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US Export Markets are Shifting
|US Export Markets are Shifting
Export markets for U.S. hardwood lumber are changing rapidly, and mostly not for the better. Total export volumes through July 2002 are up over the same period in 2001, but remember that 2001 was a down year. Also, while export volume is up, the total value of U.S. exported hardwood lumber is flat. To generate the same gross returns as in 2001producers have had to ship almost 7% more lumber in 2002. Thus, with volume up and value flat, the relative value of hardwood lumber exports is falling. Three factors have contributed to this decline in export value: a shift to lower-valued species, a shift to lower grades, and falling prices. A root cause of all of these factors is the global shift of demand for U.S. hardwoods from traditional Western European and Mexican markets to Chinese and Southeast Asian markets.
While Canada is, and may always be, the largest single-country importer of U.S. hardwoods, the other leading export destinations for U.S. hardwoods have shifted significantly over the last several years. Of the top 5 export markets in 1992, only Italy and Canada remain in the top 5 in 2002. Japan and Taiwan were the 2nd and 3rd largest importers, respectively, but fell to 7th and 8th. Germany took the biggest tumble, from the 5th largest export destination in 1992 to the 14th largest in 2002
While Spain, Portugal and the United Kingdom have grown slightly in their percent of U.S. hardwood lumber exports, the vast majority of export business has shifted to China. In 1992, China accounted for less than 1% of all U.S. exports. To date in 2002, almost 18% of all U.S. hardwood lumber exported has gone directly to China, and that does not include any volume that may have been trans-shipped through Canada or other intermediate destinations.
In 2002, China continues to be the fastest growing export destination, by volume, for U.S. hardwood lumber. By July 2002, exports to China were up 45.3% over the same period in 2001. On a percentage basis, however, Vietnam is the fastest growing export market, with 2002 exports almost four times the 2001 rates. Other Southeast Asian countries are also experiencing phenomenal growth. Malaysian exports are up 40.6%, followed by Indonesia (+34.2%), Thailand (+30.0%) and Korea (+29.0%).
At the same time, traditional export markets in Europe and Mexico have declined sharply in 2002. Exports to Germany are down 36.7% in the first seven months of 2002, while Belgium-Luxembourg exports were off 23.8% and the United Kingdom was off 12.8%. 2002 exports to Spain, Italy and France are about on par with last year's rate.
With the exception of walnut, U.S. hardwood lumber exports have shifted away from the higher-valued species like Cherry, Hard Maple and Red Oak in 2002, to lower-valued species like Soft Maple, Ash, Poplar and White Oak. This shift is partly the result of individual buyers looking for lower-cost alternatives to the more expensive species, and partly the result of export markets shifting from Western European markets to China and Southeast Asia, where species preferences are different and price seems to be the most attractive feature of any wood.
This conclusion is evidenced in the trends in exports of species to specific countries. The five hardwood items showing the largest growth in export volumes in 2002 include Poplar, Alder and Ash to China, as well as White Oak to Vietnam. The poorest performing items in 2002 include Alder to Germany, Red Oak to the UK, and Hard Maple and Red Oak to Canada.
While there is no public data available that track grades of hardwood lumber exported, anecdotally we know that Chinese buyers favor No.1 and No.2 Common grades, while traditional European markets generally purchase No.1 Common and Better lumber. The net result of the geographical shift of export markets, then, has been a shift to lower grades of lumber. In fact, the marginal value of the increased shipments to China in 2002 average only $720 per thousand board feet, suggesting that most of the growth is in No.1 Common grades and below.
At the same time that markets have shifted around the globe, and the percentage of lower-grade, lower-valued exports has increased, the prices of U.S. hardwood lumber on international markets have fallen. Our composite index of 12 of the most heavily exported lumber items shows a downward price trend over the previous 18 months
Falling prices can be directly attributed to the increased availability of hardwood lumber worldwide. Where once North America was the source for hardwood lumber, substitute supplies have emerged from all over the world. European beech, Baltic birch and South American lenga (Nothofagus pumilia), for example, are quickly stealing international market share from North American species. While domestic markets have been fairly resistant to competition from imported species, international markets have proven to be quite price-sensitive, and not at all loyal to North American hardwoods. Further expansion of the timber industry infrastructure in Eastern Europe will make things worse, as vast stores of cheap lumber come to market.
All of these rather recent changes in hardwood lumber export markets have had serious impacts on domestic producers and markets. First, more FAS/1F and Sel/Btr lumber is staying at home, in some cases oversupplying domestic markets. Second, with prices for the better grades of lumber falling, many companies have pulled back or withdrawn entirely from export markets. Lastly, and especially with the rapid growth of Chinese demand, lower-grade lumber sales have boomed. Domestic flooring manufacturers are facing international competition for the local resource, and inventory is tight.
With additional European and Asian supplies coming online every day, the relative demand for North American hardwood lumber worldwide will continue to shrink. To succeed internationally, marketers will have to step up their promotion of the sustainability and quality of North American hardwoods. North American hardwoods already carry a perception of high quality in most global markets, but intensive marketing will be necessary to overcome the growing price disadvantage our hardwoods will face. In addition, the industry needs to continuously improve the quality of exported products, especially since overseas producers are getting better at delivering the quality that manufacturers demand.
(This editorial appeared first in the Weekly Hardwood Review (Vol.19, Issue 4) of October 2002. We acknowledge with gratitude the permission to reprint this article unabridged and in full.)
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