China - The Big Gorilla In The Room

21/04/2011

China’s insatiable demand for timber and wood products is forcing the country into supply markets much further a field than its traditional Asia Pacific region catchment area - and the US is feeling the full effect.

“US exports of timber have soared nearly tenfold in just years” (Larsen Kusick, Growth Stock Wire)

In fact, according to sources, “Virtually every lumber yard in the whole state of Oregon is cutting for the Chinese market!”

That quote comes straight from Rick Holley, CEO of Plum Creek Timber (NYSE: PCL), the biggest timberland owner in the U.S.

According to industry consultant Wood Resources International, U.S. log exports to China went from 256,000 cubic meters (m^3) in 2007 to 2.4 million m^3 in 2010.

And its not just China, where limited supply and continual growth of populations and cities will ensure that this demand we are seeing will be typical in the decades to come. US Government data is showing that exports to India, the Middle-East and South East Asia all hit record highs in 2010.

Readers we're seeing such big numbers here in timber exports because China in the 1950’s deforested untold amounts of forestland to help fuel so-called "backyard steel furnaces." And during the 1990s, efforts to expand agricultural production led to more deforestation.

Mass modernisation in occurring in China and cities like Beijing and Shanghai are as modern as European cities, but it could take decades before even half of China catches up to developed nations. That will mean much more building, which will mean much more lumber demand.

(Also, the Financial Times recently noted that Chinese officials are touting the need for more houses to be made out of wood following the 2008 Sichuan earthquake, which killed 68,000 people. And of course a similiar situation now in Japan following last months devestating Tsunami)

So readers, the evidence is pretty clear with regards to the restricted supply of timber in these huge expanding tiger markets such as India and China. Having to source and ship timber all the way from the US at greater cost because their domestic market that was once so abundant and rich with timber is now so very much depleted.

Giles Danon

Co-founder TGIC