Study on the Price Fluctuation and Dynamic Relationship between Log and Sawn Timber

Abstract

Abstract The rapid economic and social growth of China has significantly increased its timber demand, resulting in a heavy reliance on foreign timber supply. Thus, price fluctuation in the international market poses a great risk to domestic timber production and processing enterprises. This study analyzed the dynamic conduction relationship between domestic and international logs and sawn timber markets and how to reduce risks by adjusting the structure of imported products' portfolios. In this article, the multivariate generalized autoregressive conditional heteroskedasticity model is applied to analyze the relationship between domestic and import prices of logs and sawn timber. The study found that among four markets, except one where the short-term spillover effect between domestic logs and sawn timber is large with statistical significance, spillover effects are small. In the long run, there are significant spillover effects between the four markets. Thus, changes in the international log market are very easy to transfer to the domestic log market through trade and then to the downstream domestic and international sawn timber markets. Therefore, in order to ensure timber security in China, this study uses the theory of portfolios to calculate product proportion with minimum risks. The proportion of portfolios indicates that, even though Chinese companies prefer logs, they have to import a great amount of sawn timber due to restrictions on log exports from sourcing countries, which increases the risk of timber supply.