenhe and Taicang began to move to the terminal areas of the liners, such as Chengdu and Wuhan, which had an impact on the timber market and transport pattern. With the intensification of market competition, some ports have reduced domestic freight charges.
Chinese traditional timber business refers to the production and marketing approaches taken by state-owned forest farms. After obtaining the legal logging licenses, the forest farm will have an open bidding for the timber production. The winning bidder carries out the production according to the requirements of the state-owned forest farms. Processed timber will be shipped to a designated yard and sold at a price set by state-owned forest farms. The main disadvantages of this distribution system are the difficulty of adapting woodworking to market demand, the low ratio of complex use of raw materials, a significant impact on the prices of state-owned forest farms. Due to the lack of market information, customers sometimes manipulate the selling price of wood.
In China, the builder of wood constructions is the final consumer of lumber and almost the only driving force in this market. In 2012, 272 companies merged and founded the co-founded the China Wood Frame Alliance (CWFA). Most of the members are builders and material suppliers who account 80% of all practicing wood building businesses in China.
China has published more than 25 national building standards and codes related to timber construction since 2000, and half is done after 2015. Among them are the development of “Code for design of timber structures GB50005-2003”, “Code of design on building fire protection and prevention GB50016-2006”, and “Design handbook for wood structure” which are considered as milestones in the process of establishing China’s national standards. Lumber species and requirements have been very clearly illustrated in all these codes, while design details are mostly missing.
A new Chinese Timber Structure Design Code was introduced on August 1, 2018. It includes a willow from Japan as a material that can be used in wood structure buildings. This is a good substitute for coniferous wood from the United States, trade with which is impeded due to the trade war and imposed tariffs. Although the import of logs from Japan is not very large, in recent years it has been growing at rather high rates, and in Japan itself there are a large number of willow plantations.
Extensive export opportunities are also opening up for Russia, as one of the countries through which the New Silk Road passes. However, often Russian exporters who want to enter the Chinese market do not know how to do it correctly, therefore they face various troubles. If the lumber supplier exports its products to China for the first time, then, firstly, you need to be careful and monitor the entire delivery process. It is recommended to first carry out a small delivery of goods to the port and monitor each process here. Then you can try to do it with larger volumes. The correct delivery date can save unnecessary expenses in custom house. Secondly, it is necessary to study in advance all the requirements of customs control. Honestly show all the goods, as they must pass a customs assessment. In addition, customs officers can do a random inspection - on the spot measure the cubic capacity, weigh, and make an x-ray. It is better to choose a responsible logistics company engaged in customs clearance, with experienced practitioners.
Companies that want to enter the construction market in China need to understand several important aspects. Chinese is usually reluctant to accept alternative construction methods and materials if they do not have clear, beneficial, high-quality advantages. Local designers and contractors do not have such control over the supply chain of wooden construction materials, and this applies to both lumber and various additional materials used in timber construction. Local architects have no special knowledge necessary for working with wood, software for calculations and equipment used in the construction.
Meanwhile, Chinese timber merchants, besides using the market potential, should pay more attention to the transformation of enterprises. In China, there are more than 600 regional level cities, more than 2100 county level cities, and more than 12000 townships and towns. About 20 million households need new housing each year, and the rural market potential is still huge. Chinese wood enterprises should accelerate, take advantage of existing innovations and national policies, increase trade with the countries along the New Silk Road, find and use alternative materials and explore new markets. It is necessary to develop cooperation in the construction industry and e-commerce, to overcome trade barriers, to adapt the industry to a complex market environment, to solve problems related to world trade.
