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  • Advantages of a timber investment

    2010 - 03.03

    Over the last decade prices for gold and copper have risen by 300% while timber prices have fallen by 32%. By the looks of it timber is set for a growth spurt and a number of factors, not least the mass urbanisation of the Chinese economy will contribute towards this.

    Residential construction is soaring in China with 20 million people moving from the country to the city each year. So it isn’t surprising that China has reserved almost £90bn from its economic stimulus plan for low cost housing and the majority of that will come from wood frame construction. Experts predict that China’s demand for timber will grow by one-third over the next five years. China’s myriad infrastructure projects have been heavily reliant on imported wood since it passed a widespread logging ban in 1998 following disastrous floods.

    The Chinese demand for timber is equally strong away from the construction sites. Rising living standards have meant a growing appetite for processed forestry products such as toilet paper, cardboard and paper.

    Timber has also benefitted from a new enthusiasm in more developed countries; this is partly due to the fact that it is easier to recycle than steel or concrete. As an added benefit there is a flourishing interest from developed countries in second generation biofuels that bolsters this trend.  New techniques have been developed to produce bioethanol from wood fibres by extracting cellulose.

    As governments seek to reduce carbon emissions pressures on commercial forestry will mount. The brake on supply is likely to become very significant leading to forced up prices. Case in point would be that countries in the tropics are using environmental legislation to restrict logging in primary forests.

    The advantages to timber investment are its low correlation with equities that provides a useful diversification benefit. In addition over the last century timber prices have risen at 3.3% above the rate of inflation, indicating that the commodity is an excellent potential hedge against rising consumer prices.

    While growing trees is good for the planet, cutting some down is important to provide for global economic health. Investors can enter this market through specialist funds and maybe branch out (forgive the pun) into a new area of investing.

    The Timber Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here

    One Response to “Advantages of a timber investment”

    1. Nice post and I agree with your views.Timber is the only asset to have grown in three out of the four market collapses of the 20th century, has risen steadily in price for 200 years and has returned an average of 6.5% a year for the last century.

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