Summary
• Malaysia and Indonesia have lost 20-30% of their export business.
• Some stability has returned to the market.
• With the exception of Italy, there is little demand from Europe.
• China’s plywood export volumes are still falling.
• India’s economy is strong and its log imports are regular.
It’s no secret that trade for Asian producer countries has been depressed right through the first half of the year.
While on the supply side Indonesia seems to have suffered a worse decline in trade than the Malaysian industry, both have lost around 20-30% of their volume and value of timber and timber product export business. Indonesia’s furniture exports may have been more seriously affected because of some manufacturing emphasis on outdoor and leisure products. European demand for these higher priced goods fell away over the winter months and has only recently made a small improvement.
It has been widely reported that the downturn in timber export business worldwide has fallen somewhat disproportionately on further processed, value-added products.
Log prices
After the serious price declines for logs and lumber earlier in the year, the official figures show some stability has been restored, with only very minor variations being reported through the past four months. This may not totally reflect the prices finally negotiated for all transactions in that period; however, it is clear that producers are now more confident that their leaner supply position gives them a basis from which to begin an eventual recovery that many believe will take at least two years, and more likely between three and four, before a return to the normal price and volume business built up over the past decade.
The close relationship in the region between government and industry means that timber-based businesses have received positive support through the most difficult trading conditions possibly since the 1970s. This has ranged from Indonesia relaxing some conditions on licensing of new forest investments, to China increasing still further the export tax rebates given to timber products exporters.
Sharp reduction
The ITTO/MIS July bulletin features a series of graphs that very clearly depict the scale of the sudden and very deep reductions in trade in tropical hardwood products. Interpreting the various data and reports it does appear that Italian buyers were the quickest to recognise the early signs of trade recession in 2008, while in UK and France the signs were perceived later in the year, possibly because governments were over confident of the ability to minimise the effects on industry. And Italy has recovered rather more quickly than other EU countries. It appears to be quite busy and is certainly much more in the market than its European neighbours.
Price-wise it appears the worst is over for the Asian timber industries, although plywood prices are still weak and consumption low, especially in Japan where local manufacturers continue to restrict production. A corollary of this is that China’s log imports in the first quarter were down 34% in volume and 43% in value and exports of plywood are down and still in decline.
Panel products
Other panel product export prices in the region are weaker: Indonesian and Malaysian mouldings also have lost between US$10-15/m³ in the past two months, as have furniture components. Southsea log prices are unchanged since March/April and seem unlikely to move significantly in the third quarter. Domestic prices in the region have not changed more than a few dollars up or down although kempas has been in demand and prices marked higher.
Japanese housing starts are still very low, down more than 20%, and although the government is promoting the greater use of timber, the forecasts are not overly optimistic in seeking to persuade the usually very thrifty Japanese public to stop saving and spend on new housing.
Housing starts in the US are down around 20%, and this major market for Indonesian and Malaysian furniture and other woodwork does not look as if it will see any real improvement in the second half of the year.
Chinese demand
Looking at imports, China and India are very much the largest and most stable players in the current market. There are some signs that the rate of business closures in China’s timber industry has slowed and there is some degree of optimism that local demand is steady and that exports are not expected to fall lower, though perhaps there are some questions over near-term prospects for plywood.
In a very quiet but firm manner, India’s economy is strong and imports of logs and some panel products are regular and stable. Middle East business is less stable: the previous bull property market melted away very swiftly and many construction projects slowed or were mothballed. This affected the opposite ends of the timber supply market – low cost, often lower quality, hardwoods and softwoods for construction and the high-end selected specialties for luxurious new apartments and hotels.
Vietnam’s furniture and timber component industries are now well established and are reported to be stable and very much dependent on timber imports for the raw input to this expanding sector of the economy.
European market
There are few signs of optimism in the market prospects for Europe. Buying, if any, is little and not very often. Exporters have had to get used to small orders for exact specifications for quick shipment. All contacts mention low stock levels in the larger European importing countries but so far this has not translated into courageous volumes of forward purchases.
The graphs show very clearly how swift has been the decline. Unfortunately there is no data on the timber stocks in European import countries so it has always been very difficult to determine where there could be a trigger point to induce buyers to move back into the market. Suffice to say at this stage that buyers seem to have understood Asian and African producers’ determination to maintain production in line with current demand and from a stable base they are determined to press for prices that better reflect the cost of production.
