Summary
• The Far East trade slowdown is beginning to impact more sharply.
• Japanese log importers are pressing for a reduction in South Sea Log prices.
• China’s imports of logs from Papua New Guinea and West Africa are increasing, but there is a reduction in imports from Malaysia.
• Sawn lumber has been affected less than expected by the fluctuating log prices.

The past three months saw a slowdown in the strong growth in the performance of the Far East as well as the West African timber markets.

Although the foot came off the accelerator, the market continued to coast along without major trauma and managed to hold prices stable, with even some minor gains. Unlike the very sudden and unexpected virtual halt by China of log shipments from West African exporters in mid-April, the Far East trade slowdown that began in June has been much more gentle but is perhaps now beginning to impact a little more sharply, with prices for logs and plywood static or tending weaker. Price comparisons over the three months from May to the end of August show meranti logs with a wider than usual price range between high and low – of some US$20/m³ – and a nominal gain of possibly only US$2-3/m³ over the period for SQ and up and plus US$5-10/m³ for smalls and super smalls.

Keruing and kapur log price changes are similar, though it does now appear that, overall, log prices have reached a peak and are likely to weaken slightly through the fourth quarter. Significantly, Japanese log importers are now pressing very hard for reductions in prices for South Sea Logs, citing the downturn in demand for plywood within Japan, and a squeeze on ply and log prices on their domestic markets. In contrast, this year there has been a moderate revival in house starts in Japan, although so far it appears this has not led to improved prospects for the timber supplying sector.

Export plywood prices

Reports are that Malaysian and Indonesian ply manufacturers have seen a slowing in demand for export plywood and prices that have remained static or just marginally varied by US$2 or US$3 up or down since May. Indonesian manufacturers are still caught up in the problems of shortage of log supply on the one hand, with domestic log higher prices by around US$7-8/m³ for face logs and US$12-14 for core logs, while at the same time under downward sales price pressure from European buyers, and higher costs due to lower production and increased raw material costs.

Meanwhile, China’s plywood exports continue the dramatic increases in volume achieved over the past two years or so and prices have moved up by around one-third over the past months. Reports are that importers in Europe are concerned over these recent price increases and are said to have been searching for alternative, lower price sources – without success – and Chinese manufactured plywood is still very much lower priced than Malaysian or Indonesian.

There has been a substantial increase in China’s imports of logs from Papua New Guinea and West Africa and a reduction in imports from Malaysia. The latest ITTO TTM report mentions shortages of timber within China but this seems most likely to be only in domestic supply that has been affected by recent floods, rather than shortage of imported logs and lumber. Certainly some West African log exporters had been badly affected by the severe slowdown in log buying for China and said this was because of very large imported log stock in some Chinese ports, especially Zhangjiagang. Later statistics may well indicate a reduction in log imports from Africa and latest news from West Africa is of China still restricting log shipments, plus now restrictions in selection of species and some lower prices even for the more favoured red species.

As noted in past reports, sawn lumber has been less affected by the fluctuations in log prices than might be expected. The sustained, significant increases in log prices did not lead to proportionately higher prices for sawn lumber, although, of course, there have been steady but moderate prices gains and even from May to end July meranti sawn lumber is up by US$3-5/m³. In the past month or two a very few selected West African lumber species managed to push price up but in the lumber market generally there have been few gains in what has been a very stable price regime.

Some small signs of weakness have now been seen in a few West Africa to Europe lumber prices, some due to competition from lower priced species from Brazil. However, it is not certain if any downtrend will spread to the Far East markets as here there is a much greater emphasis on downstream processing for a very diverse range of products, including furniture and components.

Chinese furniture production

Here again, China has been taking the lead in volume increases and there is some speculation that China has overtaken Italy and become the world’s largest exporter of furniture. Whether or not the downturn in the US housing market will cause a slowdown in this market sector may take some time to become clear, but for Indonesia a sudden and unexpected increase in the availability of previously extremely scarce and high-priced bangkirai lumber leads to the suspicion of a lower demand for garden furniture in Europe that has impacted on this important sector of the Indonesian manufacturing industry, possibly due to the poor summer weather. This is just another demonstration of how markets are interlinked in the global timber trade.

A forecast of the prospects for the industry through to end September and into the fourth quarter is more difficult to determine now than at any time in the past couple of years. It does seem certain now that there is a pause in the price escalation that has been the major feature in timber markets through the past two years. However, any tendency to drastic price cutting is offset by raw material log supply constraints in almost all producing countries, plus government pressures to persuade or force progress into further processing.

That said, for every product there is the inescapable basic of all marketing – that of supply and demand. Right now there is some feeling that demand has slackened in most sectors, although the underlying market situation for timber and timber products doesn’t indicate a lack of confidence in the long-term development of the industry.