Demand projections for forest and wood products
Understanding domestic and global demand for forest and wood products is an important part of the long-term dynamics of the domestic and international forest and wood products markets and the likely adjustment pressures faced by the sector. However, currently there is a lack of coverage of the demand-side in Australia at a sufficiently detailed level.
The Centre for International Economics (CIE) was commissioned by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) to investigate domestic and global demand for forest and wood products to support delivery of a wood volumes analysis for Australia.
This report presents three key components:
a literature review of wood product demand projections, including consideration of methodologies and projections
a literature review of demand elasticity, including estimation methods and published elasticities
development of a proof-of-concept demand model for structural pine.
From the literature reviews we find that demand for wood products is generally:
expected to grow overtime, both globally and in Australia. Growth is expected to be led by wood-based panels and sawnwood.
inelastic in own prices and income with most elasticity estimates less than one in absolute value.
Our demand modelling focussed on structural pine, which is the primary revenue and profitability driver of the Australian industry accounting for around 50 per cent of total production and 60 per cent of industry revenue. This modelling exercise demonstrated that demand for structural pine is:
derived primarily from new residential construction and is modelled accordingly
expected to continue to grow into the future
inelastic, as it accounts for a small share of the total construction costs and the scope for substitution is low.
Our modelling illustrates a flexible approach which can immediately be used for analysis around structural timber demand and in the future can be expanded to other product categories and integrated with supply side modelling. The report identifies how the model can be further developed into the future.
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