Chinese logging ban impacting future log supplies

With China now the leading driver of global log markets, focus the world over is on demand from this mega-market. Currently demand is very strong, which is an unusual situation and is causing New Zealand exporters to express caution. However, most cannot see any downside in demand and pricing until at least the third quarter of 2011reports NZX Agrifax.

It appears to be a combination of factors that are driving the strength of the Chinese market currently. The northeast province of Heilongjiang in China has recently banned logging for ten years in the country’s largest forest, effective immediately. The ban is to protect the natural environment and reduce China’s carbon emissions. The forest covers over 430,000 square kilometres and spreads into the Inner Mongolia region, where logging is to be reduced by more than half to 1.27 million cubic metres in 2011, and be completely banned by 2020.

It is anticipated that the ban will increase forest reserves in the Great and Lesser Hinggan Mountains by 400 million cubic metres over the ten years to 2020. Initial estimates are that supply from this region will be down by over 3 million cubic metres in 2011 and it is anticipated that much of the supply gap is likely to be sourced from across the border.

In the twelve months to February 2011, China imported approximately 35 million cubic metres of coniferous logs and lumber. In addition, at the end of March Chinese authorities announced a plan to build 35 million affordable housing units in the next five years, with 10 million to be built in 2011. However, booming commodity prices have taken their toll on the economy, with China posting its first quarterly trade deficit in seven years at the end of the March 2011 quarter.

Chinese imports of logs for the year to February 2011 were 25.3 million cubic metres, which is an increase of 3.8 million cubic metres on the previous twelve months. Imports from Russia continued their decline, falling another 0.9 million cubic metres. Much of the 4.7 million cubic metre supply gap was filled by the US (up 2.06 million m3), New Zealand (up 1.45 million m3) and Canada (up 0.9 million m3). The US and Canadian exporters are enjoying the boost in demand from China, ramping up exports to this region in a time when domestic demand is feeble.

Source: NZX Agrifax, www.nzxagri.com/agrifax