Some months ago it appeared that Malaysia had agreed to clamp down on imports of illegally sourced logs from Indonesia. This accord seems to be less than cordial now as Indonesia says that the illegal trade is still flourishing and is jeopardising efforts to control the overall log harvest. The Indonesian Ministry of Forestry says that in May and June last year the rate of loss was 1,000 truckloads of logs each week moving from Kalimantan into Malaysia or being shipped out to other destinations, a total of nearly 10,000m3 in those two months alone.

Now, 45% of the Indonesian domestic market for plywood is met by imported plywood. The share of locally made ply has fallen from 83% in 1995 to only 55% currently. At the same time, Indonesian exports of plywood are fast declining: last year they totalled 5.5 million m3, down 1 million m3 from 2002.

Manufacturers say the situation is doubly unfair because not only are they being forced to downsize by government controls on log harvesting, but the illegally exported logs are cheap because they do not pay any taxes. This means overseas buyers and processors using illegal logs can undercut Indonesia’s own plywood and product manufacturers, not only in export markets but even for imports into their own backyard.

Illegal logging action

Japan, the EU and China have agreed with Indonesia not to buy wood products made from illegal timber or dubious sources. To what extent this can be implemented is another question.

The Indonesian government has become very forceful in restructuring and downsizing its wood product industries. Industry has an installed capacity of 30 million m3 per year which the government wants to reduce to 20 million m3 per year. At the same time it is trying to reduce the annual allowable harvest to less than 6 million m3 this year, with the balance made up by imported logs. No information is given on where these import logs might be sourced. The forests minister says he expects the industry will bear the hardship but there seems little doubt that most of it will be borne by the workers and their families as employment declines. The industry has warned the Ministry of Manpower that because of the downturn in business some 50,000 workers will have to be laid off in Riau and Kalimantan without redundancy payment, social services support or unemployment pay.

&#8220Price adjustments are very much tied to temporary surges in demand for particular species”

Tight supply

Log supply continues to be tight, not helped by heavy rain. Prices are moving up after some small downwards adjustments at the end of 2003 but are only now back at the level of our October 2003 report. Kapur is US$5/m3 higher and domestic log prices in Peninsular Malaysia are US$5-10/m3 higher. Japan log stocks are low and buyers very cautious. Freight and bunker charges are up by US$3-4/m3.

There have been some price rises for African logs exported to Asia: bubinga is US$30/m3 higher, iroko and movingui are up US$15/m3 for all grades, while sapele has moved up US$55/m3 for LM grade, US$38 for B grade and US$31 for BC/C. Sipo is down US$15/m3 while freights are up a hefty US$40/m3 for most logs and up US$20 for okoume logs.

Buyers for China finally succeeded in forcing down fob prices for okoume logs from Gabon, however, shipping space is tight and it is not clear how this will impact on prices in the next two to three months. Since logs are in short supply in the Asia-Pacific region, any shortfall from West Africa might well push overall prices higher.

Sawn lumber prices have been stable through January and February. The higher price for African sapele logs has not yet passed down to sawn lumber or other product prices though no doubt it will do so by the end of the quarter. This will favour meranti suppliers who are likely to take the opportunity to push prices up. Sipo log prices have fallen by some US$15/m3 and lumber will be competitive with meranti in European markets. Meranti is up by about US$5-10/m3, as is seraya, and prices are very firm.

The Netherlands seems to offer poor prospects for exporters. Importers report low levels of business, though some Dutch companies are expanding their processing mills in West Africa. UK importers are reported to be more optimistic while in France there are good stocks of many species to work through before importers are back buying in any strength.

Plywood prices in Asia have hardened. New Japanese standards have held back imports, giving domestic manufacturers a much-needed boost, and a large plywood exporting mill in China, which had complied with the revised JAS, had problems which halted production temporarily. Japanese plywood imports are at a seven-year low, down 8% on last year. Much of the reduction was down to Indonesia which sold only 2.25 million m3, said to be caused by the need to comply with the revised JAS, though equally likely because of log supply restrictions. Malaysia increased exports to Japan, totalling 1.8 million m3.

In general, markets are just holding steady; price adjustments are very much tied to temporary surges in demand for particular species, while all others have just maintained stable demand and price over several months. The new members of the EU will know that the Japanese duty-free import preferences will no longer apply to their timber exports which will now be subject to the normal import duties of 4.8-6%.