Will China’s economic woes affect wood prices?

logoFor those interested in the supply and prices of wood and wood products, the news is mixed.   On the supply part, we have the forests and the sawmills, on the demand part we have 2 major components 1. The new construction market and 2. Demand from China.

Supply

The supply chain has been stable for the last few months; we have not seen any announcements of sawmill fires or other news indicating that the supply chain was having difficulty.   We have not of heard any issues from our distributors and brokers.

Demand

Demand for timber products in the US have been solid, and in some regions significant –see article on the Florida Timber Boom.   Or this article on Oregon Timber Harvest. Both articles are consistent with higher timber demand across most of the US. The US new housing market picked up a lot of steam this summer and new housing starts are at a 6 year high.

housingnewstarts

Graph from www.tradingeconomics.com

 

Normally the level of domestic demand for forest products would put some upward pressure on pricing; however the other big piece of the demand pie is China imports.   China historically has consumed 45% of the exported forest products. China is a huge consumer of timber, oil and mined products.   China demand for these imports has been weak lately.   China’s stock market crash has dominated the headlines this summer, over 40% drop since July. That is a huge amount of money taken out of the Chinese economy and many fear that this will significantly affect China construction.   Oil prices have taken a big dip because of speculation on China demand.   Over 45% of the exported rough wood products go to China – source.   According to Random Lengths, demand year to date from China is down about 12% from last year.

Over all wood prices seem to be stable or declining a bit relative to beginning of the year.   US construction demand looks like it will stay strong for the rest of the year, what is unknown is the long term affects of the China stock market crash on the Chinese economy. Many economists believe that the crash will have minimal impact, especially on internal construction as China continues to pump money into modernization and urbanization projects. Others fear that China could cause a global recession.

The good news from Packnet’s standpoint is supply for wood is stable, and we don’t see any major price increases in the next few months.   However, the supply chain is dynamic; natural disasters, severe weather, saw mill closings and a variety of other factors can change the supply. Geopolitical issues and global economics could dramatically swing the demand.    Packnet continues to monitor the supply chain of all its major materials and proactively works to ensure availability and competitive prices for its packaging materials.