China’s love affair with oak a mixed blessing for France

Chinese demand for oak products has boosted exports — and prices — from French producers. (Reuters)
Updated 08 June 2018

China’s love affair with oak a mixed blessing for France

  • Chinese demand pushes up oak log prices
  • French oak producers flourish, sawmills suffer

PARIS: Times are good for oak tree growers in France.

Exports of oak logs have soared and so have prices, largely because of demand from China. Beijing banned commercial timber harvests last year and Chinese millennials have developed a taste for high-quality wooden floors and furniture from Europe.

But boom for France’s exporters could mean bust for some of the country’s 550 sawmills.

French oak producers have traditionally sold oak logs to the mills, which then cut them into lumber for making products ranging from floors and furniture to coffins and wine barrels.

But now, private forest owners have started selling logs directly to Chinese buyers because they are ready to pay higher prices and do the processing themselves.
This has left many French sawmills short of wood to process and struggling to fulfill orders.

“The problem is that oak has never been as expensive in France and we, the processors, have never had as little of it,” David Chavot, head of the Margaritelli Fontaines sawmill, said at the mill in eastern France.

Sawmills with big stocks of oak are safe for now but will face problems buying new stock because they cannot afford the higher prices, said Nicolas Douzain-Didier, head of France’s National Forest Association (FNB).

Smaller ones will lose customers and shed jobs, he said.

“The most fragile will go under, one after another,” Douzain-Didier told Reuters.

About 26,000 jobs are directly linked to the oak industry in France, the world’s third largest producer. By late March, about 80 percent of French sawmills had 30 percent less stock than they needed to fulfill orders.

Any job losses would be politically awkward for President Emmanuel Macron, who has made reducing unemployment a priority. The sawmill producers have appealed to him for help but a crisis meeting organized by France’s farm minister with producers and sawmill bosses in March failed to secure a compromise.

France has tried to regulate the industry by imposing an “EU label” on logs coming from public forests, meaning they must be processed in the European Union. But French sawmills say there are ways to bypass the EU label system and want a similar label applied to privately owned forests, which account for nearly 80 percent of wooded areas in France.

For oak growers, who usually cut trees when they are from 100 to 150 years old, the price rise is a welcome rebound after a sharp fall in the late 2000s caused by low demand.
“They (the sawmills) need to live but so do we,” said Antoine d’Amecourt, who led the private forest owners who attended the March meeting with farm minister Stéphane Travert.

“Owners prefer the wood to be processed in France but they need to regenerate forests for the next generations,” he said, explaining it made little difference where the oak is processed.

China is the world’s largest timber importer and its needs are growing, according to Chinese officials.

To meet the booming demand, Chinese manufacturers have had to buy oak abroad since commercial timber harvests were banned to protect natural forests after decades of over-cutting.

In Foshan, a furniture trading hub in China’s Guangdong province, traders say demand is propped up by young and affluent people who like European interior design.
Almost 90 percent of solid composite wooden floors in China are now made of oak, a sharp rise from the early 2000s, according to Chinese floor-maker Fudeli Flooring
“At least 70 percent of our customers buying French oak floors are millennials born in the 80s and 90s,” said Chen Deyi, a local dealer for Fudeli Flooring.

At the Louvre, a vast and lavish furniture exhibition center in Foshan, customers can find luxury brands such as Versace and Bentley Home. For many, prices are not the biggest concern.

“I don’t have a particular budget in mind but I feel prices are okay here,” said newly wed Liu Zhipeng, who works for an insurance company.

Hoping to cash in on the high demand, Hong Kong-based Four Seasons Furniture has launched a French oak furniture collection. A small side table made of French white oak costs 3,680 yuan ($576).

“We just recently started promoting French oak furniture inside China. It used to be more export-focused as appreciation for this type of wood was not as robust,” said Candy Zhu, a sales manager at the Louvre exhibition center.

French oak log exports to China rose 35 percent in the year to January 2018 and now account for 70 percent of all French oak log exports, according to FNB data.
This makes France the second largest supplier of oak logs to China, ahead of Russia and behind the United States. Business is not expected to be affected by the current trade dispute between Washington and Beijing, industry experts say.

Prices for some oak logs have doubled in France since 2009 while the prices of other species, such as beech and pine, have fallen over the same period, according to FNB data.

Record budget spurs Saudi economy

The budget sets out to lift spending and cut the deficit. (Shutterstock)
Updated 19 December 2018

Record budget spurs Saudi economy

  • “It is a growth-supportive budget with both capital and current expenditure set to rise.”
  • Government spending is projected to rise to SR 1.106 trillion

RIYADH: Saudi Arabia on Tuesday announced its biggest-ever budget — with spending set to increase by around 7 percent — in a move aimed at boosting the economy, while also reducing the deficit. 

However, analysts cautioned that the 2019 budget is based on oil prices far higher than today — which could prove an obstacle in hitting targets. 

Government spending is projected to rise to SR 1.106 trillion ($295 billion) next year, up from an actual SR 1.030 trillion this year, Minister of Finance Mohammed Al-Jadaan said at a briefing in Riyadh. 

The budget estimates a 9 percent annual increase in revenues to SR 975 billion. The budget deficit is forecast at SR 131 billion for next year, a 4.2 percent decline on 2018.

“We believe that the 2019 fiscal budget will focus on supporting economic activity — investment and wider,” Monica Malik, chief economist at Abu Dhabi Commercial Bank (ADCB), told Arab News.

“It is a growth-supportive budget with both capital and current expenditure set to rise.”

A royal decree by Saudi Arabia’s King Salman, also announced on Tuesday, ordered the continuation of allowances covering the cost of living for civil sector employees for the new fiscal year.

“The continuation of the handout package will be positive for household consumption by nationals,” said Malik. “We expect to see some overall fiscal loosening in 2019, which should support a further gradual pickup in real non-oil GDP growth.”

World oil prices on Tuesday tumbled to their lowest levels in more than a year amid concerns over demand. Brent crude contracts fell to as low as $57.20 during morning trading.

Malik cautioned that the oil-price assumptions in the Saudi budget looked “optimistic.”

“We see the fiscal deficit widening in 2019, with the higher spending and forecast fall in oil revenue,” she told Arab News.

Jason Tuvey, an economist at London-based Capital Economics, agreed that the oil forecast was optimistic, but said this should not pose problems for government finances.

“The government seems to be expecting oil prices to average $80 (per barrel) next year,” he said. 

“In contrast, we think that oil prices will stay low and possibly fall a little further to $55 … On that basis, the budget deficit is likely to be closer to 10 percent of GDP. That won’t cause too many problems given the government’s strong balance sheet. 

“Overall, then, we think that there will be some fiscal loosening in the first half of next year, but if oil prices stay low as we expect, the authorities will probably shift tack and return to austerity from the mid-2019, which will weigh on growth in the non-oil sector,” Tuvey said.

John Sfakianakis, chief economist at the Gulf Research Center, based in Saudi Arabia, said that the targets of the budget were “achievable” and the forecast oil price reasonable. 

“It is an expansionary budget that should spurt private sector activity and growth,” he said. 

“With Brent crude averaging around $68 per barrel for 2018 and $66 per barrel for 2019, the authorities have applied a conservative revenue scenario.”