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1 To our China Bulletin Subscribers: Legal Obligations of PDF Subscribers: Copies or excerpts of PDF (electronic) newsletters may only be made and used for distribution at the mailing address of the subscriber, i.e., unauthorized re-distribution and/or reproduction of parts or all of the PDF versions of our China Bulletin, except for use at the single physical street address of the subscriber, are a violation of our copyright. Electronic copies or excerpts of our China Bulletin that are printed, photocopied, faxed, ed or otherwise duplicated and/or released by the subscriber and sent to other company locations, affiliates, customers, associates or external sources or releases are not permitted and are a violation of our copyright without the written permission of the publisher. Multiple-site PDF subscriptions are available at a substantial discount to the annual subscription rate please contact our office for details. The Publisher FEA-Canada (International WOOD MARKETS Group) Suite E. Cordova Street, Vancouver, B.C., Canada V6A 0A5 PH: FAX: info@woodmarkets.com WEBSITE: International WOOD MARKETS Group Inc. Forest Economic Advisors LLC

2 JUNE 2018 Special Report: China Log & Lumber Trade Overview 2018/ According to China Customs trade data, China imported 14.4 million m3 of logs during the first quarter of 2018, an increase of 12.8% from the same period in China s lumber imports were 8.3 million m3, an increase of 5.1% over the same period of last year. Softwood log imports were near 9.4 million m³ with an average value of US$138/m3) during the first quarter of a growth of 6.9% in volume. China imported 5.4 million m³ of softwood lumber with an average value of US$204/m3 an increase of 0.3% by volume compared with the same period of Further details in the Full Report China Market Synopsis Softwood log inventories at China s main ocean ports totalled 4.19 million m3 at the end of May 2018, a slight decline of 0.7% compared with the previous month. This are still considered high levels. CFR softwood log prices crept higher by US$1-4/m3, with the exception of SYP logs (US$-2/m3). Wholesale log market prices were also higher by about the same amount despite above normal port log inventories. Softwood lumber inventories at Taicang port and the surrounding area totalled nearly 1 million m3 on May 20, and this was at a similar (but slightly lower) level than last month. The inventory level of SPF was 180,000 m3, a rapid decline of 25% for the second straight month. SPF C&F lumber prices were flat to slightly higher while European, Russian and radiata pine prices moved sideways in June a reflection of inventory levels. Table of Contents 1. China Industry News in Brief China Wood-Frame Construction Industry Update Guangdong Timber Processing Industry Overview in Environment inspection update in Linyi, Shandong Province China s PMI was 51.9% in May China s Softwood Lumber Inventories in the Taicang Port Areas China s Softwood Log Inventories at Ocean Ports 4 2. Special Report: China Log & Lumber Trade Overview 2018/ 6 3. China Export & Import Statistics China Imports China Export & Import Tables North American Log & Lumber Exports to China China Prices 28 USD/m3 - C&F 4.1. Log Prices Softwood Lumber Prices 31 $275 $250 $225 $200 $175 $150 $125 $100 China: Imported Log & Lumber Price Indicies Annual Monthly J FMAMJ J A SOND J FMAMJ J A SOND J FMAM Softwood Lumber Softwood Logs Source: CC; Note: * = YTD

3 1. China Industry News in Brief 1.1. China Wood-Frame Construction Industry Update According to the information from Beijing Forestry University, currently China has over 300 professional wood-frame construction companies of a minimum scale. By comparison, China had less than 20 professional wood-frame construction companies prior to China has approximately million m2 of total wood-frame construction (at 150 m2 per unit (mainly tourist facilities and villas), this would represent 80, ,000 total wood-frame units), with an estimated market scale of 8.6 billion RMB (1.4 billion USD). The annual wooden-frame construction starts in the last two years are about million m2 (at 150 m3 per unit, this would represent about 25,000 wood-frame units or about 12,500 per year). Of this total, about 70% is light wood-frame structures, and this represents about 0.15% of total new housing starts. Moreover, China has currently 30 production lines of woodframe house construction, around 60 production lines of glue-lam, 7 production lines of prefabricated wall assemblies, 3 production lines of cylindrical poles and posts, 1 CLT production line, and 7 of curved beam production lines Guangdong Timber Processing Industry Overview in 2017 According to the preliminary statistics from Guangdong Timber Industry Association, Guangdong had more than 20,000 timber processing manufacturers in 2017, including 6,000 furniture factories, 89 plywood factories, 61 fiberboard factories, 82 particleboard factories, 160 wood-flooring factories, and over 400 paper-making factories. Paper products and wooden furniture are the main outputs from the industry in Guangdong province. In 2017, the production outputs in each sector are as follows: Wood-based panel: 3.6 million m3 of plywood, 4.2 million m3 of fiberboard, and 2 million m3 of particleboard. The production output value in total was 46.2 billion RMB in 2017, a decline of 9.7% from 2016; Flooring: 1.53 million m2 of solid flooring, and 18.9 million m2 of engineered flooring; Furniture: 57.3 million pieces with production value of 125 billion RMB, representing a decline of 0.8% in volume and an increase of 4.9% in value over 2016; Paper: production volume was 21.8 million tonnes, with a production value of billion RMB, up 2.9% in volume and 15.2% in value compared with In terms of timber raw material supply, Guangdong s total market supply of timber was million m3 in 2017, which comprised 18 million m3 of domestic supply and 79.2 million m3 of imports/other: Domestic timber supply: nearly 8 million m3 within quota plus 10 million m3 of harvest volume out of quota to provide 15.7% of total raw material consumption in Guangdong; Imported raw material: Direct imported volume was 62.7 million m3 (equivalent log volume) and in-direct volume was 16.5 million m3 to provide 69.2% of consumption volume in Guangdong; Others: 17.2 million m3, or 15.1% of total timber consumption in Guangdong. FEA-Canada / WOOD MARKETS Page 2

4 1.3. Environment inspection update in Linyi, Shandong Province Linyi is one of the most important areas for wood-based panel production (especially for plywood) in China. Under the current central environmental protection inspections, of all 4,720 mills in Linyi, 2,904 have already completed the environmental protection formalities by the end of 2017, and 706 have been permanently closed. The remaining 1,110 mills are still in the process of finishing the formalities. It is expected that the central environmental protection inspections will result in the closures of more plants that are technically deficient or could not afford to comply with stricter environmental regulations. Furthermore, several wood industrial parks are currently in planning and under construction in Linyi, and a large part of mills will move into the industrial parks by the end of October this year China s PMI was 51.9% in May In May 2018, China s manufacturing purchasing managers Index (PMI) was 51.9%, an increase of 0.5% from last month. The overall expansion of manufacturing industry has accelerated. The PMI of large-sized enterprises was 53.1%, an increase of 1.1% from last month and continued to stay in the expansion range; that of medium-sized enterprises was 51.0%, an increase of 0.3% from last month; and that of small-sized enterprises was 49.6%, a decline of 0.7% from last month and below the 50% threshold. Among the five sub-indices composing the PMI, the production index, new orders index and supplier delivery time were higher than the threshold, or 54.1%, 53.8%, and 50.1%, respectively. The main raw materials inventory index and employed person index were lower than the threshold of 50% at 49.6% and 49.1%, respectively. FEA-Canada / WOOD MARKETS Page 3

5 1.5. China s Softwood Lumber Inventories in the Taicang Port Areas According to a WOOD MARKETS source, the softwood lumber inventories at Taicang port and the surrounding area were nearly 1 million m3 on May 20, and this was at a similar (but slightly lower) level than last month. The inventory level of SPF was 180,000 m3, a rapid decline of 25% again for the second straight month. The daily sales volume slowed down a little bit at 21,000 m3, compared with 25,000 m3 last month, and the overall inventory is still considered to be at a high level. On other hand, CIF prices offered from overseas suppliers stayed firm, due to the limited log supply and the rising demand from other markets. Most of Chinese softwood lumber distributors, especially those involved in European spruce lumber, are suffering with the situation of the high import lumber costs and low Chinese wholesale markets prices China s Softwood Log Inventories at Ocean Ports According to the data supplied by a key WOOD MARKETS contact in China, softwood log inventories at China s main ocean ports totalled 4.19 million m3 at the end of May 2018, a slight decline of 0.7% compared with the previous month. Radiata pine log inventory volumes from New Zealand and Australia totalled 2.6 million m3 in late May, an increase of 5% from last month, and represented about 62% of the total log inventory (vs. 59% in last month); North American Douglas-fir and hemlock volumes totalled 1.17 million m3 a decline of 7% from last month; and Softwood log inventories from other countries, including Russia, Europe, Japan and South America were 412,000 m3, a decrease of 14% from last month. FEA-Canada / WOOD MARKETS Page 4

6 The main ocean ports include: Lanshan, Lianyungang & Ganyu, Taicang & Wanfang & Meijing, Changshu, Tianjin, Qingdao, Penglai & Longkou, Yangzhou & Xinminzhou, Shanghai, Zhangzhou & Putian, Guangdong, and Guangxi ports. The log inventories at the end of May, as compared to the end of April, at some of the major ocean ports (excluding Russian land ports) were reported as follows: May 31, 2018 April 30, 2018 Lanshan: 600,000 m3 vs 670,000 m3 Lianyungang and Ganyu: 150,000 m3 vs 80,000 m3 Taicang & Wanfang & Meijing: 1,131,000 m3 vs 1,133,000 m3 Changshu: 330,000 m3 vs 393,000 m3 Tianjin: 445,000 m3 vs 432,000 m3 Yangzhou+Xinminzhou 360,000 m3 vs 360,000 m3 Qingdao: 180,000 m3 vs 240,000 m3 Guangdong: 320,000 m3 vs 350,000 m3 Subtotal: 3,516,000 m3 vs 3,658,000 m3 (-4%) FEA-Canada / WOOD MARKETS Page 5

7 2. Special Report: China Log & Lumber Trade Overview 2018/ According to the trade data from China Customs, China imported 14.4 million m3 of logs during the first quarter of 2018, an increase of 12.8% from the same period in China s lumber imports were 8.3 million m3, an increase of 5.1% over the same period of last year. Of the total log imports, around 9.4 million m³ were softwood logs valued at USD 1,297 million (US$138/m3) during the first quarter of 2018, and this represented a growth of 6.9% in volume and 17.5% in value over the same period in Meanwhile, China imported 5.4 million m³ of softwood lumber valued at 1,104 million USD (US$204/m3) an increase of 0.3% by volume and 8.2% by value compared with the same period of High inventories, moderate demand and high prices from suppliers side are the key words reflecting current softwood log and lumber market situation in China. New Zealand remained the largest softwood log supplier to China, supplying 3.6 million m3 (38% of China s total softwood log imports) in the first quarter of 2018, an increase of 13.8% over the same period of last year. This was followed by Russia (2.1 million m3), USA (1.1 million m3), Australia (965,000 m3), Canada (538,000 m3), Uruguay (521,000 m3). FEA-Canada / WOOD MARKETS Page 6

8 Russia and Canada were two of the countries with negative growth in both volume and value in the first quarter of Canada softwood log exports to China decreased significantly by 35.7% in volume and 18.8% in value in the first quarter of 2018 compared with the same period of The U.S. supplied approximately 1.1 million m3 of softwood logs to China during the first quarter of 2018, an increase of 2.7% from the same period of last year. However, the southern yellow pine log exports from the U.S. to China started to be impacting by the uncertainty of Sino-US trade policies, and the shipments of softwood logs from the US to China are predicted to decrease in the coming months as a result. By the end of May, China had an inventory of nearly 4.2 million m3 of softwood logs at the main ocean ports, with daily sales volume of 60,000 70,000 m3. The inventory turn-over day is around 66 days. Even though the inventory has already dropped by 1 million m3 from the 5.2 million m3 in March an historical high in last 3 years, it still is a high inventory. By comparison, the softwood log inventory was 3.6 million m3 one year ago, with daily sales volume of an average 66,000 m3. Under this current situation, most Chinese softwood log importers, especially radiata pine log importers, are suffering financial losses due to the low domestic market sales prices in the wholesale markets. However, a price crash has not happened, which is different from three years ago when inventory levels were as high over 5 million m3. There were several reasons, but a key reason is the deep involvement of the China National Forest Group in the radiata pine log business. It is estimated that China National Forest Group and its subsidy companies control at least 60-70% of radiata pine log import volumes into China and those companies have tried to hold the Chinese wholesale market prices. On the other hand, they also continue to purchase more volumes as they need achieve their target annual import volumes and therefor need to support a firm CNF price from overseas suppliers. As a result, the CNF prices of main softwood log species in May 2018 showed steady rises compared with May 2017: Radiata pine: up from 135 USD/m3 to current 146 USD/m3; U.S. hemlock: up from 148 USD/m3 to current 156 USD/m3; Russia larch: up from 125 USD/m3 to current 135 USD/m3; With regards to softwood lumber, a small increase of only 0.3% to 5.37 million m3 has been recorded in /2018. Russia remained the largest softwood lumber supplier to China. Its volume reached 3.1 million m3 in the first quarter of this year, an increase of 5% compared with the same period of last year. Canada, as the second largest supplier to China, exported around 889,000 m3 of softwood lumber to China in /2018, representing a reduction of 22% compared with the same period of Meanwhile, softwood lumber imports from Finland slowed down to a more FEA-Canada / WOOD MARKETS Page 7

9 moderate growth rate of 4.3% in compared with the same period of last year after a rapid growth in previous two years. The softwood lumber inventory at main ocean ports stayed high in May 2018, with a volume of 1.6 million m3 nationwide and daily sales of 29,000 m3. The inventory at each main region is as follows: Taicang: 1 million m3, with 21,000 m3 of daily sales (48 days turn-over); Qingdao: 140,000 m3, with 4,000 m3 of daily sales (35 days turn-over); Tianjin: 25,000 m3, with 500 m3 of daily sales (50 days turn-over); Guangdong: 250,000 m3, with 2,000 m3 of daily sales (125 days turn-over); Ganzhou: 190,000 m3, with 1,300 m3 of daily sales (146 days turn-over); Chengdu: 8,000 m3, with 170 m3 of daily sales (47 days turn-over) As softwood log prices, the CNF price for all main softwood lumber species increased steadily during the last 12 months from May 2017 to May 2018: Radiata pine lumber: up from 260 USD/m3 to current 280 USD/m3; Russian spruce lumber: up from 255 USD/m3 to current 280 USD/m3; Russia red pine lumber: up from 245 USD/m3 to current 275 USD/m3; European spruce lumber: up from 265 USD/m3 to current 290 USD/m3; Canadian SPF #2 2x6: up from 212 USD/m3 to current 234 USD/m3 With the high inventory and rising CNF cost, Chinese softwood lumber importers, especially European spruce lumber importers, have been facing a quite tough situation as well, where some products/specifications can help achieving break-even, but some had to be sold at a loss of nearly 100 RMB/m3 (US$15/m3). To some extent, the firm CNF prices and expected slower FEA-Canada / WOOD MARKETS Page 8

10 delivery volumes have prevented the wholesale market prices in China from incurring a big drop. Furthermore, it is reported that the return block-trains with lumber are facing more challenges recently, owing to the shortage of containers from Russia to China, the limited Custom clearance capacity at the Erenhot land port, and the insufficient subsidies being offered by some local governments. As a result, the lumber delivered from Russia to destinations such as Wuhan, Chengdu, and Ganzhou via return block-trains all decreased in April and May, with Xi an being an exception. In addition, China is expanding the new block-train lines that are now connected with Ukraine, Belarus, Czech Republic, Romania, Sweden, etc. FEA-Canada / WOOD MARKETS Page 9

11 China's Import Demand for Softwood Logs & Lumber 2022 The Changing Supply Chain in China with a Focus on Russia's Industry/Export Potential The softwood log and lumber markets are in a state of flux as buyers are struggling with high inventories and somewhat slow demand while exporters seem to be holding out for higher prices. The situation is different depending where you are in China and what the supply source is. Throw in emerging logistical dynamics via the One Belt/One Road plan, and it is evident that some suppliers are gaining market share. These dynamics, including an assessment of the delivered costs by supplying region to selected markets in China, profiling the current status and outlook to 2022 for China's imported softwood logs and lumber, and the Russian log and lumber industry, examining the ability of Russian log and lumber exports to compete in China versus other exporting countries/species, will be the focus of this report. It will include a look at China's wood demand by end use and geographical market segments and the fit for imports, and perspectives on the changing supply chain in China, and a competitive analysis of delivered log and lumber costs by major supplying country will be included. What is the expected demand by segment in China for imported softwood logs and lumber to 2022? How much more fiber can Russia supply and for how long? How competitive are imported Russian logs and lumber in China versus other major exporters? Where is Russian supply being shipped to within China versus other suppliers (ocean ports vs. inland regions) and how might this change in coming years? What is the export outlook in key exporting countries fulfilling China's log/lumber needs: o Russia (red pine, spruce, larch), o the U.S. South (SYP), o South America (taeda and radiata pine), o New Zealand/Australia (radiata pine), o B.C. Coast/U.S. Pacific Northwest (hemlock and Douglas-fir), o Europe (Scandinavia, Western and Eastern Europe - spruce and pine) o Western Canada (SPF) o Japan (sugi) Call or for details and prices about China's Import Demand for Softwood Logs and Lumber to 2022: Call FEA U.S.: Call FEA Canada: lkelly@getfea.com Fax: U.S For information about the report, contact: Contact Russ Taylor: rtaylor@getfea.com Contact Rocky Goodnow: rgoodnow@getfea.com FEA-Canada / WOOD MARKETS Page 10

12 3. China Export & Import Statistics (NOTE: THE STATISTICS IN APRIL (AND PART OF MARCH) ARE NOT UPDATED DUE TO ANNOUNCED SYSTEM PROBLEMS AT CHINA CUSTOMS) 3.1. China Imports FEA-Canada / WOOD MARKETS Page 11

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17 3.2. China Export & Import Tables (All units are x000 m3) (NOTE: THE STATISTICS IN APRIL (AND PART OF MARCH) ARE NOT UPDATED DUE TO ANNOUNCED SYSTEM PROBLEMS AT CHINA CUSTOMS) Note: Russian red pine imports adjusted lower in 2016 by WOOD MARKETS to reflect a customs error 1. China Plywood Exports by Country Note: Includes laminate flooring 2. China Door Exports by Country (Tonnes) FEA-Canada / WOOD MARKETS Page 16

18 3. China Fibreboard Exports by Country 4. China Particleboard Exports by Country FEA-Canada / WOOD MARKETS Page 17

19 5. China Log Imports by Country 6. China Hardwood Log Imports by Country 7. China Softwood Log Imports by Country FEA-Canada / WOOD MARKETS Page 18

20 8. China Hardwood Log Imports by Species 9. China Softwood Log Imports by Species 10. China Log Imports by Province FEA-Canada / WOOD MARKETS Page 19

21 11. China Lumber Imports by Country Note: Russian red pine imports adjusted lower by WOOD MARKETS to reflect a customs error 12. China Hardwood Lumber Imports by Country 13. China Softwood Lumber Imports by Country FEA-Canada / WOOD MARKETS Page 20

22 14. China Softwood Lumber Imports by Species Note: Russian red pine imports adjusted lower by WOOD MARKETS to reflect a customs error 15. China Hardwood Lumber Imports by Species 16. China Sulfate (Kraft) Wood Pulp Imports by Country Note: the units above are x000 tonnes FEA-Canada / WOOD MARKETS Page 21

23 3.3. North American Log & Lumber Exports to China x000 m3 2,000 1,800 1,600 1,400 1,200 1, USA: Softwood Log Exports to China Million Bf - Scribner Other So. Yellow Pine Spruce Western Hemlock Douglas-Fir Source: USDA USA: Softwood Lumber Exports to China Million bf - net x000 m Other So. Yellow Pine S-P-F Mix Douglas-Fir Hemlock Hem-Fir Mix Source: USDA FEA-Canada / WOOD MARKETS Page 22

24 BC: Softwood Log Exports to China x000 m3 1,200 1, Million Bf - Scribner Other Spruce DF Hemlock Total ('18 ) Source: COFI Note: 2012 and beyond is Canada Exports 2,400 Canada: Softwood Lumber Exports to China 1,018 2, , x000 bf 1, Other Douglas Fir/Larch Hem-Fir SPF FEA-Canada / WOOD MARKETS Page 23

25 USA: Softwood Log Exports to China Douglas- Fir Western Hemlock x000 m3 Spruce Southern Yellow Pine Other Total ,063 Q2 1, , ,731 Q , Q ,187 Q , ,142 Q , ,603 Q , ,459 Q , , Q Q , Q Q , ,305 Q , Q , ,335 Q , J F M FEA-Canada / WOOD MARKETS Page 24

26 USA: Softwood Lumber Exports to China x000 m3 Hem-Fir Mix So. Yellow Pine Hemlock Douglas- Fir S-P-F Mix Other Total Q Q Q Q Q Q Q Q Q Subscribers 4 20 Only Q Q Q Q Q J F M FEA-Canada / WOOD MARKETS Page 25

27 BC: Softwood Log Exports to China x000 m3 DF Hemlock Spruce Other Total Q Q Q Q Q ,036 Q Q Q4 177 Subscribers Only Q Q Q Q , Q ,016 Q FEA-Canada / WOOD MARKETS Page 26

28 Canada: Softwood Lumber Exports to China x000 m3 Douglas Fir/Larc h Hem-Fir SPF Other Total , ,572 Q , , , ,988 Q , , , ,939 Q , , , ,719 Q , , , ,858 Q , , , ,257 Q , , , ,429 Q , , , ,007 Q , , Subscribers 198 1,315 Only 22 1,575 Q , , , ,430 Q , , , ,615 Q , , ,289 Q , , , ,401 Q , , , ,386 Q , , J F M FEA-Canada / WOOD MARKETS Page 27

29 4. China Prices 4.1. Log Prices *Note: Wholesale Market Prices below are the CIF delivered China port cost and include VAT (16% for lumber, or 10% for logs), documentation fees, local transportation fees, profit, etc. Note: some Wholesale Market Prices are no longer available and some items have been dropped. Disclaimer: IWMG does not take responsibility for the accuracy of the source for this information; It is intended as general information for the reader. Subscribers Only FEA-Canada / WOOD MARKETS Page 28

30 FEA-Canada / WOOD MARKETS Page 29

31 SPOT MARKET PRICES Manzhouli Wholesale Market, Inner Mongolia Subscribers Only FEA-Canada / WOOD MARKETS Page 30

32 4.2. Softwood Lumber Prices FEA-Canada / WOOD MARKETS Page 31

33 Subscribers Only Subscribers Only Subscriber s Only CHINA BULLETIN Published by FEA Canada (WOOD MARKETS), Vancouver, B.C. Canada Publisher: Russell Taylor, President; China Office Manager: Jane Guo Annual Subscription (12 issues per year): US$450 (PDF copy by ). To order an annual subscription, please contact FEA Canada/WOOD MARKETS: PH: FAX: info@woodmarkets.com WEBSITE: where you can order online at our Shopping Cart. Al FEA b f FEA-Canada / WOOD MARKETS Page 32