Export Markets
CURRENT ACTIVITY
There has been strong growth in exports since 1995 to Japan and USA. These markets have the potential to absorb the output of the entire cypress industry, which presents important strategic considerations to the industry in terms of managing exports and the domestic market for sustainable returns, minimal volatility and market risk.
The gross value of exports is currently $6 million and absorbs approximately 11% of NSW production. It has been estimated that the value of exports could grow to $15-20 million over the next few years.
The NSW industry has primarily focused on the Japanese market, whilst Queensland has put greater emphasis on the US market.
Export markets provide valuable diversification for an industry traditionally dependent on the cyclical housing sector.
JAPAN
The main product exported to Japan is Dodai (120mm and 105mm square section by 4.0m in length), which is used as sill plates in traditional house construction. Cypress is now an accredited species under the Japanese building regulations thus providing access to the Japanese housing market.
Australian cypress has become particularly popular since the impact of the Kobe earthquake where in many instances the dodai were weakened by termite damage making them less able to withstand tremors. The increased recognition of "sick house syndrome" in Japan where it is estimated that 10% of the population have chemical allergies has also encouraged the use of preservative-free cypress timber.
The resource suitable for dodai production is limited to the better grade logs that are in demand for a wide range of products. The recovery of dodai is relatively low compared with structural timbers or boards because of the high quality standards demanded by the market. The price of dodai is well above that realised for alternate domestic products however, the whole-of-log profitability may not reflect the higher unit price because of the poorer recovery.
There is an opportunity for the Cypress industry to meet, and possibly exceed, the needs of the Japanese market through laminated products. This would provide the industry with a significant opportunity to service this market without the need to rely on premium quality logs.
The number of housing starts in Japan in 2000 reached 1.23 million with timber houses accounting for 560,000. To put this in perspective, Australia averages approximately 150,000 dwelling commencements per year. In 2000, Japan imported 10.3 million m3 of sawn timber worth $3.5 billion dollars, which has been growing at 9.4% per annum. Australia?s current exports to this market represent 0.04% of market volume. Consequently, the potential to increase Australia?s exports up to 25% of production could be absorbed entirely by the Japanese market with little or no impact.
Key market trends include:
§ Expansion of post and beam construction. This construction style requires large dimension end sections and has been priced at a premium for inclusion of aesthetic qualities, though these have been traditionally for clear wood and consistent colours.
§ Growing importance of high performance visually pleasing wood products.
§ The adoption of platform frame building technology. Japan has adopted the North American construction method with the evolution of a "J grade" for both structural and aesthetic specifications.
§ The emergence of the pre-cut component manufacturing sector. This sector has developed as the number of traditional skilled craftsman has declined and in response to increasing costs of on-site joinery. This trend to off-site manufacture has also encouraged a move to kiln-dried timber and glue laminated posts and beams.
§ Increased popularity of engineered wood products has occurred due to their increased performance, ease of use in pre-manufactured systems and lower relative cost to solid kiln dried timbers.
§ Growth in the renovation market.
USA
The main focus of exports to the USA has been flooring supplied mainly from the Queensland cypress industry. USA is a difficult market for this product as there are numerous competitors and as well as stringent moisture specifications. The US market requires 6-8% moisture compared to the Australian standard of 9-13%. Market research supports this with reports of lower sales volumes of Cypress to the US than the domestic market.
The scale of the US market is enormous compared to the Australian Cypress industry. Total timber consumption is in excess of 490 million m3, which includes imports of 114 million m3. The challenge for the Australian Cypress industry is not so much gaining market share as to target high value niches. The high value niches are the only feasible opportunity for Cypress due to the price relativities, exchange rates and competition. The US market is predominantly a commodity market as indicated by the flooring price differential to the Australian market. However, there are high value timber niches for exposed timber and log houses in specific high socio-economic regions. If Australian producers are to successfully target the US market they will need to identify the distribution channels into these niche markets.
Successful participation in these niche markets will require Australian Cypress to differentiate itself from competing timbers in a similar way to the strategic plan for the domestic market and then price accordingly. Important differentiation points include:
§ Hardness compared to other softwoods;
§ Durability;
§ Appearance;
§ Termite resistance.
DEVELOPMENT OF EXPORTS, MARKETS AND RETURNS
As indicated above, the opportunity exists for the industry to expand its export activity. The table below highlights the key factors that will drive success in export markets, what is required and how the industry capability matches this. A key issue for the industry is to recognise and manage the commercial risks of embarking on an aggressive export strategy.
