In what proved to be a generally static first quarter of 2002 for the UK hardwood trade, recent weeks have brought a 5% increase in the forward price of Far Eastern dark red meranti. The increase has been driven to a large extent by reduced availability, although the move was also seen as a toe-in-the-water exercise by shippers to gauge the market reaction.
The concern among UK traders is that, with supplies of dark red meranti still available at the old price, none of them wants to be the guinea pig who begins buying at the new forward price level for fear the rise will not be sustained. That said, the view of most mills and consumers is that the meranti price is more likely to continue on its upward path than to return to lower levels. The $64,000 question, according to one source, is ‘When do you jump on the bandwagon?’
Many sawmillers and exporters in the Far East have been losing money over recent times and are no longer willing to speculate, with the result that there appears to be a significantly reduced volume of timber coming through the supply chain. Supply problems are particularly acute in the east Malaysian state of Sabah, whose local timber association warned earlier this year that the region was over-logged and that the timber supply had run out.
According to the association’s estimates, the state will harvest less than 2 million m3 of logs this year, compared with 3.5 million m3 in 2001, which is due in part to the Sabah government’s decision not to renew the logging licences of several firms that have failed to lodge forest development plans. Further closures are anticipated in the state’s logging and timber processing sectors during the course of this year.
Dark red meranti prices are still showing an upward tendency as buyers in some European countries – notably Germany and Italy – scramble to obtain the limited supplies available. By contrast, demand in the UK has remained relatively flat. Given the relatively recent return of the mills from the Chinese new year break, Far East hardwood is not expected to arrive in large volumes into the UK before the middle of the year.
Vehicle sector
As for other Far Eastern species of hardwood, the keruing market remains on the weak side of stable given the impact of the economic downturn on some of its leading consumers, particularly those in the US vehicle sector. The ramin market is also described as stable.
In terms of company news, the last few weeks have proved to be bitter-sweet for the DLH Group. On the one hand, it sealed the acquisition of US-based temperate hardwood operator PW Hardwood LLC at the end of February. This was to enable the group to offer its customers fresh alternatives in the light of the increasing scarcity of tropical hardwoods and of growing environmental/political pressures in the tropical hardwood sphere.
Several weeks later (TTJ March 23/30), it emerged that the environmental lobby group Greenpeace had sent a briefing to customers of DLH Timber (UK) in which the Kent-based firm was accused of having links with firms involved in illegal logging. The company issued a strong rebuttal of the Greenpeace claims, insisting that it boycotted any suppliers who were blacklisted by the authorities. The company has also written to customers to assure them that it had abided by all the rules and adds that responses have been ‘very supportive’.
This debate has flared up at a time when UK imports of Brazilian mahogany are at a virtual standstill. Few offers of wood have been received in recent weeks and the new season is not expected to start until around the middle of the year. One source was recently told by a contact in southern Brazil that it was ‘very unlikely’ – although not out of the question – that he would see any mahogany this year. ‘This makes the situation on mahogany about as clear as mud,’ the contact lamented. ‘The inference is that he won’t be allowed to ship it and so he doesn’t want to take the order.’
The fact that 2002 is an election year in Brazil could also have an influence on mahogany’s export prospects, it was suggested. Under concerted pressure from environmental groups such as Greenpeace, politicians might see potential votes in demonising the hardwood trade and in making shipments even harder to complete, the source maintained.
Now Greenpeace claims that CITES has told signatory countries to detain new mahogany imports until sourcing can be validated (p4).
In any case, the flow of mahogany into the UK has slowed to a relative trickle over recent years, with increasing evidence of customers switching to alternatives. Elements of the trade had anticipated an increase in demand for sipo, which many see as the nearest alternative to mahogany. One trader commented: ‘There is a market for something to replace mahogany and if you want a quality species then sipo is the one to go for.’
For the moment, however, UK sales of the African species do not appear to be breaking any records. Indeed, other traders doubt sipo’s credentials as a mahogany substitute and point instead to a growing trend among customers to use the less expensive West African sapele. In the US, meanwhile, there has been something of a trend towards importing Brazilian cedar as an alternative to mahogany from the same country, as well as towards increased US imports of Peruvian mahogany. The UK is also said to be conducting reasonable business in Brazilian cedar while the virola market has remained stable.
Turning the focus on the African species, first quarter demand throughout most of Europe – including the UK – was widely described as slow. ‘Demand is very stodgy and sentiment hasn’t really recovered since September 11,’ said one regional expert. ‘The fundamentals for African hardwood are not that bad but neither are they a bed of roses.’ The widespread trend, he added, was towards hand-to-mouth buying and maintaining low stocks. At the same time, suppliers of sapele are showing signs of increased bullishness.
Battling export levies
Several contacts suggested this week that the market is still in slight over-supply, despite no huge over-abundance of material. Ghana continues to battle against the extra 10% export levy imposed on lumber while supplies out of the Cameroon are said to be ‘very restricted’ as a result of the government ‘fiercely’ controlling concessions. Indeed, it is understood that some of the country’s mills have been forced into concluding log supply agreements with producers in the Central African Republic and Congo.
Sapele continues to enjoy constant demand although at fairly static levels, while iroko sales and its price have been dented by reduced requirements from the key Irish and Spanish markets, with the former said to be continuing to move more in the direction of sapele. The framire market is described as ‘fairly static’ while the price of wawa has risen slightly, possibly in response to higher costs.
Looking to the rest of the year, the rainy season is due in West Africa over the next few months and may affect logging, with the result that supply may be adversely affected. Extended delays or any other difficulties associated with obtaining material are expected to lead to higher prices as the year progresses.
As for North American hardwoods, there is a continuing disparity between green lumber production and prices on kiln-dried material, although the two are now said to be nearing greater balance. There are hints of emerging shortages following cuts made in green lumber production, as well as of a reduced spread in prices. ‘Suppliers are now being tougher on price, perhaps because things are slowly but surely turning round in the North American eco-nomy,’ said one regional expert.
This view was borne out by an economics expert speaking at a recent international conference in Las Vegas. Lloyd O’Carroll, senior analyst with BB & T Capital Markets, argued that the US recession had been markedly different from most of its predecessors in that sales of key goods – such as houses and cars – had not dipped to anything like the normal extent. The recession was now effectively ended although he predicted a below-average recovery based on over-investment in telecommunications and other high-tech industries, as well as a lack of pent-up demand in key product areas.
Prices edging higher
The prices of several North American hardwoods have edged higher over recent weeks, with red oak said to have improved by 2-3% and tulipwood to have firmed by 3-4%. The red oak, ash and tulipwood markets are all said to be far closer to a supply/demand equilibrium than for some time, while the cherry market has stabilised for the moment. Demand for American black walnut remains ahead of supply.
Meanwhile, opinions vary on hard maple with some observers suggesting the market is weak and others placing it on the firm side of steady.
Not for the first time, it was suggested this week that North American hardwood prices are likely to improve rapidly once upward momentum has become established. TTJ was told this week: ‘When things turn round in earnest, I would expect those people who lost money last year to be in a hurry to recoup it. So prices may move up quickly at some point in 2002.’
In the longer term, a significant number of UK hardwood experts expect European hardwoods to offer ever-growing competition to North American species. Several pointed this week to an increasing level of offers on eastern European oak, which they described as of good quality while adding that supply was still hampered in many cases by a ‘Third World infrastructure’. UK kiln operators contacted this week also reported a noticeable increase in volumes of European oak received.
As a whole, the UK hardwood market still appears to be short on confidence as major customers continue to put large projects on hold in the light of economic uncertainty and the after-effects of the September 11 terrorist attacks. The marketplace is highly competitive while sales of hardwood are described as sporadic, with some operators seemingly far more busy than others.
