* Timber production capacity low, will take time to restart * U.S. and EU rules on illegal timber seen hurting trade * China seen powering global industry as economy heats up
GENEVA, Oct 20 (Reuters) - The European forestry sector, hit hard by the U.S.-led housing crash, could benefit from more exposure to China which will be a leading importer in the years ahead, a United Nations panel said on Tuesday.
The U.N. Economic Commission for Europe (UNECE) forecast demand could rebound in 2010 for products like raw wood, wood pellets, sawn softwood and hardwood, paper and wood pulp but warned it could take time to ramp up the industry's production.
"It is far too early to speak about a recovery," the UNECE Timber Committee said after its annual market talks in Geneva.
"Even when market strength returns, the production capacity will not be immediately available since many plants have shut down, with disastrous effects on their labour force," it said.
The committee raised concerns about new laws in the United States and European Union meant to avert illegal timber sales, which it said could unfairly limit trade and make it harder for European producers to do business in those markets.
It pointed to China, a huge wood and paper product market for Europe, as a growth driver in the years ahead.
In addition to being the world's largest furniture maker and exporter, China is the largest importer of roundwood for its wood and paper mills, with most logs coming from the European region, especially Russia.
Export taxes driving up the price of Russian logs caused a 27.6 percent drop in Chinese purchases in the first half of 2009, with Beijing seeking alternative supply sources in New Zealand, Canada and the United States, the UNECE said.
"With 1.3 billion people, equal to 22 percent of the world's population, and millions moving into cities for employment, the Chinese government spends about one third of its GDP in building housing (multi-storey, multi-family units)," it found.
"The immense scale of construction, combined with rising consumer spending, means increasing domestic consumption of wood and paper products," the committee said.
"China forecasts its economy will recover quickly to double-digit growth, which is in part dependent on recovery of its trade partners' economies to resume exports."
The European forestry sector saw a 8.5 percent consumption fall from 2007 to 2008, due mainly to the housing crash in the United States which spread to other countries.
Consumption of wood products is expected to fall again this year with the exception of wood energy which has tremendous potential as governments focus on renewable energy to control climate change.
The UNECE warned that the U.S. Lacey Act Amendment meant to prohibit the trade in illegally sourced wood, plus due diligence regulation from the EU that is expected to be adopted by the end of 2010, could impose major restrictions for European producers.
"Both of these measures have serious implications for the trade of wood and paper products, and companies, trade associations and countries are attempting to conform to the new requirements," it said.
"Legislation to prevent the trade of illegal wood also raises issues of technical barriers to trade." The UNECE also cited potential for the forestry sector to benefit from the push toward "green building," or efforts to improve energy usage and make water and cooling work better in existing buildings.
"While new construction is currently weak, there are tremendous opportunities for renovation of existing buildings to improve their energy efficiency," the committee found. "Governments are supporting energy-efficient construction and renovation through their subsidies and other programmes to promote a green economy." (Reporting by Laura MacInnis; Editing by Jonathan Lynn)