As might be expected, the past two months have been quiet for Far East timber traders and European importers. The Chinese new year and Muslim festival took up most of February for producers, while the winter weather in Europe kept most building activity under restraint. Having said that, it is still supply factors that are dictating the quite modest but steadily upwards price movements.
Following a quite strong price rise at the end of 2004, export meranti logs SQ and up are once again trading some US$3/m3 higher, while the ever tighter supply of keruing and kapur logs had a rise of US$4-5/m3 by mid-February. Malaysian domestic log prices are also moving higher, especially merbau, keruing and rubberwood. Possibly the most difficult regional supply situation is for selangan batu and bangkirai, with recent price increases reflecting a severe shortage.
Buyers for India have been in Sarawak and Indonesia looking to buy logs but Indonesia’s log export ban leaves only Sarawak able to offer any supply and that at prices reported up beyond US$245/m3 FOB for selangan batu. Some small volumes of illegal Indonesia log are said still to be trickling over the border but there is a substantial shortage of these species within Indonesia and local buyers are having to pay up to US$235/m3 at the mill. At a recovery rate for sawn lumber of under 40% in all grades from the log, it is expected that selangan batu sawn lumber for export will reach US$800/m3 CNF.
The dry weather early in February resulted in low river levels, hampering log movements in Indonesia, Sabah and Sarawak. By now some rains in West Kalimantan have released logs, with processing mills uncertain about just how much extra they will be asked to pay in the very tight supply situation.
The ongoing crackdown by the Indonesian authorities on the illegal trade in logs and sawn lumber of major species is now having quite far reaching effects on the overall supplies available on the open market. Previously, the illegally sourced supplies of processed product became mixed in with exports of the same species from legitimate production, but now the illegal supplies of flitches and sawn lumber have virtually dried up as a result of the effective policing by Indonesia. As a consequence the already tight supply in the region has been exacerbated especially for the better known species such as keruing, kapur and selangan batu. It is said that some processing mills in the region are particularly affected by the shortage of raw timber input.
Prices in Japan
In Japan, domestic prices for imported logs have held firm in spite of the usual pressures from plywood manufacturers. These have been strongly resisted as importers face freights now US$2/m3 higher and exporters are asking for increased prices.
The steady upwards trend in regional log prices is also reflected in the 2004 annual import figures for China where total log imports of 26 million m3 showed an increase of just over 3% but up 14% in value. Of this total, 10 million m3 were hardwood which was 2% down in volume but more than 8% up in value. Part of this additional value is because China is now buying higher value species and better grades as consumers and the fast-growing furniture export manufacturing industry are increasingly showing preferences for high quality, decorative woodwork.
China is currently marginally overstocked with redwood softwood logs and prices are under pressure, otherwise log prices are stable or rising slowly. It is clear that China is now more selective in timber purchasing policy and is prepared to pay better prices to provide the best raw materials for the incredibly fast-growing plywood and furniture export industries.
As mentioned in our December report (TTJ December 11/18) merbau lumber is not easy to source. Netherlands importers say stocks are still short and there have been few new offers from shippers even at the significantly higher prices now current. Offers of dark red meranti have also been few and far between, with steadily rising prices so Dutch buyers have been making modest purchases of nemesu, even as these prices too began to move up.
At the same time traders report that very poor market conditions in their major markets Belgium, France and Germany, as well as the continued low level of construction in the Netherlands, are causing real headaches throughout the trade, with one large importer announcing substantial losses in 2004. The staple Netherlands 3×5 DRM PHND is overstocked and has been heavily discounted by traders trying to reduce stockholding, even though it is likely that replacement will be more expensive.
In Europe generally, merbau stocks are low and importers are worried that the recent higher prices will affect sales, but have to concede that forward offer prices are still increasing and that supplies from West Africa of alternatives iroko and afzelia are also in short supply and very firmly priced.
In 2004 Japanese plywood imports totalled 4.9 million m3 out of a total supply of 8.1 million m3. Indonesia was the largest supplier with 2.4 million m3 and China entered the market with 334,000m3 in 2004.
Japan has an oversupply of softwood plywood and prices lower and likely to remain weak until the inventory is back down to normal. In contrast, for hardwood and composite ply the trend is for some small price increases. The staple concrete formboard has moved up slightly and other prices are very firm.
Exporters’ prices in Asia appeared to have steadied after the increases late in 2004 and remained unchanged through February but there are reports that Indonesian mills are seeking an increase of around US$5/m3 and Malaysian producers are keen to move selling prices in line with increased log costs.
China’s rapidly expanding plywood industry reported exports at 4.3 million m3 in 2004, up by no less than 110%, with value up by 151% over the previous year. It is not yet clear what impact this relatively new and major source of plywood available for export will have on the overall regional trading patterns and price regimes. China is now reducing imports of plywood, while veneer imports fell quite heavily in 2004. China’s own board consumption is also rising quickly and industry is encouraged to use a wide variety of raw materials to manufacture building boards. Production of bamboo concrete formboards is said to be over 20 million m2 per year and planned to double in the next few years.
The steadily rising trend in log prices has been maintained through the early months of the year and, with the overall continuing supply constraints and even log shortages in some species, there seems little doubt of very firm market conditions through the second quarter.
While there are some modest gains in sawn lumber prices, with a few exceptions, these have not yet compensated for the higher log costs experienced in late 2004. Producers’ current price ideas are for steady increases as available volumes are only just keeping pace with even the present modest demand from Europe.
