Sometime in March last year prices of North American hardwoods started to fall rapidly. Many dealers in China took this as a sign of a weakening market and started to sell whatever stock they had on hand. Others panicked and followed. The result was mayhem.
This trend was in contrast to the good times in 2013. Prices were rising then, which saw many Chinese dealers importing huge volumes from their American suppliers. This sudden surge in demand continued to push prices even higher.
Perhaps if Chinese dealers hadn’t gone on a dumping spree, if they had cut back on speculation and exercised control over lowering prices gradually, severe losses could have been avoided, said James Xu, President of the National Hardwood Council (NHC) of the Shanghai Timber Trade Association.
Fast forward to the present, “there seems to be the sense that we have all survived the storm. I believe many feel the same way too. The North American hardwood market, like China’s stock market, has fluctuated tremendously. Several industry heavyweights have also commented that this fluctuation was unprecedented.”
While the market seems to have calmed down now, even showing signs of a rebound, there is the question if this period really marks the end of the slump or if something worse is coming up.
Both sides of the Pacific suffered during the crisis: goods were rejected even when they were already at sea, huge volumes of orders were canceled at the last minute, payments were late, and bargaining was rife at the port. In response, U.S. sawmills were forced to reduce risks by demanding deposits to be paid upfront first before agreeing to ship across the pacific. As a result, the trust and goodwill between suppliers in North America and distributors in China have all but evaporated.
“We cannot prevent prices from changing, but we can reduce the impact of it,” said Lowery Anderson from Roy Anderson Lumber.
For him, the key to a long-term sustainable business lies in a relationship of trust with customers, such that in the doldrums, no one will bail on the other in favour of lower prices. “It shouldn’t be purely transactional.”
However Mr Anderson also acknowledged that this is easier said than done. Courage is required too, to hold prices at a reasonable level. But if done correctly, profits in the long-term will be stable.
Dennis Mann from American Lumber Company said that exporters also deal with other sawmills in the U.S. and they risk losing their trust when Chinese buyers default on payment. He recalled 2015 as a very challenging year for all. “I hope that we can at least maintain a certain standard of professional business ethics.”
Explaining the difficulty of managing the Chinese end-user’s expectations, Grove Zhu from Tian Run International said, “so many customers have never used American hardwood before so they do not understand it.”
And when they find the material incompatible for their projects, they will demand a refund.
“China is huge; if everyone asks for a refund, we will be in trouble. I hope our American suppliers understand this.”
Said Yong Jie Hu from AWP, “China is still urbanising, so wood will still be in demand. Plus, the Chinese love to chase fashion; there are more than 20 species of North American hardwood for them to choose from. Apart from Red Oak, Cherry seems to have a huge following as well.”
“There is no bad product, only incompatible ones. But customers in China are certainly curious about [American] lumber,” concluded Mr Zhu.
IMAGE: Panel session at the first National Hardwood Council forum in Shanghai (from left): Sam Zhang, General Manager, Shanghai Re Mu Wood Co.; He Liwang, Chairman, Shanghai Yuan Ye Wood Co.; Lowery Anderson, CEO, Roy Anderson Lumber; Dennis Mann, General Manager, American Lumber; Yong Jie Hu, Asia Sales Director, AWP Co.; Grove Zhu, Chairman, Tian Run International Co.