Forest product exports soar but what’s in store?

US forest products have soared in the past five years. The main reason is China’s increased demand. But with US domestic demand increasing and China’s growth lagging, will lumber exports continue to rise? In FY 2014, the United States exported a record $9.7 billion of forest products, only agricultural export staples like corn and soybeans posted higher figures. The US is the fourth-largest exporter of forest products (behind the European Union, China, and Canada) and has a market share of just over 10% with much of these export gains happening over just the last five years, which saw exports jump a surprising 80%. Remarkably, most of this growth in forest product exports has occurred in an era of a strong US dollar and flat lumber prices. But export volumes of hardwood and softwood logs have soared, and the US FAS reports that despite the flood of outbound timber, “US timber stocks [uncut trees in the forest] have experienced net growth for the last 50-years as new growth is now much higher than the harvest rate.”

Login In recent years, U.S. hardwood lumber has been in demand. The overall value of US lumber exports rose nearly 25% from FY 2013 to FY 2014 with hardwood lumber exports accounting for more than 70% of the total. This has been a boom period for hardwood lumber exports as the industry segment has experienced a 160% growth over the last five years. During the global financial crisis, hardwood lumber exports fell, losing almost half their value. However, since 2009, foreign demand for hardwood lumber has recovered and exports have expanded. The majority of recent growth has been new volume, increasing 118% over the last five years to 2.8 million metric tons (MT) in FY 2014. Log exports were stagnant at the beginning of the last decade. But starting in FY 2009, softwood log exports began to climb, increasing by value at an average of 20% per year. By FY 2014, softwood logs accounted for nearly three-quarters of all log exports, at a value of $1.7 billion. Because of this sudden demand for softwood logs, prices have increased accordingly. The growth in value almost doubles the growth in volume. On the other hand, hardwood log export prices have remained pegged at around $600 million for the last decade. China’s Demanding Demand Given the increases, it is not surprising that US forest exports set records in FY 2015 in three of the top five markets: China, Canada, and Mexico. The top five nations collectively make up more than 80% of all US forest product exports, by value. In the last five years, Canada and Mexico both posted an annual growth, realizing 35% and 50% gains in value. Although exports to the EU and Japan have also grown during the last five years, these markets still are well below the peak levels reached in 1995 and 1997. The soaring demand from the China market has driven the rapid increase of US forest product exports. Prior to 2009, China was a relatively minor market, accounting for less than 5% of U.S. forest product exports. However, since 2009, exports to China have grown almost 500% in value. By FY 2014, China became the top export destination for U.S. forest products with shipments of $2.7 billion, accounting for more than 25% of all US forest product exports. It was an astounding turnabout for US forest product exporters. Back in the early years of the new century, the US market share in China rarely exceeded 7%. But following China’s sudden demand for wood imports after the financial crisis, the US industry nearly doubled its market share to 13% in FY 2014. In comparison, during this same time period, Russia (the top exporter to China) saw its market share decline from 37% to 14%. If (a rather big “if” given current market conditions in China) the trend was to continue, the U.S. could overtake Russia as the top supplier of wood products to China. The US top exports to China are hardwood lumber and softwood logs over processed lumber. Logs accounted for nearly three-quarters of all U.S. forest product exports in FY 2014. While hardwood lumber has always been a top US export to China, exports to China began to surge in 2009, realizing 100% annual growth. In FY 2014, the United States exported more than $1 billion in hardwood lumber to China. While the majority of this growth is due to increased volume, prices have also risen steadily (about 40% over the last five years). With increased demand in the US accompanying the surge in new buildings, prices for lumber products likely will rise. The increase in prices will dampen global competitiveness for US products. While some hardwood lumber imported by China is being processed and re-exported, the majority is being consumed domestically. China’s current per capita wood consumption is far below the world average and is expected to continue to grow as a result of strong economic growth and a rising middle class population. However, China’s economic policies could curtail demand. It is unclear whether the 7% growth target can be achieved in China given the economic shift in Beijing, which is emphasizing more domestic oriented issues over export generated growth. Early returns suggest the surge may continue if the price is right. Imports of hardwood logs have also increased - 30% annually - over the past two years, which analysts believe is an indication Chinese mills are expanding their domestic capacity to mill hardwood logs into lumber and other value-added products.