The eighth annual American Hardwood Export Council convention, held in Brussels, home to the European Commission, had a suitably heavyweight presence this year, drawing on both the EC and the UN/ECE for presentations.
Jeremy Wall of the EC gave delegates a sneak preview of a recent independent study conducted by the EC’s Forest Based and Related Industries Unit, on the competitiveness of the EU woodworking industries. The as yet unpublished 600-page study was devised with EC/CEI-Bois and compiled by a contracted consortium comprising TRADA, Jakko Pöyry and the Biocomposites Centre in Bangor, Wales.
It measured quantitative aspects such as raw material costs, energy, labour, capital and logistics, and qualitative aspects such as know-how, skill base, labour market structure, product quality and performance, new technology, end use specifications and standards, infrastructure and EU policies. It chose typical performers for a sector in one country and compared it with its equivalent in another.
It resulted in a SWOT chart pinpointing strengths, weaknesses, opportunities and threats for the EU woodworking industries.
Its strengths are a sustainable, expanding raw material base, strong technology, know-how and skill base, proximity and access to a large, vigorous market, industry clustering and development of the home base advantage. Its weaknesses are seen as a relative lack of wood culture (among the public), stifled opportunities to revive markets, high raw material costs (especially wood), high labour costs, low profitability and a reduction of opportunities to re-invest, support research and development and create critical mass to consolidate and rationalise.
There are, however, opportunities to expand the use of wood by promoting it as a lifestyle product, by broadening product propositions and by creating package solutions for the end user. The home base advantage could also be further developed around the industry clustering and the synergies between sub-sectors. In addition, industries could capitalise on the expanding EU forest resource (both in terms of an increase in hectares and in the number of EU member countries) and participate in supply chains from cost competitive regions.
Threats were seen to be competition from eastern Europe, Russia, South-east Asia and Latin America, based on these countries’ established and low cost resources. Failure to develop products and solutions, leading to the increasing substitution by other materials, and failure to capitalise on environmental initiatives which built image were also cited.
Dr Ed Pepke, forestry officer, marketing at the Timber Section of the UN/ECE Trade Division, is well placed to monitor market trends in Europe and the US. Making his fourth appearance at an AHEC convention, Dr Pepke presented the results of the UN/ECE Timber Committee which met in October.
The UN/ECE and FAO timber database showed that the consumption of sawn hardwood in the ECE region countries (the US, Canada, all of Europe and CIS), rose in 1999 by 2.2% as a result of high demand for furniture and construction-related uses, along with other uses such as pallets and packaging. Trade was at a record level in North American and Europe in 1999 and continued to accelerate in early 2000, Dr Pepke reported.
North America and Europe each produced around 1 million m³ more sawn hardwood in 1999 and the storms which felled 190 million m³ of hardwood at the end of 1999 in Europe had a huge influence on the log market, resulting in higher than normal levels of production and trade in 2000. Meanwhile, following the economic crisis in Russia in 1998, demand and production in the CIS continued to be weak, although exports rose slightly.
The committee’s forecast, delegates were told, was that demand for hardwood lumber would advance to record levels in the ECE region in 2000 and 2001 and that production and trade would be elevated in Europe as a result of the storms. European hardwood lumber consumption should show a 4.5% rise this year and a further slight increase in 2001. Exports to Asia are recovering, said Dr Pepke, but the Chinese market is at saturation point.
The committee also predicts that Europe’s tropical timber imports will fall in 2001, but that imports of value added tropical imports will increase. French and German exports of hardwood logs and lumber will rise sharply – again, due to the storm damage – and US lumber exports will increase by 3.3% in 2000 and 3.9% in 2001 to reach a record three million m³. The US’s consumption and production of lumber will be at record levels and consumption should reach 32 million m³ in 2001.
Fortuitously, demand in Europe for both hardwood logs and lumber has kept pretty much in line with supply – ‘thank God we had good demand for hardwood here when the storms hit,’ noted Dr Pepke. He also advised delegates that the rise in the log trade in Europe was due to ‘intra-European trade, largely resulting from the windstorms’ and not because of an influx of trade from the US.
The market effects of the 1999 windstorms will carry on into 2001, he said, because many fallen trees are still stored in the forests and some, while uprooted, are continuing to grow.
More serious storms in Europe three days before the AHEC convention were causing a review of forest management, said Dr Pepke. ‘One view is that we should be growing smaller trees and increasing the use of engineered and glue-laminated products, for example.’
On the subject of forest management, the Timber Committee also reached some conclusions on certified forest products. The potential supply will outstrip demand, it contends, and that demand will come from retailers rather than consumers. The Pan-European Forest Certification system will double the certified forest area in Europe in the next two years, it predicts, and maintains that mutual recognition between the key certification bodies remains the key issue – and one which will be debated at a major conference in Brussels at the end of this month. ‘Certification should remain a voluntary, market-based instrument to promote sustainable forest management,’ the Committee concluded.
John Wadsworth of Intermark, International Marketing Services Ltd, continued on the theme of American hardwood markets in Europe. The US hardwood resource is highly significant, he said, and while exports account for a relatively small proportion of US production, it ranks very highly as a supplier to those other countries that import hardwood.
The volume of US hardwood exports has grown nearly threefold since 1987 (excluding mouldings and flooring), he reported, and exports of veneers have shown the greatest growth – unsurprising given the increasing use of particleboard and MDF. Nevertheless, lumber remains the most important product, accounting for 65% of total value and rising by 6.4% per year in terms of volume from 1983-1999 (1,008-2,742m³) and 10.1% per year in terms of value in the same period (US$286.60-1,334.40) – these are FAS values and do not reflect changing exchange rates.
The final destination of these exports has also changed – in 1987 north-east Asia (Japan, Korea and Taiwan) and Europe were the two most important destinations, accounting for 32% and 30% of US hardwoods respectively. In 1999, however, while Europe was still in the number two slot with 29.2%, Canada had leapt into the lead with 34.6% (up from 27% in 1987). North-east Asia had plummeted to 12.1% but its south-eastern counterpart had jumped from 1% in 1987 to 11.5%, giving South-east Asia a number five ranking (after Central and South America) in 1999.
In terms of individual export destinations between 1987-1999, Japan and Taiwan lost volume share, while Mexico and Greater China (including Hong Kong) moved up into first and second place respectively and Italy occupies the third position. Thailand has become a late entrant. In terms of value, Italy, Greater China and Mexico precede Spain, the UK, Japan and Germany in descending order.
Mr Wadsworth also analysed the species mix and found that in 1987 47% of exports was red oak, 17.9% was white oak and no other species accounted for more than 5%. ‘Today, however,’ he reported, ‘the industry is much more diversified and other species have grown in market share at the expense of red oak which has dropped to 22%.’ White oak now accounts for 21.5% of exports, maple for 14% and ash, cherry, tulipwood and red alder have all grown in volume and share. A cost comparison showed that the price of red oak had changed very little during the 1987-99 period and so its relative fall from grace could not be attributed to cost.
The top offshore destinations for red oak have also seen a reversal in fortunes. The top three contenders for US red oak in 1993 were Taiwan (90,727m³), Mexico (54,272m³) and Belgium (37,750m³, while in 1999 those positions were held by Mexico (63,904m³), Greater China (50,478m³), moving up from 9th position, and Taiwan (36,214m³). Fourth place may be somewhat surprising to all but AHEC members: ‘at 16,490m³, Saudi Arabia is now fourth and this begins to explain why AHEC is now embarked upon more active promotion in the Middle East,’ noted Mr Wadsworth.
A similar, though slightly less dramatic pattern has emerged with white oak. In 1993 Spain (62,771m³), Germany (50,186m³) and the UK (49,031m³) were the top three offshore destinations, while 1999 saw a slight change of order to Spain (130,644m³), the UK (48,941m³) and Mexico (32,407m³). The latter has risen from 12th place, but despite this, Europe remains the major customer for American white oak. Having said that, Egypt has now appeared at number 13 on the white oak table (8,433m³), again indicating the rising importance of the Middle East as a hardwood market. And, interestingly, where American ash is concerned, the UK has overtaken Japan to occupy pole position at 23,114m³, but the United Arab Emirates has appeared from nowhere to take sixth place at 4,700m³.
The only species in which European countries dominate as offshore destinations is cherry with Italy, the UK, France, Belgium and Spain all being in the top six (Greater China is at number three), but Mr Wadsworth maintains that Europe is still ‘special’, accounting for 67.3% of veneer exports and 51.4% of lumber exports. It also, he pointed out, has the highest unit value of lumber exports (world average US$486/m³, European average US$634/m³, European high US$781/m³).
Individual European countries remain enormously important, too, he contended. Germany, for example, is the second most valuable export destination for US hardwood products worldwide, Belgium is the fifth largest importer of both red and white oak in the world and the UK is the third biggest and most valuable lumber market in Europe.
‘At the risk of being contentious, I might add that European countries are the largest net importers of US hardwoods. The highest proportion of US exports remain in Europe for European consumption,’ said Mr Wadsworth.
Closer to home for the 49 US delegates making up the 180-or-so strong convention was a presentation by Rick Barrett, managing editor of the Hardwood Review who spoke on the US domestic market.
There had been many changes over the years, he noted. Dry kilns have become commonplace in the US, as has the computerisation of sawmills. There is continuing over-capacity, he said, and log prices have risen over the past decade making it very difficult for many small mills to operate today.
Customer demands have changed and now shipments of mixed containers sorted by colour and width were commonplace. ‘The cost of servicing businesses increases the cost to US shippers,’ said Mr Barrett, ‘and this illustrates how US businesses have changed over the years. I think this will result in buyers and sellers forging much closer links to ensure everyone gets what he wants.’ And, he added, ‘every mill with a fax machine and dry kiln facilities fancies themselves an exporter’.
Other changes he highlighted include those in grade usage, with more lower grade lumber being used and exchange rates which have had a significant impact.
As for the broader outlook, Mr Barrett saw an increase in demand from the Middle East, Asian markets remaining steady, exports of lumber to Mexico increasing and South American lumber being ‘snapped up’. ‘African mills will look to Europe,’ he contended, ‘while European manufacturers will look to the east.’
Harking back to the US economy, Mr Barrett said he believed it was slowing down faster than the numbers would seem to indicate. There have been lay-offs and restructuring, he said, inflation is higher than expected, housing starts are down, furniture inventories are up and ‘the stockmarket doesn’t know which way to turn’. In addition, ‘increased energy costs will cause huge problems for the US and the rest of the world’.
In 2001, he predicted, prices will continue to be very volatile, sourcing contracts will become more long term and components and furniture manufacturing will increasingly be outsourced to lower wage rate countries.
‘The use of North American hardwoods should continue to expand around the world,’ Mr Barrett concluded, ‘but we can’t think that we’re the only game in town.’
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