No surprise that the focus in the Far East and Asia/Pacific region is on China rather than on timber. Indeed, following its stock market fall, the whole world is watching the country with added interest.
We had already noted there was the beginnings of a slowdown in the flow of timber imports into China because merchant traders there reported over-stocking and that they needed time for local markets to absorb the excess.
Of course there were substantial prior contracts already in transit while buyers were cancelling orders and telling exporters to delay log and lumber shipments, masking the demand downturn. But the stock market slide has exacerbated the situation and brought it into sharper focus.
First effects were on cheaper species, Malaysian sawn lumber and West African okume logs and lumber. All this was happening in spite of positive forecasts for a ‘buoyant market demand’ in 2015 forecast end of April at a meeting of Malaysian and Chinese timber representatives.
The slowdown fairly quickly spread to sapele, sipo and other mahogany type lumber species, bringing to a swift halt the boom in price and demand. Less affected were higher priced darker-coloured, denser and less easily available timbers, like muninga, bubinga/ kevazingo, even tiama. They held value and are still in some demand, not only for China but for Middle East buyers too.
Hardwood halts
Right now, however, the market in China for okume and the lower qualities of mixed red coloured African hardwoods and Malaysian species has come almost to a full stop thanks to stock market fall-out.
And compounding the situation is that this has come about after China’s manufacturing output and purchases and renting of properties had been for some months in steady decline, while at the same time wages and disposable incomes had been rising.
On the supply side, producers in West and Central Africa had been quick to respond to the demand problem by reducing sawmill output and log production and, coupled with the long term steady decline of around 10% -12% year-on-year in Malaysian log harvest, no one was minded to reduce prices.
Consequently, there has been no rush to cut prices, which with a few exceptions have remained remarkably stable over the past months. Exporters recognising that if there is no demand there is no point in cutting prices.
And observers believe available log volumes will be further restricted by Malaysian forest authorities starting to measure logs and calculate royalty charges at logging sites, before they’re barged or transported to ports and processing mills.
Some producers in Africa have been left with unsold stocks of several thousand m3 of sawn okume lumber from cancelled orders. Any excess logs were gradually sold off to local mills or plywood manufacturers.
For Asian producers the impact of the low demand for China was perhaps less of a problem.
The ban last year on log exports imposed by Myanmar had quite badly affected log supply for Indian sawmillers and plywood manufacturers. But this provided an opportunity for Sarawak and Papua New Guinea (PNG) to increase their share of sales to this already important log market.
Indeed, while PNG still reports lower overall log exports this year, India has recently started to increase its volumes from the country.
Helping insulate Malaysia is the comfort of its high volume inter regional trade in sawn lumber for Thailand and other countries, and its major plywood exports to Japan and Korea and to Europe.
Middle East markets are also important for Malaysian exporters and prices here also have held very stable.
Average meranti MLH prices for Middle East buyers are the same as last year, while better quality red meranti are only US$20/ m3 lower than in August 2014, and plywood 12-18mm down just US$15/m3 over the year. For other markets, Malaysian log prices are either unchanged or trending higher.
Japan rides rollercoaster
Japan continues a rollercoaster market, with the imposition of a higher internal consumption tax and the adverse currency fluctuations, which tended to make timber products and other imported materials more expensive, depressing demand.
Plywood prices are affected by high imported log costs, while prices for the benchmark 3 x 6 x 12mm concrete formboard have fallen by around 20% to a level said to be below the cost of production.
One plywood manufacturer has closed, and others have reduced production and are now looking to impose a small price increase.
Other manufacturers are trying out lower cost core and even face veneer using timber species from local forests.
Meanwhile Japanese plywood imports from Indonesia and Malaysia have dropped this year by 25%. Housing starts last year were below target and this year are expected to be something over 850,000 units.
The push to boost plantation growing in Asia looks to be continuing. For instance, India is revising small farm plantations rules to encourage fast growing species planting.
The establishment of small, landowner plantation wood has also proved highly successful in Vietnam, which had tried out large-scale government plantations that failed because too difficult to maintain.
Hoping for china calm
Going forward, the key question for Asian markets and their prospects for many exporter countries is when the present unsettled situation in China will start to calm down and the country resume growth.
In the meantime exporters have in general reduced production volumes whilst maintaining unchanged, firm price levels. Fortunately, Middle East, Indian and European markets are active and prices don’t seem to be under pressure.
US imports of tropical timber are still very moderate, but it is felt could build in response to concerted marketing efforts by African and Far East exporters.
For Middle East buyers the change has been to move further down in grade for their low cost timber in order to keep prices to a minimum. At the same time they’re supplying a much-increased volume of high priced decorative and high-grade species favoured by architects and designers.
This trend towards high value in raw materials and increased value-added policies is, in fact, in vogue across Asian regions. It’s extolled by governments of both Malaysia and Indonesia and by timber processors in China, notably some plywood manufacturers looking to raise quality and performance to compete with higher priced Indonesian and Malaysian plywood in European markets.
On the Chinese market, the consensus is that the turnaround won’t be long coming. It may be becoming clichéd to point it out but the figures coming out of the Chinese are staggering. In 2013 the country consumed
522 million m3 of timber and wood products. Meanwhile China’s National Forest Authority is banning logging in its natural forest by 2016. So from then on the industry will rely on plantation wood, which spells a shortfall in supply that presumably will have to be made up by imports.
Most are forecasting the start of a Chinese recovery towards the end of the fourth quarter, also coinciding with a European pick-up through into 2016.