Exports Remain Vital to the US Hardwood Industry, but Challenges and Uncertainty Around the Globe Continue to Grow

It is no secret that the US hardwood industry is going through one of the most challenging periods in its history. Production of hardwood lumber in 2023 fell to its lowest levels since 1950, and so far, 2024 has remained at historically low levels. These levels of supply are ultimately the result of declining demand. A combination of inflation, high interest rates, trade tensions, sluggish GDP growth, and simultaneous wars in Europe and the Middle East have all conspired to restrict consumer demand, particularly in the housing sector, in the US and around the globe. At the same time, new and costly regulations such as the EUDR and similar legislation under consideration in other markets like Japan and Australia threaten to further disrupt existing trade. These headwinds matter because more than half of all grade US hardwood lumber and veneer production is exported. Prior to the trade war and COVID disruptions, more than half of that—roughly 25% of total grade production–was destined for China. For reasons explained below, that market has now fallen to half its 2017 level. Yet, China remains by far our single largest export market and the largest hardwood importer in the world.

There are other markets, however. While the 6-month 2024 export stats show an unimpressive overall 3% growth rate in hardwood lumber exports through June (from relatively low 2023 levels), a closer look reveals that if we remove the 9% loss to China, exports to the rest of the world grew just over 10% (see Graph 1). Conditions around the world vary considerably, and a short recap of selected major markets follows:

EU + UK
Over the past year or so, uncertainty over the implementation of the EUDR has become a major concern for the industry. While Europe accounts for only around 10% of direct US hardwood lumber exports, the EUDR also regulates the trade in furniture and other manufactured wood products that are produced in third countries such as Vietnam, Turkey, or India using American hardwood and are then shipped to the EU (see Graph 2). AHEC has been closely monitoring political developments surrounding the EUDR as trade organizations, politicians, and the media wade in with concerns that the law can’t be rolled out effectively as planned for the start of next year. There is also growing evidence that it will wreak havoc on some commodity sectors, including the EU’s own forest products industries.

Meanwhile, having conducted a pilot study and invested a signifi-cant amount of time and effort trying to develop a fully “EUDR-conformant” satellite-based solution, AHEC has concluded that certain obligations in the legal text as currently written are, to all intents and purposes, impossible for the US hardwood sector. In addition, any solution to provide an analysis of every harvest site in individual real estate properties in the US hardwood context would be so expensive and unaffordable. In effect, the current legal text, alongside the interpretative guidance so far issued by the EC, has the potential to act as a de facto ban on EU trade in most US hardwood products. This is in a sector where the risks of illegality and commodity-driven deforestation are practically zero.

As a bloc, the EU has always punched above its weight as European-driven design trends impact timber flows to third countries. As far as direct US exports, the latest USDA export data shows that after six months of the year, US hardwood lumber exports to Europe were similar to the same period last year at just over 166,000m3. However, shipments to most of the major EU markets–Spain, Germany, Italy, and Portugal– were down; the UK is once again propping up overall exports to the region. For this period, US hardwood lumber exports to the UK were up 30% last year, accounting for nearly 40% of total shipments. Most of the increase was white oak, up 74%, which itself is more than the volume of all shipments of all species to the next two most significant EU markets of Italy and Germany.Spain saw the biggest decline (30%), most of which was white oak. Also, over this six-month period, Italy was down 12%, Germany 17% and Portugal 17%. On the other hand, some of the smaller European markets saw exports bounce back, with Ireland up 16%, Sweden up 50%, Norway up 86%, and the Netherlands up 55%. In most cases, these increases were due to higher shipments of white oak and tulipwood.

CHINA
While China remains the largest single market for US hardwood exporters, sales have dropped off considerably over the past several years. In 2023, the market declined 8% by volume and 20% by value, illustrating the low demand and falling prices. That trend continues into 2024 when the 6-month data shows a further drop of 9% from last year’s already anemic levels. Cumulatively, the declines over the last five years have left the Chinese market for US hardwoods at less than half of its 2017 peak. At the same time, American hardwood log exports have been accelerating, and through the first six months of the year, log export values now exceed lumber values for the first time ever. Many of these log exports are feeding sawmills, so Chinese-produced US hardwood lumber is now competing with our industry not only in the local market but in third countries as well.

The declining hardwood market in China can be explained by increasingly weak consumer spending and the near collapse of the property sector, which accounts for roughly a quarter of the entire country’s GDP. The housing construction boom from the early 2000s until the COVID lockdowns in late 2019 shows no signs of picking back up despite government policies targeting an economic boost. The Chinese housing sector not only has implications for the larger economy but also directly impacts the import of wood products to produce furniture, cabinets, flooring, and various interior design products. Although China is the largest furniture exporter in the world, market surveys and trade analysis show that roughly 80% of all furniture produced in China stays in China for domestic consumption. This incredible volume of home goods was filling out the interiors of hotels, private homes, and commercial buildings that have sprung up throughout the country in arguably the largest construction boom in the history of the world. The future looks much less certain, but China will remain a large market moving forward, although growth is likely to be at a much slower pace.

SOUTHEAST ASIA
For the first half of 2024, Southeast Asia was one of the few bright spots for US hardwood lumber exports. Bouncing back from a very poor 2023, which saw an overall decline of 33%, through June of this year, Vietnam has posted a growth rate of 34%. At the same time, Indonesia is up 58%, Thailand is up 59%, and Malaysia is up 48%. Nevertheless, all four countries are significant exporters of wood furniture and other products, and slowing international demand and uncertainty related to EUDR implementation pose significant impediments to short-term growth in US exports to the region (see Graph 3).

Southeast Asia has seen rapid economic development and a growing population over the last two decades, but much of the growth for the American hardwood market has been the result of demand for furniture exports from the region. More than 85% of the total value of Vietnam’s wood and wood products exports, for example, is shipped to just five markets: the US, China, Japan, the EU, and South Korea. Labor rates are still much lower in Southeast Asia than in China, allowing large furniture companies to build cost-competi-tive products for primarily export demand. However, with a population of nearly 700 million people, a growing middle class, and a rapidly expanding tourism infrastructure, Southeast Asia also holds long-term promise as end users of high-end American hardwood products.

MEXICO
Perhaps no country stands to gain more from the trade tensions between the US and China than Mexico. Supply chain woes and the growth of “nearshoring” make the country, with its unfettered access to the US market and relatively low-cost labor, an attractive magnet for manufacturers seeking to remain close to the US market. While political uncertainties and an ailing economy do present challenges to growth, the long-term potential of this market is significant.

After growing by more than 22% in 2022, US hardwood lumber exports to Mexico in 2023 saw sluggish consumer demand, leading to a nearly 10% decline compared to the previous year. The first half of 2024 saw relatively stable trading conditions, with exports down about 2% from last year. A recent visit by AHEC at the TecnoM-ueble furniture show in Guadalajara provided strong evidence of renewed global interest in Mexico as a growing number of Chinese and Taiwanese companies were in attendance.

JAPAN
One of the most important markets for American Hardwoods in Asia since the 1980s, Japan has undergone a consumer shift in line with its aging population and movement away from direct labor-intensive manufacturing sectors. Even though the end consumer market in Japan has remained strong, direct exports of US hard-wood products to Japan have been limited over the last 20 years by offshoring of manufacturing to low-wage countries in Asia. These countries, Vietnam in particular, produce furniture for the middle-income market in Japan, while the high-end products are still made in Japan. The American hardwoods exported to Japan typically have the highest grade of walnut and white oak and go to small furniture makers, often producing 100 pieces per month or fewer. These consumers of American hardwood products are global design leaders, as these collections will sell all over the world and, in turn, inspire other designers to use similar forms and materials. This means the importance of Japanese specifiers and Japanese-owned manufacturing companies is felt far beyond the country’s borders and far beyond the total direct market sales.

Recent years have seen significant change. After a sharp reduction in trade during the COVID-19 pandemic, the Japanese market roared back in 2022 to a trade level not seen since 2014. US hardwood lumber exports to Japan were $75.5 million, led by strong con-sumption of walnut, white oak, and red oak species. Unfortunately, due to softened global demand as well as severe depreciation in the Japanese Yen against the US Dollar, exports of US hardwood lumber to Japan dropped by 30% in 2023 and totaled just over $53 million. This market softening is accelerating at least through the first half of 2024, with US exports down an additional 42% from 2023 levels. One silver lining is the performance of red oak, which increased by more than 18% through June and is now second only to white oak.

INDIA
India imported some $140 million worth of hardwood lumber from all sources in 2023, making it the world’s 7th largest importer. The main suppliers were Malaysia, the European Union, the United Kingdom, and various West African and South American countries, from which significant volumes of plantation teak are sourced. However, the United States ranked as the 8th most important supplier last year, taking only around 5% of the total market for imported hardwood lumber. There is clearly room for more growth.
After several years of steady growth, total US hardwood lumber exports to India totaled 5,672 cubic meters through June of 2024, down 14% from last year as exports of ash and maple to India dropped considerably. On the positive side, Significant increases were seen in shipments of red oak, walnut, and hickory (see Graph 4).

While the volumes of US hardwood lumber shipped to India remain relatively small in comparison to market size and potential, there are clear indications of a genuine market shift towards American species. The Rajasthan furniture and handicrafts sector is certainly a developing end-user sector for American hardwoods, especially for No 2 and No 3 Common red oak, but there is also room for all US hardwood species at all grades across India. There are manufacturers of high-end furniture and joinery for the domestic market dotted all over India, and we are likely to see real and long-term growth in the coming years. Disposable incomes in India are increasing, and the huge middle class is rapidly expanding. Tastes are changing, and there is increasing demand for “exotic”
(imported) looks, materials, and finishes.

MIDDLE EAST and NORTH AFRICA (MENA)
Despite the ongoing conflicts in the region, exports to the Middle East remain relatively stable through the first half of 2024. By volume, total US hardwood lumber exports to MENA & Pakistan reached 45,492 cubic meters, almost exactly equal to the same period in 2023. In terms of value, hardwood lumber shipped to the region was $37.8 million, up by 5.5% from last year’s levels. Red oak accounted for 56% (22,893 cubic meters) of total shipments to the MENA region.

While liquidity problems continued to temper market activity in Egypt and Pakistan, and high inflation slowed the Turkish economy, there were also some rising stars. Exports of American hardwood lumber to the UAE showed an increase for the fourth year in a row, with January-June imports reaching 10,200 cubic meters, up 27% over the same period in 2023 and a full 70% over 2022. At the same time, shipments to Saudi Arabia grew by 8% in volume to 4,447 cubic meters. This trend is in line with expecta-tions, as the Saudi construction sector is currently experiencing an unprecedented boom, which should continue for many years to come. While much of the rest of the world is currently experiencing an economic slowdown, the Arabian Gulf is profiting from high oil prices. This is leading to substantial inward investment in Saudi Arabia, in particular, while the UAE is benefiting from an influx of people and funds from many less stable countries, including Russia and Ukraine. Construction activity in the region is extremely buoyant, and this is expected to continue for some years ahead, leading to high demand for materials, including American hardwoods.

By MIKE SNOW, Executive Director of the American Hardwood Export Council