opportunities and pitfalls in international trade: the view from 4,000 feet dan meyer northern...
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Opportunities and Pitfalls in International Trade: The View
from 4,000 Feet
Dan Meyer
Northern Regional Editor
Opportunities and Pitfalls in Trade with CHINA: The View
from 4,000 Feet
Dan Meyer
Northern Regional Editor
Overview
Observations about U.S. Log and Lumber Trade with China
Pitfalls Opportunities to Avoid Pitfalls
Tracking Alder Pricing
Observation:
Trends in U.S. Log and Lumber Exports to China
Alder LUMBER Exports to China Up
Monthly LUMBER Exp. VOLUME to China
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000M
ay-9
8
Nov
-98
May
-99
Nov
-99
May
-00
Nov
-00
May
-01
Nov
-01
May
-02
Nov
-02
May
-03
Nov
-03
May
-04
Nov
-04
Cu
bic
Met
ers
RED ALDER
YELLOW POPLAR
RED OAK
MAPLE
Alder LUMBER Exports to China Up
Monthly LUMBER Exp. VALUE to China
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
May
-98
Nov
-98
May
-99
Nov
-99
May
-00
Nov
-00
May
-01
Nov
-01
May
-02
Nov
-02
May
-03
Nov
-03
May
-04
Nov
-04
Val
ue
in D
oll
ars
RED ALDER
YELLOW POPLAR
RED OAK
MAPLE
Alder LOG Exports Down
Monthly LOG Export VOLUME to China
0
1,000
2,000
3,000
4,000
5,000
6,000M
ay-9
8
Sep
-98
Jan-
99
May
-99
Sep
-99
Jan-
00
May
-00
Sep
-00
Jan-
01
May
-01
Sep
-01
Jan-
02
May
-02
Sep
-02
Jan-
03
May
-03
Sep
-03
Jan-
04
May
-04
Sep
-04
Jan-
05
Cu
bic
Met
ers
RED ALDER
YELLOW POPLAR
RED OAK
WALNUT
MAPLE
Observation: Chinese Lumber Purchases
Cyclical in Nature
Chinese Buying Cyclical
Red Oak LUMBER Exports to China
4.0
5.0
6.0
7.0
8.0
9.0
Q1'00
Q2'00
Q3'00
Q4'00
Q1'01
Q2'01
Q3'01
Q4'01
Q1'02
Q2'02
Q3'02
Q4'02
Q1'03
Q2'03
Q3'03
Q4'03
Q1'04
Q2'04
Q3'04
Q4'04
Q1'05
Sh
ipm
ents
in
Mil
lio
n B
oar
d F
eet
Chinese Buying Highly Cyclical
Red Oak LUMBER Exports to China
1,772,840
2,373,4212,228,397
1,893,906
Q1 Q2 Q3 Q4
Average MONTHLY shipments by quarter (2000-2004)
Mo
nth
ly S
hip
men
ts i
n B
oar
d F
eet
Chinese Buying Highly Cyclical
Quarterly Alder LUMBER Exports to China
0
2
4
6
8
10
12
14
16
18Q
3 '9
8Q
4 '9
8Q
1 '9
9Q
2 '9
9Q
3 '9
9Q
4 '9
9Q
1 '0
0
Q2
'00
Q3
'00
Q4
'00
Q1
'01
Q2
'01
Q3
'01
Q4
'01
Q1
'02
Q2
'02
Q3
'02
Q4
'02
Q1
'03
Q2
'03
Q3
'03
Q4
'03
Q1
'04
Q2
'04
Q3
'04
Q4
'04
Q1
'05
Mil
lio
n B
oar
d F
eet
Chinese Buying Highly Cyclical
Alder LUMBER Exports to China
2,613,716
3,269,028
2,750,4383,136,756
Q1 Q2 Q3 Q4
Average MONTHLY shipments by quarter (1999-2004)
Mo
nth
ly S
hip
men
ts i
n B
oar
d F
eet
Chinese Buying Highly Cyclical
Quarterly Alder LUMBER Exports to China
0
2
4
6
8
10
12
14
16
18Q
3 '9
8Q
4 '9
8Q
1 '9
9Q
2 '9
9Q
3 '9
9Q
4 '9
9Q
1 '0
0
Q2
'00
Q3
'00
Q4
'00
Q1
'01
Q2
'01
Q3
'01
Q4
'01
Q1
'02
Q2
'02
Q3
'02
Q4
'02
Q1
'03
Q2
'03
Q3
'03
Q4
'03
Q1
'04
Q2
'04
Q3
'04
Q4
'04
Q1
'05
Mil
lio
n B
oar
d F
eet
Observation:
Chinese Buying Strongly Influenced by Price
China’s Lumber Price-Sensitivity
Volume of LUMBER by ValueExports to China, 2004
$600
$1,100
$1,600
$2,100
0 20 40 60
Volume (Million BF)
Val
ue
($/M
BF
)
Alder
Walnut
Y Poplar
R Oak
W Oak
MapleCherry
Hickory
Ash
China’s Lumber Price-Sensitivity
Volume of LUMBER by ValueExports to China, YTD 2005
$600
$1,100
$1,600
$2,100
0 8 16 24
Volume (Million BF)
Val
ue
($/M
BF
)
Alder
Walnut
Y Poplar
R Oak
W Oak
Maple
Cherry
Hickory
Ash
Less Price-Sensitive to Logs?
Volume of LOGS by ValueExports to China, 2004
$250
$500
$750
$1,000
0 20,000 40,000 60,000
Volume (Cubic Meters)
Val
ue
($/M
3)
Alder
Walnut
Y Poplar
R OakW Oak
Maple
Cherry
Birch
Ash
Perhaps More So This Year?
Volume of LOGS by ValueExports to China, YTD 2005
$250
$500
$750
$1,000
0 30,000 60,000 90,000
Volume (Cubic Meters)
Val
ue
($/M
3)
Alder
Walnut
Y Poplar
R OakW Oak
Maple
Cherry
Birch
Ash
Observation:
Chinese Appear to React to “Threshold” Prices
Threshold Prices
Yellow Poplar Exports to Chinavs. Lumber Price
390
430
470
510
550
590
630
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
$/M
BF
2,000
5,000
8,000
11,000
14,000
17,000
20,000
Cu
bic
Met
ers
Exp
ort
ed
App. 4/4 #1 Com Poplar price
Yellow Poplar Exports
Threshold Prices
Red Oak Exports to Chinavs. #1 Com Lumber Price
300
400
500
600
700
800
900
1000
1100
Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05
$/M
BF
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
Exp
ort
s in
Cu
bic
Met
ers
Southern 4/4 #1 Com Red Oak
price
Red Oak Exports
Observation:
Log Exports Generally Growing Faster Than Lumber
Log & Lumber Exports Converging
U.S. RED OAK Exports to China
0
1
2
3
4
5
6
7
8
May
-98
Nov
-98
May
-99
Nov
-99
May
-00
Nov
-00
May
-01
Nov
-01
May
-02
Nov
-02
May
-03
Nov
-03
May
-04
Nov
-04
Th
ou
san
d C
ub
ic M
eter
s
LUMBER
LOGS
Log & Lumber Exports Converging
U.S. YELLOW POPLAR Exports to China
0
2
4
6
8
10
12
14
May
-98
Nov
-98
May
-99
Nov
-99
May
-00
Nov
-00
May
-01
Nov
-01
May
-02
Nov
-02
May
-03
Nov
-03
May
-04
Nov
-04
Th
ou
san
d C
ub
ic M
eter
s LUMBER
LOGS
Log & Lumber Exports Converging
U.S. ALDER Exports to CHINA
0
2
4
6
8
10
12
14
16
May
-98
Nov
-98
May
-99
Nov
-99
May
-00
Nov
-00
May
-01
Nov
-01
May
-02
Nov
-02
May
-03
Nov
-03
May
-04
Nov
-04
Th
ou
san
d C
ub
ic M
eter
s
LUMBER
LOGS
Observation:
Rising Export Volumes ≠Rising Export Values
Unit Values of U.S. Exports to China (all spp.)
$300
$350
$400
$450
$500
$550
$600
$650M
ay-9
8
Sep
-98
Jan-
99
May
-99
Sep
-99
Jan-
00
May
-00
Sep
-00
Jan-
01
May
-01
Sep
-01
Jan-
02
May
-02
Sep
-02
Jan-
03
May
-03
Sep
-03
Jan-
04
May
-04
Sep
-04
Jan-
05
$/M
3
LUMBER
LOGS
Log vs. Lumber Export Values
Log vs. Lumber Export Values
Unit Values of POPLAR Exports to China
$200
$220
$240
$260
$280
$300
$320
$340
$360
$380
$400M
ay-9
8
Nov
-98
May
-99
Nov
-99
May
-00
Nov
-00
May
-01
Nov
-01
May
-02
Nov
-02
May
-03
Nov
-03
May
-04
Nov
-04
$/C
ub
ic M
eter
LUMBER
LOGS
Log vs. Lumber Export Values
Unit Values of RED OAK Exports to China
$300
$400
$500
$600
$700
$800
$900M
ay-9
8
Nov
-98
May
-99
Nov
-99
May
-00
Nov
-00
May
-01
Nov
-01
May
-02
Nov
-02
May
-03
Nov
-03
May
-04
Nov
-04
$/C
ub
ic M
eter
LUMBER
LOGS
Log vs. Lumber Export Values
Unit Values of MAPLE Exports to China
$200
$250
$300
$350
$400
$450
$500
$550
$600
$650M
ay-9
8
Nov
-98
May
-99
Nov
-99
May
-00
Nov
-00
May
-01
Nov
-01
May
-02
Nov
-02
May
-03
Nov
-03
May
-04
Nov
-04
$/C
ub
ic M
eter
LUMBER
LOGS
Log vs. Lumber Export Values
Unit Values of ALDER Exports to China
$200
$250
$300
$350
$400
$450M
ay-9
8
Nov
-98
May
-99
Nov
-99
May
-00
Nov
-00
May
-01
Nov
-01
May
-02
Nov
-02
May
-03
Nov
-03
May
-04
Nov
-04
$/C
ub
ic M
eter
LUMBER
LOGS
Alder LOG Export prices track inflation
Unit Value of Alder LOG Exports to China
$200
$250
$300
$350
$400
$450M
ay-0
1
Sep
-01
Jan-
02
May
-02
Sep
-02
Jan-
03
May
-03
Sep
-03
Jan-
04
May
-04
Sep
-04
Jan-
05
$/M
3
Alder LOG Unit Value
Inflation Adjusted Log Price
Alder LUMBER Export prices not keeping up with inflation
Unit Value of Alder LUMBER Exports to China
$200
$250
$300
$350
$400
$450M
ay-0
1
Aug
-01
Nov
-01
Feb
-02
May
-02
Aug
-02
Nov
-02
Feb
-03
May
-03
Aug
-03
Nov
-03
Feb
-04
May
-04
Aug
-04
Nov
-04
Feb
-05
$/M
3
Alder LUMBER
Inflation Adjusted Lumber Price
Pitfalls in Trade with China
Chinese are price-driven Chinese are less loyal to N.A. species
than other world buyers. Difficult to remain low-cost leader. There will always be a new supplier on
the block with acheaperalternative
Volume of LUMBER by ValueExports to China, 2004
$600
$1,100
$1,600
$2,100
0 20 40 60
Volume (Million BF)
Val
ue
($/M
BF
)
Alder
Walnut
Y Poplar
R Oak
W Oak
MapleCherry
Hickory
Ash
Substitution Alder remains a relatively small player
in most markets. A small volume of a substitute could
have large impacts in domestic and international Alder markets.
The higher Alder prices become, the more vulnerable Alder is to substitution
Cyclical buying patterns Can you seasonally adjust your
production? Will your domestic and other export
customers accept seasonal supply interruptions? Alder LUMBER Exports to China
2,613,716
3,269,028
2,750,4383,136,756
Q1 Q2 Q3 Q4
Average MONTHLY shipments by quarter (1999-2004)
Mo
nth
ly S
hip
men
ts i
n B
oar
d F
eet
Watch for shift to logs No reason to believe Chinese won’t
continue to work back down the supply chain, eventually owning U.S. sawmills or importing logs for sawing in China.
Gives them morecontrol oversupply & pricing
U.S. ALDER Exports to CHINA
0
2
4
6
8
10
12
14
16
May
-98
Nov
-98
May
-99
Nov
-99
May
-00
Nov
-00
May
-01
Nov
-01
May
-02
Nov
-02
May
-03
Nov
-03
May
-04
Nov
-04
Th
ou
san
d C
ub
ic M
eter
s
LUMBER
LOGS
Opportunities to Avoid Pitfalls in Trade with China
Control log costs Don’t get caught driving log prices so
high you cannot absorb a little depression in lumber prices
Lumber prices will inevitably fall faster than log prices.
Resist raising lumber prices The higher Alder prices become, the
more quickly will come substitutes. Higher prices benefit you in the short-
term but hurt down the road Rarely have we seen a species
maintain high prices for as long as Hard Maple
Diversify
If you cannot diversify your species mix, diversify your markets
Consider limiting your allocation to China, even if it means forgoing short-term profits
Diversify (cont.)
Do not put more into China than you could quickly redirect if China were to shut off tomorrow.
Pay attention to domestic customers If supply issues alienate domestic
consumers, they’ll turn to other species Healthy domestic user-base critical to
stabilize volatile export markets
Standard grades?
Does it make long-term sense to be the only North American hardwood graded so differently from all the rest?
Does it make Alder more difficult for buyers around the world to work with, adding costs?
Act, don’t be forced to react
Stay out of reactionary, defensive position
Extremely difficult to get back on offense when warehouses are full and cash reserves are tied up in logs that are too expensive to saw.
Pay attention to market signals
Should We Track Alder Prices in the
Weekly Hardwood Review?
Benefits of a Pricing Guide
Easier to spot market changes Historic pricing—trend analysis Weekly benchmark of industry prices Can help you justify sales prices to
customers
Which Grades? Whose Prices?
Two markets? Do we track one or both?
Hurdles to Alder Tracking
NHLA Proprietary ProprietarySel&Btr Superiors Superior
No. 1 Shop Cust. Jacket Board CabinetNo. 2 Shop Cabinet Cust. ShopNo. 3 Shop Cust. Shop A-Strip
Frame Grade Jacket Board B-StripCom/#2 C-Strip
Premium Frame RipStandard Frame Skip (x3)
Econo/#3 Stain#3 Shop
Which Grades?
Whose Prices? 70% of production from one company How many companies make up
balance? How many will participate? Do we ignore or include Northwest
Hardwoods? Will they participate?
Recommended Actions Core group of supporters contact me. We’ll work with you to iron out details. IF we determine we can work out
grading and production issues, AND there are enough companies willing to share info (prices and comments), we’ll proceed.
Alder Comments With or without Alder price tracking,
we will still welcome your comments about Alder markets for inclusion in our Weekly Hardwood Review and Hardwood Review Global publications.
THANK YOU
Dan Meyer
Northern Regional Editor