Indonesia is possibly the timber exporter in the Far East region that is most comfortable and confident of having established in good time smooth and fully compliant procedures for its wood products to enter the EU problem-free when the EU Timber Regulation comes into force on March 3.
This is a considerable achievement in view of the country’s massive size and the vast forests in long and remote border areas which were for many years plagued by gangs of illegal loggers.
The UK and Continental Europe’s imports of tropical hardwood logs and lumber have been falling steadily for many years and there are now fewer but larger direct importers. Also, in producing countries there are fewer and larger exporters, and government forestry departments’ control of forest areas and concessionaires has tightened substantially in recent years. In effect this would indicate that problems of compliance with the EUTR should be minimal for these basic products.
However, for processed timber, board products, furniture and many thousands of items containing some components of timber, the picture is much less clear.
On the import side, excluding basic secondary products, plywood and manufactured boards, the sheer volume of this type of ‘other products’ business appears so large that monitoring or checking even the paper trail of every exporter or of every container would be a monumental and expensive task irrespective of which end of the supply chain it has to be done.
It will take time for export countries to ensure all their industries are compliant. This is a particular problem for large exporting countries such as China that have diverse sources of timber supply and in many different species. Papua New Guinea is the largest volume supplier of tropical hardwood logs to China; Russia is the largest supplier of softwood logs. Both of these exporters have at times been accused of being the source of illegal timber. In the past, problems in PNG were more about logging trees of diameter smaller than allowed under the terms of the concession rather than exceeding volume quotas. Because PNG’s land and forests are owned by the people and not by government the system differs from most other tropical countries. In PNG the government negotiates with the local landowners for the timber rights and then appoints a company to harvest and process the timber, with payments to the people and agreed developments such as roads. In this way it would appear that legality is more easily assured, and the opportunity for illegal logging perhaps less obvious.
Plywood market
Plywood manufacturers and the Chinese government have been working with EU and other buyers on clear identification of raw wood sources. It will be a long and complex process and opinion is that environmental lobbyists will focus on products sourced from China.
EU imports of tropical hardwood-faced plywood are falling: China and Malaysia are losing volume but Indonesian supply has remained quite steady. Prices did not move significantly last year; Malaysian ply is on average only US$5/m3 higher than in January 2012. Indonesian figures are not clear but appear to have made some gains into 2013, with prospects particularly good for further improvement in volume and value.
Malaysian prospects also appear positive although the government proposal to increase the minimum wage may affect margins as well as prices and the industry is calling for discussions.
Sarawak is the largest supplier of round logs to India, shipping almost 2 million m3 in 2012. Prices for meranti SQ fell by around US$20-30/m3 through 2012, while kapur and selangan batu put on US$70-90/m3. Keruing ended the year US$15-20/m3 higher. Bangkirai prices are reported as high and likely to rise, reinforcing that business in the more ‘interesting’ and specialised timbers has become more profitable.
Sawn lumber exports
Sawn lumber exports from the region have a pattern similar to that of competitive West African timber. For the best species and qualities there were some modest price gains in the second and third quarters, a downturn towards the end of the year, but last month prices were back to the same level as January 2012. For MLH the picture is of a slow decline, of possibly up to US$20/m3 to date. Some of this is due to increased competition from West African exports to the Middle East. Far East exports have been inhibited by shipping costs as ship owners have been pushing hard for higher freight charges, mainly through the bunker surcharge, but the lower freight costs and faster services from the African suppliers have also had an impact. Market prospects are of course much coloured by the introduction of the EUTR.
India is forecasting economic growth in 2013, perhaps not up to the double digits seen in the past but a firm and growing market for wood imports. Japan is still struggling but housing starts have been improving, with more emphasis on wood in housebuilding providing better prospects for the timber industry.
China did modify restrictions that had been imposed to slow the speculative building boom, there is fast-growing demand for housing and, while there was a slight slackening in buying during the third quarter of 2012, there are no signs of timber imports being seriously curtailed. How the market will develop towards the third quarter is not yet clear. The US economy has made some progress and building starts are marginally higher, so prospects for furniture imports from China and Vietnam seem positive.
UK and EU business is likely to continue dull and unexciting, as it was through 2012. Importers are well aware of the problems that will arise wrestling with implementation of the EUTR and, as always, they will meet the challenges as just another chore that it is hoped will, in time, make sourcing of legal and sustainable supply much easier – and less stressful.
