Since February the tropical timber market has seen the continuing week-by-week advance in prices overall. Perhaps latterly the pace has been more modest than in the final quarter of 2006 but nevertheless there is a rising trend that shows no sign of peaking.
The whole system is fuelled by China’s booming economy and voracious appetite for raw timber and timber products, plus the perhaps lesser recognised, but still significant, building and development in many Middle East countries. The Gulf states are a particularly important market for Malaysian timber and product exporters.
Import and export statistics for China give a clear indication of how prices in the Asia-Pacific region have changed. For instance, China’s log imports in the first quarter of 2007 totalled 9.6 million m3 – an increase of almost 20% over the same period of 2006 – while the average price paid was 44% more than that of first quarter 2006. Yet, as TTJ has reported, in recent times the prices obtained for sawn lumber have not kept up with the higher costs of logs. Again the statistics for China show this in simple terms as the sawn lumber import volume was up in the first quarter 2007 only marginally while prices moved up only just over 3% above the same period of 2006.
Perhaps this phenomenon gives proof to the apocryphal tales of sawmill owners carrying on sawmilling until all their money has gone. Certainly, the situation is the same for sawn lumber exports from West Africa where only a very few species of lumber have shown any real growth in price over the past year or more. In money terms Malaysian meranti SQ and up export logs are trading at over US$300/m3, having risen by only US$6-10/m3 over the past few weeks. The super small logs have held on to their recent popularity and are US$10-15 higher. Keruing SQ and up also gained US$8-12 but super small went up by around US$20/m3.
Similar gains were made by Malaysian logs for domestic processing, while in Indonesia, core and face logs for local plywood manufacture were up by US$10-15/m3.
Indonesian exports
There were price rises for all Indonesian export products, partly, it is said, because of the steady, successful government crackdown on illegal logging, supported also by strongly improved local construction activities. In other news there are complaints by some log exporters in Sarawak alleging that their documentation for legitimate export was being copied and used to export logs illegally. Still by far the lowest cost logs in the region, or indeed pretty well every other region, are in Papua New Guinea where prices have remained stuck in the past, with bintangor (calophyllum) around US$81, mersawa US$85-90 and terminalia right down at US$64/m3 FOB. This country is now a major log exporter with some 2.6 million m3 exported in 2006, of which more than 80% is going to China.
Market sentiment has been helped by steady demand from Japan, bolstered by the ongoing improvement in housebuilding. After a rather long and shaky period where housing starts were variable but weak, there seems to be a more settled situation in the self-build and rental housing market, and more than 40% of Japan’s houses are still based on a modernised version of the traditional Japanese wooden post and beam system.
One factor influencing sawn lumber export prices is the fast growth in furniture and components exports from both Malaysia and Indonesia. There is therefore perhaps less interest in pushing for higher volumes of sawn lumber exports and both countries have announced plans for further increases in the furniture sector, though faced by increasingly strong competition from Vietnam where labour costs are very low and the skills factor very high. Vietnam’s handicap is the need to import timber as local supply is limited.
Chinese competition
What these three exporters have in common is the competition from China which is poised to become the world’s largest exporter of furniture and may have already overtaken Italy, this too in spite of the need to import most of the raw timber input. This said, it is likely that Italy’s furniture exports have greater unit value. To gain a larger share of the market Malaysia may have to consider higher unit values by moving away from rubberwood – now used for around 80% of its furniture – to higher value timber species. Vietnam is already importing American hardwoods for furniture manufacture and appears set to increase this intake in the coming months
Plywood has been experiencing steady price increases. Malaysian export prices are up by US$10-11/m3 for 2.7mm, US$8-12 for 3mm and US$10-14 for 9mm and thicker for BB/CC grade MR. Early in the year Indonesia announced the aspiration to close the price gap between its ply exports and those of Malaysian competitors and it has managed to make some progress with increases of US$15-19/m3 for 2.7mm, US$15 for 3mm and US$15 for 6mm.
China has not faltered in the drive for lower imports of ply and panels, and higher exports, with an increase of almost 50% in import volume in the first quarter of 2007 against the same period of 2006. The average price rose by close to 38%, pointing to emphasis on the low cost end of the market, as European buyers will be well aware.
Illegal logging
There is perhaps slightly less international emphasis on accusations of illegal logging, as many producing countries are seen to be making progress with tighter controls on their industries, while in Europe there is now just a glimmer of recognition that, after all, timber is a sustainable, renewable and less polluting resource.
On the market front for the Asia Pacific region it would be expected that prices should remain firm or move towards rather more moderate and selective price rises through the end of the second quarter. However, it is not clear whether the current difficulties experienced by exporters of logs from West Africa to China could back up, impacting shortly on logs and other products to China from Asian suppliers. Reports from West African producers say that buying for China is very severely restricted and there is a substantial stock build up of logs waiting for shipment in the ports and log storage yards. Okoumé is the most affected, but logging of some secondary species also has been curtailed or stopped. It is hoped this situation is only a temporary glitch but some producers are less than optimistic on the immediate prospects of a prompt return to full production.
