Summary
• There is an increasing focus on downstream processing.
• Vietnam is the second largest supplier of furniture into the EU.
• Indonesia and Sarawak are looking more closely at furniture production.
• Log prices of most species are up by US$15-20/m³.
• Substitution of tropical hardwood by softwood continues.
• Reconstruction work in Japan and in Libya will increase the demand for timber.

Our forecast and comments in August report report have been very largely born out in the Asian market trends during the ensuing four months. Latest price information for sawn lumber and lumber products and plywood points to a slight but slow decline from the highs of mid-year.

The so-called global slow down did impact on Far East markets and producers but rather more slowly and later in time than the quite sudden results of financial cuts and of the austerity measures that very quickly affected the US and some major European buying markets.

For Far East producers the tougher times appeared to be hitting home a little more strongly as the year end approached and, reading between the lines of recent government pronouncements in the region, many are proposing either some form of budgetary assistance where this can be afforded, or suggesting other strategies that might halt any decline and boost market prospects for the timber export industries.

Pushing downstream

In the main this seems to be about pushing downstream into increased processing, often with more emphasis on production of furniture. Peninsular Malaysia very successfully followed this path some years back but has more recently found there is not an unlimited demand, especially when US and European domestic buyers face the need to cut expenditure.

Vietnam has proved a very strong competitor in the furniture sector and is now the second largest supplier of imported furniture into the EU. Some studies say that the US furniture market will start to grow in 2012 and on into 2013 when new housing starts begin to increase. However, the current signs are not exactly reassuring of a sudden take off in new build projects. Both Indonesia and Sarawak are suggesting that furniture manufacturing could be the key to better prospects for the timber sector even though the competition is very strong from well established manufacturers in China and Vietnam and that isn’t likely to change. Finding market opportunities for new producers in these very mature markets would not be easy.

Looking at raw material prices in comparison with those at the beginning of the year, for logs the current prices are all around US$15-20/m³ higher with up to US$30/m³ higher for selangan batu and kapur. They are certainly not yet under strong downwards pressure, except for recent suggestions from Japanese buyers that prices for their market are now too high for on-sales to end users.

Sales volumes and prices to China and India have held firm but Japanese log buyers are less optimistic and are looking for some reductions in all but the top quality logs. Buyers for India also are citing adverse currency exchange rates as a reason why log exporters should trim prices for new contracts. However, as total export log supply is limited it appears that prices generally are not really under heavy pressure and have been virtually static since mid-year, moving up or down by only around US$3-5/m³ or so in the past few months.

Softwood substitution

Substitution of tropical logs by softwood continues and sales of New Zealand radiata pine logs have carried on increasing for both India and Japan with further strong growth in Japan’s purchases of North American softwoods.

China also still buys the bulk of softwood log imports from Russia in spite of the recently imposed high export tariff, though the share for Russia has fallen to only around one third of the total. Sawn lumber in the region has fared less well with current prices representing an increase of only around US$10-15/m³ over the year and most have fallen back by just US$2/m³ or US$3/m³ in the past two or three weeks and reports are that price and immediate prospects are weak.

It is not entirely clear why sawn lumber export prices in the region were not able to achieve increases matching those for some West African species. Possibly this has more to do with changing fashions for colours and textures preferred by designers and architects than any inherent characteristics of the particular timber.

Under pressure

Plywood export prices for Malaysia and Indonesia have come under pressure in the past months largely, it is reported, because European buyers have opted for the lower priced products from China. However, current levels are still holding some US$20/m³ higher than at the start of the year, helped by lower freight rates in recent months.

Market prospects are looking less positive during the European winter months, particularly with the ongoing difficulties in stabilising the Eurozone currency. Couple these factors with the austerity measures now to be implemented in what are usually good timber importing and consuming countries and it seems clear that 2012 is unlikely to see an increase in volume terms.

On the other hand, producers and exporters experiencing ever-higher costs are unlikely to be able or willing to make large concessions in price and may well decide to sacrifice volumes while holding on to firm prices for whatever business is available.

European markets

Right now Europe is reported quiet, with stocks of sawn lumber and plywood adequate for the first quarter. Middle East markets have been very steady over most of the year and seem set to remain active. Both the US and the UK are planning to put money into large-scale capital works in the construction industries while Japan is faced with the massive task of rebuilding in the area devastated by the tsunami and has relaxed the rules on preference for domestic timber for use in public projects.

Although China has applied some brakes on the overheating speculative building activity, there is still a growing demand for better housing, as there is in India also. Libya will also need timber for its large-scale reconstruction, while the UK still has a high, unsatisfied demand for affordable housing.

Looking for these and similar more positive market opportunities will be the target for sales staff in the forecast difficult next year or two.