Global timber industry to be affected by the current Chinese financial crisis?

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Global markets are once again trembling. China has been experiencing a stock market crash all summer, which for the moment, has unknown repercussions. Some analysts say that this crisis will have enormous implications for the real Chinese economy, and consequently for the world economy.

Will the timber trade be affected?

It's hard to say for the moment. However some signs are already showing up: there is a sharp contraction in shipping through Singapore, a general decline in the volume of world trade, and the falling price of the Australian dollar, all of which are ripple effects of China importing fewer raw materials and seemingly exporting fewer finished goods.

As the Chinese players, the middle class and small investors have lost around $ 3,000 billion by the end of August, inevitably, domestic consumption will be affected, especially on products which are not necessities, such as products which use wood (furniture, decoration, flooring...).

Even Beijing, though accustomed to providing falsified figures, recognizes the slowdown in growth. Economic growth will be less than 7% in 2015, the weakest performance in 25 years. According to the Chinese government, it was around 12% in recent years.

Negative Chinese timber trade in the first half

Chinese export and import values were RMB 11.5 Trillion (US$ 1.9 trillion) in the first half of 2015, reflecting a drop of 6.9% over the same period of last year. Export values were RMB 6.5 trillion (US$ 1.05 Trillion), up 0.9% from H1 2014, and import values amounted to RMB 5 Trillion (US$ 806 Billion), a decline of 15.5% from the same period 2014.

The growth rate in lumber imports slowed, but still was positive, while log import volumes dropped substantially, all owing to decreased construction activity and inflated inventories at ports. The situation led to price declines in both logs and lumber import values for the first half of 2015. Log import volumes declined 14% (to 23.1 million m3) and import value decreased by 43% (to US$ 3.7 billion) over the same period of 2014. Lumber import volumes increased by 7% (to 13.3 million m3) and import values declined by 19% (to US$ 3.2 billion).

Prices fell as well. For example, the FOB price for imported logs fell 21% to US$190 per cubic metres. The average FOB price for Chinese imported softwood logs fell 19% to US$129 per cubic metre, while the average price for imported hardwood logs fell 28% to US$312 per cubic metre.

Exporters confirm no changes compared to last year

French exporters interviewed by Fordaq admit their inability to predict what will happen in the short term. They currently find little change in their trade relationship with China knowing, however, that the deal flow will resume in September and October, after the customers visits and current contract signings.

''I have contacted my Chinese partners. Regarding beech logs, I have firm orders in volume, and on the same level as last year. I imagine that my partners will come to negotiate on prices,'' says a French log exporter from France's Rhône-Alpes region, reporting he has sold 15,000 m3 logs to Asia in 2014-2015. 

In oak logs, it seems that low qualities shipped to China recently lead Chinese processors to harden their requirements. ''My clients have confirmed me their needs for this year, and they are in the same quantities as last year.'' This French exporter mentioned that he ships 70% of its oaks in C/D quality at prices of 100-120 euro/m3 container load.  

As for sawyers exporting to China an attitude of expectation prevails. ''Currently, we do not feel any impact of this Chinese turbulence,'' says Eric Julien, CEO of Eurochêne. ''What is certain is that China's economy is at the top. After years of phenomenal growth it is unclear if economy will grow at the same level. Despite this, I see no major disruption which could affect this autumn sales. While we suffer from a chronic shortage of wood, aggregate demand remains good in most of the oak goods,'' Mr. Julien said. 

A sales responsible of French Ducerf group confirms the above statements. ''It is too early to say whether current events will have an impact on our export activities to Asia. Despite the recent devaluation of the yuan, and if I judge by the present state of our orders, the market remains favorable to our shipments to China,'' he said. 

Although he abandoned China in 2015 to devote himself to the Maghreb and the Middle East, the French sawyer Noël Cenci nevertheless believes that a risk of market fall exists. "An indirect impact is not to exclude in the medium term. If the Chinese market is shrinking, notably furniture, operators will seek for other destinations and price pressures could emerge. "According Mr. Cenci, the question is whether China can recover when it has become less competitive. But who can answer to this question today?

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