Tropical Timber Market Report

The global market closed 2019 on uncertain terms with participants looking at ways to navigate the turbulent waves and find new opportunities. ITTO tells us more about what is happening in terms of production, trades and certification. 

 

Malaysia

Tenfold rise in forest fines proposed

A massive RM5mil fine is being proposed for those found to have unlawful possession of forest products. The maximum fine at the moment RM500,000. For trespassing the government plans to increase the fine from RM10,000 to RM30,000.

Water, Land and Natural Resources Minister, Dr. Xavier Jayakumar, said the proposed fines would be included in the amendments to the National Forestry Act 1984. The ministry had discussed the matter with several states and the proposed amendments would be presented to parliament. The changes would only be in effect in Peninsula Malaysia as Sabah and Sarawak have their own Forest Ordinances.

 

Advanced technology can boost Sabah furniture production

Sabah is aggressively promoting automation and smart manufacturing in the wood processing industries. Mohd. Shafie Apdal, Sabah’s Chief Minister, said that advanced technology for manufacturing can expand the output of high value wood products while holding down costs.

The Chief Minister said research, development and innovation can deliver highly competitive products for the global market. Sabah has established about 226,000 ha. Of forest plantations of which around half are of high-value commercial species. The plantation species include acacia (66%), albizia falcataria (16%), rubber (11%) and teak (4%).

 

Forest landscape restoration in Sarawk

The Sarawak Forest Department is committed to implement Forest Landscape Restoration programmes and intends to include local tree species in recovery of degraded forest areas. Previously, over 90,000 ha. have been successfully planted under the enrichment planting and restoration work throughout the state.

In other news from Sarawk, Deputy Chief Minister Awang Tengah Ali Hasan, outlined the State Governments’ plan for the total protection of 1 million ha. of forest.

 

Indonesia

Monitoring timber production and trade

The civil society organisation, Jurnal Celebes recently released a report ‘Strengthening Indonesia’s Independent Forestry Monitoring Network to Ensure a Credible Timber Legality Verification System (SVLK) and Effective VPA Implementation’.

Between October 2018 and December 2019, Jurnal Celebes monitored the management, distribution and trade of timber in the provinces of North Maluku, Central Sulawesi and Southeast Sulawesi and in the provinces ofSouth Sulawesi and East Java.

Their report raises concerns related to forest harvesting and extraction such as logging outside concession areas and subsequent conflict with communities; selling wood products obtained from outside concession areas and undertaking harvesting without first conducting environmental impact assessments.

The report also identifies infringements by companies including misreporting timber species on transport documents and loaning SVLK certificates to uncertified businesses.

Commenting on the report, Stephen Rudgard, FAO Representative of Indonesia, said the regulations should be reviewed to provide for prosecution of illegal forestry activities and there should be an expansion of joint supervision between civil society and law enforcement officials in the field to limit environmental impacts and conflict with local communities.

 

Indonesia seeks to learn from Vietnam’s success

The Indonesian Furniture and Crafts Industry Association (HIMKI) recently visited furniture plants in Vietnam to understand how the furniture industry in Vietnam was able to improve its exports in recent years. 

Also, as many companies from China are relocating their factories to Vietnam, a HIMKI spokesperson said they want to understand how Vietnam supports incoming businesses.

 

Indonesia-South Korea trade worth US$20 billion

The Indonesian Ambassador to South Korea, Umar Hadi, recently highlighted the increase in bilateral trade between Indonesia and South Korea over the past five years.

In 2018, trade between the two countries was worth around US$20 billion with Indonesia exporting some US$11 billion.

He noted that Indonesian products with potential to penetrate South Korean markets include wood products, food, beverages, processed seafood products, automotive components and electrical items. He also referred to the number of South Korean companies that have invested in Indonesia.

 

Community forests urged to link with larger companies

Indonesia’s Minister of Cooperatives and SMEs, Teten Masduki, has urged community forest owners and managers to consider greater cooperation to raise their competitiveness and open the way into the global value chain. One of the support mechanisms being developed by the ministry is for partnerships with large businesses.

Teten hopes that the community forest sector can generate foreign exchange by establishing cooperatives and making deals with larger companies as this could improve the livelihood of remote communities and farmers.

 

Obstacles to investment in forestry

The chairman of the Association of Indonesian Forest Concessionaires (APHI), Indroyono Soesilo, said that exports of wood products can be increased if the performance of the upstream forestry sector can be improved. He commented that the upstream sector is currently facing problems especially low log prices, land tenure issues, limited access to funding and underutilisation of business permit areas.

Furthermore, Indroyono said there are several important issues that need attention due to the imposition of land and building tax (PBB) in the forestry sector which is punitive and unclear on the amount charged, the classification of taxable assets (land and buildings) and the overall scope of the tax.

 

2019-2024 forest development roadmap

APHI has launched its 2019-2045 Production Forest Development Roadmap with the aim of expanding social forestry and re-configuring forestry businesses.

The roadmap contains investment, production and export targets as well as targets for employment in the forestry sector. The Plan encompasses issues such as non-timber forest products and environmental services.

According to the APHI chairman, in 2020 the forestry sector will face challenges and strategic issues in investment development and there is a need to boost forestry performance which will involve developing multi-businesses, synergising and balancing the flow of goods, funding, rationalisation and review of fees and developing new clusters for enterprises.

 

Aiming for a rise in exports to the EU

The government has targeted a 10 percent growth in export of wood products to the European Union in 2020. Rufi'ie, the Forest Products Processing and Marketing Director of the ministry said wood products from Indonesia are of high-quality and efforts to increase production capacity will be required if the target is to be achieved.

The value of Indonesian wood product exports to the European Union in 2017 reached US$994.5 million rising by 8.5 percent to US$1.08 billion last year. This year export values in the 11 months to November were US$963 million.

 

Trade dispute undermining performance of the furniture sector

The Ministry of Industry (Kemenperin) said it would continue to support growth in the furniture industry.

However, the sector has faced problems as the Ministry of Industry records show the value of furniture exports reached only around US$730 million in the first half of this year while exports in the first six months of last year reached US$845 million.

Gati Wibawaningsih, Director General of Small and Medium Industries in the Ministry of Industry suggested the decline in exports was due to the effects of the US/China trade dispute. Gati said he expects around 52 foreign manufacturers to relocate to Indonesia and that this would boost furniture output.

In related news, as many as 200 Chinese timber entrepreneurs are considering investing in Central Java according to the Investment Coordinating Board (BKPM).

This was the result of a meeting with the Shandong Timber Employers Association at the Indonesian Embassy in Beijing recently.

During this meeting, the BKPM team, represented by the Director of Services and Regional Planning Nurul Ichwan and members of the Investment Committee, explained how investors will be supportedin resolving problems.

The Shandong entrepreneurs indicated they are considering relocating to East Kalimantan because the price of land in East Kalimantan is much cheaper than in Central Java. In addition, East Kalimantan has abundant forest wood.

 

India

Growth prospects dip for 2019-20

The Reserve Bank of India (RBI) revised GDP growth down to five percent for 2019-20 from the 6.1 percent projected in October 2019. At the same meeting the RBI kept the key policy rate unchanged at 5.15 percent and decided to continue easing efforts to support growth while ensuring that inflation remains within the target set.

Markets had widely expected a sixth rate cut from the RBI because of the slow growth in the Indian economy.

 

Developers see growth in ‘senior living space’ housing market

The Indian residential market recovered modestly in 2018 after a disastrous 2017 with residential sales growing by over 40 percent year-on-year and the recovery of sorts extended into the first nine months of 2019 with sales increasing by 14 percent compared to the same period in 2018.

Despite the improvement sales do not match levels achieved in the pre-demonetisation period which, say analysts, indicates a growth potential that the residential market has if consumer sentiments improves.

On the supply front, new projects have declined almost 10 percent year-on-year in the first three quarters of 2019 as compared to the same period last year. The liquidity crunch continues to hold back developers’ decisions to launch new projects.

According to JLL Research, an increasing number of developers are venturing into the senior living space of the Indian real estate market. There has been a marked increase in the number of senior living projects since 2010. It is estimated that the population above 60 years of age in India will rise to approximately 170 million by 2025.

The report says “seniors are also evolving as a customer segment and have demands different from seniors in earlier times. A significant section of seniors today are independent, financially stable, well-travelled, socially connected and as a result, have well developed thoughts of how they want to spend time after retirement.”

Since land prices in the major cities are very high senior living has more potential in tier-2 cities where land prices are lower.

 

Fund to revive stalled housing projects

The government has established a fund to revive up to as many as 1,600 housing projects, many of which have been classified by banks as non-performing assets or are facing insolvency. The Union Finance Minister, Nirmala Sitharaman, said there may be some relief for those who have defaulted on repayment of their home loans stalled projects across the country.

This latest news follows a government decision to establish a fund for the completion of stalled affordable and middle-income housing projects.

Niranjan Hiranandani, president of the National Real Estate Development Council said “This will be a win-win for homebuyers and real estate developers as it will help alleviate financial stress faced by homebuyers who have invested their hard-earned money, while also releasing funds stuck in such delayed/ stalled projects for productive purposes.”

 

Vietnam

Be proactive to take advantage of trade deals says industry expert

Vietnam has the opportunity to increase exports of wood products to other Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) member countries. This was the message conveyed by Nguyễn Thị Thu Trang, Director of the Vietnam Chamber of Commerce and Industry’s WTO and Integration Centre.

To take full advantage of the opportunities said Nguyen Thị Thu Trang the products must meet the CPTPP’s rules of origin and conform with sanitary and phytosanitary requirements and meet technical standards in the partner country.

“If we do not meet their requirements, we cannot utilise the preferential tariffs that CPTPP member countries offer to us.”

Japan, Malaysia, Singapore, Australia, New Zealand and Chile are countries that Vietnam has bilateral or multilateral FTAs with. The CPTPP creates another preferential tariff scheme for businesses, who, depending on which FTA offers more advantages, should choose that to export under, she said.

“We export a lot to CPTPP member countries, but our market share remains modest, for instance at 2-2.9 percent of their footwear imports and 0-6 per cent of garment and textile imports.” 

There is still much more room for Vietnamese firms to boost exports. “Canada, Mexico and Peru are countries that Vietnam does not have free trade agreement with, thus CPTPP offers great opportunities for Vietnamese firms to access these markets through preferential tariffs.”

 

More action on relabelling

Vietnam’s exporters have benefitted from the US/China trade war and have been forced to address the issue of US bound China made products being transported through its territory to evade US tariffs as this threatens the reputation of domestic manufacturers.

Recently the government prepared a list of products that are reputedly at risk of re-routing from China through Vietnam.

In another bid to assuage US concerns of Chinese rerouting, Vietnam’s Ministry of Industry and Trade announced it will suspend exports of some plywood goods to the US from late December as it has been discovered that products made in South Korea and Taiwan have been shipped to Vietnam for minor processing before being re-packaged and shipped as ‘Made in Vietnam’ products.

 

Is the rise of FDI in Viet Nam’s timber industry of benefit or concerning?

Although FDI is seen as a key driving for the development of the Vietnam’s wood processing sector some government agencies have stressed that this also brings many challenges and risks such as the illegal trade in raw materials, unfair competition as well as socio-economic negative impacts.

Dien Quang Hiep, Chairman of Binh Duong Timber Association (BIFA) has pointed out that the rapid increase of FDI in Vietnam’s wood processing sector especially by Chinese enterprises has created fierce competition for labour, raw materials and market share. There has also been a rise in product origin fraud and price transferring.

This, said Dien Quang Hiep, requires attention to three issues First, a nationally-wide review of all three types of investment is required looking at new investments, capital raising projects and business cooperation contracts.

Secondly, the national authorities should closely coordinate with local timber associations to limit ‘informal’ investment arrangements and thirdly, the Ministry of Industry and Trade and functional ministries, government bodies should strengthen border control and trade security.

The main countries investing in Viet Nam are China, Japan and South Korea. By the end of September 2019, Vietnam's wood processing industry attracted almost 70 new investment proposals worth over US$58 million. This was around two and a half times higher than before the beginning of the US/China trade dispute.

South Korea investigating dumping of plywood by Vietnam In December, the Korean Trade Commission announced an anti-dumping investigation on plywood imported from Vietnam. This came about as Korea’s domestic manufacturers complained that imports from Viet Nam are damage the domestic industry.

According to the Korean news agency, Vietnam's wood products have a 40 percent market share in Korea, a market worth around US$650 million.

It has been reported that the Korean Wood Production Association is proposing an anti-dumping duty of 93.5 percent on Vietnamese plywood in stark contrast to the antidumping rate from 3.96 percent to 38.1 percent for plywood imported from Malaysia and China.

 

Exports top US$1 billion in just one month

In October the value of Vietnam's wood product exports was US$1,037 billion, up 20 percent compared to September and by 23 percent compared to October 2018. 

This was the first time Vietnam’s export earnings from wood products exceeded US$1 billion in a single month.

Exports in the first 10 months of this year totalled around US$8.6 billion, up 18 percent over the same period last year. Also, in the first half of November, exports of wood products reached US$451 million. It is estimated that in a short time the target of US$9 -10 billion export value for 2019 will come a reality.

Vietnam’s exports of non-wood forest products are also growing. In the first half of November exports of rattan, bamboo, sedge and natural fibre carpets reached more than US$23 million, bringing the total export value of this group of commodities to US$407 million since the beginning of 2019.

 

Major export markets for Vietnamese wood products

The US is a top export market for Vietnamese wood products and has contributed to the success of Vietnam’s exports in the first 10 months of 2019. In October, the export value of wood products for the US market was US$547 million, up 41 percent compared to October 2018 and this accounted for more than 50 percent of the total export value for the month.

Another important export market of Vietnamese wood and wood furniture is China. Vietnam is one of the biggest suppliers of wood and wooden furniture to the Chinese market, together with Italy and Poland.

In the first nine months of 2019, China’s imports from these three markets accounted for 48 percent of total wooden furniture imports.

Japan wood product imports from Vietnam in the first 10 months of 2019 were up 19 percent over the same period in 2018. There was a surge in Japan’s demand for furniture from Vietnam before Japan's consumption tax increased to 10 percent from October 2019. In addition, timber enterprises in Japan have benefitted from the Vietnam-Japan Economic Partnership Agreement.

 

Vietnam's timber industry not yet paying attention to the domestic market

The recent Vietnam Furniture and Interior Fair (VIFA HOME 2019) organized by the Ho Chi Minh City Handicraft and Wood Industry Association (HAWA) in November 19 highlighted that Vietnam’s timber industry has not focused much on domestic demand even while demand is growing very strongly as incomes rise.

HAWA has estimated domestic demand is in the region of US$5 billion annually and this has attracted many foreign suppliers creating a fierce competition.

Unlike most export markets Vietnamese consumers prefer wood products with unique styles and favour order-made designs which is a strength of small and medium-sized processing enterprises in Vietnam.

 

Japan

Dip in machinery orders signals economic slowdown

Signalling a likely slowdown in growth, orders for machinery placed with Japanese companies fell in the final quarter of the year according to Cabinet Office data.

Capital expenditure driven by orders for machinery has been resilient until recently as companies at home and abroad invested in new equipment and in automation by Japanese companies because of the tightening labour market, the result of a shrinking and rapidly aging population.

Policymakers had been hoping business investment would remain robust to off-set the dip in consumer spending as a result of the sales tax hike in October. Private-sector machinery orders, excluding those for ships and electric power companies, declined by six percent in October.

 

Massive economic stimulus package to support growth

Japan’s economy is highly sensitive to exports so the US/China dispute and now the Japan/Korea trade dispute are undermining export growth. To counter slowing growth the government has put together a massive stimulus package worth over yen 25 trillion yen (around US$ 230 billion).

This is the first stimulus package in three years and is focused on lifting consumer spending by promoting ‘cashless sales’. Public infrastructure will also be targeted.

 

Consumer confidence continues upward momentum

November consumer confidence data from the Cabinet Office showed a remarkable reversal, climbing to a five-month high.

The overall consumer confidence index rose and the index reflecting household’s inclination to buy durable consumer goods also rose in November. In contrast the Tankan survey conducted by the Bank of Japan showed Japanese manufacturers had again turned pessimistic about business prospects. Analysts put this down to the continuing US/China trade dispute and weakening global demand.

 

Popularity of wooden housing drops

Interest in wooden housing among Japanese has been steadily declining since 1989 according to a Cabinet Office survey. The reasons cited by respondents to the survey include high maintenance costs and vulnerability to fire.

The share of respondents preferring to build or buy wooden homes dropped to just over 73 percent, down from the over 80 percent polled 30 years earlier. Homes made of reinforced concrete and steel frames the main alternative mentioned. The Japanese Forestry Agency has said “We need to promote the positive (environmental) aspects and the safety of wooden housing,”

 

China

New quarantine regulations for wood-based panels

In order to promote the development of China’s wood-based panel sector the State Forestry and Grassland Administration (SFA) has amended the scope of quarantine regulations for wood-based panels. The amended regulations will be effective as of 1 January 2020.

The new regulations take account of the various production technologies for wood-based panels. It has been decided that some types of wood-based panels where the manufacturing process involves hot pressing quarantine regulations will be suspended. The specific categories are listed in Annex 1 in the above-mentioned document and include particleboard, fibreboard plywood, decorative veneer over a wood-based panel base.

All provincial forest authorities are required to improve and innovate management methods and to strictly enforce the quarantine regulations.

 

China’s timber processing industry

According to the local press, the China Green Times, the output value of China’s timber processing and wood products industries in 2018 was RMB1.3 trillion, accounting for 17 percent of the total output value of China’s forestry sector.

 

Wood-based panel industry

There are about 10,000 wood-based panel enterprises with three million direct and indirect employees in China. The total output of the national wood-based panel sector was almost 300 million cubic metres in 2018, a year-on-year increase of 1.4 percent. Twenty-five provinces in the country have woo-based panel enterprises of which production the capacity in seven provinces exceeded 10 million cubic metres.

The wood-based panel sector in China has undergone transformation and out-dated production methods have been phase-out. More than 3,000 plywood enterprises have been closed across the whole country and around 600 fibreboard plants have ceased operation along with over 1,000 particleboard plants. The number of large and medium-sized wood-based panel enterprises has increased and the technological base has been strengthened. The application of new low-toxicity or non-toxic environment-friendly adhesives has accelerated and the quality of output has improved.

 

Wood flooring industry

There are nearly 3,000 wood flooring enterprises with around one million employees in China. The total output of wood and bamboo flooring in 2018 was 789 million cubic metres.

The process of consolidation in the wood flooring industry has accelerated in recent years with a concentration towards dominant brand enterprises. The output of the top ten large-scale enterprises accounts for more than 30 percent of the total output of the sector.

More and more wood flooring enterprises regard innovation as their development strategy and have invested heavily in R&D to continuously improve their technological innovation. Chinese wood flooring enterprises have over than 8,000 patents.

 

Wooden furniture industry

As the largest wood processing sector there are nearly 80,000 wooden furniture enterprises with five million employees in China. Five major furniture industrial clusters have been established, the Pearl River Delta,

Yangtze River Delta, Ring Bohai Sea, the Northeast and the West regions. These account for 90 percent of the national furniture production capacity.

The wooden furniture industry is consolidating and some of small and medium-sized enterprises have withdrawn such that the total output and sales by the sector has dropped.

On the other hand, the custom/tailor made furniture sector has become a new growth point in the furniture industry to meet increasing demand for individuality.

This sector has expanded at around 20 percent annually for many years. The size of the domestic customised furniture market was about RMB290 billion in 2018.

 

Wood door industry

The output of China’s wooden door sector is said to be the highest in the world and China is also the main wooden door consumer market. The total output value of the national wooden door sector was about RMB140 billion in 2018, an increase of 11 percent over the same period in the previous year. There are more than 10,000 wooden door enterprises in China and these are found mainly in the Pearl River Delta, Yangtze River Delta, Ring Bohai Sea, Northeast, Southwest and Northwest regions. Growth in the wooden door sector is slowing and the pace of consolidation is growing.

Analysts expect production will be further concentrated in large-scale, mechanised plants. More and more wooden door enterprises have increased R&D and introduced automation.

 

Wooden building sector

Demand for wooden framed buildings is growing and the wooden building sector is expanding fast especially for the leisure, agricultural, tourism, real estate and landscape markets. There have also been developments in the multi-story wooden structures and the public building market.

It has been estimated that the wood structure market will be around 4.5 million square metres annually over the next three years. There are around 1,200 wooden structure enterprises in China found mainly in Eastern China, Northern China and the Northeast regions. Tourism development projects, residential buildings and garden landscaping are the most important three major markets for wooden structures.

 

Slowdown in China’s wood products exports

According to China Customs the total value of China’s wood product exports in 2018 was US$61.6 billion, a year-on-year increase of two percent.

The value of wood-based panel exports rose about seven percent to US$6.775 billion. The volume of plywood exports accounted for 80% of the national total volume of wood-based panel in 2018. The value of China’s wooden flooring exports was US45.64 billion and was shipped mainly to the US and European markets.

 

Falling demand for laminated rubberwood panels

Demand in China for imported laminated rubberwood panels has fallen as both international and domestic demand has weakened.

Thailand is the major supplier to China but, in the words of an analyst, “the laminated panel market is experiencing a cold winter". Prices for panels have fallen considerably and many mills in Thailand report they cannot sustain production with such low prices and many have stopped production entirely.

Some domestic importers have reduced their imports and are anxious to clear stocks even at a loss so as to close the year without having to face the falling demand in the New year.

Factories in China using imported rubberwood laminated panel are finding international demand for finished products has weakened and many, say analysts, are operating at a loss.

 

China propose use of amended CITES certificates

China has informed the CITES Parties that as of 1 July 2019 new versions of the permits and certificates were used by CITES Management Authority in China. Further, they have advised that the older versions will remain valid until 1 January 2020.

There are many new forms covering: Import permits, Export permits, Re-export certificate, Introduction from the sea certificate, Certificate for Multiple cross-border transfer of musical instruments which contain restricted fauna and flora parts, Travelling exhibition of specimens certificate, Multiple cross-border transfer of privatelyowned live animals (certificate of ownership); Erhu (a two-stringed bowed musical instrument) carried in as hand luggage by individuals abroad (personnel and household goods certificate).

For certificate types, currently, both electronic and paper certificates will be used at the same time except for the following two cases where only electronic certificates can be issued: 1) specimens of species included in Appendix I which do not meet the exemption conditions; 2) introduction from the sea.

There are enhanced security features in the new permits and certificates. The new document has a number of anticounterfeiting measures such as an almost invisible watermark.

New domestic standards for solid and composite flooring

Two local standards for solid wooden flooring (T/ZZB 0005-2019) and composite wooden floor (T/ZZB 0006-2019) had been published recently in Zhejiang Province to replace the 2015 versions. The new standards will be implemented as of 30 November 2019.

 

Challenges in production and trading

A group of manufacturers and academics have identified some major challenges in production and trading.

A large number of enterprises have stopped or relocated 

The main reasons are related to environmental regulations, land ownership and the perceived risk of investment in the sector.

 

High taxes and labour costs

Enterprises dare not invest and many enterprises have transferred to off-shore but even off-shore risks are high and there are big difficulties in securing land and skilled workers.

 

The market has been disrupted

Trading volumes and wood market prospects have peaked and there is little companies can do but wait out the storm.

 

Financing is uncertain

There is no norm or standardization when seeking finance and credit lines. 

 

Government imposes more and more restrictions on enterprises

The tax burden on industry is high and some enterprises cannot meet environmental requirements and it is difficult and expensive to relocate.

 

Competition from alternatives

The development of competitive wood-based panels and emerging materials is rapid and the impact in the panel market is significant.

 

Foreign policy impacts

The influence of foreign policies on wood product procurement will become much stronger.

Experts pointed out that the current traditional wood trading market is more difficult to operate, mainly due to two aspects:

First, to extend business links and up-stream and downstream integration. Secondly, expand added value production and improve services especially through embracing on-line trading through getting involved in logistics. In this respect, Jiangsu Wanlin and Zhangjiagang Jingang logistics are good examples of what can be achieved.

 

Europe

European plywood market pressure persists

At the time of the last update on the European plywood market, the sector was experiencing a tightening market and competitive conditions. In the intervening four months, according to leading importers, not a lot has changed.

There have been indications that prices from some sources are starting to come off the floor. Overall, however, they remain depressed compared to 2018 and ‘rock bottom offers’ from Russia are felt by some to threaten any significant wider increase and to be actually squeezing product from other countries out of the European market.

The US-China trade dispute continues to destabilise the sector and UK companies say that continuing uncertainty surrounding Brexit, politics and the economy generally has seriously undermined market confidence.

A slowdown in European manufacturing, notably in Germany, is also impacting demand, and although overall construction consumption is reported to have held up reasonably well to date, it is forecast to slow and stagnate over the next two years.

In recent weeks, Brazilian elliotti and Malaysian plywood prices have both seen rises of US$10-15/cu.m. However, these prices are still reported down 33-40 percent and 28 percent respectively on 18 months ago. Chinese prices are still down around 15 percent and Russian film-faced plywood and raw plywood prices are down 30 percent and 25 percent respectively during the same period.

“We are still far away from 2018 levels, but these increases [in Brazilian elliotti and Malaysian plywood prices] may be signs of a recovery and we’d hope to see them embed and continue as we move into 2020,” said an importer/distributor. “Malaysian suppliers also report log shortages, so that may also underpin further increases.”

Import volumes of Brazilian plywood are expected to get slightly better in January, mainly due to the new duty-free quota coming up in Europe. “But, like price, volumes are still way off 2018 figures,” said an importer. “I also wonder what will happen later in 2020 after the first duty free volumes have been shipped.”

Prices out of China are reported to be stable at present although it’s felt a range of factors may add some upward pressure here too.

“Chinese plywood has already become a bit more expensive again on FOB terms due to the exchange rate of the RMB versus the dollar,” said a continental-based importer. “As usual, this is also driving up container rates. But we expect Chinese trade for January/February to be slower too due to weather conditions.”

Another factor for China, said a UK importer, has been the continued impact of new environmental regulation on manufacturers.

“Efforts to clean up the industry in the Linyi/Pizhou area has resulted in a lot of plywood and peeling mills closing as they couldn’t afford the new equipment required to reduce emissions. Others have suffered in excess of 70 days lost production as the government tries to improve air quality and the impact on peeling mills has put price pressure on poplar core veneer” said the UK importer.

“But while there may be less Chinese availability”, the importer continued, “I believe [quality] is improved, with manufacturers better understanding the demands of the EU Timber Regulation (EUTR) and our UK Timber Trade Federation Responsible Purchasing Policy and also meeting EN quality standards.”

Another European importer felt that diversion of Chinese production to Europe due to US tariffs had not been a significant issue due to different market requirements.

“Factories geared up for the US don’t find it easy to meet European specification,” he said.

European importers also report no stand-out trends for FLEGT-licensed product from Indonesia. Indonesia’s film-faced plywood, said one company, is “still too expensive for Europe” although raw board ‘is trading more or less OK’.

The FLEGT licensing system itself is said by plywood importers to be to working well, although the consensus remains that, to gain market traction and wider awareness, more licensed product is needed from more sources.

“The sooner more countries engaged with the FLEGT Voluntary Partnership Agreement complete the process and start licensing, particularly Malaysia, the better, given that the responsibility for product legality under the EUTR on non-FLEGT licensed goods remains on the importer, who cannot know 100 percent what the product mix is even if we ask all the right questions and gather the paperwork,” said one UK company.

A fellow UK importer said that getting more VPA countries to FLEGT licensing stage could also open up new sources of supply. “We’ve had interesting offers from Gabon, for instance. The product looks good and could represent a real business opportunity for us and the supplier,” he said. “But currently it can’t meet our requirements on legality assurance.”

An added ongoing issue for some European importers is their inability to use the bonded warehousing system for FLEGT licensed goods. This system allows import consignments to be broken up and duty paid piecemeal on each order as it goes out to spread the cost.

“As the licence applies to the entire shipment, it cannot be divided, so duty has to be paid all at once,” said an importer.

“That needs resolving as it effectively puts licensed goods at a competitive disadvantage and it has a particular impact on smaller companies needing to spread duty payment for cash flow purposes.”

A related issue for FLEGT-licensed goods customs handling was flagged up by another importer. “We had an instance of an agent selling some of a shipment to us and some to another importer where only one licence had been issued for the whole amount exported from Indonesia,” he said.

“We couldn’t use the FLEGT licence unless we also customs cleared the other consignee’s goods and recharged them the duty. So the agent had to present the licence in their own name and sell to both buyers as landed duty-paid stock. Not ideal all round.”

Another “real headache” for the European plywood import sector, in the words of one company, continues to be cut-priced Russian material.

“Russian birch plywood prices have dropped again after some slight increases a few months ago and it looks like this situation will continue for some time as the Russians seem to be quite happy with it,” he said.

“Their logs are extremely cheap and, as is the case with gas, they don’t put any value on their natural resources”, continued the importer. “They need foreign income, and that’s all that seems to count. I’d advocate putting a fat import duty on Russian imports as they are destroying the business for others who are trying to do the right thing, such as Indonesian producers, and are actually being pushed out of the market at the moment.”

Adding to market competition is a new softwood plywood mill now on stream in Belarus run by the Krono group. “This will put a lot of pressure on European factories like Thebault and others,” said an importer.

 

Slowdown in European manufacturing and construction

On the state of demand, an ongoing slowdown in European manufacturing is reported to be particularly affecting plywood consumption in the automotive and packaging sectors.

According to financial commentators, Germany remains the big drag on the Eurozone economy, with its manufacturing exports reported hit particularly hard by global slowdown in investment resulting from the US-China trade dispute.

Improved survey data for German production in October and forecasts for November had led to predictions that the worst was over, but Commerzbank said a turnaround is ‘not yet in sight’, with manufacturing output forecast to show a 5 percent year-on-year fall end of November. German car production in October was also down 14.4 percent on the year and the sector is reported to be set to shed tens of thousands of jobs.

“The automotive slowdown worldwide is clearly a concern for the plywood trade and the contraction in European manufacturing is inevitably impacting the important packaging sector,” said an importer.

The eurozone economy did expand faster than expected in the third quarter of 2019, up by 0.3 percent, giving annual expected growth of 1.1 percent according to Eurostat and the European Central Bank. However, this compares with 1.8 percent in 2018 and the forecast is just 1.2 percent in 2020, leading Morgan Stanley to comment that the zone was ‘nearly stagnating’.

The Economic Sentiment Indicator—a composite of European surveys on business and consumer confidence—also fell to 100.8 for October, the lowest level for five years. Capital Economics consequently predicted that the European economy would ‘continue to expand at a feeble pace’.

According to the latest Euroconstruct data, European construction output growth is projected at around 2.3 percent for 2019, down from 3.2 percent in 2018. However, Euroconstruct now forecast annual growth of only one percent between 2020 and 2022. All areas of building will slow, although repair, maintenance and improvement is expected to perform better than new build.

Best performing European building markets are expected to be Ireland, Hungary and Poland, while the sharpest slowdown is predicted for Finland and Sweden. Germany and France are expected to see construction market contraction of around two percent over the next three years.

One European plywood importer commented that their general construction sales were still going well currently, but others acknowledged the uncertain outlook in the sector.

As for the UK economy, it ‘flatlined’ in the third quarter of 2019 and October to October growth was just 0.7 percent, the slowest pace since June 2012. “This confirmed a loss of momentum in the economy since the summer due to Brexit-related uncertainty and slower global growth,” said advisory firm PwC.

UK construction is also contracting, with new orders falling further in November as the market-depressing effect of Brexit, combined with election uncertainty and bad weather led to more civil engineering and commercial projects being delayed.

The IHS Markit/CIPS UK purchasing managers’ subindex for construction new orders fell to 43.95 in November, from 44.61 the previous month. This was the eighth consecutive month of contraction and the longest phase of decline since 2013, with Brexit once more implicated in the downturn.

 

China drives rise in EU imports of tropical hardwood plywood

For the nine months to the end of September 2019, total tropical plywood imports into the EU were ahead four percent by volume and seven percent by value to 250,000 tonnes and €221 million respectively.

The biggest tropical plywood volume increase came from China, up 32 percent at 110,000 tonnes in the first nine months of 2019. Other increases were posted by Gabon (+12% at 11,100 tonnes), Brazil (+8% at 8,700 tonnes) and Paraguay (+30% at 4,200 tonnes).

However, imports of plywood from Indonesia were down 5.6 percent at 64,500 tonnes, imports from Malaysia were down 28.8% at 29,700 tonnes, and imports from Vietnam declined 20.3 percent to 8,100 tonnes.

The UK accounted for the vast bulk of the increase in EU imports, with its tropical plywood imports ahead 18.5 percent to 140,300 tonnes, with pre-Brexit stock piling considered once more to have played a part. Most of the gain in UK imports was not due to direct imports from the tropics, but to a rise in tropical hardwood faced plywood manufactured in China.

Imports of tropical plywood declined in all other leading EU markets in the first nine months of 2019 including Belgian (-21% at 26,300 tonnes), Netherlands (-11% at 24,200 tonnes), Germany (-7% to 18,600 tonnes), France (-3% to 14,700 tonnes) and Italy (-4% at 12,300 tonnes). However, Greek imports increased four percent to 23,000 tonnes.

Total EU imports of temperate hardwood plywood in the nine-month period were down one percent at 1.11 million tonnes. Of the lead suppliers, Russia recorded a 5.3 percent EU sales increase to 586,800 tonnes and Ukraine a rise of 8.3 percent to 62,300 tonnes.

However, these gains failed to offset declining imports of temperate hardwood plywood from China (-8% to 374,300 tonnes), Belarus (-15% to 77,000 tonnes), Uruguay (-15% to 5,900 tonnes) and Bosnia-Herzegovina (-15% to 4,300 tonnes).

EU softwood plywood imports from January to September were 8.8 percent lower at 655,900 tonnes. Brazilian product was down 3.1 percent at 451,700 tonnes, Chilean down 18.1 percent at 75,800 tonnes, Russian down 7.2 percent at 64,800 tonnes, Chinese down 19.9 percent at 36,900 tonnes and Canadian down 20 percent at 5,500 tonnes.

Looking forward, a UK importer pinned their hopes on “some post-election Brexit clarity and demand picking up as the government works to avoid recession”, although he still anticipated prices “continuing to bounce off the floor”.

A continental plywood importer was also cautious. “We don’t foresee any significant improvement for six months or so, unless the US settles all its trade disputes and the UK finally leaves the EU (or not). That could give some positive signals and incentives.”

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