• Log and lumber prices have fallen significantly.
• Rubberwood prices have collapsed.
• For Malaysia and Indonesia, plywood markets have been slow.
• Exchange rates are favouring West African producers.

It’s not easy to find anything positive to report on the Far East timber scene.

For some months exporters were able to hold off from too violent price reductions, most likely because the euro and UK pound were at first able to maintain reasonable rates against the US dollar, and the consumption through the inter-Asia ‘domestic’ market area was still very positive.

At the time of TTJ’s last report on Asia, the full impact of the already serious decline in financial stability in the US, UK and mainland Europe had yet to make its way up the supply chain to the Asian producer countries. The Malaysian government was at that time making optimistic statements about further stimulating the furniture and further processing side of the industry, building on the impressive progress the country had made in recent years. This did seem to go against what other countries had recognised as a marked decline in consumer interest in furniture as sources of domestic credit finance had all but disappeared and the US and UK housing markets were in distress. Figures now available show that Malaysian timber exports in 2008 were only very marginally down, by less than 1% compared with 2007 – a creditable performance not matched by other exporting countries.

Since then the domino effect of the global economy has hit very hard, bringing severe falls in log and lumber prices and consequent reductions in production in the primary and processing timber industries.

Rubberwood prices

A significant indicator of just how hard the downturn has hit is in the prices for rubberwood logs that, it is not too strong to say, have collapsed from previously over US$200/m³ to less than US$100/m³. Sawn rubberwood on the domestic market is down by around US$50/m³. Since the decline of the euro and sterling against the US dollar, selling to Europe in US dollars is a disadvantage against Asian timber exports priced in euros, leading to a fall in some export prices that are more severe than for comparable West African timber. Where Asian producers have the advantage is in the processing industry which, perhaps with the exception of Ghana, are not as well developed as in African producer countries.

Looking at log and lumber prices, the major decline occurred from December 2008 right through to the present day. Compared with the beginning of the fourth quarter of 2008, meranti SQ and up logs are some US$40/m³ lower, small and super small are around US$45-50 down. Keruing SQ and up are down by US$35-40/m³, kapur US$20 lower and selangan batu down by as much as US$70/m³.

For Malaysia, the very steep falls in prices of logs sold on domestic markets, as much as US$118/m³ for DRM and US$60-70/m³ lower for keruing, appear to reflect the reported downturn in purchases by the sawmilling and processing sector, where mills are working intermittently, if at all, and many more companies are expected to reduce their workforce over the coming months.

For Indonesia there have been reports of large numbers of job losses in the timber, housing and associated industries, and suggestions of possible civil unrest. In ITTO’s December MIS Tropical Timber report there was news that HSBC was closing up to 30% of its loan accounts in the forestry and palm oil sector, on the grounds they were high risk.

In other news, some newspapers report that the Indonesian government has ordered public bodies to buy Indonesian-made goods and has threatened penalties for non-compliance, something that would not be legal in the eurozone. Other reports are of serious problems in the furniture and plywood industries; many are at a standstill for lack of orders or in some cases the necessary finance to buy raw materials, with their log and lumber storage yards empty. Strangely, by default, this dire situation may well go some way towards bringing down the rate of extraction from the remaining forests to a figure nearer the sustainable annual harvest level, and reduce motivation and financial incentives for illegal logging.

Indonesian prices

Indonesian prices are not easy to establish except for rubberwood, which is down by US$120-150/m³. The reported prices for domestic logs are down by around US$44 for face logs, US$10-15 for core and US$30-40 for falcata. In the current local circumstances these figures may not represent more than an approximation of the price reductions.

The ASEAN group of nations have agreed to contribute to a joint fund to assist industries through the economic difficulties and no doubt some of this will be directed to help the timber processing sector, though how the money is to be disbursed is not yet clear.

As for market opportunities in the region, the largest player is of course China, which also had a very good year for timber and product exports in 2008 but is now suffering from the US and European downturn. There are no reports of firm forecasts for 2009 but many predictions of business closures and lower internal demands for furniture and other processed timber products. Russia postponed the proposed big increase in export tariffs for timber exports to China and this may affect New Zealand’s exports of radiata pine logs to China that have grown exponentially in the past couple of years. Other than this, China is still actively buying West African logs and some lumber and will remain a significant influence on timber trade in Asia.

Middle East countries are buying but even here there is a downturn in the available financing for future construction projects. The much reduced price of oil has some effect but observers note that banking liquidity in Europe and the US also constrains foreign buyers from investing in new apartments and condominiums in the region.

Vietnam’s growth

Vietnam is now steadily building up its furniture and timber component potential and exports have shown moderate growth. Sources of local timber are relatively small and the country will have to depend on imports, a good proportion of which now come from West Africa. Vietnam still has low labour and infrastructure costs and on present form is undoubtedly intent on proving a strong export competitor for some time to come.

Japanese markets have been very depressed. Housing starts in 2008 held up well but prospects for 2009 are less optimistic. Internally, plywood prices have been stagnant or in slow decline. Local manufacturers have recently made strong efforts to steady the market and are asking slightly higher prices.

Plywood exports

For the exporting countries of Malaysia and Indonesia, plywood markets have been very difficult and prices for 2.7 and 3mm thicknesses are down by around US$50-60 over the past four months, while thick ply is lower by up to US$70/m³. Indonesian prices fell by the same amount although 3mm thickness was down a little less, by only some $35-45/m³.

It is not a bright picture for the timber export industries, especially for sales to Europe, as freight costs and adverse currency rates must mean even greater difficulties in promoting to markets which themselves are in depression. Right now European market opportunities could be called as “advantage Africa” in the lumber and log markets with the strength of the Far East being in manufactured products in the longer term – whenever consumer confidence returns.