Summary
• Difficult supply and strong demand have kept Far East prices firm.
• Malaysian and Indonesian plywood prices have changed little this year.
• Vietnam is becoming an increasingly important importer of timber.
• Some South African importers are buying West African okoumé rather than Malaysian timbers.
• China is setting up its own certification scheme.

Malaysian and Indonesian timber and plywood prices have remained remarkably firm through the first five months of the year – while by the beginning of April the competing West African log and lumber exporters had faced a decline in demand and some developing weaknesses in prices.

There were only marginal changes up and down since early January and most current Malaysian log prices are firm within a range of plus US$3-5/m³ difference from TTJ’s previous report. Keruing and kapur have fared slightly better as small and super small log prices are now US$7-10/m³ higher.

Far East traders say the reason for the long period of stability is the difficult supply situation and, as demand has been strong, the producers have seen no reason to give ground on price in spite of an increasingly depressed market scenario in Europe.

Another factor has been strongly rising prices for domestic log sales in Malaysia and Indonesia, though meranti log prices in Peninsular Malaysia have eased off a little after highs in April. Log producers are believed already to have had enquiries as a result of expected heavy demand from China in the wake of the earthquake.

Very little news is available from major log exporters in Papua New Guinea. The low prices for PNG logs must be attractive for buyers in China looking for sources of low cost raw materials and, according to statistics quoted by ITTO, PNG is now the largest volume supplier of tropical hardwood logs to China. There still appears to be a discrepancy between the average price of US$194/m³ derived from the import statistics and the previously reported PNG export data prices of well under US$100/m³.

The high prices for latex and rubber mean prices for rubberwood logs and sawn lumber have increased virtually weekly and supply continues to be difficult for the many furniture manufacturers dependent on rubberwood.

Furniture demand weakens

Reports from the US speak of lower demand for furniture due to the hiatus in the housing market and this is certain to impact on imports from Malaysia and China. Certainly the competitive Italian furniture industry is finding markets more difficult and this has reduced demand for imports of sawn lumber. China has moved towards higher priced, upmarket furnishings that may well favour some European manufacturers.

Although there were reports of some low price deals in March and April for sawn meranti sold for shipment to the UK and Continental Europe, mainly the Netherlands, from the producers’ end of the chain all news is of firm prices and no intention to make any reductions while demand is good and log supplies short and more expensive. Of course, some of the market slowdown for furniture and other timber products in the US and the overall lower demand in Europe may soon begin to impact negatively on the volume of sawn lumber trading, if not on price.

The downtrend in price and volume became established in late April for West African export logs and lumber and it would be surprising if there was no impact on Far East traders should this downturn be prolonged.

The mainland European summer vacation period begins at the end of June – always a time when buying slows virtually to a halt and most observers believe is unlikely to pick up until the beginning of the fourth quarter.

West African alternatives

As TTJ reported last year, early in 2007 South African timber importers and manufacturers had changed to increased, regular purchases of West African okoumé to replace more expensive Malaysian timbers and ITTO’s Tropical Timber Market bulletin CITES an instance where a specific buyer has changed from Malaysian timber to African okoumé.

Balancing all this, Vietnam has become an increasingly important importer of timber within the region, fuelling the very substantial increase in production and exports of furniture and other woodware. Vietnam’s low wage rates and a skilled, highly productive workforce go far in offsetting any increases in the prices of imported logs and lumber.

From Indonesia, the news is of an increase in Central Bank interest rates plus announcements of the removal of several subsidies and incentives for domestic construction that have already slowed internal sales of lumber and plywood, a situation not helped by the country’s relatively high rate of inflation. Throughout the region the increased cost of fuel and basic foodstuffs is having an inflationary effect that will spread to wage rates.

Malaysian and Indonesian plywood export prices are virtually unchanged since the start of the year, moving up and down within a US$2-3/m³ range. There was a slightly firmer feel in February/early March as the market in Japan appeared to recover some strength but this has melted away and manufacturers in Japan have decided to cut production rather than reduce prices. China imported marginally more plywood at slightly higher prices in the first quarter while exports declined quite steeply, possibly due in the main to lower demand from the UK and Continental Europe.

REDD initiative

ITTO recently hosted an international meeting on the proposals for REDD (Reducing Emissions from Deforestation and Degradation) and sustainable forest management. ITTO’s Trade Advisory Group co-ordinator made several salient points, questioning how the timber industry would benefit from payments to any REDD schemes and that carbon trading should not be an excuse for failing to reduce emissions.

In this context the Brazilian president has declared that the Amazon and other forests in Brazil belong to the Brazilian people. This is in response to a scheme which offers to allow anyone to buy an acre of Amazon forest in order to preserve it and Al Gore’s remark that the Amazon forest belongs to the world.

In other forest news, China is proposing its own forest certification scheme, which will probably require a great deal of discussion and negotiation if it is to be recognised globally.

Meanwhile, the Malaysian Timber Certification Scheme has made some progress towards achieving full acceptance in Europe and hopes are that endorsement by PEFC and the UK CPET will be given soon. An obvious target for Malaysian timber is the use in the construction of the 2012 Olympic facilities where only fully-certified timbers will be allowed.

Future uncertain

Returning to the market, there are few forecasts of what trading conditions will be during June and the third quarter. Consensus is not available but most believe that the trade is in a difficult economic climate. Continental Europe and the UK are well stocked, building activity in the UK is stagnant and contractors are reducing the workforce. The US has some way to go in resolving the housing crisis and it may well be that for Far East business their inter-regional and Middle East trades will be the better performers in both volume and price.

The impact on trade of the disasters in Myanmar and China is not yet clear. The rebuilding timetable will take time to assess and is certain to include the need for substantial increases in timber and timber products. No doubt Myanmar will be able to provide raw materials from in-country resources, while China may need to rely more on imports.