Summary
• West African producers have reduced production as demand has weakened.
• The log export quotas in Gabon and Congo Brazzaville have helped to reduce volumes.
• Importing countries have high log and sawn timber stocks.
• European demand for tropical hardwoods has slowed.
• Weaker demand for furniture in the US may slow China’s furniture exports.
West African markets managed to hold on to the well established price stability through almost to the end of the first quarter in spite of some quite marked alterations in buying patterns. Some selective weakness finally appeared towards the end of April and spread rapidly as demand slackened in all buying countries.
The trigger was a change by buyers of logs for China not only as previously noted restricting the number of species bought but later also concentrating very largely on the higher qualities and latterly joining the rest of the markets in reducing volume purchases. Producers had already begun to scale back on logging operations and some slowed their sawmilling and plywood output to match the decline in order levels.
There are reports of companies in Gabon, Congo and Cameroon laying off up to one-third of their workforce and through this early action most are in the position where stock and production levels are not overshadowing the market. This does not apply to the Gabon State exporter SNBG which is reported as holding a very large stock of aging okoumé logs, now suitable only for sawmilling.
Stock levels have also built in the importing countries, even in India where a larger than usual level of padouk logs has built up to a reported 60,000m³.
Buyers quiet
Buying everywhere is slow. Portugal is very quiet and Spain, struggling with the excess of unsold houses and apartments and high stocks of sapele, is not at all interested in new purchases. Italy is also very slow, with relatively high stocks of ayous. French, German and Netherlands buyers are very cautious and, with ample log stocks, are not looking to make significant purchases ahead of the upcoming Continental holiday season, which kicks off in mid-to end-June.
Looking at current log prices a good number are unchanged even though, or more likely because, demand is so low. Only the most popular species have had price drops, reflecting trading in what is now very clearly a buyers market. Makore continues weak with a further fall of €5/m³ for LM and B grades, ayous/obeche dropped €5/m³ for all grades. Padouk is down by €30/m³ for LM and B grades and BC/C down €40/m³. Sapele logs are very weak and fell by €20-30/m³. The favourite French species, movingue and bibolo, reacted to low demand and moved down €15/m³ for all grades while sipo and iroko are unchanged. Okoumé log producers are making efforts to find alternative markets and prices fell by up to €20/m³ for regular grades, while the lower mixed grade dropped by some €10/m³ with buyers dictating the price they are willing to offer.
In the current market climate, West African producers appear to be settling in for three or four months of lower and more difficult sales and are taking steps to hold production in balance through reductions in logging and processing. The recent full implementation of the log export quota system in Gabon, joining with that already in place in Congo Brazzaville, has been timely in capping the allowable export volumes just as the demand volumes decreased, making a contribution to the price stability that had held until the beginning of May.
Downstream impact
Where the log market goes now is likely to depend on events much further downstream than usual, in fact right through to sales levels in US furniture stores. Already there are signs that this major market for Chinese-, Malaysian- and Indonesian-made furniture is significantly less buoyant, with a domino effect on exports from China. This may well lead to a slowdown in the recent phenomenal growth in China’s furniture exports that have been forecast to overtake Italy to become the world’s largest.
Sawn lumber activities have, to a large extent, mirrored the experience of the log market, though here, prices for many more species had been stable and unchanged right through the first quarter, with only a very few weaknesses becoming significant towards the end of April.
As might be expected, the first effects were on a very few species that had made notable gains late in 2007 and by the end of April both ayous/obeche and sapele FAS GMS had dropped by €60/m³, closely followed by sipo scantlings down €55/m³ and movingui FAS GMS lower by €40/m³.
Makore had been a firm favourite over several months, with prices creeping higher each month but, by the end of April, FAS GMS were down another €30/m³ after falling €40/m³ in March and the scantlings were down again by €20/m³, having already lost €50/m³ by the end of March. Okoumé standard & better GMS lumber fell by €35/m³ and since then has lost a further €25/m³ on low demand from Italy. FAS GMS is also down €25/m³. Okoumé fixed sizes and scantlings dropped a whopping €50/m³ and at around €300/m³ FOB for FAS GMS, okoumé lumber is now the lowest priced on a list of some 40 most regularly traded West African timbers.
Log market
The current state of the European tropical hardwood lumber market is summed up by one West African exporter as slowing down everywhere but with the UK described as “a disaster”.
As with logs, Continental importers are well stocked with sawn lumber. France has adequate levels of sapele and makore and possibly an oversupply of movingui. The Netherlands is well stocked with meranti and, like Belgium and Spain, buyers are not minded to consider new contracts until they discern an upturn in building construction.
From a production point of view, West African exporters say that sapele and okoumé logging volumes are lower in the dry season in Gabon and Congo, while the rains are in Cameroon and Central African Republic. Cameroon reports say that mills have curtailed the output of sawn lumber in the selection of species for China and overall production volumes are being reduced. In other countries producers have closed operations in some concession areas to avoid excess log supplies for ply and veneer mills.
It is not a very bright picture for the remaining weeks of the second quarter and on into the third but there is no doubt that West African producers and exporters have taken steps to hold down production. The industry had a good year in 2007, but no-one is expecting an easy run through the rest of 2008. Perhaps the best that can be achieved is a measure of stable balance between supply and demand and that, at the consumer end of the trade, government plans to support the financial sector will help to revive and stimulate the building and construction industry.