2014 seems to have been a moderately good year for much of the timber industry. Some major UK companies reported much improved financial results and for West and Central African producers too there were notable price rises for a few selected timbers. That said, it didn’t make tropical hardwood trading with the EU any easier, especially given pressure from NSMD (non-state market driven) lobbies for tougher application of the EU Timber Regulation (EUTR).
Unsurprisingly some African producers increased efforts to consolidate and increase exports to the Middle East, where buyers are also more open to different species and a wider range of grades. These are highly competitive, price conscious markets, however, and Asian suppliers responded to the African push with lower priced meranti sawn lumber in defence of their market share.
No prizes for guessing that the best performers of 2014 were sapele and sipo, with log prices up between €90-120m3. Actually, early in the year, flat 2013 market conditions persisted, but the second quarter saw a quite sudden jump in European demand for buyers’ favourite African sawn lumber red timber. This was on top of a very steady, long term, sustained buying of sapele for China.
From April to September, prices for both sapele and sipo increased virtually week by week, causing a more general improvement in market sentiment and also dragging along some of the other more frequently traded sawn timbers such as iroko, ayous, makore, and moabi, achieving rises of from €50m3 up to as much as €100m3 as the year progressed.
The rising trend began to peter out towards the end of the fourth quarter although producers were surprised as sawn sapele prices for once overtook sipo, usually a more expensive timber.
Another good mover was padouk, supported by Belgian demand and still a favourite for China, where buyers prefer the deep red colour. Prices rose by up to €100m3. Most other sawn lumber timbers moved up in price, some gaining around €20m3, others only €5-10m3. Okan fell out of favour but regained ground, while the very popular okume did not improve further over the steady higher prices reached in 2013.
Producers could also view 2014 as pricewise a fairly successful year, but faced increased pressure on costs and ever tighter government application of rules and regulations, not only on forestry planning, but other areas too, such as lorry-load limits. Export containers are also now inspected while being loaded at mills and again on arrival at the shipment port, adding delays as well as cost.
In Gabon, meanwhile, VAT refunds are still unpaid after a near two year delay, causing financial problems along the business supply chain. There have been also strikes in government and private sectors.
In all the producer countries, strict limits on the cutting cycle and allowable annual harvest volume are further restricting the ability of processing mills to increase output beyond present capacity and no doubt this has gone far in holding product prices stable and firm over the past two years and more, and led to this year’s price surges.
The overall outlook is now more positive, but exporters have concerns over the barely perceptible recovery in some European economies and the less than optimistic forecasts of growth in the EU for 2015-16. Some also point to a possible slow down in China. This is not unusual ahead of the Chinese New Year vacations – this year rather late, in February – but there are also underlying signs of slower buying. Producers are as a consequence tending to be cautious and monitoring prices and markets perhaps more closely than usual.
The failure of the operating contractor at the port of Douala, Cameroon, to keep pace with the volume of goods passing through also led to a massive build up of export logs, mostly for China. Final reports were of a total of 500,000m3 of unshipped material, stored in port areas and surrounding log parks throughout most of the year. After long negotiations, the government appointed a new contractor, but only in the fourth quarter it able to begin to ship out and reduce the stock levels. It is now expected log stocks will be back to a normal at around a maximum of 100,000m3 by February. Many less dense species deteriorated badly during this long term storage, but fortunately sawn lumber shipments were not seriously affected. The ongoing conflict in the Central African Republic stopped exports of sawn lumber for the whole year and reports are that hauliers still refuse to risk crossing the border. Nor are there indications of when production or export will recommence.
Ghana has reported a stronger performance for the timber sector, but is very much constrained by limitations in the resource base. No doubt Ghanaian mills would be interested in importing logs, though this would be expensive and not easy to source a reliable supply when most producer countries are themselves experiencing shortages.
The best prospect for new developments and new production appears to be in Congo Brazzaville, where the government has been very actively seeking new inward investment for remaining forest concession areas in the Northern regions. Development in the timber industries offers substantial and much needed employment in areas where there is seldom any prospect of other paid work, and provides social benefits, schools, clinics and other infrastructure.
In support, the government has already embarked on a major programme building new roads and renovating and improving port facilities. Congo Brazzaville operates a quota system for log and sawn lumber and new investors are required to build processing facilities within a tight time frame. The quota system and forest management plans are closely monitored and controlled and companies that do not adhere are stripped of their concession, which is then offered for re-allocation.
There was news of an initiative to help both producers and EU importers cope with the due diligence demands of the EUTR. The European Timber Trade Federation (TTF), led by Secretary General André de Boer, is proposing creation of an online database of the producer country forest regulation that EU buyers have to comply with under the EUTR. This has now been accepted officially as an International Tropical Timber Organisation (ITTO) project and funding is almost complete. Importers will be able to check on exactly what controls must be applied to production in each country of origin covered.
A second major development is the five-year EU/ITTO project for Independent Market Monitoring (IMM) of the commercial potential of timber licensed under the Forest Law Enforcement Governance and Trade initiative (FLEGT). Under the latter, countries that have signed up to Voluntary Partnership Agreements (VPAs) with the EU are authorised to issue licenses against exports to the market which exempt the material from further EUTR due diligence. The IMM is headed by Rupert Oliver of Forest Industries Intelligence and will analyse trade flows to see whether the EU market recognizes FLEGT licensed timber. "Naturally FLEGT partner countries want to know whether their efforts to fight illegal logging, improve law enforcement and provide evidence of legality have a positive impact on the acceptance of their timber and whether they [will be] rewarded in terms of market access." The first FLEGT licensed timber is expected to become available in 2015.
And what of market prospects for 2015? As mentioned, some producers note a Chinese market deceleration, and some prolonged prolonging price negotiations, perhaps intended to drive reductions. There is no sign yet of lower offers however, and supply and demand remain in balance.
As the rains cease in Cameroon and Gabon there is usually some increase in production, with fresh log supplies reaching the mills. But underpinning the market are firm Middle East demand and active Vietnamese buying of particular species. It will also be around a year or more before new projects in Congo Brazzaville come on stream in any volume. So producers’ cautious approach to 2015 would seem to be the sensible strategy
