Rising hardwood woodchip exports to China drive some prices below production costs in late 2011, early 2012; suppliers look to recent increase in demand to absorb extra volume, restore price equilibrium

Wendy Lisney

ROTORUA, New Zealand , February 29, 2012 (press release) – Much has been written about the startling rise of Chinese hardwood woodchip exports from Asia Pacific. China has moved from actually being a net exporter of almost 800,000 BDT as recently as 2004, to being a net importer of 4.5 million BDT in 2010 and 6.3 million BDT in 2011. Future pulp mill expansion plans bode well for further increases over time.

Recent import volume demand, with more to come, has caught the attention of suppliers from many countries, including from Vietnam, Thailand, Malaysia and Cambodia; and from Australia, Chile and South Africa. And who would blame them, with woodchip riches (almost) within their grasp?

However, a volume market is one thing; but a price market may be an entirely different animal. According to forest industry analyst Dennis Neilson of DANA Limited, so it appears to be in late 2011 and early 2012. Sufficient supplies have clashed with traditional Chinese negotiating styles to ensure prices are being systematically driven down. In some cases this has meant that some recent price offers are below production costs, even in very low cost Vietnam; and more so in some high cost southern hemisphere regions.

Rather than China being a nirvana for woodchip exporters at the moment, it is a very challenging place to be. In some cases suppliers are not helping themselves. In one instance, three independent groups from one supplying region have reportedly been trying to sell essentially the same woodchips to the same customers at the same time. This is a recipe for disappointment anywhere, but in China can be a formula for disaster.

In 2012 suppliers are hoping that increased demand will quickly absorb extra supplies, so that a more sustainable volume - price equilibrium can be re-established. This may occur later in the year, especially if a combination of previous overcutting and low prices spark a supplier reaction.

However, the experiences of late 2011 and early 2012 provide yet another example of too may suppliers assuming that, because China's appetite for imports is so vast (whatever product is being purchased) it will be a cakewalk to automatic riches. But, many new operators are finding out that it is not such a "slam dunk" after all.

Hardwood chip exporters are not alone. Just as a few Chinese softwood woodchip buyers poke their heads above the ramparts to buy product, so do another set of (new) suppliers.

For more information on Asia Pacific woodchip export and import trends, and upcoming reports, contact Jan Hansen at jan@dana.co.nz

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.