News from the Far East trade is all about even more difficult log supply and rising prices for logs, sawn lumber and processed products. Logging is slow because of the effects of Ramadan on the availability of labour, plus some poor weather conditions in the logging areas. Some mills are said to be virtually closed, while others are on only 50-60% of normal production levels due to the shortage of raw log and lumber input.
One report speaks of mills turning down orders for regular business as they are not confident of being able to source sufficient timber input. As a consequence, the rising price trend noted in our June report has, if anything, strengthened and shows no sign of peaking out.
Buying for both China and India is brisk and appears to be sustained in spite of the higher prices. Log buying for Japan is very slow as the major plywood manufacturers continue to resist open market price pressures, citing their own higher costs and slower consumption coupled with the recent adverse yen/dollar rates. Importers have had to make some concessions by not passing on the full higher log import prices, but warn that expected higher freights make further increases inevitable. Some observers always tend to be surprised that plywood manufacturers appear able to accept increased prices for glue but quibble endlessly over higher log costs on the grounds they had to pay more for other materials.
Malaysian exports
For export, Malaysian meranti logs sq and up, now trading at US$215-220/m3 FOB, are up US$15/m3 since June, as are meranti small and super small. Keruing sq and up are US$20 higher, small logs US$10 higher and super small unchanged after an earlier rise of 15%. Kapur sq and up is US$15/m3 higher. An even stronger indication of the overall log supply situation is in the price of logs for domestic consumption in Malaysia, with DRM up US$30/m3 to US$245-255/m3 ex yard while merbau has risen by US$55/m3 since June, again a reflection of the reported shortage of logs in meranti, serayah, keruing and kapur, and especially the very difficult supply of merbau and balau (selangan batu) – two favourite species for downstream processing as well as for buyers for India.
By contrast, export logs from Papua New Guinea are reported as slightly weaker in price even though they are said to be selling at what appears to be absolute rock bottom compared with the same or similar species from Malaysia. For PNG saw/veneer grade logs calophyllum (bintangor) is at USS$72/m3 fob, taun (pommetia) US$68, erima (binuang) only US$58/m3, mersawa US$84 and merbau (kwila) at an incredible low of US$116/m3. These must be the world’s cheapest logs, at something less than 50% of the prices for tropical hardwood logs from other countries in Asia and Africa.
The latest news in regard to illegal logging and cross-border movements of timber seems to indicate that the fierce crackdown by the Indonesian authorities has not yet altogether halted illegal trading. In addition, there is reported considerable import into Malaysia from Indonesia of ‘hewn’ timbers, a description that is said to circumvent the export bans on log, flitch and sawn lumber.
With the exception of some of the more favoured species, meranti, balau, merbau and a few others, sawn lumber prices have continued to lag behind the rate of increase in raw log costs.
However, white meranti at US$355-360/m3 fob is up US$25 on the June figure, serayah is US$30 higher and sepetir boards are up by US$40. Mouldings have increased much faster and balau decking is now well over US$600/m3 and meranti A-grade mouldings moving towards US$700/m3 FOB. Domestic prices for sawn lumber within Malaysia also increased quite strongly, with merbau on US$500/m3 and balau close to US$300/m3.
It is likely that the recent hiatus in the sawmill trade that has seriously affected export supplies of sawn lumber from Brazil is also focusing international buyers’ minds on the necessity to cover for their essential stock, even at the current higher prices. As we have reported, South African importers and Far East traders have been actively seeking closer ties and buying opportunities in West Africa, where sawn lumber export prices are still relatively moderate, and supply much less restricted. In fact the supply of sawn okoumé from Gabon is set to increase very quickly in 2006 as new government regulations will begin to restrict log exports in favour of local processing. There is already a growing market in Italy for okoumé as an alternative for obeche and it would be a likely substitute for light red shorea timbers such as lauan.
Indian duties
Earlier this year India relaxed the import duty on sawn lumber, moving from 30% plus a previous Special Additional Duty down to a new effective rate of 15.3%, with other wood products at 34.4%. Log import duty is now 5.1%. So far this has not had more than a marginal effect on buying for India that was previously only for round logs, but it is expected that this lower duty will encourage a steady increase in sawn lumber imports, largely for re-processing into exports of downstream items including furniture. Competition in downstream processing in the Asian region is hotting up with recent announcements from China of plans to concentrate on improvements in quality, sophistication and product range, with closer attention to market studies and product placement.
Plywood markets have once again produced significant changes. Brazilian export prices rose sharply following hurricane Katrina as exporters expected a dramatic increase in American demand. Some observers believe this demand will be only of a temporary nature and that the price hike will fade rather quickly. That said, it is clear that plywood prices generally have kept up the momentum of the steady price rise which began more than a year ago. Much readjustment in the market has taken place in the past two or three years with the rapid decline in production and export of Indonesian plywood and the almost equally rapid rise in output in Malaysia which has now far outstripped Indonesia in export volume to Japan.
Indonesia has recently concentrated on developing European business and is now the largest single hardwood plywood supplier to Germany with some 48% of the market. Both Indonesia and Malaysia face very strong challenges in the market from the tremendous growth of plywood manufacture in China. Although this relative newcomer to the world plywood trade initially offered low price as a market entry strategy, now there are improved qualities and more sophisticated products on offer – such as film-faced thick ply – which are strong contenders on world markets.
The graphs show that, in spite of the recent strong price performance, most products are still under 110% of the MIS/ITTO base index levels set in 1997, well under the rate of inflation. Log supply everywhere in the tropical timber industry is becoming more difficult and expensive. Demand is strong as economies in China and India are booming and their wood industries gear up for bigger volumes and more upmarket product ranges.
The price trend for all products from logs right through to mouldings has shown a steady increase through the whole of the year, and right now there seems no reason why this should not continue to the end of the year and into 2006.
