The Far East report of three months ago indicated a continuation of the sellers’ markets and upwards price trend for tropical timbers. This proved correct and, although there are some pointers to rather less bullish price increases this current quarter, the basic factors of tighter log supplies, rising costs and active buying in all major importing countries still hold and there is unlikely to be any real weakness appearing in the short term.

The ITTO reports 10- to 13-year highs in prices of logs and in the past two weeks prices rose again by around US$4-5/m3. This puts the log price gains since March this year in the order of US$26-30/m3 for meranti sq and up and US$30-35 for smalls and super smalls. Keruing and kapur prices are also up by similar amounts and, with reports of very poor logging weather in west Malaysia, it is unlikely that there will be any reductions in the near future.

Once again, the only loser in this business is Papua New Guinea where log exports have risen to over 2.5 million m3 per year while their export prices are overall just between 30-50% of the prices of comparable or the same species from Malaysia, that is around US$74-80/m3 FOB for bintangor against Malaysia in the US$220-plus bracket. Last month PNG log prices fell while everyone else’s went up. In the Japanese internal log market PNG logs are priced at only about 15% lower than Malaysian logs. Around 80% of PNG export logs are shipped to China and, while recently there has been much emphasis on questions of illegal logging in PNG, even more important, any apparent discrepancy in pricing seems not to have been addressed.

China and India still dominate the Far East log trade and this is obviously set to continue.

Japanese imports

Japanese log imports are still in decline although only 10-11% of these imports are now of tropical species. Japan’s lumber imports are rising slowly and the plywood sector has strengthened noticeably, prices are higher and very firm. The Japanese staple hardwood 3x6ft floor panel is reported at record price levels and is not easy to obtain. Manufacturers are looking at composite construction of softwood and MDF – the type of change which took place with the traditional hardwood plywood – and now, after a change in the stringent Japanese Standards (JAS), much of this is composite softwood core with a hardwood face.

European trade policies are increasingly delving into the complexities of controls and procedures to eliminate illegal timber and some traders at the recent congress of the European Timber Trade Federation (FEBO) pointed to the possible negative and restrictive impact on genuine smaller businesses and on the smaller and less formal producers. In contrast, while making every effort to crack down on illegal logging, the trade policy in the Far East, especially between the ASEAN countries Singapore, Brunei, Malaysia, Thailand and Indonesia and their neighbours is very much towards freeing up trade flows by establishing and implementing free trade agreements (FTAs) and joint venture/inter-country processing facilities.

Malaysia is taking a lead negotiating FTAs with a whole list of countries including Japan, Korea, US, China, Pakistan, New Zealand and Australia. In the main, these seek to remove tariffs on most timber and timber products and many will be fully implemented through 2010 and 2012.

Japan has an FTA with Chile that frees up trade in thousands of items but, for the time being, will exclude plywood, laminates and particleboards. China has been and is still actively investing and seeking joint ventures in several countries. A recent announcement reported by MIS/ITTO is of establishing a “wood processing zone” in Russia at a cost of US$80m. It is known that China is looking to invest in timber producers with concessions in Gabon and has already bought interests in German forests where beech and oak are obvious target species.

The ITTO MIS reports yet another interesting joint Malaysia-Australia venture where Tasmanian eucalypt veneer is to be shipped to a factory in Malaysia for processing into 3×6 floor panels. This will involve 150,000m3 of eucalyptus logs each year, with supply guaranteed for 20 years.

Vietnamese progress

Vietnam, with low wage rates and a skilled workforce, is strongly developing the furniture and wood products sector, feeding this with increasing imports of raw timber in order to conserve a very limited forest resource. Vietnam has a long way to go to catch up with China, which is the world’s largest exporter of furniture, but again this flags up the very strong inter-country co-operation in the Asia-Pacific region. Some of the longer established furniture producing countries in Europe are, as usual, considering invoking anti-dumping legislation against China but it does appear unlikely that attempts to protect their local industries inevitably might provide only a temporary relief for “fortress Europe”.

Brazil has seen a reduction in furniture exports, citing a slowdown in the US market. However, it is likely that both Vietnam and China have taken market share from Brazilian manufacturers, and will continue to do so.

Back to the markets, in the past couple of weeks or so plywood has made a swift and noticeable price advance, following on from almost continual, steady increases right through the year.

Strangely, although domestic log prices in Indonesia are US$18-25/m3 higher than in August, and in spite of importers in the region mentioning supply difficulties, some Indonesian ply mills have just reduced prices by around US$10-15/m3 from the previous parity with Malaysian levels.

This is reported to be caused by the need to bring in some new business, but seems to be an unnecessary marketing move in the light of current conditions, and isn’t likely to make much impact on Malaysia’s very bullish market outlook.

Malaysian lumber producers say that prices marked time through the first weeks of this month but are predicting moderate export product price hikes through November. This follows a price rise of close to US$40/m3 since late July for the major export species.

The Middle East is a strong market for Asian producers, and imported lumber product prices have risen by 20-30% in the past few months. Middle East importers usually bring in a fairly wide range of even the lower qualities of MLH and also temperate softwoods which they then re-sort and re-grade and often re-mark to their own market needs, providing a large and very useful market for lumber producers’ lower grades.

In the first week of this month, Far East prices for logs, lumber and plywood have moved up around US$4-5/m3 and, while rubberwood prices eased a little, they are still up by US$25-30/m3 in the past couple of months. Sawn meranti moved up US$3 this month and, with short supply and limited log supplies, a modest uptrend is expected through the rest of the quarter.