Tropical Timber Market Report

The Malaysian government is stepping up efforts to promote automation by providing soft loans; Europe is starting to see the effects of legal wood push; China showing signs of slowing consumption. ITTO shares the happenings around global wood market.

 

Malaysia

Export on track for a record high

Malaysia’s Ministry of Plantation Industries and Commodities says exports of wood products are forecast to rise to RM23 billion this year, up from the RM21.86 billion last year.

 

NasrunDatu Mansur, the Deputy Minister said the government will do all it can to develop the talent of Malayasian wooden furniture manufacturers as the sector is of importance to the economy. In the first eight months of this year wood product exports rose seven percent year on year to almost RM16 billion.

 

SMEs to be offered soft loans for automation

Malaysia’s 2018 budget will, for the first time, deliver support through a loan facility for expanded automation in small and medium-sized enterprises.

 

The President of the Malaysian Furniture Council, Chua Chun Chai, welcomed this initiative saying one way around the acute labour shortage in the furniture-making sector is automation. He said many furniture factories were keen to automate production to minimise dependence on foreign workers and improve productivity.

 

Mr. Chua said if the furniture industry can boost productivity through greater levels of automation then Malaysian exporters will be better equipped to meet the competition from countries like China, Vietnam and Indonesia. 

 

The president of the Johor Furniture Association, Koh ChoonChai, said furniture manufacturers were struggling to meet export orders on time because of a shortage of workers.

 

Third party verification of certification in Sarawak

The state government has indicated it will make it mandatory for all timber concessions in Sarawak to obtain forest management certification in order to enhance sustainable forest management in the state.

 

Deputy Chief Minister, Awang Tengah Ali Hasan, said the state government has strengthened the Sarawak Timber Legality Verification System (STLVS) by providing a formal standard to include independent third party verification.

 

He also said his ministry aims to reduce reliance on the natural forests for raw materials through the establishment of a viable and robust industrial forest estate in the state.

 

Off-site fabrication mandatory for government projects

The recent International Conference on Wood Architecture, hosted by the Malaysian Timber Council(MTC), delivered the message that a magnificent building material like timber should not be reduced to secondary functions and that Malaysian architects as well as structural engineers need to relook the use of timber in architecture.

 

In an opening address, stakeholders in the construction industry were urged to embrace the concept of industrialised building systems whereby components, suchas timber frames, are fabricated off-site to improve productivity and reduce onsite construction waste. For government funded construction projects there is aminimum level of mandatory off-site fabrication.

 

Indonesia

Bright prospects in furniture markets says Ministry PanggahSusanto, Director General of Agro Industries within the Ministry of Industry (Kemenperin), is on record as saying within two years furniture exports could rise to US$5 billion as demand in the US, Japan, and Western Europe picks up.

 

Currently the value of annual furniture exports is US$1.7 billion.

 

Much of the furniture exported from Indonesia is made from rattan and Paggah said rattan furniture production will be increased.

 

Kemenperin noted employment in the formal segment of the domestic furniture industry in 2016 was around 101,000 but this could double in a few years.

 

To boost rattan furniture production the Ministry of Industry is encouraging development of the furniture industry as it is a labour intensive sector and has decided to make Cirebon, a port city on the north coast of Java,one of the main centres for rattan supply and rattanfurniture and handicraft production.

 

In contrast to the positive outlook from the Ministry of Industry, the Chairman of Association of Indonesian Furniture and Handicraft Industry (Asmindo) Mugiyanto said furniture manufacturers are facing challenges ininternational markets where sales of Indonesian furniture face tough competition and suffer from a poor image dueto perceptions that illegal timber is being utilised.

 

Mr. Mugiyanto said to expand sales manufacturers need to be deliver innovative product designs and to expand outreach to address the negative perceptions of Indonesian wood products in international markets.

 

In the current trading environment Asmindo has suggested a focus on the domestic market as the building sector isvery active with huge investments in family homes, apartments, hotels and office buildings where furniture will be needed.

 

Policy for forest-based energy needed

HaruniKrisnawati, from the Forest Research and Development Center, Ministry of Environment and Forestry, said the utilisation of renewable energy based on forest resources can support Indonesia’s efforts on to cut greenhouse gas emissions.

 

However, little progress will be made until the government has a defined policy to support this. What is needed, says Mr. Haruni, is a policy on competitive tariffs for electricity from renewable sources.

 

Ministry to expand community forests management

The Ministry of Environment and Forestry has targeted the allocation of 5 million hectares of social forestry from now until 2019. Currently the area of allocated to social forestry is only 1.07 million ha but this is expected to rise when full 2017 data is available.

 

In related news, the Indonesian President granted customary forest management rights to nine village forest management units covering an area of 80,230 hectares and promised technical help and financial support for the recipient communities.

 

Myanmar

 

Myanmar millers lobby MTE to sell logs in local currency

In a letter to the Myanmar Timber Enterprise (MTE), national sawmillers are urging that bids in tender sales be permitted in Myanmar kyats. 

 

This proposal was includedin a letter submitted by the Myanmar Forest Products Merchants Federation (MFPMF) to the Vice President. In the same letter, the MFPMF also asked for separate tenders only for Myanmar national manufactures

 

The MTE accepts US dollars for some sales and kyats forothers which causes confusion. Domestic companies canpay in kyats but when these millers tried to export products from logs purchased in kyats they ran into trouble as traceability was said to be weak which resulted in the Forestry Department suspending export of wood products milled from logs purchased with kyats.

 

Exports dip as confidence of international buyers hasbeen undermined

From 1 April to 3 November 2017 the value of timber exports amounted to US$4.1 million down sharply on recent years. 

 

Analysts say the recent action by authorities in Denmark and Netherland has undermined the confidence of importers and this is reflected in the level of exports.

 

Myanmar seeks PEFC membership

A delegation from the Myanmar Forest Certification Committee (MFCC) attended the PEFC General Assemblyin Helsinki and formally declared their intention to be a PEFC member within three years.

 

MFCC and PEFC are undertaking a three-year project supported by the Prince Albert II of Monaco Fund to strengthen MFCC as an institution and to strengthen the Myanmar Forest Certification System (MFCS) as the

National Certification System.

 

This, say analysts, will contribute the mitigation of risk in Myanmar’s forestry and timber industry sectors.

 

Aim to have forestry sector included in EITI negotiations

Myanmar’s most recent economic policy identifies the role that satisfying the requirements of the Extractive Industries Transparency Initiative (EITI) can play inassuring transparent natural resource governance.

 

The extractive sector in Myanmar makes a significant and growing contribution to the country’s GDP and U Tin Tin, leader of EITI working group in the Forestry Department,told the local media that discussions are underway to have the forest sector assessed independently in readiness forfurther discussion with EITI.

 

It is anticipated that assessment of the forestry sector for the EITI will demonstrate improvements in transparency and the growing cooperation between the Forestry Department, the private sector and civil society. The ultimate aim is to strengthen the international image of the Myanmar forestry sector.

 

India and Myanmar promote bilateral relations

A recent workshop ‘India-Myanmar relations: The Way Forward’ organised jointly by the Calcutta-based Institute of Social and Cultural Studies (ISCS) and the Yangon-based Myanmar Institute of Strategic & International Studies (MISIS) highlighted trade between India and

Myanmar and reported that this had doubled to over US$2 billion over the past 10 years.

 

Participants called on both countries to work towards removing obstacles to trade through addressing connectivity, infrastructure, labour movement,logistics and complementary financial services. 

 

The last point is particularly relevant as at present most international transactions between India and Myanmar are through Singapore. The meeting called for the authorities in Myanmar to modernise its banking sector.

 

The workshop also recommended the creation of Special Economic and Industrial Zones along main road arterieslinking the two countries.

 

China

First hint of slowing consumption

The economy in China is on track to meet targets set by government but many analysts have expressed concernover rising debt levels. Domestic consumption is strong, but China’s official manufacturing Purchasing Managers'Index (PMI) for October was lower than expected.

 

The October PMI for large-sized enterprises was 53.1 (down 0.7 points) but still in an expansionary mode. The PMI for medium-sized and small-sized enterprises came in at 49.8 and 49.0 points signalling decline.

 

Among the five sub-indices composing PMI the raw materials inventory index, employed person index and supplier delivery time index were lower than the positive threshold.

 

The official data suggest that both production and demand fell in October, a decline put down to reduced output ascompanies, especially those in the northeast of the country,complied with environmental regulations and the long holiday in October.

 

For the year to October the manufacturing sector has achieved solid growth on the back of consumer spending and expenditure on infrastructure developments.

 

Japan

 

Wood products trade with EU

In last July, rough agreement was made by EPA trade negotiation. On wood products, import duty will be reduced step by step for next seven years and will be dutyfree after eighth year on 10 items like SPF lumber,

structural laminated lumber and fibreboard. 

 

Import duty rate and imported value by items are shown in the chart. Import duty used to be high of 20 percent but now it is about six percent.

 

Trans Pacific Partnership (TPP) involves 12 countries around the Pacific and it is basic rule to abolish all theduties immediately but after President Trump waselected, the US decided to get out of TPP so this is deadrocked now.

 

Meantime, it is significant that Japan and EU came up with agreement since European wood products are now major items for Japanese housing.

 

Demand on European lumber and laminated lumber has been expanding largely in Japan as strength, quality andsupply capacity of European products cannot be replaced by other sources so they surpassed share of North American products.

 

It is certainly a good news that the duty will be abolished, which reduces the cost of the products. However, it is hard to predict how duty free will influence the market afterseven years, which is too far away to see.

 

European lamina is basic raw material for domestic laminated lumber manufacturers but European suppliers have other markets to play with while finished laminated lumber like whitewood post and redwood beam are made for Japan market so the suppliers have very little choice and the prices are subject to Japanese market while lamina has wider markets so actually the prices have kept climbing despite considerable strong Euro.

 

Whitewood laminated post has competition of domestic cedar laminated post and the same is on KD stud. Since last summer, whitewood laminated post has not expanded the share despite lower prices.

 

Redwood laminated beam has tight supply so despite higher prices, it has been accepted in the market but the demand for all the wood products will decrease in a long run by decline of population in Japan so the demand for European lumber will shrink.

 

In the meantime, European market is active and other markets like China continues growing so elimination of import duty is easily wiped out by export price increase by the suppliers and it does not help reduce the cost of import products.

 

In board and plywood, OSB and particleboard are the most influenced by the EPA. European OSB is the second largest source of import. In 2016, total OSB import was 277,601 cubic metres, out of which European OSB was 90,442 cubic metres and Canadian OSB was 184,651 cubic metres, 66.5 percent share in total import. 

 

Due to higher transportation cost from Europe and strong Euro, European OSB is relatively higher in prices compared to the Canadians.

 

In total import of particleboard in 2016, European PB was 168,792 cubic metres, 68.4 percent share. Majority is low melamine decorative board.

 

Sawnwood exports up 60 percent

Export of lumber has been increasing rapidly in last twoyears. For the first eight months of this year, the exported volume is 84,370 cubic metres, 62.4 percent more than the same period of last year. Total volume of the year will be 100,000 cubic metres.

 

This is quite a progress since total lumber export volume is about 40,000 cubic metres in 2008 and 2009 and about 60,000 cubic metres in 2010 and 2015. In 2016, Chinese economy slowed down and log export slowed down but lumber export has steadily growing.

 

China is the leading buyer of lumber, which is used as lamina for laminated lumber and interior finishing then sheathing of housing. Average unit prices are 34,000 yenper cbm, which is not high but makes steady business.

 

Noticeable move is export of lumber to the US Thisyear’s export volume is 7,338 cubic metres, four times more than the same period of last year. Average unit price is nearly 50,000 yen, much higher than the prices for China.

 

Lumber export for Taiwan and Vietnam is also 30-40 percent more than 2016. Lumber export to the Philippines has been large but this is for some major Japanese house builder’s precutting business in the Philippines so that processed lumber returns to Japan. Log export volume for the first eight months is 677,582 cubic metres.

 

Brazil

 

Furniture production increases in Southern Brazil

Rio Grande do Sul and Paraná states are two prominent furniture centres in Brazil and according to Brazilian Institute of Geography and Statistics (IBGE), furniture production in Rio Grande do Sul state in August expanded just over 10 percent. 

 

In the Paraná state, the equivalent growth was almost five percent. Year on year, production in Rio Grandedo Sul increased 2.2 percent, while that in Paraná rose 11.6 percent.

 

Wood-plastic panel production from wood residues 

Early work on the production of a wood-plastic panel in the state of Amazon as has been encouraging. Trial production has utilised timber residues.

 

This value added product from residues of Amazonian timber offers an opportunity to expand the range of wood-based panels available in the market.

 

Furniture exports increase

Data from the Ministry of Development, Industry and Foreign Trade (MDIC) show the trend in furniture exportsin the first nine months of this year in comparison with the same period of 2016.

 

From January to September 2017 furniture exports amounted to US$456.9 million against US$ 432.1 millionin 2016. Looking ahead, the MDIC expects total exportsfor 2017 to be around US$660 million. Brazilian contribution to the global furniture trade of about US$270 billion is around 0.25 percent.

 

The trade balance in the furniture sector continues positiveas imports have been falling reflecting the state of theeconomy.

 

Between January and September 2017, furniture imports totalled US$398 million, down 14 percent year on year. Brazilimported furniture from China worth US$124 million, down six percent compared to the first nine months of 2016.

 

Europe

 

UK sawn hardwood market holds up well despite Brexit concerns

While imports of tropical sawn hardwood into the euro zone countries have failed to live up to expectations in 2017, having declined as economic growth has revived, imports into the UK have followed the opposite trajectory.

 

UK imports of tropical sawn hardwood have held up well this year despite slowing economic growth. The UK imported 70,475 cubic metres of sawn tropical hardwood in the first eight months of 2017, marginally more than 70,322 cubic metres imported in the same period in 2016.

 

Total UK imports of sawn hardwood, both tropical and temperate, have been consistent at between 170,000 cubic metres and180,000 cubic metres per year since the start of 2014.

 

The moderate growth in UK tropical sawn hardwood imports this year has come partly at the expense of temperate hardwood imports which have declined in 2017,particularly from the US, Estonia and Italy.

 

African sapele is by far the dominant tropical hardwoodimported into the UK, being strongly preferred for a widerange of joinery applications. UK importers report that sapele prices, which were stable in the first three quarters of 2017, are now beginning to rise.

 

They also report that supply of some other popular tropical hardwoods—such as iroko and meranti—has been limited this year. However, availability of idigbo and utile has been good, with stable prices.

 

This year, demand for sapele in the UK was boosted following the catastrophic fire at Grenfell Tower whichled to at least 70 deaths in London in June this year. One outcome of the subsequent nationwide review of firesafety standards has been withdrawal of approval to use beech for manufacture of 60-minute fire doors and a partial switch to sapele in this application.

 

There has also been a notable rise in UK imports from the Congo Republic.Imports from Ghana and Ivory Coast have been sliding this year.

 

Imports from Malaysia, mainly of meranti, recovered ground at the end of 2016, but have been declining in2017. Imports from Brazil, which fell to negligible levels in 2014 and 2015, have been slowly recovering in the last two years.

 

The EU Timber Regulation has had a major impact on tropical timber procurement practices in recent years. It has focused supply on a much more limited range of companies in tropical countries for which UK importers are confident of assurances that timber is legally harvested. In practice, this has meant increased demand for FSC and PEFC certified products.

 

The fact that UK imports of tropical sawn hardwood havebeen rising from DRC this year, and are still high fromIvory Coast, both countries with no certified forest area,indicates that other forms of legality assurance are still being accepted.

 

Pressure mounts for imports of certified timber

However, the pressure on UK importers to purchase only certified material is mounting. Many of the UK’s largest timber distributors are signatories to the WWF ForestCampaign which commits them to sourcing 100 percent certified material by no later than 2020.

 

Significant changes are already underway in UK imports of temperate hardwoods. The recent decline in UK importsfrom the US, of which around 55 percent comprises oak, was initially currency driven. The slide in UK trade in American hardwood began immediately after the Brexit vote in June 2016 when the pound plunged in value against the dollar.

 

Since then, UK importers have grown accustomed to the greater uniformity and more appropriate moisture contentof European oak (which is slightly higher and better suits UK ambient temperatures) compared to US oak and have been reluctant to switch back even as prices for European oak have risen. This is particularly true of thicker sizes ofoak, a market whichis now heavily dominated by the European variety.

 

The decline in UK sawn hardwood imports from the US this year is also partly due to deteriorating supply of American ash, now seriously impacted by the emerald ashborer infestation.

 

This is devastating ash stocks in the US and has alsoencouraged the EU to impose stringent phytosanitary controls on US ash imports. US suppliers are divertingmost of the ash that is available to markets with less stringent phytosanitary rules, particularly China where there is strong demand for the stocks available.

 

On the other hand, UK imports of American tulipwood have been consistent, with strong demand for this speciesfor lighter interior joinery and furniture applications.

 

Falling EU imports of mixed hardwood plywood from China

After rising strongly in 2016, EU imports of hardwoodplywood have been slowing this year. The decline inimports has been concentrated in mixed hardwood products from China. Imports of tropical hardwood plywood, both directly from tropics and from China, have been rising this year.

 

EU imports of hardwood plywood peaked at an annualised level of 2.80 million cubic metres in November 2016, but thisfigure had fallen to 2.65 million cubic metres by July 2017.

 

During this period, imports of mixed hardwood plywood from China fell from an annualised level of 1.03 million cubic metres to 862,000 cubic metres.

 

This decline in importswas partly offset by a rise in annualised imports of tropical hardwood plywood from China from 124,000 cubic metres in November 2016 to 181,000 cubic metres in August 2017.

 

During the same period, direct imports of hardwood plywood from tropical countries also increased, from anannualised level of 356,000 cubic metres in November 2016 to 393,000 cubic metres in August 2017.

 

Between November 2016 and August 2017, there weresignificant gains in annualised imports from Indonesia(129,000 cubic metres rising to 144,000 cubic metres), and Brazil (19,970 cubic metres rising to 23,000 cubic metres). Imports also increased from arange of smaller supplying countries including Vietnam, Thailand, and Morocco.

 

During the same period, annualised imports were flat from Malaysia at 123,000 cubic metres and declined from Gabon from 38,000 cubic metres to 35,000 cubic metres.

 

In terms of destination countries, imports of hardwood plywood in the UK were broadly flat at an annualised level of 860,000 cubic metres in the 12 months prior to June 2017,but then slowed sharply to 810,000 cubic metres during summer this year.

 

Imports in Germany, Belgium, and the Netherlands have fallen more gradually since the start of 2017, and have remained stable in Poland and France.

 

Regulatory factors appear to have had a significant impacton the EU hardwood plywood trade this year. EUTR has encouraged greater concentration of trade into a few larger suppliers with resources required to meet the due diligence requirements.

 

Indonesian plywood appears to have received a boost since issue of the first FLEGT licenses in November 2016 which allows import of Indonesian product without anyfurther due diligence.

 

EUTR coupled with increased technical demands of the EU Construction Product Regulation has also increased the trade’s awareness of the importance of accurate identification of species content for any product placed on the EU market.

 

The apparent rise in imports of tropical hardwood plywood into the EU from China may be at least partlydue to more accurate identification of the actual species content.

 

This trend may also be partly due to a greatly increased range of named species being specifically listed as ‘tropical non-coniferous’ rather than ‘other nonconiferous’ following an amendment to the Harmonised System (HS) of product codes used to compile trade data from January 2017.

 

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