Panels & Furniture Asia May/Jun 2020

May / June 2020, Issue 3 | Panels & Furniture Asia 18 | MARKET REPORT By: Judd Johnson Managing Editor, Hardwood Market Report T his 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. 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 rawmaterials. 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. Supply Shocks. Demand Shocks. Aftershocks. Far-reaching effects of COVID-19 on the U.S. hardwood trade 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.