Popular and scarce spruce more expensive
The log wood supply from Europe is decreasing but with demand for spruce still being strong, prices have remained relatively constant. However, the price of pine logs from New Zealand, the main product in China, has fallen sharply due to weak consumption.
Often, the imported log wood and lumber are used for different purposes. German lumber, for example, is mainly processed into formwork elements, while Scandinavian lumber is often used to manufacture decorative objects and furniture. Both are mass markets insofar as they mainly process wood of standardized dimensions. The pressure on prices of these commodities is higher because almost anyone in the world can produce them.
These 2-by-X dimensions (“dimensional lumber”) are being used because Canada and the US have been forcing China to buy only dimensional lumber and nothing else for a long time.
Market wants more than just US dimensions
European sawmills were hoping to be able to preserve this market tradition. However, in reality, these standards and specifications are not always suitable for Chinese requirements.
Sometimes, this tradition even forces Chinese companies to process the lumber that they bought from suppliers because it would not be suitable otherwise. This leads to rising costs and lower yield. In the past two years, Russian sawmills tried to produce custom-made lumber for Chinese customers.
At €115/m³ BCD free forest road, the log wood, including the cost of logistics and fumigation, costs exactly the same as the lumber imported from Germany – each of them carriage paid to the port of Shanghai. There’s something fishy about here!
One country, many dimensions
The lumber used for construction is not standardized across the country. There are dozens of different sizes, and each region has its own requirements for lumber specifications. These assortments are not available through import trade, though.
In addition, there are reports that the dimensions of the lumber sometimes even vary depending on the respective construction project. For import trade, this is another obstacle since the direct import of lumber in certain dimensions and large quantities is difficult.
From China’s point of view, importing log wood is therefore necessary in order to be able to offer “suitable products” on the domestic market.
© Source: China Customs Statistics
Lumber too expensive
In 2020 and 2021, when prices reached record levels in the US and Europe, it was much harder for China to get lumber on the world market. At the same time, log prices in Europe were very low due to the beetle calamity. Furthermore, there were many relatively new sawmills in China at the time – with corresponding demand for raw material.
Those sawmills have to keep cutting even if it is not always very profitable. Meanwhile, the hunger for log wood remained the same even though the log price level changed significantly in Central Europe. Now, Chinese sawmills, too, are said to be badly hit economically.
Double standard
You can also earn money “with moderation and drying”, as one market expert put it politely. In the metric system, the dimensional requirements that foreign suppliers have to meet for 2-by-4 are not always what Chinese manufacturers produce … The use of log wood is subsidized by the Chinese tax system. While there is no import tax on log wood or lumber, the two are subject to a value-added tax of only 9% and 13%, respectively.
Subsidies for transport and settlement
Chinese subsidies do exist, though. Usually, they are granted for freight trains between China and Europe, which can be seen as an attempt to promote the New Silk Road.
These subsidies are not granted specifically for log wood, but for return freights by train, regardless of whether the trains transport log wood or lumber.
Subsidized sawmills exist where they are wanted by regional industrial parks. That would be comparable to a settlement premium. However, for China, the sawmill industry is a low-end industry that the government does not pay much attention to. In fact, many developed cities try to crowd out this sector.
High yield thanks to numerous employees
Last but not least, there is one more reason why log wood is preferred to lumber. In the simple band sawmills with their enormous numbers of employees, log yield is higher than in high-tech European sawmills: 55% are the standard in Europe, while a yield of 65% to 72% is common in China.
