In terms of the market, there is very little new to report as Far East prices continue the steady increases that have been such a normal feature of TTJ reports over the past 18 months. With China and India’s ongoing strength of demand for both logs and lumber it would appear certain that this firm trend is well established and unlikely to see any dramatic changes in the first half of the year.
In addition, the supply constraints show little sign of easing. Chinese New Year celebrations and the traditional vacation period begin shortly and, coupled with the recent heavy rains and floods in Malaysia and Indonesia, it could be imagined timber producers might well be glad of the break. Malaysian downstream manufacturers have complained of the difficult supply situation over the past months, a situation unlikely to improve any time soon.
Standing back to take an overview, it is clear that Malaysia has made strong and successful efforts to control the timber industry from forest to product while maintaining and increasing trade flows, having done particularly well with furniture and plywood.
However, Indonesia still struggles with falling production, especially in the plywood sector and, in the background, there is always the suggestion of illegal logging and exports. The British Department for International Development (DFID) has promised Indonesia £24m over five years for a multi-stakeholder forestry programme designed to “combat illegal logging without damaging the livelihood” of the local forest communities.
It may be forgotten sometimes that money from illegal logging activities may, in fact, flow more directly to local communities rather than that from formal, legal logging where most of the local people are usually excluded from the forest and tax money goes into the national coffers.
By contrast a WWF spokesperson said recently that illegal logging “robs local communities”. Certainly it robs the country of the trees and taxes but doesn’t necessarily rob the local communities of the immediate cash. The DFID programme appears to recognise this and has received a very positive welcome from stakeholders. Previous Indonesian forest policy tended to bar the local people from the traditional uses of their own forests, but there now appears to be a growing recognition that traditional uses and formal, legal logging can, and should, co-exist.
Proposed logging moratorium
There has been another formal proposal for a partial logging moratorium in Indonesia’s “critically degraded forests”. It is by no means certain this will become law. Previous attempts have failed and it is certain that any such drastic action would result in further job losses and hardship in the rural areas.
Building houses for the homeless victims of the tsunami in Aceh and other provinces has taken up large volumes of local timber but there are many complaints of poor workmanship and poor quality timber, with some houses having to be rebuilt and others already needing remedial work. From reports it can be deduced that unseasoned, green timber and unskilled workers have been major causes of the problems.
Australian demand for imported timber is forecast to increase because of the severe drought and the recent widespread and devastating forest fires. Meanwhile, UK and Australian government ministers have discussed how best to curtail imports of illegally-sourced timber and timber products.
Similar discussions are also going on in the EU and UK with the green lobbies proposing that the EU and other countries should stop buying illegal timber and products manufactured from illegally sourced supplies. How this is to be stopped, or how to identify which is legal and which isn’t, remains unresolved.
Another quite new and so far under-reported alleged source of illegal logging and export is Mozambique, where government controls over the forest resources are enforced with difficulty or are deliberately ignored. Reports are that local entrepreneurs are busy cutting and trucking large volumes of logs to the ports for illegal export, allegedly for shipment to China. The government has seized a reported 172,000m3 of illegally cut logs, which is perhaps an indicator of the size of the problem.
Returning to the markets, Japanese housing starts have maintained their recent uptrend, and have added support to the very firm prices for timber and plywood, both imported and local.
Indonesian plywood manufacturers say they are aiming to bring their export prices up into line with Malaysia. Currently they are around US$10-15/m3 lower than Malaysian levels. Both countries have pushed prices up by around US$20-25/m3 over the past six months, making 2.7mm now on or just over the US$500/m3 mark and 9mm and thicker over US$400/m3 FOB.
In the same period log prices also advanced: meranti SQ and up grade adding around US$35/m3, keruing SQ and up gaining US$30/m3 and kapur and selangan batu showing some US$25/m3 higher. Selangan batu has put on a reported US$60/m3 over the past 12 months but this is probably an under estimate.
PNG log exports
In contrast, the volume of Papua New Guinea logs exports is increasing and is likely to be close to 3 million m3 for 2006. Prices reported for logs exported though have changed very little over the year. Calophyllum (bintangor) was reported at US$80/m3 a year ago, and is currently only at US$82/m3. PNG taun (pometia pinnata) was US$77, now around US$84, mersawa US$85 now US$90, and kwila (merbau) was US$108 and is reported to have remained almost unchanged over the past year.
Current prices for the same or similar Malaysian species are in the order of three times these prices – for example meranti is around US$300/m3 against the PNG taun at US$84/m3 FOB. In the past six months merbau, even for domestic logs in Malaysia, has risen by US$50/m3 to over US$550/m3.
European importers will know that sawn lumber prices have also been moved up almost week by week in recent months, to an extent driven by the strong demand from local consumption within Asia and the booming Middle East nations. Also, China has had an impact as the Chinese are showing greater interest for sawn lumber in a much wider variety of species in their increasingly sophisticated local and export industries.
China’s furniture exports, especially to the US, have grown very fast and are planned to continue growth over the coming years.
The strength in the market seems likely to be maintained through the first half of 2007.
