Far East prices have remained very firm but largely unchanged over the past couple of months, apart from some smaller, selective increases in late February/early March following more substantial rises at the end of 2004.
During the past 12 months Malaysian meranti SQ and up grade for export rose by around 15% or US$30/m3. Small logs are now 8% up but super small rose 40%, equating to a US$40/m3 rise. Meranti prices in particular are still very firm and on a rising trend.
Surprisingly, in spite of much tighter supply, keruing logs moved up by only 8-15% over the 12 months, again with the super smalls showing the biggest rise. Kapur logs also had only modest gains of around 10%. Selangan batu gained only around US$5/m3. Prices for Papua New Guinea export logs also rose but only marginally and are still far below the prices for comparable log species from Malaysia and Africa.
On top of the individual price increases, freights in the region have risen steadily through the past months.
Since most logs are exported to India, Japan, Taiwan and China, with virtually none to Europe, of more significance for European buyers of sawn and processed products are the figures for logs and lumber consumed domestically in Malaysia and Indonesia. In Malaysia, domestic logs moved up only about the same rate of those for export, though merbau is now 25% higher priced, gaining some US$40-45/m3 and rubberwood logs are higher by US$20/m3. By far the greatest change has been in Indonesian domestic sawn lumber prices which have doubled since June last year, albeit from a very low level. Domestic logs for plywood faces and core moved up 10% but meranti sawlogs rose nearly 40%. The rises no doubt responded to the lower availability of illegally sourced logs and flitches. There is little doubt of the generally much tighter raw material supply in the region, and latest reports are of very low stock levels in both producing and consuming countries.
Malaysian market
Australia is a growth market for Malaysian timber products, rising by 18% in 2004, mostly in furniture, mouldings and joinery components. At a recent meeting in Sydney, the Malaysian Timber Council stressed the efforts that the country is making to “implement sustainable practices and timber certification arrangements, and to combat illegal logging”.
A Greenpeace team leader at the meeting alleged that there was still involvement in the “laundering of illegally logged Indonesian timber”. This implies that illegally sourced timber is processed and on-sold mixed in with legally harvested supplies. Whatever the case, there is no doubt of the serious and increasingly successful efforts by both Malaysia and Indonesia to stamp out the illegal trade.
Sawn lumber prices generally have not managed to catch up with increasing log costs when taking into account that a US$10/m3 increase in log price equates to an on-cost rise of close to US$30/m3 for sawn lumber.
Some of the scarcer timbers have had notable price hikes – merbau, selangan batu and some speciality sizes for European markets which are in fairly short supply. It seems very likely that the steadily rising trend will continue for sawn lumber and for processed products.
In contrast, hardwood plywood prices have reacted more fully to increased log costs and over the past year Malaysian and Indonesian plywood moved up sharply, with 2.7mm BB/CC MR now at US$380-390/m3 FOB – some US$6/m3 higher than June 2004. Indonesian 2.7mm increased by US$70-75/m3, bringing it closer to Malaysian prices, but it is still around US$5-10/m3 lower; 3mm is now US$365-380/m3, with thicker boards US$305-330/m3.
Japan has been buying less imported plywood and local manufacturers have achieved substantially higher sales of softwood plywood. The authorities have made tremendous progress in ensuring that the stringent standards and regulations are able to accommodate a much wider range of plywood and other timber products in building construction
The Japanese internal market for plywood is reported as very tough, with consuming industries strongly resisting importers’ and manufacturers’ efforts to push prices up to cover higher costs. Significantly, imported logs on sale in Japan for plywood manufacturing are currently at best only 6-8% higher than June 2004, so it seems that the major importers have had to absorb much of the higher prices.
Indian activity
Little has changed in the Far East during the past three months. China and India are still very active, India in the log trade and China, though importing less plywood and veneer, is involved in virtually every aspect of the timber business, with economic growth fuelling increasingly sophisticated domestic demand and fast increasing exports of plywood, timber products and furniture. There are rumours that India may be considering relaxing the high tariff on timber other than logs. Some observers feel this is unlikely given that labour is plentiful and costs in India are so low that it is more economic to keep employment high than to allow processed imports.
As mentioned, tropical hardwood log supply in the region is still tight and no-one is suddenly going to find new sources of supply, so it has to be assumed that the current situation will continue, with prices firm to rising over the third quarter.
