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Jeff Cao - China's Wood Industry: Trends and Perspectives


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Presentetd at ABIMCI Conference in Curitiba, Brasil, Nov 20, 2008

Presentetd at ABIMCI Conference in Curitiba, Brasil, Nov 20, 2008

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  • 1. WOOD INDUSTRY IN CHINA: Trends and Perspectives ABIMCI IV International Congress, Curitiba-PR, Brazil, Nov 19-21, 2008 Xiaozhi (Jeff) Cao PhD Candidate & Research Associate Center for International Trade in Forest Products (CINTRAFOR) University of Washington, Seattle, USA
  • 2. OUTLINE China’s role in global forest products 1. markets Trends and challenges that may shape the 2. industry’s future Brazil-China timber trade 3. Discussion and Q&A 4.
  • 3. China is the largest wood furniture exporter: $7.1 billion in 2008(e) Avg Ann % Chg since 2005 China 15.2% Italy 18.4% Germany 21.3% Poland 21.5% Canada -9.6% Brazil 0% *Wood furniture comprises: HS94330-60 Source: Global Trade Atlas
  • 4. China is the 3rd largest wood products exporter: $9.2 billion in 2008(e) Avg Ann % Chg since 2005 Canada -17.3% German 18.7% y China 13.0% Russia 7.2% U.S. 5.0% Brazil -8.3% *Wood products here refer to HS44, excluding wood furniture under HS94 Source: Global Trade Atlas
  • 5. China is the 3rd largest wood products importer: $8.2 billion in 2008(e) Avg Ann % Chg since 2005 U.S. -5.3% Japan -2.5% China 12.9% Germany 12.4% U.K. 6.8% *Wood products here refer to HS44, excluding wood furniture under HS94 Source: Global Trade Atlas
  • 6. China is not a major consumer of imported wood furniture - yet: $309 million in 2008 Source: Global Trade Atlas
  • 7. “Chindia” – emerging wood furniture markets Avg Ann % Chg since 2005 China 64.9% India 60.7% U.S. -2.4% U.K. 12.9% France 14.8% Germany 5.1% Japan 2.1% Source: Global Trade Atlas
  • 8. China’s lack of domestic timber supplies Broadleaved Forests Coniferous Forests Ecological Forests Economic Forests Total Forested Land (1999-2003): 175 million ha …of which, Plantation Area: 30% Annual Afforestation/Reforestation Rate since 6 million ha 1999: Forest Coverage: 18.2%, aim to reach 20% by 2010 Sources: State Forestry Administration (SFA), China Data Center
  • 9. China’s growing demand for wood fiber imports: mainly log, pulp and wood chips By estimation, over 40% of the country’s total wood fiber consumption was imported as of 2006, primarily raw materials (Lu 2007)
  • 10. Major log suppliers to China Source: Global Trade Atlas
  • 11. Russian log export tax impacts: price may go up sharply in the next few years Chinese Yuan CNY to USD Exchange Rate Lumber Log Source: Global Trade Atlas
  • 12. Russian log export tax effects: less logs, more lumber from Russia Lumber Source: Global Trade Atlas
  • 13. Russian log export tax effects: diversified sources -stimulated by dropping freight rates Russian logs as % of China’s total log imports (volume- based) Source: Global Trade Atlas
  • 14. …growth of imported lumber and panel into China has been moderate Imported lumber and panel as % of total consumption has been on decline after reaching its peak in 2002. 7.1% 15.6% 6.4% Source: Cambridge Forest Products Associates
  • 15. Furniture industry is the single largest lumber and panel user in China Source: Cambridge Forest Products Associates
  • 16. Furniture use of wood products in China Source: Cambridge Forest Products Associates
  • 17. China Source: China Statistics Bureau 2007
  • 18. Furniture industry is migrating from South to North, from coast to interior area, and overseas… Source: China Data Center
  • 19. …similar trends are observed with lumber and panel sectors featuring increased outbound investment and vertical integration Source: China Data Center
  • 20. Industry Consolidation-FDI and VCs Acquisition and mergers are quickly changing the industry’s ownership structure, boosted by foreign direct investment (FDI). Deal Amount (% Company Industry Year Investors Investment type Country share) 2006-2007 Carlyle Group VC/PE US $30 million A&W Wood Industry Pantheon Venture, 2007 VC/PE US $12.5 million Co., Ltd. ( Anxin Flooring Inc. Flooring) 2007 Strong Media VC/PE US $8.57 million 2005 Legend Holdings VC China (25%) Kebao & Boloni Kitchen & Bathroom Furniture Furniture 2007 Morgan Stanley Close-end fund US $18 million (10%) Shanghai New Sihe Flooring 2007 Legend Holdings VC China $20 million Wood Industry Yinbin Wood Flooring 2007 Armstrong Joint venture US $17.6 million Industry Co., Ltd
  • 21. Industry Consolidation-FDI and VCs In the retail area, the level of FDI involvement and competition is much higher. ARC Capital Oriental Home Big Box Retail 2008 Close-end fund Germany (51%) Holdings Home World Big Box Retail 2006 Home Depot Acquisition US $100 million (100%) Redstar Macalline Big Box Retail 2008 Warburg Pincus Private equity US $190 million (20%) Dongyi Rising-sun Home Decoration 2007 Rison (?) Venture Capital Singapore $30 million Co., Ltd (DYRS) and Construction
  • 22. Industry Consolidation-IPOs Together with the surge of FDI is the Chinese firms’ rush to the stock market through IPOs (initial public offerings). Company Year IPO Market listed Products Employee ROA 2006 (%) ROE 2006 (%) Guangming Group 1996 Shenzhen Furniture 2,156 -16.46 -33.47 Furniture Co.,Ltd. Jilin Forest Products 1998 Panels, flooring 9,050 3.08 4.95 Co., Ltd Aluminum foils, aluminum foil Dare Technology 1999 Shenzhen compound paper and 7,946 4.95 13.45 Co., Ltd. printed packaging materials Markor International 1999 Furniture 3,575 4.12 4.32 Furniture Co., Ltd. Guangdong Yihua Timber Industry Co., 2004 Furniture and flooring 1,903 10.36 19.28 Ltd Dehua TB New Decorative plywood Decoration Material 2005 Shenzhen 3,411 4.68 8.64 and veneer Co., Ltd. Samson Holdings 2005 Furniture 13,700 20.61 25.51 Ltd, (Lacquer Craft) Yongan Forestry Panel and bamboo (Group) Joint-Stock NA Shenzhen 2,034 -1.68 -6.09 products Co., Ltd. investment, wood Sino-Forest chips, logs, 1995 500 10.6 20.76 Corporation manufacturing and trading
  • 23. Panel industry under structural changes Chinese industry administration aims to adjust the proportion of plywood, fiberboard and particleboard from current 50:35:15 to 40:40:20 by 2010, in terms of total production volume ( Qian, 2007). Unit: million m3 Source: Qian, 2007
  • 24. Plywood industry uses more plantation species China has 3.1 million ha of poplar plantation with a total standing timber volume of 193.3 million m3, of which almost half are mature forests, this means that Chinese poplar plantations can supply its plywood industry with 52.5 million m3 RWE per year (Wu, 2007). Wood Use in Plywood Production Source: Wu, 2007
  • 25. Flooring industry is changing in favor of engineered wood products and non- timber composites 250 Unit: million m3 200 Laminate d 150 100 Solidwoo Engineered d 50 Bamboo 0 1999 2000 2001 2002 2003 2004 2005 2006 Laminated Solidwood Engineered Bamboo Source: CWI, 2005
  • 26. Global economy is cooling down Global GDP Forecast by Cambridge Forest Products Associates The Economist Forecast of GDP 2008 2009 1.6 1.3 US 1.0 0.9 Japan 9.8 8.5 China 1.2 0.6 Britain 1.1 2.0 Canada 4.6 3.4 Brazil 7.7 7.1 India Source: The Economist, Oct 2008
  • 27. China feels slowing, too Source: China Data Center
  • 28. Post-Olympic domestic Chinese market, still a boom?
  • 29. Timber price surge since 2007 Source: China Data Center
  • 30. Cost escalation is a hindrance to profitability, but its impacts vary across sectors Source: China Data Center
  • 31. Chinese manufacturers are facing significant pressure to reduce costs
  • 32. China’s position as a low-cost leader is challenged Unit price of Chinese wood bedroom furniture exports to the U.S. market vs. Vietnamese exports Source: Global Trade Atlas
  • 33. Will China be replaced by Vietnam in exports? US Wood Furniture Imports by Sources CHINA CANADA VIETNAM Source: Global Trade Atlas
  • 34. Industry in the threshold for a “Change” Differentiation: Specialty Production
  • 35. Environmental and product safety regulations: new challenges to Chinese exporters • By 10/2008, FSC CoC-certified companies in China reached 580, up from 376 as of 2007 • China’s own national forest certification standard • Green procurement policies, e.g. EU FLEGT and US Lacey Act, doom to have an impact • CARB rule: rising formaldehyde emission standards in the U.S. (CARB)
  • 36. Rush to become certified Source: FSC
  • 37. …Overall, setback for China’s lumber and panel consumption is expected through 2009 and maybe later Source: Cambridge Forest Products Associates
  • 38. …furniture industry will remain as a major wood user Source: Cambridge Forest Products Associates
  • 39. Brazil-China Timber Trade
  • 40. Brazil is net exporter to China in forest products, $770+ million surplus in 2008 Export to Change % Import Change % 2008 China from 2007 from from 2007 China Pulp $686.1 M 72.8% < $1 M -- Wood $110.5 M -23.4% $16.0 M 36.5% products Paperboard $53.3 M 170.5% $57.5 M 95.9% Wood < $1 M -- $2.2 M 90% furniture Total $850 M $76 M Source: Global Trade Atlas
  • 41. China’s imports of wood products from Brazil Source: Global Trade Atlas
  • 42. Exchange rates fluctuations Brazilian Real / Chinese Yuan
  • 43. Exchange rates fluctuations Brazilian Real / US Dollar
  • 44. Conclusion • Long-term raw material supply is still a major concern to China. • Falling demand of wood products in China is expected during 2008- 20011 due to global economic downturn, but industry growth momentum will recover • China is losing its cost advantage in the export market as competition from Vietnam and other low-cost countries is increasing. • Technology and FDI are facilitating a major re-structuring within China’s wood products industries. • Environmental law, product safety regulations (CARB), government policy, as well as market-based forest certification initiatives will have a major impact on both public and private sectors in China. • There is good potential for Brazil and China to increase bi-lateral trade.
  • 45. Thank you! Jeff Cao