Exports of logs to Asia, which buoyed timber prices for Northwest forest owners after the domestic housing market collapse, have dropped sharply from last year.

The total value of U.S. wood product shipments to Asia fell 30 percent, from $2 billion to $1.4 billion, largely due to reduced demand from China, said Hakan Ekstrom, president of the Wood Resources International consulting firm.

Without the export market, the revival in domestic log prices seen since 2009 would not have been likely, Ekstrom said during a recent Western Forestry and Conservation Association conference.

"This is more or less thanks to China," he said.

The drop in Chinese log buying from the U.S. was caused by a slowdown in construction activity rather than competition from Russia -- traditionally a major log supplier to China, he said.

Northwest timber producers have been keeping a close eye on Russian wood products policy, which was partly responsible for the surge in Northwest log exports to China.

In 2007, Russia imposed tariffs of 25 percent on outgoing shipments of logs with the goal of increasingly its internal supply and spurring more lumber production among domestic processors.

Instead, the policy suppressed Russia's harvest of timber and resulted in lost logging jobs, said Ekstrom. The move also made Chinese buyers wary of Russia's dependability as a supplier.

"The buying companies thought there was too much uncertainty to continue to rely on Russia," he said.

Russia reduced tariffs on logs earlier this year to gain accession to the World Trade Organization, he said. For logs that fill a similar market as those from the Northwest, the tariff rate is now 13 to 15 percent.

The change isn't likely to affect the mindset of Chinese log buyers, who want to diversify their supply sources due to ambiguity about the direction taken by Russian President Vladimir Putin, said Ekstrom. "What's the next thing he's going to decide?"

Due to the tremendous volume of timber in Siberia, Russia is a formidable force in the global wood products market, said Paul Owen, president of the Vanport International exporting firm.

The frigid temperatures in the region are an impediment to efficiency, however -- in winter, for example, logs must be thawed indoors before processing, he said. "The climate is a huge issue."

Even with a major investment in logging roads and related infrastructure, Russia would only be able to bring about 40 percent of its available timber to market, Owen said.

Due to Siberia's wealth of natural resources, including oil, gas and precious metals, logging roads aren't likely to be a major priority anytime soon, he said. "I don't think it even registers in Moscow."

However, given the proximity between Russia and China -- as well as China's demand for wood and its available capital -- there's an incentive for the Chinese to make investments, said John Perez-Garcia, a professor at the University of Washington's Center for International Trade in Forest Products.

"They're investing in infrastructure and mills in Russia," he said.

China is only able to supply about half of its demand for wood products, but the Northwest faces stiff competition from New Zealand as well, Perez-Garcia said.

Demand for logs from China is expected to improve in 2013, particularly if the government decides the country's economy needs stimulus, said Ekstrom. "They will continue to be very dependent on importation."

Source: Capital Press

Posted and edited by Riona, Hanbao News Department

Contact: rionach@cltimber.com