Far East timber traders are still finding trade very difficult and all reports speak of dead quiet conditions in virtually all sectors of the industry.
There is little interest from either buyers or sellers and there is little doubt that the terrorist attacks in the US and subsequent events have further depressed what was already a very fragile economic outlook. US buyers are hard to find and some Australian importers are postponing shipments until January/February.
There is some confusion over the situation for Indonesian exports, with rumours that sawn lumber exports were to be banned ‘for at least six months’. The latest news is the announcement by the Ministry of Forestry and the Ministry of Industry and Trade (MOIT) that, from November 1, log exports will be banned for six months in order to curb illegal logging and smuggling. The ban will be reviewed at the end of the six months. MOIT also announced that the ban will be accompanied by closer scrutiny of domestic sawmills and that sawmills handling illegal logs will be subject to severe sanctions. Local forest product associations responded positively to the news, noting that a ban on exports would provide local users with a greater supply at lower prices, while competing manufacturers in other countries – particularly China – would face higher prices as a result of losing access to Indonesian logs.
Log exports were resumed under the IMF financial restructuring programme so presumably any ban has been approved by the IMF.
Many Indonesian processing companies have long been calling for a log export ban in order to relieve the log shortage and make available sufficient for domestic manufacture. It is well known that timber processing capacity in Indonesia far exceeds the annual allowable cut and that Indonesian log exports at low prices have had a negative impact on international tropical log markets.
Price differential
As well as the low priced log exports from Indonesia there remains a substantial price contrast between Malaysian and Indonesian logs for domestic use. For example, peeler core logs for Malaysian mills are around US$60-70/m³ while Indonesian peeler core logs are only US$35-40/m³.
A noticeable result of the tighter log supply within Malaysia and the effect of recent low price Indonesian exports is seen in log prices where the cost of logs for domestic processing in Malaysia is US$15/m³ higher at log yard than can be obtained FOB for export logs.
Export prices have remained static over the past month and have changed little since July.
The Japanese plywood manufacturing industry is still struggling with weak demand and downwards price pressures, consequently plywood log prices in Japan have moved downwards and traded volumes are low. There is almost no interest in Papua New Guinea logs and demand for African logs has fallen. The ban on Indonesian log exports will certainly help to stabilise the export log market.
The authorities in Sabah and Sarawak are continuing their long-term policy of tightening up on illegal logging and this has caused the closure of several mills in Sabah where compensatory imports of logs and lumber from Indonesia are not as freely available as in Sarawak. Log supplies generally in the region are tight and even in Central Sumatra security problems and the onset of the monsoon have resulted in a shortage of logs and lumber.
Government crackdown
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“There are rumours of mill closures after the Indonesian central government crackdown on illegal logging, shutting off log supplies to the smaller enterprises which do not have concessions. Some are new mills that the government previously encouraged” |
Again, there are rumours of mills closures after the Indonesian central government crackdown on illegal logging, shutting off log supplies to the smaller enterprises which do not have concessions. Some are the new mills that the government previously encouraged and which were supposed to be supplied by a compulsory 5% of logs from the larger concession holders.
In the lumber sector, prices for dark red meranti have become more stable following the falls in June/July. After the Netherlands market virtually dried up in September there were signs of dumping of quite significant volumes of Far East lumber, especially of some shipments which were unsold but already on the water, but this activity seems to have ceased and producers are reluctant to reduce prices below the current market as they anticipate log shortages in the monsoon season. There is also the certainty that stocks in Europe overall are only moderate to low and shippers believe that either current or even slightly better prices will be achieved when importers have to replenish stock. Right now, shippers say they are quite firm on current levels although there is very little interest from buyers, with offer prices from producers US$10-15 lower than in the third quarter and no confirmation of contracts being finalised.
The ITTO/MIS price index graph shows a steady decline in average DRM prices and a slight upturn in the trend at the end of September, reflecting producers’ determination to try to stabilise the market. One positive aspect is that meranti prices to US buyers have held steady and unchanged since the beginning of the year. This may be influenced by the continuing rise in prices for South American mahogany into the US market. Having said that, the US market also has slowed over the past three months and buyers are hard to find. Some importers say that stocks will last far into next year.
A more hopeful sign for tropical hardwood lumber is the onwards and upwards progress of hardwood flooring on world markets. China is forecasting substantial increases in the use of wood flooring in its huge construction programmes and in Europe too all signs point to a massive increase in decorative wood floors. While the major competition is laminate flooring, there is little doubt that solid wood or wood and composite floors are set for real increases in consumption.
The flooring made in China from bamboo is already well-known in most consuming markets but other countries, notably India and now Ghana, are advancing plans to grow and process plantation-grown bamboo into flooring and various panel products. What is needed is a campaign to publicise to domestic buyers that bamboo can be and is an industrial product made into flooring and panel products.
The plywood sector still shows no signs of moving out of the very depressed market worldwide. Japanese manufacturers are consolidating through mergers and are still trying to match lower production to steadily declining demand. Low prices prevail on their domestic markets, compounded by low priced imports as plywood manufacturing in the region is in the same downtrend in prices and volumes. Malaysian export plywood prices are down US$5-10/m³, with Indonesian prices just US$5/m³ lower over the past quarter and demand still very weak.
The better trend which both producers and consumers expected for the fourth quarter now seems unlikely to appear. In fact, markets are even less active than in the third quarter and prices are stuck at or near their low points for the year, with little sign of any revival in either demand or price.
In Europe the introduction of the euro in January 2002 is another factor which overshadows trading as a measure of uncertainty over the costs and effects of this complexity induces a cautious approach – certainly not conducive to speculation in timber futures!
Low stocks
Overall, tropical timber stocks are low in consuming countries, but demand is also slow and, as the European winter approaches, traders are always reluctant to build up inventories. At the supply end, Far East producers know that log supplies are tight and that availability will decline through the monsoon season while prices to the mills will strengthen still further. Margins are very slim and may get even slimmer so producers are being firm about holding price levels, and they are encouraged by the African producers who have managed to resist buyers’ pressure and keep log and lumber prices stable over the second and third quarters.
The halt in Indonesian log exporting may well turn out to be a major step forward in stabilising both log and lumber prices. The ban will be welcome news to exporters within the region and by African producers and exporters who have had heavy competition in log sales to China.
Related Files
Dark red meranti sel & btr 25mm FOB price trends
Meranti and keruing log FOB price trends
Malaysian plywood FOB price trends 2000-2001
