The cautious approach to their 2015 production and marketing by West and Central African log and lumber exporters which was noted in our reports this proved to be very wise and has most definitely prevented the risk of a potential price meltdown following the sudden mid-year decline in demand by China’s importers.
Most importers and merchants had relatively high levels of stock and were well able to service any short-term but reduced demand in local business through the period of uncertainty during China’s stock market re-adjustment. The importers saw no incentive to buy new when it was expected that prices would fall. That said, this sudden virtual complete halt in new orders did leave many African producers with unsold stocks of mainly okume sawn lumber, even up to some thousands of cubic metres of cancelled, unshipped orders for larger producers. This has been gradually trickled away into other markets, notably to Middle East buyers.
Unsold stocks of okume logs were in some cases onsold for processing and sales in-country. Producers said that to maintain market stability they were prepared to close sawmills and restrict logging output, and this they have done. In Gabon many smaller Chinese owned mills very quickly closed down and major producers also reduced mill output and then temporarily closed a number of larger sawmills. Of course, these actions did not entirely prevent a substantial though gradual fall in prices for okume and there are still reports of very low offers for sawn okume, though for only very moderate volumes. There have been some okume log sales too, even to buyers for China but no one is forecasting any quick recovery towards previous high levels of business.
Sapele also lost much of the price gain made through late 2014 but has in recent months stabilised thanks to steady buying by European importers. African exporters’ strategy for mill closures and reduced production seems to have been remarkably successful in holding almost all prices for both logs and lumber in a steady state throughout the past difficult months. Among the reasons being the stability in demand for UK and other EU buyers and their willingness to pay a fair price for high quality in their traditional species and specifications, plus for the lower qualities the strong and very active markets in a number of Middle East countries.
Right now, West and Central African producers are holding their concerted price solidarity in spite of one or two negative factors – first being more intense competition between African and Asian timber for Middle East business with in the past month some unexpectedly low offer prices for sawn meranti. This has unsettled some of the larger importers who are sitting on stock bought at higher price and for the time being are minded to hold back on new contracts. Another, perhaps more remote market downside is in the board sector in the Asian region where there is increasing price competition between producer countries for plywood and MDF business where a downwards price drift might eventually spread and depress the sawn timber market.
On the plus side it is clear that log supply in Asia is falling and prices trending higher while major producer countries are increasingly committed to strategies for directing timber industries towards further processing. This has been hugely successful for Malaysia, Indonesia and Vietnam but for African producers there is sporadic mention of this type of policy – progress is slow in a market sector that is not easy to access and requires technical skills and substantial investment. However, one large sawmill company in Gabon this year opened a new facility to produce kiln dried PAR, S4S and mouldings and is actively seeking export opportunities. Log supply for export from West and Central African countries also is diminishing and will slow further as Cameroon brings in (from January 1, 2016 ) new and tighter controls on volumes and species available for export. The Gabon government is working on a revised forest policy and now also more actively working on the VPA/FLEGT compliance. It appears now that the EU/ITTO IMM project is beginning to impact through informing producer country governments and industry of the potential benefits of VPA/FLEGT system in permitting access through the EUTR and possibly easing entry to other markets outside Europe and there is now much increased awareness and progress in the region to achieve compliance. There are producer complaints of uneven application of the regulations between importing country authorities and discussions on how far third party forest certification will be accepted towards compliance. The Congo Brazzaville government has tightened enforcement of the log export quotas and also said to be studying a new forest policy that will require mill production to include secondary and tertiary timber products. Details are not yet available on what proportion of output this will be. Congo Brazzaville is to include certification of concession holders’ forest areas as a requirement in every producer company’s Forest Management Plan. Already some five million hectares of concession areas are now or very shortly will be certified.
Looking at market prospects, the next few months are difficult to predict. Moderate demand for okan, azobe, ayous, sapele and sipo, plus niangon and a small number of other species is ongoing for European buyers though it is unlikely that volumes will increase during the winter months. Producers are firm on price.
The important Middle East business has slowed a little over the past month though construction companies are busy with good forward order books. Major importers distribute timber and wood products considerable distances across borders overland to neighbouring countries – steady business even during the current conflicts and unrest.
As importers’ stocks reduce, it is expected confidence in price stability for basic low quality sawn lumber will return in this very price conscious market. At the other end of the price scale demand is growing for high quality timbers and products used in construction of luxury apartments and other prestigious buildings, and this sector of the market has been recently the fastest-growing for US hardwoods. This perhaps highlights missed opportunities for high-end African species because of a lack of sophisticated marketing necessary to compete with the well organised Malaysian and US global promotion initiatives. Statistics given in the IMM ITTO report No. 45 ‘Europe’s Changing Tropical Timber Trade’ show clearly that with the exception of Ghana, West and Central African producers are suppliers of logs and sawn lumber and very little else other than small volumes of veneer and plywood.
Inter-country trade in the region is underdeveloped and with few exceptions manufacture of furniture and other products is by small businesses, and local markets outside major cities are not well developed. On the positive side, India is bringing forward plans to stimulate lower cost house building with increased use of timber and Vietnam is a regular buyer of African lumber. South Africa has been buying sawn okume against tough competition with meranti but until demand for China begins to pick up African producers will continue to restrict volumes of log harvest and mill output to the current low demand situation.
