Summary
¦ South-east Asian log and lumber prices continue to rise.
¦ PNG has become the major log exporting country.
¦ Housing starts have risen in parts of South-east Asia, driving domestic demand.
¦ The forthcoming EU Illegal Timber Regulation is causing concern.
The upward trend in South-east Asian log and lumber prices has rolled on steadily into the first quarter of 2011, and seems set to maintain momentum. Questions of supply seem to have been uppermost as processors in Malaysia have grumbled for much of 2010 that log supplies are tighter and prices are rising.
Precise details of price changes in the late January to early February period are difficult to determine because of lower trading activity during the traditional Chinese New Year break when primary production virtually shuts down as workers return to their home states for the celebrations. Undoubtedly there is underlying strength in the log and lumber markets as, through much of 2010, advances in price have been in regular but modest steps of around US$4-8/m³.
Although Sarawak modified proposals for a progressive increase in royalties, these have been increased for this year and all costs are beginning to rise, including freight and fuel charges. However, anecdotal information now is of recent, sharper price increases being asked for by producers for forward shipments and agreed by importers in Japan and Taiwan, driven not only by the ever tighter availability and higher production costs but also, and more likely, the reported quite sudden revival in the prospects for the plywood market in the region.
Even plywood manufacturers in Indonesia and Malaysia are complaining of having to restrict production to around 70% of capacity due to log supply problems and clearly manufacturers in countries reliant on log imports have to meet the price competition in order to secure supply.
These manufacturing countries have made big strides in reducing their dependency on tropical hardwoods through use of softwoods, composite and other cores, but at the same time sources and volumes harvested of suitable face logs have diminished.
Papua New Guinea has become the major log exporting country but not many PNG log species are suitable for peeling and volumes of peeler logs are limited in the diverse species mix in the majority of forest areas.
Amongst other changes in the regional trading patterns, India has become the largest importer of Sarawak logs and, of course, the dramatic rise of the plywood industry in China, now taking the largest share of the European plywood market, has much increased the need for imported logs. In addition, West African countries are restricting the export of logs more and more and are as a consequence not in a position to increase log exports to fill any supply shortages.
Some log price movements appear to have been negotiated showing increases of US$8-10/m³ for meranti sq and up and for small logs, keruing sq and up could be as much as US$15-20/m³ higher, with kapur also up by around at least the same amount. Log prices for re-sales within Japan are also rising and plywood prices on the Japanese domestic market went up during January, with manufacturers looking for further increases through the first quarter.
Housing starts revival
There has been some revival in Japan’s housing starts, responding to government incentives, encouraging news for the timber and allied industries that suffered very difficult conditions in 2008/2009. Indonesian housing construction is also up significantly and there is no doubt that in the producing countries the domestic demand for timber and timber products is an increasingly important factor for timber traders.
Export prices for plywood from Indonesia and Malaysia also improved. Again it isn’t easy to be precise about increases due to the time lag between previous prices and those for the latest and further forward contracts. It is certain the recent increase has been in the range of US$8-10/m³ for all thicknesses and exporters are already said to be confident of positive demand and price prospects for the whole of 2011.
Furniture exports in the region go from strength to strength, with China leading the way. It is now the world’s largest exporter, followed by Malaysia where the government is reiterating the policy of supporting strong growth in furniture and fully processed timber products.
ITTO reports Malaysia has suggested the need for some 50,000 extra foreign workers in the next few years to achieve the planned growth in processed timber products.
Indonesian furniture exports have shown a better performance recently after some difficult times because of low demand, in particular for garden furniture in Europe. There is news of a new timber laminating factory just coming into production – a significant development in the region and no doubt geared to feed furniture and other processed export industries with a fully engineered product.
Sawn lumber business has not been foremost in the market during the past couple of months and so far price advances have not been able to match the rise in the cost of raw log input, although inexorably moving higher by around US$10/m³ on average. Domestic demands are high although prices have risen only slowly. Exports to European destinations are certain to be hit by higher freight costs and, according to various analysts, the use of, for example, dark red meranti in window fabrication is declining as more manufacturers are turning to new engineered, laminated and modified wood products with greater durability.
For the future, Chatham House’s recent conference on the new EU Illegal Timber Regulation noted that time is running very short for the industry to be ready to comply by March 2013, and pointed out just how complex and far-reaching the rules will be.
An NGO survey has revealed some of the difficult problems importers will face where, for example, exporter country sawmillers, board and furniture manufacturers obtain their timber from several different suppliers. Each supplier will have to provide the sawmill and manufacturer with the paper trail of proof that the log, timber or woodchip is legal, and all this must be passed through to the EU importer.
With so many suppliers and so wide a variety of products containing timber and only two years to get ready, this is indeed a daunting prospect. Some exporters are alleging this amounts to a non-tariff barrier that will be detrimental to suppliers in developing countries while favouring suppliers within the EU. However, it appears that according to the rules, inter-EU timber trading will also require proof of legality.