Arbor Resources Blog Updates
Bonded areas could provide shelter for manufacturers hit by US tariffs – if China can convince its southern neighbour to get the plan moving.
A spiralling trade conflict between Beijing and Washington is an unwelcome development for China, but officials in Guangxi – where seven “cross-border trade zones” with Vietnam are planned – see an opportunity.
The border has sheltered Vietnamese nationalists trying to overthrow the French in the 1930s, and Ho Chi Minh’s guerilla soldiers fighting the US army in the ’60s. Parts of the 1,300km frontier became battlefields in a brief yet bloody war between China and Vietnam in 1979. Four decades on, it could be about to play a role in a very different kind of war.
Washington and Beijing on Friday fired the opening shots in a trade row that looks set to escalate, slapping 25 per cent tariffs on US$34 billion of each other’s goods.
In the Guangxi region, home to museums dedicated to late Vietnamese communist leader Ho, officials are now touting with renewed vigour the idea of the cross-border zones, where exporters from China could assemble products and label them as “made in Vietnam”. The bonded zones are part of a wider cooperation plan signed by Beijing and Hanoi last year, under China’s belt and road trade and infrastructure strategy. If they go ahead, they could provide shelter for manufacturers hit by US President Donald Trump’s tariffs.
One of the zones is in the border town of Pingxiang, administered by the city of Chongzuo. The city’s deputy mayor, Lu Hui, said they wanted to create a cooperation zone with Vietnam that had “a free flow of workers, capital and materials”. Lu, promoting the plan to media on a government-organised tour, said products made in the zone could be labelled either as “originating in Vietnam” or “originating in China”. Wang Fanghong, the Communist Party boss of Pingxiang, also said the dispute with Washington could give the trade zones plan a boost. It “could be a chance” for his small town to speed up development, Wang said.
Exporters trying to ship products made in China “will find it difficult to send them to the US directly, and some will be transported via Asean members”, he said. Wang suggested places on the border with Vietnam like Pingxiang could go the extra mile and turn this “transfer trade” into “local processing and manufacturing”.
Officials trying to sell the plan to export-oriented businesses in the country’s manufacturing heartland, Guangdong province, and the Yangtze River Delta say it will give them access to cheap labour from Vietnam and a wide range of preferential policies offered by both sides of the border. Those policies, according to the promotional materials for the zones plan, would reduce logistics, staffing and tax costs.
Significant savings could be made on wages, according to the Chinese officials, who said local manufacturing workers were paid about a third of the salary of those in the Pearl River Delta. Factory workers in Shenzhen and Guangdong are paid an average wage of 5,000 yuan a month (US$750), compared to a daily average of 80 to 100 yuan (US$12 to US$15) earned by those in northern Vietnam. Factories in the cross-border zones would also be shielded from the regular threat of protests and strikes faced by Chinese businesses operating in Vietnam, the officials said.
Last month, demonstrators set fire to police vehicles, defaced government buildings and brought Chinese-owned factories to a standstill across Vietnam. It was the worst flare-up of anti-Chinese sentiment since 2014, as workers protested over the government’s plan to set up three new special economic zones where investors will be able to lease land for up to 99 years. Demonstrators fear they will be dominated by Chinese interests. These zones are separate to the ones planned on the border with China, but this growing unease over the country’s powerful northern neighbour is one of many hurdles the Chinese officials will have to overcome. Another is convincing Beijing to give them greater autonomy in trade zones like the one in Pingxiang, under a “two countries, one free-trade zone” special administrative set-up.
“Even in very difficult political times with China, still we export to them. This is why there is a great need for officials from the neighbouring Chinese region of Guangxi and officials from Vietnam to sit down and talk more about how to cooperate, especially about trade and how it will benefit both sides,” Nguyen said.
Roger Chau also said there was opposition to the cross-border zones on the Vietnamese side. “Many Vietnamese are concerned about the growing number of Chinese investments in the country. They see Chinese factories as bringing serious pollution, they worry about bribes and problems with the land,” Chau said.
The cross-border zones could be a good testing ground for export-oriented businesses wanting to ship through other countries, or even to relocate their operations elsewhere in the region.
But the problem is, whether the Vietnamese government says yes.
India’s wood products market continues to expand rapidly. Today, softwood is gaining market share over hardwood, assisted in part by limited volumes of renewable or certified hardwood fibre. At the same time, a variety of initiatives are pointing to huge future increases in Indian wood products demand: India’s goal of growing the share of manufacturing in its GDP to 25% by 2022; proposed massive infrastructure investments (e.g., 500 new cities, 50 subways and 250 airports by 2030); and a backlog in housing construction (up to 65 million units).
There is a “Make in India” campaign that is well on its way to making the nation a haven for investment and a propeller of economic growth. On the threshold of major reforms and poised to become the third-largest economy in the world by 2030, Make in India has announced a variety of initiatives that will facilitate the indigenous manufacturing of furniture, and ease the way for doing business in India.
Indian dynamics are somewhat like China’s were some 10 years ago: constrained domestic production and a likely eventual surge in imports to meet domestic demand. Despite notable differences, India compares favourably to China and the U.S. Ranked as one of the top three most attractive investment destinations in the world, India is also one of the fastest-growing global economies. According to a study by the World Bank, India’s organized furniture industry is expected to grow by 20% per annum over the next few years, crossing the US$32 billion threshold by 2019.
Foreign direct investment in India’s real estate sector, the government’s “Housing For All by 2022” initiative, and development of 100 smart cities to accommodate a growing urban population are some of the growth drivers reviving the real estate and construction sector. The anticipated increase in the tourism, hospitality, retail and hospital sectors is also expected to spur furniture demand in the country. The rise in demand for residential realty is a huge 20%, and the home furniture market should witness the fastest growth of all sectors in the next five years, followed by the office and institutional segments.
According to a World Bank study, the Asian market is thought to be the biggest consumer of furniture worldwide, and India holds a major slice of the pie. The foreign direct investment enterprise under Make in India has already resulted in 60% growth in inflows, and it is this government campaign, along with the objective of high standards of quality, that is steadily attracting international capital and technological investment in the country, facilitating local production.
With rapidly depleting global hardwood supply and huge consumption growth anticipated in India, the demand for imported softwood will only expand. One forecast is calling for massive softwood expansion: from ~2.5 million m3 in 2017 to over 65 million m3 in 2027. There are several developments that support this type of growth rate projection. For one, government and consumer perceptions around sustainable supplies (as opposed to illegally sourced lumber) are starting to change (India is currently considered the third-largest world market for illegal timber, following China and Vietnam). There is also the so-called “Ikea effect” that is allowing more consumers to be exposed to the look and use of softwood furniture. In fact, Ikea is planning to open 25 stores in India in next five years, with about 30% of the business volume to be sourced locally.
“Is India the new China?” That’s a question that continues to be asked and the answer, simply put, is yes. It is only a matter of time. Many game-changers support this premise:
- India has a young population, with a median age of 30 from now until 2050;
- 100 million students graduate every year;
- India has the fastest-growing GDP (7.4 %), surpassing even China;
- The country is the world’s largest democracy, led by a growth-oriented leader with a majority government;
- For the first time in India, corruption is being dealt with decisively;
- There is a robust and transparent financial sector in the country;
- India is leapfrogging to a digital economy, with almost 1 billion people now having biometric identification and 300 million smartphones;
- The domestic construction industry in India is US$1 trillion in scale;
- The country has industrial corridors and smart cities; and
- India’s real estate market permits direct foreign investment.
As a result of all of the factors noted above, India will continue to be a softwood market to be watched. As of now, its growth prospects look mammoth!
Local mills compete with export market - New Zealand structural log prices rose to the highest level for 25 years as local mills compete with the export market to secure supply for the domestic construction market amid strong demand from China.
The average price for structural S1 logs increased to $135 a tonne this month, from $134 a tonne last month, and marking the highest level since 1993, according to AgriHQ's monthly survey of exporters, forest owners and saw millers. The average price for New Zealand A-grade export logs hit a four-year high of US$145/JAS from US$144/JAS last month, and US$132/JAS a year ago.
In New Zealand, sawmills are competing with the export market to source logs for local construction, at a time when demand in China has stepped up after Asia's largest economy clamped down on the harvesting of its own forests and reduced tariffs on imported logs to meet demand in its local market.
"Export markets have remained an enticing avenue for log traders and there’s little to suggest this will change in the coming months," AgriHQ analyst Reece Brick said in his report. "China’s appetite for NZ logs means it’s still the price-setter for sales into other countries."
Nearly all AgriHQ survey respondents reported steady or marginally firmer pricing across structural S1 logs in the latest market survey, Brick noted.
The winter weather had slowed harvesting in some areas but had come at an opportune time as some North Island mills were experiencing softer-than-expected local demand for structural timber due to caution across the New Zealand housing sector, he said.
"Whether or not harvesting remains disrupted in the coming weeks is unlikely to make much difference to the medium-term direction of the domestic sales," Brick said. "The pull of the export market is still pushing forest owners to try and negotiate contracts at or near the export market level. This is a situation that is very unlikely to change in the next few months."
The volume of logs being taken from Chinese ports had slowed as a result of shorter working hours due to hot summer temperatures, however isn't uncommon at this time of year and coincides with slower harvesting in New Zealand, which should keep the market in balance in coming months, Brick said.
Forest products are New Zealand's third-largest commodity export group behind dairy and meat products. Trade data for May is due out Wednesday this week.
When it comes to timing, Sir Bob Jones certainly has the knack. With his widely publicised move to have a major commercial building in Wellington designed using wood for earthquake resistance, he has again affirmed his shrewdness for timing of commercial decisions. It is now catching on around New Zealand.
Just as Jones has chosen a mainly wooden structure for his office tower rebuild in the central business district of Wellington, developers up and down the country are moving quickly to capitalise on the benefits of engineered wood structures. As the engineers and architects leading the wood renaissance know, there are two key reasons why wood is soaring in popularity.
First and foremost, the engineering of wood for structures has grown rapidly as technology has made it more economical to manufacture large beams and panels for commercial buildings. More and more developers are recognising the advantages of cross-laminated timber (CLT) – the new wonder product for both flooring structures as well as walls, both with excellent earthquake resistant properties.
The second major breakthrough has come with more commercial acceptance of the need for sustainable materials to be used in office towers. Leading edge research in nearby Australia has confirmed that people working in wood buildings are happier and more productive than those in traditional concrete or steel structures.
“People tell the researchers they just feel better and more energised when working in spaces enclosed in real wood,” says John Stulen, engineer and conference director for the third annual Changing Perceptions engineered wood conference.
With this rapidly growing industry-leading conference running for the third time, Stulen and his team at Innovatek say they are delighted to have a technical conference programme that’s now 100% devoted to engineered wood projects in New Zealand.
“Over the past two years, we were fortunate to hear from leading engineers and project managers from Australia and Canada. Each time our audiences have asked for more New Zealand commercial projects, so we’re delighted to showcase exactly that this year,” says Stulen. “We were overwhelmed with the response to our call for speakers this year – all local projects.”
The conference has grown since 2016 and now attracts a wide audience of architects, engineers, developers, quantity surveyors and specifiers, as well as building officials and leading specialist trades focused on commercial buildings, like electricians, plumbers, heating/ventilating/air conditioning specialists and leading practitioners.
The Changing Perceptions Conference is full one-day programme on 28 August 2018 at the Distinction Hotel in Rotorua. The event begins with an evening reception on 27 August.
NZ log exports hit new monthly record in March - Further strength forecast BusinessDesk) - New Zealand exported a record volume of softwood logs in March, as shipments to most major markets increased, with further strength forecast through the rest of the year, according to AgriHQ, NZX's agricultural analysis business.
The country shipped a record 1.975 million cubic metres of softwood logs overseas in March, up 22 percent from both the February level and from March last year, AgriHQ said in its latest monthly forestry market report. That beat the previous monthly record set in October last year and puts first quarter log exports 22 percent above last year's levels.
All major destinations for New Zealand logs were up in March, except Japan due to timing issues, although Indian shipments had been volatile as regulators clamp down on the Indian banking system and South Korea was subdued due to a sluggish economy, the report said.
"A stellar March for exports of NZ softwood logs broke previous records," AgriHQ analyst Reece Brick said under a section of the report titled 'Only direction upwards'. "Expectations are for the strength in this market to continue throughout 2018, with demand expected to pick up from India in the second half of the year."
The latest gains come after New Zealand shipped a record 18.8 million cubic metres of softwood logs overseas last year, up 18 percent on 2016, with exports to China jumping 29 percent and accounting for three-quarters of the total. AgriHQ said exports to China continued to grow in March, up 20 percent on year-earlier levels and marking 14 straight months of gains. He noted China's log imports in March were "incredibly strong" this year as Chinese New Year celebrations, which typically lead to a slowdown, occurred in February.
"Any worries around a post-Chinese New Year log slump have been put to bed," Brick said. "In fact the past few weeks have been among the most encouraging in at least the past twelve months, arguably longer."
Log offtake levels at Chinese ports have rushed above previous record rates, with periods where more than 100,000 cubic metres a day has come off, with the average rate sitting around 90,000-95,000 cubic metres a day, he said. That has pulled port-level inventories down to 3.8-4.2 million cubic metres and it’s very likely these figures will be even lower by this time next month, he said.
The combination of higher in-market pricing and the falling value of the New Zealand dollar against the greenback had pushed log export returns further towards record territory, although rising shipping rates had held back values a little, Brick said.
The average price for New Zealand A-grade export logs over the past month had lifted to US$144/JAS from US$143/JAS, and was ahead of US$130/JAS a year ago, and US$113/JAS two years ago, according to AgriHQ's monthly survey of exporters, forest owners and saw millers.
Shipping rates were firmer through April and there were mixed views on where shipping rates will track with some saying elevated oil prices pointed towards a lift while others believed there was enough spare shipping capacity across the globe to keep a lid on rates in the medium term, Brick said.
In the domestic market, the price for S1 logs lifted to $134 a tonne from $133 a tonne last month, according to AgriHQ's survey.
"As a whole, it is still one of the strongest periods ever to be a log trader," Brick said. "Export markets continue to keep domestic mills on their toes, making them pay near to what can be achieved overseas or simply miss out on supplies."
The softwood lumber and log imports by China have more than tripled over the past ten years. In particular, the imports volumes of lumber have outclassed those of log during the past two years. This is in accordance with the latest Wood Resource Quarterly (WRQ) Report published by the Wood Resources International.
The limited domestic resources continue to put China as a major importer of forest products including lumber, logs, chips, pulp and paper. The country’s import volumes of softwood lumber and logs touched new record in 2017, despite slowdown in house construction sector. According to WRQ, China emerged as the world’s top importer of logs during the previous year. Also, China is only next to the U.S. in terms of total softwood lumber imports.
Over the past two years, there has been a significant jump in imports of softwood lumber. The lumber import volumes during the year exceeded logs by nearly 36%. This is a major shift from the past, when there were more log shipments than lumber entering the country’s ports. The total imports of softwood lumber and logs have surged higher by 3.5 times in round wood equivalents (RWE).
WRQ Report notes that the supply sources have changed dramatically over the past five years. The softwood lumber shipments from Russia into China have more than doubled. The shipments from Nordic countries too have recorded notable jump. On the other hand, imports from North American region have declined during this period. With regards to log supplies, Australia became the major supplier, with volumes nearly tripling from 1.6 million cubic metres in 2013 to 4.2 million cubic metres in 2017. The U.S., Canada, Russia, New Zealand and Australia continued to remain as the top five log suppliers in 2017, accounting for nearly 92% of all log imports during the year.
New Zealand's export log market has picked up following a slowdown ahead of the Chinese New Year period. Traders are optimistic about the outlook for the year ahead, according to the latest AgriHQ forestry market report.
The country's log export volumes in February were 1.6 percent ahead of the three- month average and 18 percent up on the same time last year as weaker exports to India and South Korea were offset by strong exports to Japan and China, the report said. Lumber exports also picked up, with February export volumes up 25 percent on the same time last year, driven by strength in China and the US.
Overall, the log trade into China, New Zealand's largest log market, weakened in February with imports down 32 percent on the three-month average and 14 percent below the same time last year because of disruption due to Chinese New Year celebrations, AgriHQ said. A similar pattern occurred for lumber imports, down 18 percent on the same time last year and 34 percent below the three-month average.
Still, New Zealand's softwood log exports have picked back up following a slowing of the market prior to the Chinese New Year, AgriHQ analyst Reece Brick said in his April report under the heading '2018 log exports off to a good start'.
"Import levels witnessed in February hold very little credence for coming months. It is forecast for log and lumber inputs to remain strong or to increase further on past years," Brick said. "If the past month is any indication then 2018 should be another good year for the export log trade. Any post-Chinese New Year jitters have essentially disappeared as the port-level log offtake has risen to the level required to keep the market sturdy."
Brick noted buyers in China are becoming more selective about their logs based on the fairly large volume of logs still on port, with the AgriHQ Log Price Survey showing lower value logs held at levels near to a month ago while better quality logs trended upwards.
He said higher shipping rates and a higher local currency were weighing on the export log market through March and early April, although he noted these appeared to be short-term issues and overall the export log market remains in a "healthy position".
"Each of the main export markets are still showing positive levels of interest which has log traders optimistic that the highs of the past 12 months or so can be repeated again throughout 2018." Brick said competition with the export log market was still driving contract negotiations in New Zealand's domestic market and holding the market solid across the board.
"Mills hoping for a reduction in log prices look like they’ll be out of luck for at least the next few months," he said. "Domestic log demand remains solid, more so on pruned logs than unpruned, while overseas markets are continuing to absorb any product coming out of NZ with relative ease.
Algae-forestry, bioenergy mix could help make CO2 vanish from thin air - An unconventional mélange of algae, eucalyptus and bioenergy with carbon capture and storage appears to be a quirky ecological recipe.
But, scientists from Cornell University, Duke University, and the University of Hawaii at Hilo have an idea that could use that recipe to help power and provide food protein to large regions of the world - and simultaneously remove carbon dioxide from Earth's atmosphere.
"Algae may be the key to unlocking an important negative-emissions technology to combat climate change," said Charles Greene, Cornell professor of Earth and Atmospheric Sciences and a co-author of new research published in Earth's Future, by the American Geophysical Union.
"Combining two technologies - bio-energy with carbon capture and storage, and microalgae production - may seem like an odd couple, but it could provide enough scientific synergy to help solve world hunger and at the same time reduce the level of greenhouse gases that are changing our climate system," Greene said.
Based on an idea first conceptualised by co-author Ian Archibald of Cinglas Ltd., Chester, England, the scientists call the new integrated system ABECCS, or algae bioenergy with carbon capture and storage.
The system can act as a carbon dioxide sink while also generating food and electricity. For example, a 7,000-acre ABECCS facility can yield as much protein as soybeans produced on the same land footprint, while simultaneously generating 17 million kilowatt hours of electricity and sequestering 30,000 tons of carbon dioxide per year.
Provided by: Cornell University
The log and lumber supply chain to China and Chinese wood markets overall are entering a whole new phase. This is especially evidenced by the dramatic reduction in China’s domestic timber harvest and the Chinese government’s crackdown on polluting mills in a mandated policy to improve air and water quality. What this means is that traditional Chinese industries are being closed or curtailed, slowing demand for logs and expanding the demand for lumber. In response, China’s supply chain is morphing and adapting in a variety of ways to meet the country’s growing demand for wood products.
It appears the Chinese government has a long-term strategy to ensure that the country’s wood demand continues to be met. Of particular note is the One Belt/One Road initiative, aimed at developing extensive transportation links to key supplying countries around the world. By developing such a supply chain, China is better able to access those countries’ “cheap” raw materials (i.e., inexpensive relative to the high levels to which global log and wood products prices are headed).
The strategy of the Chinese government may be a simple one: delay harvesting its own timber in favour of expanding domestic plantations. The goal would be to increase its own internal timber supply for use later when it is truly needed (and by which time global supply will have become even more expensive). In short, China is opting to pay global market prices now to purchase its raw materials, transporting its purchases home via its increasingly well-developed and efficient supply chain to the rest of the world. In future, as these raw materials become scarce and/or more expensive, the country will have placed itself in a strong position to make the switch to utilizing its domestic plantations and other internal resources.
With these goals in mind, Chinese state-owned companies appear to be focused on developing their global supply chain as a means to become highly positioned in offshore countries in the short-term and for the future. Therefore, despite paying higher open-market raw material prices, this highly strategic plan will lead to more efficient logistics. It will also encourage increased offshore production for export to China.
Also, with this objective in mind, further strategic investments are likely to be made in overseas timberlands and some primary processing plants to supply China via the One Belt/One Road initiative. At the same time, China’s pace and volume of purchases, which will encompass a wide variety of raw materials, will be strategically timed around pricing developments, i.e., the Chinese government will invest what it needs, when it best serves the country, in order to meet its aggressive long-term supply objectives.
With returns on investment considered less important than having a diversified and accessible forest resource in the future, most of China’s domestic forest plantations feature a mix of eucalyptus, poplar, Chinese fir and masson pine. It will take 20 years to grow coniferous plantations, so any future incremental supplies from these sources will not be ready until 2035 (excluding any new coniferous plantations already established), dictating a need for rising volumes of imported softwood logs and lumber for an indefinite period of time.
Of further interest are the considerable developments taking place at the major land ports at China’s northern border with Russia. Team members from both FEA Canada and FEA USA have visited these regions as part of the field investigations for a new, upcoming multi-client report — China’s Import Demand for Softwood Logs and Lumber to 2022 (subtitled The Changing Supply Chain in China with a Focus on Russia’s Industry/Export Potential). It has become clear that things are very dynamic in both northern China and Russia.
First, it has been reported that Chinese banks have up to RMB300 billion (US$50 billion) available to spend on forestry and mill investments in Russia (RMB20 billion, equivalent to US$3 billion, have been spent thus far). Second, there are more block trains being organized from Russian and/or northern Chinese land ports to transport lumber to strategic destinations within China. Third, log and lumber production in Russia (by both Russian and Chinese sawmills) is expanding.
Other key dynamic include Chinese companies increasing their access to Russian timber by paying for open-market logs (i.e., they can pay more because their sawmilling costs are lower than those of many Russian mills), and Chinese sawmills in Russia increasing their output and sending green lumber to processing plants in northern China — thereby bypassing the Russian log export tax — for extensive value-added processing. These developments have enabled a wider reach of Russian higher-valued lumber or components that can be shipped further in China and are already beginning to cause some displacement of European and radiata furniture grades in southeastern China (with more expected).
Source: Russ Taylor, Managing Director and Jane Guo, China Office Manager, FEA Holdings – Canada Inc
Import/Export Wood Purchasing News (February/March 2018 issue) provided an overview of major developments in shipping in 2017 and how they may affect prices and container trade in 2018.
The number of large shipping lines has continually decreased through acquisitions and mergers. In 2017 Maersk acquired Hamburg-Süd. Cosco bought OOCL after absorbing China Shipping in 2016. The three Japanese carriers KLINE, NYK and MOL have announced they will merge to become ONE (Ocean Network Express). In the end three major alliances will represent approximately 85% of the global container trade in 2018.
At the same time ocean freight rates have been at record low levels. Rates are not expected to increase much in 2018, despite the shipping line mergers. This is in part because carriers are ordering larger vessels, which can hold up to 4,000 containers more than the ships they will replace. Without an increase in cargo, the larger capacity will help depress freight rates.