The People's Republic of China, in its first entry into the the U.S. log market, has contracted to purchase about 100 million board feet of timber.
China's entry into the log market comes at a fortuitious time for timber companies in the Pacific Northwest. The depressed housing market in the United States and a recent cutback by Japan in its timber purchases have left U.S. firms with large inventories of logs.
Japanese timber sources claim China, which began negotiations for the U.S. logs last April, will use the logs for major modernization projects ranging from harbor work to railroad ties and hotel construction.
Industry sources estimate that the Chinese bought the logs for approximately $400 per 1,000 board feet, on the generally accepted Scribner scale. The logs were rough quality, large second-growth timber -- in other words, not prime trees. Nevertheless, these reported average prices, if correct, are about $30 per 1,000 board feet less than posted pric%s for the same period -- June to December 1980. Based on these estmates, approximate value of U.S. log exports to China for the last six months of this year is $40 million for 100 million board feet.
Although these figures seem insignificant alongside 1979 Japanese timber purchases from the United States of about 3.1 billion board feet, of which 90 percent was in softwood logs and 10 percent in lumber, China's entry into this market is expected to have widespread repercussions both in international timber markets and specifically on the American foreign products industry in Northern California, Oregon, Washington and, ultimately Alaska.
South Korea also bought about 250 million board feet of logs from Washington and Oregon last year and has become an improtant factor in the marketplace.
Japanese, Koreans and their American suppliers are all somewhat uneasy about the ramifications of the Chinese purchases. Exports of whole logs from the U.S. West Coast has always been accompanied by political controversy -- from environmentalists; from sawmill operators, who think such exports deprive American mills of jobs; and from those who believe the United States eventually will need the timber for itself.
Although much of the American forestry industry has a good record of replanting for an infinite sustained timber yield, there are continuing arguments about methodology and statistics of these programs.
As this stage, no one can predict how big China's purchases may be in 1981. Some industry observers believe the Chinese got a bargain on their initial purchases of logs because of overstocked inventory here in the Northwest and because suppliers wanted to be accommodating to a new, and potentially huge, customer. Precise sales figures on individual contracts are almost impossible to come by.
China's extreme reluctance to spend valuable foreign exchange except on the most vital of projects has led to bargain-hunting to considerable extremes. It may well be that the PRC will be outbid and out-traded by the more experienced Japanese who seem about ready to reenter log-buying markets in the Northwest in a big way.
Recent reports, including one based on an extensive tour of China by the Society of American Foresters which is scheduled for official publication soon, indicate the severity of China's forest depletion and the condition of its sawmills. The United Nations Food and Agriculture Organization in Rome also issued an excellent survey on China's integrated wood-processing industries. These and other documents, plus first-hand observations by recent knowledgeable visitors to China, indicate that the PRC may have troubles in buying U.S. timber other than its limited amount of foreign exchange.
Essentially, sawmills in China are antiquated and unable to process the wide variety of trees of all sizes and species that mills in Japan and Korea are capable of handling. Also, congestion in Chinese ports remains bad enough so that one American company, Weyerhauser, recently shippped two large hydraulic log-loading machines to China at PRC expense, along with a team to train Chinese operators.
Unloading and turnaround time seems particularly bad in Shanghai, so some log shipments from the Pacific Northwest are being rerouted to Tsingtao and Tsing Huan Dao in Liaoning Province, which is a port not far from Peking. Since the Chinese apparently do not have merchant vessels designed for efficient transport of logs and lumber, chartered ships are being used, which increases costs.
Finally, it is difficult to determine how efficiently the logs are distributed from the receiving port to the actual job site.
Besides Weyerhauser, which is believed to have contracts with the PRC to the end of this year for about 45 million to 50 million board feet, two major brokerage firms -- one headquartered in Tokyo and the other in Hong Kong -- seem currently to be playing the major role in assembling shiploads of logs for shipment to the PRC.
Yoneda Busan of Tokyo, although a Japanese trading firm, is believed to have some Korean components or antecedents dating to prewar days in Manchuria, then called Manchuko. This firm's involvment would be consistent with current PRC practice of preferring to deal with people who have past experience in China.
The Hong Kong firm, Ta Fu, just opened an office in Seattle under the name TAT (USA) Corporation. The company, owned by a woman in Hong Kong. Miki Yeung, believed to have close ties with mainland Chinese officials, had a previous history of brokering logs from Borneo and other places and Indonesia and the South Seas.
China's internal administrative reorganization makes it difficult to ascertain who actually is ordering the logs. But preliminary information seems to indicate a department of the increasingly powerful Bureau of Supplies; a department of the Ministry of Foreign Trade, which may now reluctantly be giving up some of its functions as intermediary between foreign suppliers and the ultimate consumers in China; and autonomous municipalities, such as Shanghai and Canton.