The US hardwood industry is concerned about the just approved EU ‘Regulation to minimise EU-driven deforestation and forest degradation’, better known as the EU Deforestation Regulation or EUDR.

The new rules aim to block timber, and a range of other ‘forest and eco-system risk commodities’ or FERCs, from the EU that are implicated in deforestation. The American Hardwood Export Council (AHEC) approves of the EUDR’s goal and is confident US hardwood is not implicated in deforestation or forest degradation. The US hardwood forest is among the most regulated worldwide. It’s grown in area for seven decades plus. Moreover in recent years the sustainability and legality of its management and the timber it produces has been validated by rigorous independent analysis.

What is of concern is the requirement of the EUDR for geolocation co-ordinates for every consignment, for the plot of land where it originated for all timber placed on the EU market. Ownership of the US hardwood forest is famously fragmented, with mills sourcing from multiple small private forest holdings. This would make providing provenance geolocation co-ordinates a hugely burdensome task. So a regulation aimed at blocking unsustainable timber from the EU potentially threatens access to the market of one of the most sustainable timber resources.

But in another development, AHEC, with US government support, has initiated the ground-breaking Sustainable Hardwood Coalition certification project (SHC – www. shc-cert.org ). It’s not specifically a tool to crack the EUDR. Its ambition is broader than that, but fundamentally it aims to provide a risk-based framework of proof of sustainable provenance that doesn’t swamp the US industry in admin and, most importantly, does not impose a cost burden on millions of private landowners.

These were among key topics addressed at the American Hardwood Trade Symposium in London in May, co-hosted by AHEC and Timber Development UK (TDUK). It also included presentations and panel discussions providing latest US hardwood trade analysis and perspectives on its prospects.

Held at the Building Centre, the event attracted an audience of 120, including representatives of US suppliers and their customers from the UK and the rest of Europe.

AHEC executive director Mike Snow gave an update on US hardwood export developments, starting with the recent slide in sales to China. He attributed this to a range of factors. The pandemic and consequent global slowdown played a part, but the emphasis of President Xi on the state-owned sector over the private has also put the brakes on the economy. Rising wages have made China less competitive too, leading to international businesses relocating to lower labour rate countries, from Vietnam to Mexico.

The consequence is that China, from accounting for 57% of US hardwood exports in 2017, last year took 37%. That’s a decline of 1.3 million m3 and US$671m.

“That equates to US hardwood lumber and log exports to Mexico, Japan, Vietnam and western Europe combined,” said Mr Snow.

China saw an upturn in GDP growth in Q1 2023 and the government has set a 5% target for the year. But, Mr Snow cautioned, longer term the country faces a “demographic timebomb” due to its aging population, which could further curb economic development, with the government’s focus on “geopolitics over economics” adding another drag.

After its two biggest export customers, China and Canada, the US hardwood sector’s leading foreign markets in 2022 were Vietnam, Mexico, the UK, Japan, Germany, Italy, Spain, Thailand, Indonesia and South Korea.

Demand for US hardwoods in the rest of South-east Asia rose in 2022, with notable growth in Indonesia, up 9%, Thailand 54%, Malaysia 54%, Philippines 39%, Singapore, 163%, and Cambodia, 176%. Interestingly, Mr Snow pointed out, recent years have also seen India becoming a more active buyer, with Q1 2023 producing a further jump in its US imports, up 68% in volume over Q1 2022 and 36% in value to reach US$2.14m.

EUROPEAN RED OAK IMPORTS UP 63%

Despite this, however, recent growth in demand from Europe, led by the UK, has kept it ahead of South-east Asia as a US hardwood destination. And Mr Snow highlighted that lately European demand for red oak, the most prolific of US hardwoods and target of high profile AHEC promotion, has increased significantly. This was attributed by panelists to the price differential with white oak, but also to red oak developing its own markets, with specifiers and end users choosing it on its own merits. Red oak exports to Italy jumped from around 8,352m3 in 2021 to 15,911m3 last year, while shipments to the UK increased to 6,526m3. Total red oak exports to Europe last year were up 63% on 2021 at 68,964m3.

AHEC trade analyst Rupert Oliver highlighted that while exports to the UK declined slightly in 2022, it remained Europe’s leading US hardwood buyer, with total purchases of 140,000m3.

The country’s economic slowdown and the end of the pandemic home improvement boom in the second half of 2022 into 2023 saw more significant contraction. In fact UK US hardwood imports were down 48% in Q1 2023 against Q1 2022. Mr Oliver said that UK hardwood importers, and those across the rest of Europe, had bought heavily in the first half of 2022, but as prices fell and demand weakened, they were left with overpriced stock which they’d been “slowly offloading to maintain cash flow, but often at a loss”. He added that the trend was timber sector-wide, with the UK Builders Merchants Building Index showing Q1 2023 sales of all timber and joinery products down 15.3%.

However, Mr Oliver also pointed out that, while UK GDP is forecast by the IMF to rise just 0.4% this year, it will recover to 1% growth in 2024. Consumer and construction sector confidence indexes are also now on the rise.

US hardwood lumber sales to its next biggest European market, Germany, contracted marginally in 2022 to around 60,000m3, while those to Italy rose 22% to 60,000m3 and to Spain by 38% to around 50,000m3. In Q1 2023, however, US exports to Germany and Italy, fell by over 40%, with those to Spain down 9%. The contraction is attributed to economic slowdown due to energy price inflation, triggered by war in Ukraine, and high interest rates.

PRICES TO REMAIN STEADY

The latest picture on hardwood supply was given by Dan Meyer of the Hardwood Market Review. He said the US industry expects domestic and global lumber demand to remain lower than last year, but with prices steady due to mills’ increasing willingness to restrict cutting to prevent them falling. Demand from the expanding stave industry is also high, underpinning price.

While it may underscore the sustainability of the resource, a longer term issue for the industry is that US hardwoods are under-utilised, said Mr Meyer.

“Forest standing volumes are doubling compared to what we’re harvesting,” he said. “That’s a real problem.”

It’s against that backdrop that the new EUDR could potentially throw up obstacles to US exports to the EU.

Details of the new regulation were given by Silvia Melegari, secretary-general of the Confederation of European Woodworking Industries.

She explained that under the regulation, countries supplying the EU with the FERCs it covers will be benchmarked according to perceived risk of deforestation and forest degradation. EU ‘operators’ which first place products on the market, will then have to undertake proportionate levels of due diligence on supply chains. Products will be deemed ‘deforestation-free’ provided the land they came from has not been subject to deforestation or degradation since December 2020.

Ms Melegari said that the requirement for geolocation co-ordinates of the plots of forest land where commodities originate applies to all above 7ha.

Businesses will also have to prove that EU exports of the covered commodities are deforestation-free.

EUDR A SEVERE BARRIER

Mr Oliver said that, although AHEC fundamentally supports the EUDR’s objective, it sees its geolocation requirement as a “severe barrier” to US hardwood. He described it as a backward step from the EU Timber Regulation, which it supersedes, as the latter was a two-way exchange between supplier countries and the EU aimed at helping the former improve legality and sustainability assurance. But EUDR implementation is “very much an internal review process”. He described it as “inequitable for the type of non-industrial forest ownership” which pertains not just in the US, but many other supplier countries.

SUSTAINABILITY CERTIFICATION SOLUTION

However, the presentation of the new, AHEC-initiated Sustainable Hardwood Coalition certification scheme by one of the development team, George White, showed an industry responding to and confident of its ability to meet the sustainability and legality requirements of increasingly regulated timber markets worldwide.

Forest unit certification, such as that of the FSC and PEFC schemes, he explained, has made little headway in the US hardwood forest due to the fragmentation of ownership. So the SHC is being designed to “plug the certification gap” for the country’s millions of small, non-industrial forest operations.

The scheme, he said, is building on the bedrock of the strong US forest governance framework, plus the 2017 AHECcommissioned independent nationwide study of the risk of illegal or unsustainable hardwood from the US entering international trade. The risk was judged negligible.

The SHC scheme will be zero cost to forest owners, with certification covering a whole hardwood producing state, of which there are 33 in total. Jurisdictional risk assessments for these start soon and by the year end all the scheme’s certification standards will be reviewed, subjected to public consultation and endorsed by the SHC. It is hoped that towards the end of 2024 a pilot implementation phase will start to test the associated chain of custody standard. From there, said Mr White, the system can quickly gain momentum thanks to its “simplicity and lower cost due to the existence of SHC-approved state risk assessments”.

The outcome will be proof of provenance to a legality and sustainability assured jurisdiction, not, some would say, such a leap from the EUDR’s ‘deforestation-free’ plot of land. ­

IN PERSPECTIVE

Presentations and panel discussions provided latest US hardwood trade analysis and perspectives on its prospects

European importers’ panel

The European importers panel at the American Hardwood Trade Symposium comprised Stuart McBride of NHG Timber, Geneviève Standaert of Vandecasteele Houtimport and John Dowd of International Timber.

Asked to explain the contraction in European demand for US hardwood in Q1 2023, Mr McBride reflected that it was partly market correction following surging demand and the home improvement boom triggered by the pandemic.

Increased demand for red oak was attributed to its relative “cheapness” compared to US white and European oak. But Mr Dowd said availability in better specifications was also producing increased uptake “despite buyers’ resistance to change”.

US maple is coming back in the UK market, said panellists, but demand for cherry remains low. Ash sales remain constant.

Doubts were expressed about the workability of the new EU Deforestation Regulation. Mr McBride said the geolocation requirement for provenance was “baffling” and he wondered how it would be enforced.

Ms Standaert said that currently Brazil was Vandecasteele’s only hardwood supplier capable of providing geolocation co-ordinates at scale.

Asked what more the US hardwood sector could do to support European buyers, one comment from the panel was while AHEC collaborate with NHLA to put on workshops for European buyers, even more focus should be put on explaining the grading system. Ms Standaert added that really what her customers wanted was “wane-free, fixed widths and lumber that is not too long”.

US suppliers’ panel

On the US suppliers panel at the symposium were Denis Mann of Baillie Lumber, Nick Thompson of Appalachian Hardwoods and Adam Hyer of MacDonald and Owen Lumber.

All three underlined the continuing commitment of the US hardwood sector to supplying the European market.

One issue, however, was the current “gap in demand” for industrial grades, with China’s imports down.

“We need to move the market towards lower grades,” said Mr Hyer. “US exporters are largely reliant on China to take grades such as number 1 and 2 Common, but while Chinese demand could start growing again towards the end of the year, right now they have a lot of finished products stock for which there is no demand.”

Mr Mann said that currently US stocks are also high, but that mills needed to keep purchasing raw material. “We don’t want to stop buying logs in case loggers leave to find other jobs. We need to sustain them”.

Panellists agreed that white oak represents currently roughly 50% of their demand and that ash supply continues to worsen due to emerald ash borer infestation.

Tulipwood is largely available, but supplying very specific buyer demands can be an issue. A slowdown in the paper sector, which takes up “massive amounts of fibre”, is also affecting tulipwood availability, with the biomass sector unable to take up the slack.

A broader concern of panellists was that sawmills that go out of business are not being replaced due to the high capital investments required versus relatively low return on investment.