6 Knowledge About “Wood Shock” That You Should Know Before Purchasing Wood
Do you have such troubles as "What is Wood Shock?", "Why does Wood Shock become a hot topic?", etc. In recent years, as long as it is related to wood, the term "Wood Shock"will appear, hence, We are going to introduce Six Knowledge Points about "Wood Shock"ー the crisis faced by the wood market. In this article, we will explain about the "Wood Shock" that disrupts the wood market in an easy-to-understand way, which including its definition, causes, impact, the supply and demand of Japan's wood, precautions when buying and selling wood, and the future outlook of the wood market.
CONTENTS
① What is Wood Shock?
② The Causes of Wood Shock
③ Impact of Wood Shock on Japan
④ Supply and Demand for Wood in Japan
⑤ Precautions When Purchasing Wood
⑥ How Long Will The Wood Shock Last? What is The Future Outlook of The Wood Market?
⑦ Summary
① What is Wood Shock?
Wood Shock has been a hot topic in the wood industry and wood construction market since March 2021, which refers to the shortage of wood and the soaring price of wood due to the rapid growth of wood demand.
② The Causes of Wood Shock
The main causes of Wood Shock is the influence of The Coronavirus (COVID-19).
The following is a brief list of four complex causes that caused the Wood Shock.
- Reason 1: As the demand for new houses in the United States increases, so does the demand for wood. (※1)
- Reason 2: The increase in China’s timber demand during the economic recovery peroid also increased the demand for imported timber.
- Reason 3: Due to the impact of pests that occurred in Canada anf the COVID-19, the reduction of the number of loggers decreased led to the reduction of timber production, which destroyed the balance of timber supply and demand.
- Reason 4: With the spread of COVID-19 infection, the rise of online shopping has increased the demand for nesting, which resulting in a shortage of containers. (※2)
Moreover, in March 2021, a large container ship ran aground on the Suez Canal, which exacerbated the delay in the transportation of containers to Japan.
Under these circumstances, the congestion of loading and unloading has also been affected, resulting in difficulties in timber import and accelerating the impact of Japan’s wood.
The above is the cause of the “Wood Shock” due to the shortage of wood and the soaring price of wood.
③ Impact of Wood Shock on Japan
The wood shock has plunged Japan into a serious shortage of timber and rising timber prices. The reasons are as follows.
Japan has a low self-sufficiency rate of wood and is heavily dependent on imported wood
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The current situation of rapid growth in global timber demand and soaring prices
Thus,
There was a wood shock in Japan.
Next, let’s explain there specific impacts of wood shock on Japan.
- Soaring Housing Prices
The increasing demand for wood in the US and China has made it difficult to purchase imported wood, which has a serious impact on the housing, construction and real estate industries. As you know, the level of timber import price and domestic timber price are interrelated (※3). In 2021, the import price of logs and timber for residential construction rose, while the domestic log and timber prices also rose. The increase in import costs equal to the increase in timber prices. 70% of the timber used by Japanese housing manufacturers is imported. Rising costs have directly pushed up house prices.
In addition, due to the impact of wood shock,
- The construction unit price of residential buildings in Japan is rising every month, and there is a fear that it will continue to rise in the future.
- The trading business of newly built independent houses fell sharply in April 2020, but fortunately recovered in August.
- The domestic prices of plywood, wood and laminates for new houses are much higher than in the past.
- Japan is losing the characteristics of low-cost Japanese houses and houses for sale at low prices, etc.
and other impacts are occurring.
- The House Cannot be Built, or The Construction will be Delayed
- It is not only house prices that will be affected, but also real estate enterprises will be unable to complete the construction within the agreed time limit or delay in the construction period due to the shortage of wood.
- According to the survey of the Ministry of Land, Infrastructure, Transport, and Tourism (MLIT), as of September 2021, 46% of small and medium-sized contractors face construction delays due to delayed wood supply (past and current construction delays).
- Bankruptcy of House Builders and Building Contractors
Construction delays have increased construction costs.
In a word, even if the contract is signed, it is still required to be cancelled due to the increase of construction costs, and the bankruptcy risk of housing builders and construction contractors increases due to construction delays and increased construction costs.
As mentioned above, Japan is facing problems such as insufficient timber imports, rising timber related prices, and the inability to achieve housing construction.
④ Supply and Demand for Wood in Japan
Forest and forestry related meterials provided by the Learning Museum of the Forest and Forestry
Self-sufficiency rate and supply of wood in Japan (shinrin-ringyou.com)
said that Japan’s timber self-sufficiency rate has been improving in recent years.
Self-sufficiency rate and supply of wood in Japan:
- Japan’s timber self-sufficiency rate: About 70% is completely dependent on foreign timber, and Japan’s timber self-sufficiency rate is only 30%.
- Supply of timber in Japan: 60 million m3 (2020)
- After 1935, Japan’s timber self-sufficiency rate continued to decline from 94.5% to 18.2%. Japan’s timber self-sufficiency rate gradually recovered in 2004.
Reasons for the Decline of Japan’s Timber Self-sufficiency Rate:
First of all, Japan’s forests were cut down during the war to be used as military supplies, and after the war they were used as reconstruction materials.
Second, the government is promoting the expansion of timber imports to cope with the decline of forestry and the rapid growth of timber demand, which resulting in the rapid decline of Japan’s timber self-sufficiency rate.
Supply and Demand Situations of Timber in Japan: (2019)
Japan (Domestic Wood) 33.3%;
Vietnam, Australia, Chile, China, etc. 32.6%;
The United States and Canada (Western Wood) 15.3%;
Europe (European Wood) 8.4%;
Malaysia and Indonesia (South Sea Wood) 7.0%;
Russia (North Sea wood) 3.5%
Ranking of Wood Import Partner Countries (Top 3)
Top 1: China (11%)
Top 2: Canada (10%)
Top 3: Vietnam (9.7%)
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⑤ Precautions When Purchasing Wood
Companies that use wood have been severely damaged by the wood shock. Thus, suggest to pay attention to the following four points when buying wood.
- Pay attention to prevent construction delay caused by wood procurement delay.
- Pay attention to prevent budget overruns caused by delayed wood procurement.
- For those who are signing house purchase contracts, it is suggested to analyze and investigate the dependence of each house builder on imported wood, and pay attention to material procurement, construction delays and cost increase.
- Pay attention to interest rate fluctuations in the US before buying a house.
⑥ How Long Will The Wood Shock Last? What is The Future Outlook of The Wood Market?
Some people might be wondering, “How long will Wood Shock last?”.
Unfortunately, it cannot say for sure that how long the Wood Shock will last.
Despite this, there are also various predictions, such as “even after 2022, wood price are likely to continue to rise”, or “prices may not reture to the level before the wood shock”, etc.
In any case, there is no doubt that the wood shock will take some time to stabilize.
⑦ Summary
In this article, we have introduced “What is the Wood Shock?”, “The Impact of the Wood Shock”, “Supply and Demand for Wood in Japan”, and “Future Prospects of the Wood Shock”.
“Wood Shock” is one of the many crises facing the world. It’s not sure when wood shock will end, but if we keep calm, understand and know the latest information of wood shock, we can minimize the damage.
(※1) Induce Low Interest Rate Policy: More poeple are buying houses, and foreign investors’ funds are flowing into the United States
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During the Corona period, due to the increased time spent at home, the demand for DIY is also increasing, hence, the demand for wood has increased.
(※2) Akitasakigake shinbun-sha (May 31, 2022) mentioned that while the price of imported timber soared, the cost of shipping rose due to the shortage of containers.
(※3) According to Akitasakigake shinbun-sha (May 31, 2022), Japan suffered from the wood shock. In December 2021, the average unit price of imported wood increased by about 2.1% year-on-year, and the price of domestic wood products also increased.