Tue November 12, 2013
EarthFix Conversations: What Chinese Demand For Logs Means For NW Mills
China’s new demand for logs may be blunting economic troubles for timberland owners and logging crews, while making things worse for Northwest sawmills.
A strengthening Asian export market for raw logs has ports up and down the coast interested in getting back into the business. In 2011, almost a quarter of the logs harvested in the Northwest were shipped to Asia. In recent years, China has displaced Japan as the top buyer of logs from the Northwest.
EarthFix spoke to industry analyst Hakan Ekstrom, publisher of Wood Resources International, about the evolving market- and why he thinks that in the long term, log exports could benefit the region.
EarthFix: A proposal to reopen a log export terminal in Newport, on the Oregon coast, has been sparked controversy recently. Where else are such proposals drawing attention?
Hakan Ekstrom: Many of the ports that historically had been exporting logs to Japan ... have started to explore opportunities to see if they can update equipment, find land, and maybe get involve in exports again. Places like Grays harbor, Olympia, Port Townsend, Everett, Astoria, in addition to Longview, which has been open throughout the past 25 years. That’s the major export location from the U.S. West Coast.
EarthFix: So Longview has been the big player, and now smaller ports that used to export logs are looking at it again?
Ekstrom: They see that this is probably not a short-term development that China is interested in buying logs in North America, that it will likely continue for a long time. That’s why more ports are looking into it.
EarthFix: I know China was a small player till recently. How much has the Chinese market for log exports grown, and what’s convincing people that it’s going to be a permanent new market?
Ekstrom: If you define recently as the past five years, before that China really wasn’t in the US looking for logs. Most of the logs that were exported from the PNW were to Japan and South Korea. China needs a lot of forest products in all shapes and forms because of the expansion of the economy: more construction, more furniture, more wood products. They need more logs and they just do not have enough domestic logs to supply their mills. They can’t harvest much more than they do right now, at least not at a reasonable cost to them. There aren’t that many places in the world where they can find softwood logs. The U.S. is one of the major suppliers.
EarthFix: Why is the U.S. one of their only good options for softwood logs?
Ekstrom: Not that many countries have a surplus of logs that could easily be exported. You have Russia, New Zealand, Australia, Canada, and the U.S. That’s about it. If you look at those countries, New Zealand is a major supplier already. Australia could probably export more than they do, but they are still a relatively small player. Canada, they’re exporting more lumber than logs because most of the land in British Columbia is owned by the province.
And then you have Russia, the neighbor, which has large volumes of timber that could be exported. But it’s not easy to trade with Russia because of problems with illegal logging, you have problems with access to the forest, you have to build roads. And it’s getting to be relatively expensive, even if it’s close to China.
EarthFix: Do you think the growth of this export market is a bad thing for domestic mills, which have struggled in the last 20 years after losing access to a lot of federal timber?
Ekstrom: Yes. As with most things, there are a lot of positives and negatives that can come out of trade. Of course if you have an export market and you have more competition for logs, prices will go up. If we didn’t have any exports, sawmills in Oregon and Washington would probably pay a lower price for the logs, they would be more competitive and they would probably run at higher production levels and employ more people.
EarthFix: What about the postives?
Ekstrom: You see more logs coming out of the forest. The landowner gets more money for the logs, so rather than doing nothing, or just cutting trees close to the roads, if they know they will get more money for the logs, they may invest in equipment, harvest more volumes. You have an increase in volumes coming out and at a higher price.
EarthFix: I remember you mentioning once that you think at some point some of these Chinese buyers might move from just being interested in buying logs to being interested in buying timber land.
Ekstrom: Yup. And also the step in between. What you’re also likely to see is that Chinese buyers will not only be interested in logs, but also more lumber. That will benefit domestic sawmills. I think if we look ahead 5 to 10 years, we’ll see a lot more lumber being produced on the West Coast and exported to China as well as Japan. So the mix between logs and lumber will change over the years with a relatively higher percentage of lumber leaving the West Coast. Because of that, I wouldn’t be surprised if we started seeing the Chinese interested in different ways being involved in either owning or joint ventures or long term relationships with sawmills in the West, and also considering investing in timber lands so they can control the log supply in a different way.
EarthFix: So that’s interesting. Why do you think the mix, which from the U.S. at least is skewed toward logs and not lumber, is likely to change? Why do you think the Chinese will start importing more lumber from the U.S.?
Ekstrom: It’s always easy when you’re new in the market to go in and buy raw material. You as a consumer decide what dimensions you want to cut and so on. It’s fairly straightforward; you just buy the log and bring it to China and start cutting it into smaller pieces. If you go the next step up, to buying lumber, then you start to talk about different dimensions.
We have board feet in this country and the rest of the world has the metric system. And the Chinese don’t have any standard sizes and qualities of lumber. Its not like they can come over here and buy 2x4s and just start building with them, because they don’t have a tradition of 2x4 houses. They need to work with sawmills over here that can produce the type of lumber, the sizes and qualities and species that the Chinese need. And that’s hard right now because they don’t have any universal dimension system like they have in Japan, for example.
So if you’re a sawmill in the Northwest, you know what dimensions the Japanese are using in their market. But for China, they use anything. They cut that log into a hundred different sizes and pieces and utilize the log much better than we do here. They want it that way; they can decide how they turn and twist that log to get as much lumber out if it as possible. But over time we’ll start to see more standard sizes, so it’s easier for the U.S. sawmills to export to China.
The Canadians, they’re exporting a lot of lumber to China. They are almost training the Chinese in using the type of lumber that we have in North America, because they don’t have their own tradition of building wood houses.
EarthFix: Canada is probably already at least using the metric system, right?
Ekstrom: Yes, they very well understand the metric system, while a lot of U.S. sawmills have mainly sold into the U.S. domestic market, which is not metric.
EarthFix: So you think that as the Chinese construction market evolves, its more likely to come up with standard Chinese dimensions and units that American sawmills can work with?
Ekstrom: Yes. Canadians for example, have invested quite a bit in a program to show the Chinese how to build single family 2x4 houses. When that expands, it will be easy to send the same dimensions that we use to one segment of their market. It’s not that everybody is going to build 2x4 houses, but there is starting to be interest from richer Chinese and foreigners in China to live in houses that are similar to North American houses.
EarthFix: That’s amazing. Is there anything you want to add I haven’t asked you about?
Ekstrom: Talking about logs, I think it’s important to look long term. Right now there’s a focus on logs being shipped away, but I think sawmills on the West Coast can be relatively optimistic because we’ll continue to see improvement in the U.S. market for lumber. And in addition, we’ll have the Japanese market, China, probably also India will be more interested in lumber. So if sawmills on the West Coast are into understanding how foreign markets work, I think there are some good opportunities.