European timber sector not ready for recovery - U.N.

* 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.