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UNECE region marketplace reshaped by China's forest products trade and policies for wood energy, procurement and climate change

Published: 10 October 2006

The UNECE Timber Committee analyzed the current forest products market situation in 2006 and forecast markets for 2007 in light of current policy issues. The theme of the annual Timber Committee Market Discussions was “China’s influence on forest products markets in the UNECE region.” The full text of the Committee’s approved market statement is attached, along with summary tables of forecasts. Key points from the statement are summarized below. 1 See also companion press release coming from the Timber Committee on “Governments fight illegal logging and promote sustainability through their purchasing” (ECE/TIM/06/P05). Overarching market and policy developments * Forest products markets forecast at record levels in the UNECE region in 2006 and 2007 * Chinese forest industry rapidly reshaping marketplace * Continuing concern about illegal logging, climate change * Record high energy prices and energy policies driving wood energy markets * Despite forest growth outstripping removals, increased competition for timber China’s influencing UNECE region markets * China becomes world’s largest exporter of forest products * China second only to US as importer of forest products * China number one importer of softwood and hardwood logs * Russian experts estimate that in addition to 19 million m3 exported to China, significant volumes from illegal harvests of Far East Russia * Huge expansion in wood processing capacity and required trade infrastructure due to government incentives * Chinese furniture exports growing at over 33% annually * China major furniture supplier to US, causes restructuring of US industry * Low-priced Chinese wood products leading to trade disputes * UNECE region companies either profit from Chinese trade or rationalize operations Certified forest products * Worldwide 275 million hectares certified for sustainable forest management * 90% of certified forests in UNECE region * Major certification systems targeting vast Russian forests * Government and corporate procurement policies driving certified products demand * Value and volume statistics on certified forest products missing Sustainable forest products industry * Major corporations and trade associations increasingly accept responsibility for sustainable forest management and sustainable forest products market development * Associations and organizations requiring member companies to report on sustainability principles, most recently climate change * Companies and industry associations demonstrating their business practices satisfy social and environmental criteria Economic outlook * Global economic growth strong at over 5% in 2006; same forecast for 2007 * Developing countries economies growing fastest * Inflation low despite high energy prices * Housing prices rising for 5 years – fear of bubble bursting * US housing market peaked in 2005, “only” 1.8 million starts forecast for 2006 Wood raw materials * Roundwood removals at record highs meeting strong demands * 2006 storm damage in Sweden resolved, with some roundwood stocked in forests * Roundwood prices rising in Europe, private forest owners selling Wood energy * EU renewable energy policies, high oil prices, driving European woodfuel markets * Pellet markets booming in Europe creating new trade channels * China setting ambitious targets and investing in wood-based energy * New opportunities for forest owners and woodfuel suppliers Sawn softwood * Record high markets to rise in 2006 and 2007 in UNECE region, despite downturn in US housing * Volatile sawnwood prices in North America falling, but rising in Europe * Beetles ravaging forest in BC, Canada – up to 1 billion m3 timber – glut of roundwood, sawnwood * US/Canada softwood lumber dispute resolved with 7-year agreement: $4 billion duties returned to Canada * European consumption at record level, to increase 2% in 2006 and again in 2007 * Shortages of sawlogs in parts of Europe where prices low, demand high and sawmilling capacity increased * Russian sawnwood production to rise 5% in 2006 and 7% in 2007; increases to exports Sawn hardwood * US sawmills rationalize capacity in line with falling domestic demand * US exports rising to Asia * China’s import of European and US hardwood logs raising prices * Public procurement programmes are catalyst for certified hardwoods * Trade associations developing mission statements for determining legality of source * European consumption rising * Import value of tropical secondary-processed products risen to primary-processed level * Tropical exporters see public procurement policies and new EU regulations as non-tariff barriers Panels * Consumption in Europe to continue at record levels * North American consumption falling with housing decline * Producers costs escalating with oil prices for resins, energy and transport * Despite demand downturn in US, OSB capacity increases planned * Russian production increasing sharply with planned capacity expansion; destined for domestic market Paper, paperboard and woodpulp * European paper producers set a new record for output; little change expected through 2007 * North American production and consumption declining * Russian consumption and production expanding rapidly Value-added wood products * Phenomenal growth in the level of furniture exports from China * World furniture trade restructure severely impacting traditional manufacturers * China may be the world’s number one furniture exporter, unseating Italy * China accounts for 43% of US wood furniture imports and 33% of Europe’s * Wood increasing share of the flooring market in Europe, but facing stiff competition * Marketing campaign to promote “real wood” flooring in Europe ******** UNECE Timber Committee Statement on Forest Products Markets in 2006 and Prospects for 2007 The UNECE Timber Committee adopted the entire official text below on 6 October 2006 I. Overview of forest products markets in 2006 and 2007 Forest products markets in the UNECE region achieved record levels in 2005 and the Timber Committee forecasts continued growth in 2006 and 2007. The meteoric rise of China’s forest industry and its unprecedented impact on world markets, presents challenges and opportunities to both market players and policy makers, as do other factors such as climate change, high energy prices and public concern about unsustainable forest practices. Taken together, these influences are fostering a major reshaping of the marketplace. The continuing concern about the sustainability and legality of wood has led some governments to enact public procurement policies for wood and paper products. Trade associations and even some corporations are also establishing guidelines for the responsible purchasing. High energy prices are making wood energy economically attractive and, in combination with policy drivers for renewable energy, are creating new opportunities for forest owners and energy suppliers, which includes the forest industries in some countries. One effect of this has been increased competition for raw material, which has raised prices significantly for some industries. China’s influence on UNECE region markets. China has rapidly become the world’s largest exporter of forest products in value terms, and is second only to the United States (US) as an importer. China’s own forests meet only a small part of its industrial roundwood appetite, with the result that China is now the world’s number one importer of logs, both softwood and hardwood. Russia is the main source of softwood logs, supplying about 70% of China’s needs. A small part of China’s imports is of certified origin but it does seem that a significant share may be from illegal sources. According to official Russian sources, China imports 19.2 million m 3 of logs from Russia, but Russian experts estimate that in addition to that volume there is a significant supply of logs from the Far East region of Russia based on illegal logging. Investments in Chinese mills and transportation, aided by government incentives, have led to a huge expansion in value-added processing, especially furniture, millwork and mouldings. Over the last decade China’s furniture exports have grown at a rate of 34% per year and China is by far the major supplier of furniture to the US, and second only to Canada as a supplier of forest products. China’s low-cost labour is balanced by rising raw material, energy and transportation costs. Competition from low-priced Chinese wood products is leading to the increasing trade disputes: complaints have been filed in the US, Canada, Germany and Italy. Although exports are escalating, domestic consumption equivalent to about 75% of production is rising with the standard of living. UNECE region forest products companies are faced with a rapidly changing marketplace: some are successful in profiting from investments in China and trading with China, while others that were not able to adapt have reduced revenues. Certified forest products. In 2006 the forest area certified for sustainable management reached nearly 275 million hectares, about 90% of which is in the UNECE region distributed by nearly 30% in EU/EFTA and nearly 60% in North America. Russia’s forests remain uncertified, but even their largest log export market, China, is beginning to import certified wood (mainly for re-export of finished products to environmentally sensitive retailers in Europe and the US). The major certification systems are actively pursuing certification of Russian forests. Government and corporate procurement policies are increasingly calling for certified forest products as assurance of sustainable forest management. Concerns were voiced about availability of information to monitor, measure and analyze certified forest products markets: inclusion of certified forest products in trade classification and reporting by certification schemes would improve the situation. Sustainable forest products industry. Major corporations and trade associations are increasingly accepting responsibility for sustainable forest management and sustainable development of the forest sector. They are subscribing to codes of conduct including responsible procurement guidelines. Associations and organizations, such as the International Council of Forest and Paper Association and the World Business Council for Sustainable Development, are requiring member companies to report on many sustainability principles, most recently on wood and climate change. Companies and industry associations are devoting considerable time and resources to demonstrating their business practices are not only at the legal minimum standard but also satisfy more ambitious expectations in the social and environmental field. The objective of this investment is to reduce risk to corporate image, which can cause major economic damage, especially to companies with highly visible brands and corporate reputation.

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