2020 is an extraordinary year. The sudden outbreak of the COVID-19 pandemic at the beginning of last year brought unexpected challenges and development opportunities to our wood industry. With concerted, arduous and outstanding efforts of various parties, we have achieved good results, and significant changes have also taken place in the timber industry.
I would like to share some of my personal views on the impact and development trend of the wood industry in the post-pandemic era. They are just my personal opinions, welcome to criticize and correct.
I will mainly discuss the following five aspects:
The pandemic has not changed the overall situation of timber resources. There is no shortage of timber resources globally, especially coniferous timber. This is the major premise. Our industry is evergreen, and everyone must have confidence! We don't need to be panic.
There are not many countries in the world that import large amounts of logs, mainly Finland, Sweden, Austria, Germany (Germany imports very little wood due to insect pests in the past two years) and China. Europe mainly imports pulpwood, and China’s imports are mainly industrial logs, accounting for over 40% of the world’ total log exports. There is no big competitors in terms of log trade, and China is the key log importer and consumer market.
Currently, the difficult in timber imports and price soaring is mainly due to the impact of the pandemic, tensions of international shipping have pushed up prices. The sudden outbreak of the COVID-19 pandemic in 2020 has brought unprecedented challenges to international logistics. At the beginning of the year, due to the severe outbreak situation in China, export business has stopped, and international shipping companies have cancelled flights to reduce losses. Later, as the pandemic eases in China, but the situation in foreign countries gets severe. There were no staff working in ports, causing congestion in European ports, hoarding of empty containers overseas, and a serious shortage of containers in China. Shipping prices remain high, causing the prices of raw materials imports and wood products exports to soar. As the pandemic slows down, freight rates will also fall. The land transportation ports of Manzhouli and Suifenhe were closed due to the pandemic, so a large amount of timber could not enter, stocking at the ports. Customs clearance has been resumed, the situation is improving, thus there is no need to be nervous.
In addition, due to the United States’ quantitative easing monetary policy, 2.3 trillion U.S. dollars flowed to the market, and it is reported that more than 4 trillion U.S. dollars will continue to be issued. Generally, the economy of a county who prints money in such large scale has long collapsed, but the U.S. dollar is the world currency, causing all prices of world’s commodities have skyrocketed, including grain, precious metals, steel, petroleum, chemical products, etc., of course timber is among them.
The import price of coniferous logs at the customs port in February this year was US$126, which was a lot higher than the average price of US$117 from last year. However, the average price of coniferous logs in a ten-year period (from 2011 to 2020) was US$136, with the peak of US$154 in 2013. The current price is not unbearable by the market, so we don't need to overinterpret it.
Log resources will not decrease in the near future. Although Russia has gradually reduced its log output and may not export logs next year, European pest-infested wood will continue to be exported in large quantities in next two to three years. Last year, Europe exported 15.16 million m3 of coniferous logs to China. In the second half of last year, it surpassed New Zealand. In the first two months of this year, China’s imports of European coniferous logs reached 3.002 million m3, an increase of 103% from previous year. China’s imports of coniferous logs from New Zealand and Australia were 2.59 million m3 and 63,000 m3, an increase of 15% and a decrease of 87% or 440,000 m3 from the same period last year.
The large import of pest-affected logs from Europe has temporarily changed the supply pattern of China's log market.
It seems fiar. The decreased log imports from Russia and Australia will be made up from Europe in the next two years, but this opportunity will not be long. We must take precautions. Firstly, we need to change our timber use habits. Secondly, we shall process timber from domestic plantations. Thirdly, with long-term consideration, tree species of our plantations must be changed. The introduction of radiata pine is a good choice, but it must be a national behavior and supported by large investment funds. With the current forestry mechanism, ordinary people will not plant tree species with a growth cycle of 15-20 years.
2) Sawn timber:
There is definitely a shortage of sawn timber this year. The global sawn timber production is less than the demand. Foreign experts have proposed this forecast. The pandemic has caused temporarily shutting down or reduction of production of processing plants. During this period, the construction of houses in North America and Japan has grown rapidly, and the demand for sawn timber will increase. It is expected that sawn timber production in North America and Europe will resume growth next year, the supply and demand will ease.
In order to cope with the shortage of sawn timber, it is recommended to build small and medium-sized processing plants to process low-end panels as well as door and window materials with timber from domestic plantations. In view of Russia's restrictions on log exports, it is possible to consider building processing plants in Russia, due to following reasons:1) rich log resources in Russia; 2) convenience transportation between Russia and China; and 3) the increasingly close economic, trade and political relations between China and Russia.
The world today is undergoing "great changes unseen in a century", the international environment is becoming increasingly complex, with significant uncertainty and instability. The domestic development environment is also facing profound changes. The new round of scientific and technological revolution and industrial transformation will bring rapid changes, and China is also turning to a stage of high-quality development.
It is the general trend that the overall wood industry in China will stabilize and move toward high-quality development. The number will not increase significantly, but there are still development opportunities.
1) As a traditional industry, timber is closely related to the development of infrastructure, real estate, furniture, and home improvement. In 2020, China’s per capita GDP has reached 10,500 US$. The world’s largest middle-class group is emerging. With the expansion of the middle class and the improvement of people’s living standards, there is still much room for development in the demand for wooden furniture, home improvement and secondary decoration. With the improvement of economic conditions, the second decoration cycle is getting shorter and shorter; the overall home improvement is the trend in the future. China’s residential housing area is 28.2 billion m2 in urban areas and 27.6 billion m2 in rural areas, totaling about 55.8 billion m2; new residential areas are over 1.7 billion m2 each year, half in the urban area and half in the rural area. The renovation and secondary renovation of these houses require a large amount of wood.
With the growth of GDP, China’s total timber demand will also grow steadily, but there will not be a substantial increase.
2) Pay attention to the countryside and focus to wood structure buildings. This year, the Central State Council’s opinion on rural revitalization put forward: "Improve the laws, regulations and supervision system for the quality and safety of rural housing construction, and complete the investigation and remediation of potential safety hazards within three years. Improve construction standards and specifications, and enhance the design and construction quality of rural housing. Continue to implement rural dilapidated house reconstruction and earthquake-resistant house construction in fortified areas with high seismic intensity. Strengthen the guidance of village style and protect traditional villages, traditional houses, and famous historical and cultural villages and towns. " Reconstruction of earthquake-resistant houses and rural dilapidated houses provides space for development of wood-structured buildings.
3) Pay attention to carbon emissions. China aims to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060. Wood is the best material to store carbon. Using more wood to promote the development of forestry is a high probability policy in the future.
4) With the development of the logistics industry, the number of pallets has also been increasing. In 2019, the number of pallets in China and the annual output of pallets both increased at a relatively high rate. In 2019, China’s annual output of pallets reached about 300 million pieces, and the pallet market holdings reached about 1.45 billion pieces. Among them, wooden pallets account for about 80%, and the annual consumption of wood is about 10 million m3.
Online marketing has become an important sales channel.
During the pandemic, staying at home became the main living life, no one went out shopping, and online shopping became the only choice. Online marketing methods such as livestreaming commerce, short video marketing, social media marketing, and creative marketing have shown their advantages over space constraints and have facilitated a large number of orders. In 2020, the turnover of wooden door products on TMALL was close to CNY 5 billion, a year-on-year increase of 50%.
Engineering fine decoration, store retail and online marketing each makes their own contribution to seize market share. In the first-tier cities, the delivery of refined decoration houses has accounted for 80-90%. Products such as wooden doors, flooring, cabinets, and decoration panels are purchased by real estate developers, with characteristics of low-cost, large-scale and standardization. This have become an important sales channel with expansion potential.
Online marketing can break the space limitation. Although the proportion of transfer orders in the wood products industry is not high at present, I believe that with the application of 5G and other high technologies, there will be more ways to increase the customer conversion rate. In-store retail is still an indispensable sales channel, but its sales model and role will change, and it needs to developed in coordination with online and engineering channels. For imported wood, due to the non-uniform standards, there is no large-scale cross-border e-commerce at present, which is an area worthy of development in the future.
The pandemic and changes in marketing channels have caused great difficulties for small and medium-sized enterprises. Some large scale enterprises achieved net profits of more than 100 million last year; on the other hand, many small and medium-sized enterprises went bankrupt. To make the cake bigger, we need give small and medium-sized enterprises room for survival. SMEs should pay more attention to the secondary decoration market.
Some places are doing well. Last year I went to Chongzuo in Guangxi Province. The government encourage small and medium enterprises to the industrial park by providing plants, information, and supporting supply chains to assist small and medium enterprises for survival and development. A few years ago, when I went to Zhongshan in Guangdong province, Dongsheng Door Co., Ltd. helped small and medium-sized enterprises to form clusters and provided information and supporting industrial chain services. It is said that the effect is good.
4. Improve wood technology
Technological innovation will become the main driving force for high-quality development of the wood industry.
Although the scale of Chinese timber industry is large, there are problems of serious product homogeneity and low product quality. These problems need to be solved through technological innovation.
1) By enhancing the physical properties of wood, reducing the use of tropical broadleaf timber, using less timber to produce flooring, wooden doors and furniture; promoting research on secondary veneer technology of wood-based panels to produce colorful finishes at low cost, to satisfy consumers’ sense of design and individual needs;
2) At present, the conversion rate of online orders is low. Through the development of new business models, the problem of cross-border and cross-regional sales of wood and wood products shall be solved.
3) Research and develop engineered wooden materials, such as CLT, LVL, engineered wood, etc., to provide materials for the development of wooden structures.
To achieve high-quality development of the wood industry, scientific and technological innovation in various aspects are required.
The pandemic has provided an opportunity to adjust exporting countries and regions. In the past, wood product exports heavily relied on the United States. For example, the proportion of exported furniture and plywood to the United States was more than 40%. Now it has dropped to less than 30%. This is a good thing. I hope that more attention will be paid to exports to Asia, Africa and South America in the future.
The export trade of wood products will grow in the short term because foreign companies have not yet fully resumed production and work, but international demand will remain. Foreign sales oriented companies in China have received a large number of orders. It is expected that as the foreign pandemic situation gradually eases, orders will decrease. Risk prevention shall be considered.
Plywood exports may have problems. China’s plywood is a low-end product and consumes a lot of logs. Over the past ten years, labor costs, material costs, environmental costs, etc. have doubled, but the export price has basically been the same. Such products that consume large amount of raw materials and pollute the environment should not be exported anymore. According to the latest statistics, China’s exports of plywood from January to February this year fell by 26.6% from previous year. The base figure from January to February last year was very low, and it is abnormal to keep dropping this year. The month-on-month ratio dropped by 55%, while the exports of other wood products have been significantly increased. It seems that there is a problem with the export of plywood.