The Wood Resource Quarterly (WRQ) reports that the downward trend in Australian wood chip exports was broken in 2013 thanks to increased chip demand from Chinese pulp mills.

According to the WRQ, China surpassed Japan as the major destination in 1Q/14 with one of the world’s largest wood chip exporters increasing its chip shipments in 2013 after a ten-year low in 2012. In the 1Q/14, shipments were close to the highest since 2010 thanks to high demand from China.

Though Australia was the world’s leading exporter of wood chips and the major supplier of wood fibre to the pulp industry in Japan for many years, the situation changed in 2012 when Australian exports fell to their lowest level in over ten years and Vietnam took over as the largest supplier of wood chips in the world.

There is no lack of wood supply in Australia; rather it is the demand for chips from the export market that has changed. Exports of Eucalyptus chips reached a peak of five million tons in 2008, and fell to about 3.3 million tons in 2012, the lowest export volume since 2000.

However, over the past six months, shipments of wood chips from Australia have rebounded and volumes exported in the 4Q/13 and the 1Q/14 were the highest quarterly shipments since 2010. This can be primarily attributed to China’s need for wood fibre for the country’s pulp industry. Of the total shipments of 1.2 million tons in the 1Q/14, about 50% went to China, while the remainder was shipped to Japan, Taiwan and, for the first time, to India.

The negotiated hardwood chip export price in Australia has fallen the past two years in both Australian and US dollar terms because of lower demand from Japanese pulp mills, increased availability of chip supply from Vietnam, and unwillingness on the part of Chinese pulp companies to pay elevated prices for higher-quality Eucalyptus wood chips. Despite the lower price, export volumes to China went up in 2013 and were 85 percent higher than in 2012.

Despite the encouraging outlook for increased chip exports to China and India in the coming years, the biggest challenge for Australian chip exporters is to be able to raise the prices for chips to China and to close the wide price gap with Japanese-bound chips.