The hardwood market might well define this year as the year of the wider picture. Global currency changes, international efforts to stop illegal logging, mutual recognition of international forest certification schemes, enlargement of the EU and the disruption of war, are all on the agenda – as well as the price guessing game. Some of these issues have been around for a while but they more sharply in focus than usual.
Currency changes are not new, for example, but the weakness of the US dollar against the euro certainly is. That’s making US wood products cheaper in Europe and will certainly give some help to American hardwoods, under pressure from European hardwoods – especially in the important oak market.
In 2002 US exports to the EU fell from 719,911m3 the previous year to 671,701m3, a reduction of 7%. White oak exports from the US fell to 309,272m3 from 331,998m3 the previous year, although the evidence is that the fashion for oak in Europe is returning after some lean years in the early 90s. This year’s European furniture shows have demonstrated a revival in the species and the latest European flooring data from the European Federation of the Parquet Industry provide further evidence that oak is a strong preference for consumers. Excluding red oak, the use of European and American white oak, has risen from a total market share of 45.25% in 2001 to 47.3% in 2002 – an increase of 4.5%.
Continental hardwood importers dealing in American oak also feel that there may just have been enough shift in the US$/euro relationship to salvage what was becoming ever more serious competition from European hardwoods.
Another question is whether the investment costs of improved infrastructure in eastern Europe will cause hardwood producers to lose the competitive edge as those costs eventually work through.
EU enlargement
In terms of enlargement of the EU in 2004, when a number of eastern European countries will join, it is difficult to see how much it will change the trading market, as they already have access to the EU. While there have recently been huge investments by EU countries in manufacturing in eastern Europe, such as German money on Poland, manufacturing investment is a fickle business. The experience of unification in Germany demonstrated the extraordinary speed at which labour costs can rise after EU entry, so new funds may move to countries like China and Vietnam.
If one considers the rate at which the furniture manufacturing industry of Europe and North America has lost much of its market to Asia, even the eastern European counties, or at least some of them, should beware.
The unrelenting rise of added value products continues to affect imports of primary hardwood products into the EU, which in 2002 were down on 2001.
In contrast, imports of hardwood products rose – windows and frames by 15%, doors and frames by 5%, and furniture by 6%, with Poland leading and China catching up with furniture sales in EU up by 36% to an 8% share of imports.
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“It may turn out that 2003 is the crucial year in the international campaign against illegal logging” |
Chinese growth
China has recently been more subdued in the global hardwood market, partly due to SARS but more to the downturn in world trade as the industrialised markets grapple with the long-term fallout of September 11. Even overseas buyers’ unwillingness to travel may have slowed China’s export growth. Nevertheless, in the foreseeable future, with wages still at US$2 per day for semi-skilled workers in hi-tech plants, it is impossible to see China as anything but a tough competitor to Europe. Even hardwood flooring producers are feelng the truth of that. In 2002 imports of solid oak flooring into the UK from China led the market with 31% share and over €4m of imports coming from almost zero in 2000. China imported a further {euro]4m of other hardwood flooring into the UK, taking third place after Canada and the US.
China is also an important exporter of what Eurostat calls “parquet assembled layered” and “parquet assembled other”, again in third place after Sweden and Malaysia in the former and Denmark and Belgium in the latter. By any standards, China is the country to watch when it comes to assessing the global balance of supply and demand – ask any buyer around the world trying to secure stocks of black walnut. Ten years ago China and Hong Kong together imported just 18,770m3 of American hardwood lumber. That rose to 463,419m3 in 2002, with the timber consumed both in the flourishing domestic market and converted to export products, which are fuelling that domestic growth. This is equivalent to two-thirds of the imports of the entire EU, a market established for decades.
Rising consumption
Anecdotal evidence and some data support the suggestion that tropical hardwood consumption is on the rise, although more in finished products than by raw material sales. An analysis by FEP of flooring species used in 2001 shows that use of tropical hardwoods for wood flooring increased by 15% in 2002 over 2001. Importers report increased consumer interest in tropical hardwoods generally, although the environmental campaign against them has not eased much. That presumably explains the continuing efforts by the UK hardwood import trade to source certified tropical hardwoods, with varying degrees of success. One importer in London recently secured a regular supply of certified ramin, and another in Cheshire has stocks of jatoba from South America. Most importers will show you a parcel tucked away somewhere in the shed but usually the choice of specification is still small.
Certification of hardwoods still revolves mainly around temperate hardwoods from Europe and North America. Currently Africa, Asia and South America account for only 5% of all certified forest area. Some FSC-certified hardwoods are available, but increasingly the Pan European Forest Certification scheme says that it is gaining ground as an industry standard. And the American Sustainable Forestry Initiative is also reaching out to its international market. The latter two schemes continue to strive for mutual recognition as the best way to offer credible choices to the market. Earlier this year, CEI Bois, the EU Wood Industries Federation, and CEPI, the European Paper Association, announced a project to develop a “chain of custody standard” to assist with achieving mutual recognition. The first draft is due in October.
Illegal logging campaign
It may also turn out that 2003 is the crucial year in the international campaign against illegal logging, as a major task for the entire global timber trade. The EU, which is now drafting legislation, and the US, which took early initiatives, are both committed to fight illegal logging. They rightly claim that it undermines the prices of legally felled logs, damages the environmental image of forest products and disrupts the resource balance and must be stopped. There are differences in approach to what has become known as the Forest Law Enforcement, Governance & Trade issue. While to date this has remained an administrative issue at the bureaucratic level, it is clearly one with which the trade will have to engage.
And then there’s the weather. The European summer so far has been good. That’s not good for furniture, as consumers divert their spending to travel and barbecues, but it has been good for construction. Another consequence is the low hardwood log stock in the US after a very wet winter that kept some sawmill production closed because of lack of raw material. This has kept prices firm as well. Logging has also been kept low in Europe by cutting restrictions and somewhat subdued demand for all but the best quality oak. The summer months will be quiet in Europe, although the traditional seasonal close down, especially in markets such as the UK, is not as total as it used to be. So the autumn will be an interesting time for all importers and users of hardwood who will need to gauge the likely supply and demand balance, as well as some of the global issues that have emerged so strongly this year to influence business.
