RHB Research Institute said despite expecting log demand to remain stable while log prices to rise on supply constraints in 2015, this would be offset by weak plywood sales volumes and lacklustre plywood prices.
In the first few months this year, the firm observed that logging harvests have declined year-on-year (y-o-y) due to heavy monsoon rains in Sarawak which caused difficulties in harvesting operations.
Analyst Hoe Lee Leng said, “We believe log harvests in Sarawak may be flattish this year given the weak first quarter 2015 figures.”
“Meranti log prices are expected to continue rising in 2015. In February or March, prices are up 18 percent y-o-y.“Although this is higher than our projected price increase of four to six percent for 2015 to 2016, we prefer to remain conservative for now,” He added.
Looking ahead, the institution believes supply constraints for log could continue to persist in the long run due to the logging ban issued by Chinese government to phase out commercial logging in all natural forests by 2020.
Nonetheless, although Chinese softwood logs do not compete directly with Malaysia’s hardwood logs, it is believed that there is some level of substitution albeit of limited amount.
On the other side, it is observed that Japan’s housing start continued to fall, which dropped 8.9 percent y-o-y in 2014 and a further 13 percent y-o-y in January this year.
It believes the slowdown in home construction in Japan, a major destination for the export of plywood will translate to undesirable plywood prices in the medium term although log supply constraints could compensate some of the impact of weak housing starts.