Panels & Furniture Asia May/June 2020

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18 | MARKET REPORT May / June 2020, Issue 3 | Panels & Furniture Asia Supply Shocks. Demand Shocks. Aftershocks. Far-reaching effects of COVID-19 on the U.S. hardwood trade By: Judd Johnson Managing Editor, Hardwood Market Report This article considers three problems: Supply shocks, demand shocks, and aftershocks. By no means are these problems unique to U.S. hardwoods, though U.S. hardwoods are certainly affected. Manufacturing in China stayed offline for weeks after the New Year’s holiday. Arguably, no less than one full manufacturing cycle was lost during the shutdown. This directly caused supply shocks that impacted essentially every aspect of human lives throughout the world, even if people were generally unaware of the risks from shortages. Over time, global inventories of Chinese-produced finished goods declined. Additionally, there were manufacturers located in other countries awaiting parts from their Chinese sources; many were forced to either cease operations until the parts arrived or find new suppliers. Both options have challenges. First, it is difficult to suspend manufacturing activity indefinitely. Second, it is not a good time to pursue new suppliers when supply shortages exist. The outbreak of Novel Coronavirus in China became widely known at a time in close succession with the Lunar New Year. Global supply chains were prepared for business closures that normally accompany the Chinese New Year holiday. But, supply chains were not prepared for what occurred thereafter – the world’s largest manufacturing hub would shut down for a protracted amount of time. While supply shocks were affecting markets downstream of manufacturing, shuttered manufacturing operations caused Chinese distributors and producers to limit purchases of U.S. hardwoods and other raw materials. By and large, U.S. hardwood logs and lumber were bought to support normal manufacturing activity that was scheduled to resume after the New Year holiday. DEMAND SHOCKS: FROM U.S. HARDWOOD SUPPLIERS TO CHINESE MANUFACTURERS Of course, manufacturing did not resume immediately following the holiday as originally expected. Even several months after the government lifted quarantines, reopened travel, and rebooted business activities, Chinese industrial output was not what it was previously, and it is not what U.S. hardwood suppliers had anticipated. In this sense, suppliers to the Chinese manufacturing sector experienced demand shocks that left them with fewer sales and less revenue than was planned. Now, Chinese manufacturers are also experiencing demand shocks. As production facilities are coming back online and gaining momentum, the rest of the world is sheltering in place as a precaution to limit the spread of COVID-19. And because Chinese manufacturers are experiencing or likely will experience pushback in product demand, there is a ceiling on how much industrial output can increase until consumer activity rebounds globally. This establishes a benchmark for U.S. hardwood lumber demand going forward.
May / June 2020, Issue 3 | Panels & Furniture Asia MARKET REPORT | 19 Since the purpose of any manufacturing company is to produce, it is reasonable to expect U.S. hardwood sawmills and lumber yards to increase output when reaching peak production season this summer. It is hard to dispute this defined business pattern. But in doing so, it is unreasonable to dismiss the severe effects on U.S. hardwood lumber processing capabilities caused by the U.S./China trade war. Yes, tariffs on U.S. hardwoods are suspended for the time being, but financial damage has been done to U.S. suppliers. LOW GRADE HARDWOOD AND LUMBER AND INDUSTRIAL TIMBER MOST AFFECTED U.S. hardwood log and lumber supplies were low this spring as a result of conditions previous to COVID-19. The ability for sawmills and lumber yards to increase production is limited by the lingering financial strains alluded to above, though now, production capabilities are damaged further by contraction in domestic U.S. markets caused by COVID-19. Affected most is U.S. domestic demand for low grade hardwood lumber and industrial timber products. Until recently, these markets carried U.S. hardwood companies through the businesses downturn with China over the past twentyplus months. But, without sufficient markets for inherent species and full range of qualities produced, it will be difficult for U.S. hardwood lumber output to increase. Effects on businesses caused by COVID-19 are unique circumstances never experienced by anyone in business today. However, the potential outcome for supply shortages is reminiscent of 2013. P HMR is the leading source of pricing and market information for North American hardwoods. It has provided reliable, expert analysis of pricing and market trends to hardwood companies throughout the world since 1922. Sample copies and subscription services for Hardwood Market Report ® and all other HMR publications are available online at www.hmr.com.
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Page 67 and 68: NEWSLETTER MAY/JUNE 2020 The global
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