Tropical Timber Market Report

The coronavirus outbreak has caused disruptions to production and trade, and brought about a gloomy economic outlook. How are the countries responding? What is the impact so far? ITTO shares more about the happenings about the world. 

 

Malaysia

MIFF Rescheduled

The Malaysian International Furniture Fair (MIFF) 2020 has been rescheduled from 6-9 March to 30 June to 3 July at the Malaysia International Trade and Exhibition Centre.

Informa Markets, the organiser of MIFF 2020, said this decision was taken with regret after careful consideration and close consultations with stakeholders. The problem is that the risks from the current virus outbreak cannot be accurately assessed and some countries have issued travel advisories and companies are restricting travel of their executives.

A one-month delay will have little impact on retailers who tend to prepare for the new season with orders placed during the fair but if there are further postponements retailers struggle to secure new designs for the coming season. The greatest challenge now is the uncertainty.

MIFF is the biggest furniture trade show in Southeast Asia. In 2019, the show drew over 600 Malaysian and foreign exhibitors and more than 20,000 visitors including over 6,000 international buyers.

 

Economy badly shaken

The Malaysian economy has been shaken by three developments coming one after the other in quick succession: the corona virus is already impacting the domestic and international timber markets, there was a change in the Federal Government and the decline in oil prices created further uncertainties.

There is a sense among industry analysts that while it is too early to see where the timber industry is heading in the short term, but prospects do not look good.

The economic stimulus package announced by the government will help lift confidence as uncertainties mount, but the current package appears aimed at supporting the tourism sector, and analysts say a more broad-based package of support for manufacturers and exporters needs to be considered.

Forecasts suggest Malaysia’s international imports and exports will have contracted by over five percent in January resulting in a meagre RM12 billion trade surplus for the month. 

Trade is usually slow at the beginning of the year, but the downturn this year has been aggravated by the coronavirus outbreak and the impact of this on trade with China especially.

 

Competition dents Sarawak’s timber exports

Sarawak’s timber industry recorded a 17 percent decline in export revenue to RM4.5 billion last year compared to RM5.4 billion in 2018, this was the lowest over the past five years. 

Sarawak Deputy Chief Minister, Awang Tengah Ali Hasan, said much of the downturn was due to stiff competition in international markets and the impact of anti-dumping penalties imposed by the US which pushed down exports from China.

To bolster the timber industry the Sarawak Timber Industry Development Corporation (STIDC) has engaged with the private sector to plan measures to address the immediate challenges. Sarawak’s timber industry has to deal with limits on natural forest production and the higher cost of production.

 

Forest certification gives Sarawak company a competitive edge

Sarawak’s Ta Ann, a major plywood manufacturer, secured Malaysian Timber Certification Scheme (MTCC/PEFC) forest management certification for 149,756 ha. of forests and is using this in promoting its plywood in the Japanese market where there is now an emphasis on using certified timber products in the building and construction industries.

Ta Ann is expected to achieve certification for an additional 130,000 ha. of forest concession s to further strengthen its marketing opportunities.

In 2019, Japan reduced imports from Malaysia by 18 percent to 852,300 cubic metres (2018: 1.034 million cubic metres; 2017: 1.161 million cubic metres) due to sluggish sales in the domestic market because of the wide difference in price between plywood from domestic resources and imports.

 

Mood of pessimism among the timber exporters

The talk in the timber industry, indeed in most of the industrial sector is on the coronavirus and how it will affect business.

Trade analysts in Malaysia report a mood of pessimism among the timber exporters with some anticipating ‘very bad business’ as the disruptions from the latest coronavirus outbreak are weakening an already disrupted global market.

Prior to the coronavirus outbreak becoming an epidemic, the Federation of Malaysian Manufacturers (FMM) urged the government to bring forward its planned stimulus packages to address the risks Malaysia faces from the US-China trade dispute.

The measures proposed to diversify Malaysian exports include intensifying the buy ‘Made-in-Malaysia’ campaign, concluding the Regional Comprehensive Partnership Agreement (RCEP) and implementation of free trade agreements such as the Comprehensive and Progressive agreement for Trans Pacific Partnership (CPTPP). The FMM called for a further range of measures to protect Malaysian exporters and manufacturers.

China has been Malaysia’s largest trading partner for a decade and trade reached over RM300 billion last year. This trade is now at risk according to the president of FMM as China’s imports are set to be considerably lower especially in the first half of this year.

 

Legal status of forest community established

At the Sabah State Assembly sitting in November last year, the Assembly passed amendments to the Forest Law (Constitution of Forest Reserves and Amendments 1984) which came into force in December 2019.

The amendment in 2019 was to de-gazette 1,637 ha. of forest reserves and gazette 2,154 ha. as new permanent forest reserves.

The state government wanted to de-gazette the 1,637 ha. of forests reserve because of long-established human settlements there. The area classification has changed from the ‘forest reserves category’ and will be re-gazetted under the Land Ordinance for the purpose of kampung (or village) reserves. These areas involve at least 90 settlements with about 3,800 houses and 20,000 residents.

 

Government ready to support sectors hit by economic downturn

Dr. Ong Kian Ming, Deputy International Trade and Industry Minister has indicated that a government economic stimulus package has been prepared to support businesses affected by the economic downturn brought on by the new coronavirus outbreak. The tourism, retail and aviation sectors are being severely affected.

He said expressed optimism that businesses could expect a rebound in the second half of the year and suggested efforts should be made now so as to be prepared to attract more overseas investment.

The National Institute Occupational Safety and Health (NIOSH) has reacted to the rumours that as many as 100,000 people could lose their jobs if the virus outbreak continues throughout the year.

Alice Lau Kiong Yieng, NIOSH chairperson said the government will not allow the spread of the virus in Malaysia to get out of control.

 

Indonesia

IFEX 2020 Postponed

The Indonesian Furniture and Craft Industry Association (HIMKI) and Dyandra Promosindo has confirmed postponement of the Indonesia International Furniture Expo (IFEX) 2020.

 

Sharing experiences in addressing illegal timber trade

Speaking in the Annual Session of the Enforcement Committee of the World Customs Organization Committee) in Belgium Yuri O. Thamrin, the Indonesian Ambassador to Belgium said Indonesia continues to collaborate with the European Union in combating the illegal trade in wood products and this collaboration can be an example for other countries.

The WCO Secretary General, Kunio Mikuriya, agreed saying the experience of Indonesia in addressing trade in illegally harvested wood products needs to be shared with law enforcement and Customs administrations in other countries.

During the meeting, Ambassador Yuri asked the EU to strengthen their policies so that countries that satisfy EU regulations have an advantage over others that do not.

Yuri reiterated Indonesia's strong commitment to stamp out the trade in illegal wood products saying he hopes EU importers will not buy illegal wood from any country.

 

Government acts to alleviate impact of coronavirus on timber industry

Susiwijono Moegiarso, Secretary of the Coordinating Ministry for the Economy, announced that in cooperation with other ministries the government is preparing economic stimulus packages to address the impact of the coronavirus.

A focus of measures proposed will be how to address the depletion of raw materials for manufacturers and exporters, said Susiwijono. It has been learnt that consideration is being given to simplifying the rules on export trade. 

These include changes to the Timber Legality Verification System (SVLK) for wood products, to phytosanitary certification and certification of origin. Also under consideration is relaxing import regulations for raw materials.

The aim of the proposed measures is to accelerate imports and reduce logistics costs.

In related news the Chairman of the Indonesian Chamber of Commerce and Industry (Kadin), Rosan Roeslani, specifically said it would be desirable to ease restrictions on both raw materials and ancillary products needed during manufacturing.

Rosan pointed out that supply chains have been disrupted due to the virus and this is a serious issue for manufacturers as it is difficult, in a short time, to find alternative sources previously supplied from China which accounts for a large proportion of raw materials and auxiliary goods supply to Indonesia.

 

US decision may mean loss of market share for Indonesia

The US government's decision to exclude Indonesia from the list of developing nations can affect its current account balance according to the Institute for Development of Economics and Finance (Indef).

Indef has urged the government to try and reverse this decision which will make Indonesia's exports to the US more expensive and could result in failing market share in the US. The US is a major market for Indonesia's textiles, garments, footwear, rubber, furniture and electronics and exports were worth over US$17 billion last year.

 

Verified legal timber exports continue to grow

Tri Nugroho, Director of the Multi-stakeholder Forestry Programme Phase 4 (MFP4) has said exports from Indonesia have moved in line with global market trends for verified legal wood products and that Indonesia's verified legal timber exports continues to grow with the biggest markets being China, Japan, the US and the European Union.

China accounted for almost 30 percent of Indonesia’s exports of wood products in 2019 followed by Japan (12%), the US (11%), the European Union (9%). Other significant markets were South Korea, Malaysia, Australia and Vietnam.

China’s new laws on buying, processing and transporting illegal wood products should give a boost to Indonesia’s exporters said Tri. He believes there is an opportunity for Indonesian furniture makers to secure greater market share in those countries looking for verified legal wood products, he said the main competition in international markets for wooden furniture comes from Vietnam and China.

In related news, Iwan Wibisono, Programme Manager for the MFP4 said Indonesia’s timber legality verification system (SVLK) is playing an important role in ensuring that harvesting is well managed and sustainable.

 

ISWA Chairman on improving competitiveness

The Indonesia Sawmill and Woodworking Association (ISWA) Chairman, Soewarni, has said he doubts the performance of exporters will improve this year because of the weak global demand and because exporters see little opportunity to raise prices or increase market share. The other issue mentioned was that production costs continue to rise.

Looking at prospects for 2020 Soewarni anticipates that the performance of the industry will be about the same as in 2019. The biggest problem is uncertainty and this is affecting all industries in most countries, said Soewarmi.

The value of Indonesian wood product exports last year was below target at around US$1.85 billion. Foreign investment in the wood industry fell sharply from US$275 million in 2018 to just US$95 million in 2019.

Soewarni recommended action to improve competitiveness of the timber sector in international markets, the first being the elimination of VAT on round logs, second, a simplification of local and export regulations and thirdly, lowering the cost of credit.

 

Overburdening regulations blamed for fall in investment

The Indonesian Furniture and Crafts Industry Association (HIMKI) Secretary General has said the decline in foreign investment in the wood processing sector last year was largely because of the complexity of government regulations.

The Association considers that the Omnibus Law can help increase investment absorptions. The Indonesian Investment Coordinating Board reported that in 2019 domestic investment in the timber sector increased slightly but that foreign investment dropped over 65 million from US$276 million in 2018 to US$95 million in 2019.

HIMKI Secretary General, Abdul Sobur, said under the present conditions Indonesia cannot compete with Vietnam in attracting foreign investment.

Sobur pointed out that the so-called Omnibus Law which has been drafted is a step in the right direction in efforts to attract investors.

 

Myanmar

Karen National Union encouraging forest conservation

The domestic press in Myanmar has reported that one of the major ethnic groups in Myanmar, the Karen National Union (KNU), has said it will introduce conservation measures and forest demarcation and inventories to combat deforestation. The plan entails encouraging the ‘taungya’ system in village owned forests.

Harvesting for basic needs will be permitted but commercial scale harvesting will be prohibited. The report says the KNU Forest Department has established 39 village-owned forest plots, 29 permanent forest areas and three protection forests. It has been estimated that around 60-65 percent of forests are in ethnic minority states.

 

Forestry sector contribution to the economy

According to the Ministry of Commerce, earnings generated by the forestry sector in 2018/19 totalled US$174 million. In addition, the Myanmar Timber Enterprise, the Forest Department and private companies in the formal sector alone account for over four percent of national employment according to a Myanmar Extractive Industries Transparency Initiative (MEITI) report.

There is huge employment in the ‘informal’ timber sector and as investments in the forestry and wood processing sector increase so do employment opportunities.

However, companies face huge challenges in meeting current domestic and international timber production and export requirements and it has been rumoured that one of Myanmar’s top timber exporters is likely to cease business by year end.

 

Initiatives to support forestry sector

There are several initiatives aimed at supporting the timber sector strengthen forest management and wood product manufacturing. While not yet confirmed it is understood the World Bank is preparing a support package aimed mainly at plantation development.

In related news, the World Bank and the Korea Forest Service recently signed a forest cooperation agreement to support forest restoration, community forest conservation, ecotourism and landscape restoration. One of the first countries that could benefit from this is Myanmar.

 

Winding down community FLEGT preparedness

Recently the Forest Department and Fauna and Flora International held a workshop to formally end the project ‘FLEGT Preparedness for Small Holder Timber Producers in Myanmar’.

This project was supporting community forestry production of verified legal timber. There are around 200,000 ha. of recognised community forest, both natural forest and plantations, in Myanmar.

Myanmar India MOU on preventing illegal timber trade

Myanmar’s President, U Win Myint, recently visited India and along with Prime Minister Modi witnessed the signing the 10 Memorandum of Understandings which cover cooperation in prevention of illegal trade in timber, protecting wildlife, development programmes in Rakhine State, cooperation in medical research, telecommunications, petroleum product development, prevention of people trafficking and infrastructure rehabilitation. 

India is a major market for Myanmar teak products.

 

FDI surging ahead

According to the Directorate of Investment and Company Administration (DICA) up to mid-February in the 2019-2020 fiscal year, the Myanmar Investment Commission (MIC) approved foreign investments worth almost US$2 billion. During the same period, the total FDI including the extension of investments worth US$617 million amounted to US$2.6 billion.

Greater investments are expected from Hong Kong, Singapore and Thailand this year according to U Aung Naing Oo, Permanent Secretary, Ministry of Investments and Foreign Economic Relations.

Manufacturing businesses account for most of the investment in the Thilawa Special Economic Zone followed by trading and logistics.

 

India

State government moves to boost housing

In its 2020-21 budget, the Maharashtra government reduced stamp duty on property purchases. The lower rate will apply in the areas falling under the Metropolitan Region Development Authority and municipal corporations of Pune, Pimpri-Chinchwad and Nagpur.

Currently, home buyers in Mumbai pay a stamp duty of six percent plus a one percent registration charge. In Pune, the stamp duty currently is six percent. According to Housing.com this could boost home buyer sentiment in the affected residential markets of the state.

 

Disrupted supply chains

Indian companies are now facing disruptions of their operations as the effects of the corona virus spread. The biggest impact at present is on trade with China which has expanded to over US$90 billion in recent years with the Indian economy becoming ever more reliant on imports from China.

Indian imports from China, at around US$75 billion last year, are far above the roughly US$20 billion in exports from India to China.

 

New record for US hardwood exports to India

According to a presentation by the American Hardwood Export Council (AHEC) 2019 was a record year for US hardwood exports to India with the value of sawn hardwood and veneer exports totalling US$6.448 million.

Statistics were compiled from United States Department of Agriculture (USDA) data released in late February 2020.

AHEC revealed that in 2019 sawn hardwood shipped from the US to India increased by 72 percent in value to US$2.356 million and by 140 percent in volume to 4,082 cubic metres.

Exports of US hardwood veneer to India increased by four percent to US$ 4.092 million.

According to AHEC, restricted domestic hardwood availability, together with firm growth in the retail furniture, handicraft and hospitality sectors drove demand for a wide range of species making India an attractive long-term prospective market for US hardwoods.

The top six American hardwood timbers exported in 2019 were hickory (1,229 cubic metres), red oak (920 cubic metres), walnut (282 cubic metres), white oak (358 cubic metres), ash (356 cubic metres) and maple (240 cubic metres).

 

Increased import duty an issue for Ikea

In the latest budget the Indian government increased import duties on furniture from the present 20 percent to 25 percent a move aimed at supporting domestic SME furniture makers.

It has been reported that an executive of Ikea, which has stores in India, met with the government to explain the increase will impact its business which is centred on providing affordable furniture but that the company will do its best to absorb the rise in the import duty.

Ikea said, though the government's recent increase in customs duty on imported furniture will have an impact on its business it will not pass on the increase to customers.

 

Domestic online furniture retailer sees earnings rise

Pepperfry, one of India’s online home furniture retailers has reported solid revenue growth for 2019. Co-founded by former eBay employees the company began as with a focus on fashion and lifestyle but then moved to include furniture.

 

Coronavirus affecting supply chain

India relies on China for veneers, plywood, fibreboard and particleboard raw materials for manufacturing but supply chains have been disrupted by virus control measures and this is impacting production and trade by Indian companies. 

Many factories in India have stopped operation or are running at reduced capacity for lack of raw materials. Analysts write ‘the uncertainty of the situation is making it all the worse’.

 

Furniture sector to be protected by import duties

The Indian Finance Ministry is considering raising the import duty on furniture to shield domestic companies from the fierce competition from imports.

Finance Minister, Nirmala Sitaraman, has called for protection to be offered to furniture SMEs as they are labour intensive and competition from imports could impact employment security in the sector.

She said cheap and low quality imports will slow development of the domestic furniture sector. The plywood and wood panel industry has welcomed the Minister‘s comments.

Furniture imports have increased since India signed various Free Trade Agreements but these agreements are undermining the local industries, said the Minister.

 

Vietnam

Vietnam’s forest protection fund

According to the Board of Directors, in 2019 the Vietnam Forest Protection and Development Fund (FPDF) collected VND2,800 billion (over US$120 million) through payment for forest-ecosystem services (PFES).

This is an innovative financing mechanism to support sustainable forest management in Vietnam.

Funds are made available to rural inhabitants and farmers who are contracted to protect 6.3 million ha of forest (43% of the total forested area of Vietnam). Fees are also collected from hydropower plants, water supply companies and eco-tourism service providers. Beginning this year the PFES will be extended to include industrial facilities using water.

 

Exports set to plunge

Nguyen Bich Lam, Director General of the Statistics Office has estimated that Vietnam’s first quarter 2020 exports could be down around 20 percent from the same period last year as trade will be disrupted by the coronavirus epidemic.

The decline in exports is expected to affect a range of exports including agricultural and forestry products, aquatic products, textiles and garment, footwear and electronics. Exports to China are likely to be severely affected he said. In January foreign trade was down almost 13 percent and exports dropped almost 16 percent year-on-year.

In response measures to support exports as a result of the suspension of cross-border trade with China are being considered. The Director General of the Foreign Trade Agency in the Ministry of Industry said Vietnam could see a loss of around US$200-300 million in export revenue from declines in agricultural, forestry and fisheries exports.

This could rise to US$600-800 million if the outbreak lasts half a year.

According to VIFORES, there are currently 867 foreign enterprises in the wood processing sector in Vietnam of which 161 are Chinese companies processing and exporting wood products from Vietnam.

Around 20 percent of these companies are in the services and distribution sectors.

Due to current coronavirus outbreak Chinese businessmen and workers are not permitted to enter Vietnam and this is seriously affecting business operations of the Chinese enterprises as well as domestic companies providing services.

Because of the coronavirus many timber sector events such as VIFA Expo, VIFA GU and the Hanoi Wood 2020 scheduled for the first half of 2020 have to be postponed.

 

Local authorities urged to plant

At the end of 2019 the total forest area with national sustainable forest management certificates reached 269,163 ha. across 24 provinces according to the Director general of the Forestry Department.

He added that over the past year around 240,000 ha. of new plantations were established. To achieve the goal of 220,000 hectares of planted forests in 2020 the forestry sector has instructed local authorities to promote planting to increase the availability of raw material for the production of added value wood products for domestic consumption and export.

 

Better business environment to raise competitiveness

The Government has issued a new Resolution (No. 02/NQ-CP2020) which seeks to improve the business environment so as to raise national competitiveness so that Vietnam’s businesses can compete more effectively in international markets.

This Resolution requires ministries and agencies to publish the revised and simplified administrative procedures related to the issuance of business certificates.

The Resolution also assigns Chairpersons of provincial People's Committees to oversee implementation of the regulations and strictly regulate officials and civil servants.

 

Japan

Bank of Japan primed for action to protect economy

Cabinet Office data is showing that in the third quarter of 2019 Japan's economy declined almost two percent from the previous quarter. Looking ahead at the first quarter of 2020 the Bank of Japan (BoJ) Governor has said the coronavirus outbreak has dented exports and consumption and could inflict serious damage on the Japanese economy. The Bank is ready to take action, he said.

The Japanese economy is already suffering the aftereffects of the 2019 consumption tax increase and the severe storms that lashed the country causing extensive damage to homes and infrastructure. Data for January 2020 show that household spending dropped for the fourth consecutive month, the longest stretch of contraction since early 2018.

 

Consumer confidence–virus effect muted so far

The corona virus has greatly undermined consumer confidence around the world as could be expected but the impact varies. In Japan the spread of the virus has been slow due to efforts by the public and because of measures by the government such as school closures and public event cancellations.

The impact of the corona virus on Japanese consumer sentiment has been muted mainly because Japanese households were already quite negative because of the sluggish economy and the recent consumption tax increase.

 

Economy likely to contract in 2020

The Japanese economy shrank 1.6 percent in the fourth quarter of 2019 according to a report from the Cabinet Office. The decline from the third quarter was the largest drop since 2014. The sudden weakness in growth has been blamed on the rise in consumption tax in October from eight percent to 10 percent and the impact of unseasonal and deadly typhoons.

Consumer spending, which underpins the Japanese economy, has shown almost no expansion since the 2014 increase in consumption tax and this is related to the steady decline in nominal wage growth.

If a negative impact on Japan’s growth from the corona virus outbreak is factored in it is possible that Japan’s economy will contract this year. The has epidemic forced many Japanese manufacturers in China to suspend operations in Chinese cites affected by the virus which has disrupted the supply of components needed by Japanese companies. 

The domestic press has quoted analysts as saying a recession now looks almost inevitable.

The government has moved to boost the economy through a massive stimulus package but if the spread of the coronavirus is not contained a recovery could be delayed.

The year has not started well for Japan with exports dropping and tourist arrival plummeting. In the year of the 2020 Tokyo Olympics there are serious challenges ahead.

The local media has reported that the government and the Bank of Japan (BoJ) are ready to act if the fallout from the coronavirus outbreak on the economy broadens.

 

Sharp drop in machinery orders

Cabinet Office data has shown Japan’s core private-sector machinery orders fell at the fastest pace since 2018 and orders posted their largest drop in 15 months in December with a 12.5 percent decline from the previous month.

The fall in orders, seen as a leading indicator of capital spending, followed an 18 percent jump in November, the biggest increase since in April 2005, boosted by one-off orders for railway stock. The 12.5 percent fall marked the sharpest decline since September 2018 when they dropped 17 percent.

On a quarterly basis, core orders fell 2.1 percent in the October-December period, with the Cabinet Office projecting a 5.2 percent decline in the quarter to March.

 

China

Slight increase in log imports in 2019

China’s log imports in 2019 totalled 60.57 million cubic metres valued at US$9.434 billion (CIF), a year-on-year increase of just one percent in volume but there was a decline in the value of imports by 14 percent. 

The average price for imported logs was US$156 (CIF) per cubic metre.

Of total log imports, 2019 softwood log imports rose nine percent to 45.26 million cubic metres, accounting for 75 percent of the national total, five percent up on 2018. The average price for imported softwood logs was US$125 (CIF) per cubic metre, down 10 percent on levels in 2018.

 

New Forest Law to crack down on illegal timber

The new forest law will become effective on 1 July 2020. Article 65 of the newly revised Forest Law clearly states that a timber processing enterprise shall establish an entry and storage account for raw materials and products. No unit or individual may purchase, process or transport trees of illicit origin, knowing that they have been cut or cut indiscriminately.

This provision provides a more clear legal basis to crack down on illegal timber purchasing, processing and transportation and also provides a clearer legal guide for timber processing enterprises to fulfil their duty of due diligence on timber legality.

 

Domestic timber wholesale markets resume business

It has been reported that timber from South America and Southeast Asia recently arrived in Guangzhou and Dongguan Ports and has been off-loaded. The domestic timber wholesale markets have started work after the lull due to the virus risk. 

Trade media has reported that small volumes of timber have been delivered to the wholesale markets after passing virus epidemic prevention and control measures.

However, traders report activity at the markets is very quiet and sales have not returned to normal as many manufacturers have not resumed production despite the arrivals of timber raw materials. Analysts say they do not expect a recovery of trading until the end of March.

 

Enterprises resume production in China

Preventative measures including restricted access, body temperature checks and disinfection of public areas have undertaken. Large gatherings are avoided and workers have been advised to wash their hands frequently and wear a mask when away from home. 

Some businesses, especially foreign-funded enterprises resumed operations in China while strengthening epidemic prevention and control measures.

It has been also reported that some wood products enterprises have resumed production.

 

Reduced particleboard production in Guangdong

It has been reported that the production of wood-based panels in Guangdong Province fell in 2019 with production of particleboard dropping around 10 percent. The main reason for the decline is said to be because some large-scale enterprises have stopped operations.

Several fibreboard enterprises in the Guangdong Shaoguan Forest Region have ceased production. It has been reported that Guangdong Hanhong Wood Industry which has two German fibreboard lines with an annual capacity of 240,000 cubic metres has cut production due to weak demand.

 

Measures to support the economy

It has been reported that the State Council decided to waive the tolls on toll roads throughout the country until the virus epidemic is brought under control. Other measures being arranged are reductions in corporate social insurance and an extended period for paying housing provident fund.

These measures are aimed at ensuring continued agriculture production and to secure stable employment. In order to mitigate the impact of the epidemic on enterprises during the time plants are closed medium, small and mini-sized enterprises in all provinces except Hubei will be exempted from corporate tax, unemployment and employment injury insurances and housing provident fund payments up until June 2020.

Different measures are proposed for large enterprises.

 

Big rise in logistics costs

It has been reported that the China Logistics and Purchasing Federation (CLPF) found that 85 percent of enterprises report the epidemic is having a huge impact on their operations and some risk bankruptcy. Many enterprises considered starting operations after the 10 February deadline but most did not resume work.

Transport and freight rates have started to rise apparently the result of the current epidemic. In a survey the CLPF found 70 percent of companies thought transport costs would increase by more than 10 percent, but around 40 percent said they would rise by more than 20 percent. Some even suggested a 30 percent rise.

 

Lanzhou City—the logistics centre for Russian timber

It has been reported that Russian timber will be distributed to all parts of the country after arriving via the China-Europe express railway terminal in Lanzhou City, Gansu Province. 

This, say analysts, will promote the wood processing industry and strengthen the supply chain for imported timber the Western Region.

The Lanzhou New Industrial Zone is a major logistics centre for Russian timber and it is anticipated the Zone will attract investment in processing thus establishing a new industrial cluster.

 

Reduced tariffs on US wood products

The China Customs Tariff Commission issued a notice on 6 February 2020 stating that China will halve the additional tariffs on US$75 billion worth of some US products as of 14 February 2020 in a bid to promote the stable development of Sino-US economic and trade relations.

This decision will halve the 10 percent and five percent rates on a list of US products that were subject to additional tariffs from 1 September 2019.

The tariffs for 270 items listed in the first section and 646 items in the second section of Annex 1 to the Notice was adjusted to five percent from 10 percent and for the 64 items listed in the third section along with 737 items in the fourth section had tariffs adjusted to 2.5 percent from five percent.

Apart from the above-mentioned adjustment, the other measures to additional tariffs on US products will continue to be implemented.

The tariff rates on most of the logs and sawnwood imported from the US have been reduced to five percent from 10 percent. The tariffs on poplar sawnwood and other North America sawn hardwoods have been cut to 2.5 percent from five percent.

The tariff rates on most imported wood-based panels, wood crafts and furniture have been halved to 2.5 percent from five percent. In addition, tariffs on most of the imported woodworking machinery, woodworking tools, agroforestry tools and forestry machinery from the US will be halved to 2.5 percent from five percent.

Analysts write ‘this move is good for timber traders, wood processors and furniture manufacturers who have been suffering from trade conflict and also disrupted production and trade due to the coronavirus control measures’.

Further adjustment will mainly depend on future development in the economic and trade relations between the two countries. The commission said other additional tariff measures will continue to be implemented as stipulated and they will continue to work on tariff exemptions for imports from the US.

 

Postponement of March international exhibitions

It has been reported that in accordance with the government decree for prevention and control of the coronavirus epidemic all large-scale trade activities and gatherings shall be suspended during the epidemic prevention and control period.

A number of exhibition organisers issued delay. So far six international exhibitions will be postponed. The following exhibitions in March 2020 are postponed.

•2020 The 30th China (Beijing) International Building Decorations & Building Materials Exhibition

•CIDE-2020 7th China International Integrated Custom Home Furnishing Exhibition and China International Door Industry Exhibition

•2020 DOMOTEX asia/CHINAFLOOR

•CBD-IBCTF (Shanghai) 2020—China International Building & Construction Trade Fair 

•China International Building and Construction Trade Fair

•43th International Furniture (Dongguan) Fair and Furniture Machinery and Materials

•CIFF 2020—The 45th China International Furniture Fair (Guangzhou)

•45th China International Furniture Fair (Guangzhou)

•2020 Shenzhen Creative Week & 35th Shenzhen International Furniture Exhibition

 

Europe

Second consecutive year of growth in EU tropical timber imports

Despite a downturn in the last six months of 2019, EU imports of tropical wood products last year were greater than in 2018.

In 2019, the EU28 imported 2.13 million tonnes of tropical wood products (including all those in HS Chapter 44 except fuelwood, wood waste and chips) with a total value of €2.32 billion, respectively 1.5 percent and 3.2 percent greater than the previous year. This was the second consecutive year of import growth after a dip in 2017.

The marginal growth in imports in 2019 was driven mainly by a recovery in imports of sawnwood from Cameroon and of sawnwood and mouldings/decking from Brazil, particularly into Belgium, together with rising imports of a variety of joinery products (doors and laminates) from Indonesia and Malaysia. These gains offset falling imports of tropical logs, charcoal, plywood, and veneers last year.

When considering the longer-term trend, imports in 2019 are very much in line with the overall stasis in EU tropical wood trade after hitting an all-time low in 2013 following the financial crises. Since then EU imports have fluctuated within a narrow band around two million tonnes.

Over the last seven years, total EU imports of tropical sawnwood have fluctuated in the region of 750,000 tonnes without showing any strong upward or downward trend.

During this period, there has been a continuing decline in imports of tropical logs and flooring products.

However, these losses have been offset by rising EU imports of charcoal and a variety of laminated and other joinery products from tropical countries and a recovery in imports of tropical mouldings/decking and tropical hardwood faced plywood (although the latter is increasingly sourced from China and destined for the UK, which ceased to be an EU country on 31st January 2019).

FLEGT products biggest winners in EU tropical wood market

An analysis of EU trade data by the FLEGT Independent Market Monitor (IMM), an ITTO project funded by the EU, shows that FLEGT licensed products from Indonesia, particularly wooden furniture and doors, were on course to be the biggest winners in the EU tropical timber market last year.

Overall, the EU’s trade in tropical wood and wooden furniture products was more buoyant in the first nine of months of 2019 than the same period in 2018.

The 12-month rolling total fell to a low of US$3.99 billion in June 2017 but had rebounded to US$4.35 billion by September 2018 and gained an additional US$0.28 billion in the following 12 months to reach US$4.63 billion by September 2019.

Initially, the recovery in the US dollar value of EU imports was driven by exchange rate fluctuations as the euro increased sharply in value against the US dollar in 2017. However, from mid-2018 to mid-2019, the euro was weakening against the US dollar and the rise in dollar import value coincided with a genuine increase in import quantity.

Chart 2 shows that the 12-month rolling total quantity of EU tropical wood and wooden furniture imports dipped to 2.5 million metric tonnes (MT) in March 2018, then increased to 2.8 million MT in June 2019, remaining at that level through to September 2019.

Indonesian Licensed products feature prominently in the league table of the largest gains in EU tropical wood product imports in the year to September 2019.

Indonesian furniture led the way with imports in the year to September 2019 being US$61.7 million greater than in the previous 12-month period. Indonesian joinery products were in second place, gaining US$37.9 million in the same period. Indonesian mouldings/decking made it on to the list of big gainers, adding US$12.7 million.

There was also a small gain in EU imports of Indonesian plywood, which were US$3.6 million greater in the year to September 2019 compared to the previous 12-month period.

This occurred despite a background of intense direct competition from Russian birch plywood products. IMM contacts with EU plywood importers suggest that prices for Russian products are highly competitive due both to low prices for birch logs in Russia and continuing weakness of the Russian rouble.

Amongst VPA countries other than Indonesia, significant gains were also seen in EU imports of furniture from Viet Nam and Malaysia, joinery (mainly laminated wood) from Malaysia, and sawnwood from Cameroon and the Republic of Congo.

Less positive from a FLEGT perspective is that two Indonesian product groups—sawnwood and veneer - also appear in the list of the biggest losers in the year to September 2019, although the deficits are more moderate than for Malaysia which suffered a particularly sharp decline in EU imports of sawnwood.

Much of the recent growth in EU imports of Indonesian wood and wooden furniture products has been destined for the Netherlands and UK. Last year’s surge in imports of Indonesian wooden furniture was destined mainly for the Netherlands. The UK is the largest growth destination for wooden doors and plywood from Indonesia. Most EU imports of decking and mouldings from Indonesia are destined for Germany and the Netherlands.

 

Campaign to promote FLEGT licensed timber

The UK Timber Trade Federation’s FLEGT communication project is planning to take installations featuring FLEGT-licensed timber around the EU in 2020. The initiative is funded by the UK Department for International Development under its Forest Governance, Markets and Climate programme (FGMC).

Last year the TTF project promoted FLEGT at the Brussels Furniture Fair and several conferences and organised a Tropical Trade Forum at the TTF’s London headquarters.

It also supported an installation called Momento, designed by students using FLEGT licensed balau as part of the London Festival of Architecture.

The 2020 installation will be called Conversations and will feature seating in FLEGT-licensed timber created by craft students and leading designers, intended to stimulate discussion about FLEGT and using legal and sustainable tropical timber. After a pilot in the UK it is intended to set up in prominent locations across the EU.

The TTF campaign will run more seminars, develop an e-learning resource for architects and contractors. It is also liaising on FLEGT with Chinese timber trade bodies. Under the FGMC grant, the Federation is also backing a timber marketing advisory programme being undertaken by the Global Timber Forum in Ghana and Indonesia.

 

Indonesia loses GSP status in the EU

As of 1 January 2020, Indonesia no longer qualifies for Generalised Scheme of Preferences (GSP) tariff rates on Wood and Wood Products in the EU.

The GSP system has ‘graduation mechanisms’ for ascertaining a country’s eligibility for preferential duty rates. These include the value of its exports of specific goods to the EU as a percentage of all EU GSP imports of those products. According to the EU, Indonesia exceeded the ceiling of 57 percent under this calculation for three years, so losing its GSP status.

It remains to be seen whether removal of Indonesia’s GSP status from 1st January 2019 will have any significant impact on EU imports.

Loss of GSP status will have no effect on trade in those products like decking/mouldings and most wooden furniture which are zero tariff for all EU imports. However, it means higher tariffs for Indonesian plywood, veneers, and planed, sanded and finger-jointed sawn timber.

For plywood, probably the most significant Indonesian wood product influenced by GSP status, the tariff has increased from 3.5 percent to seven percent.

 

EU imports from Myanmar continue despite EU prohibition

At their December meeting, the EU Expert Group on EUTR and FLEGT, comprising representatives of the EC and government authorities from across the EU, reiterated their view that it is not possible to demonstrate a negligible risk that any timber from Myanmar is legally harvested in line with EUTR definitions.

According to the Expert Group this is due to ‘lack of sufficient access to the applicable legislation and documentation from governmental sources’.

This opinion of the Expert Group, which reiterates previous conclusions made at earlier meetings in June and September, implies that any operator placing Myanmar timber on the EU market will be liable to prosecution for failure to undertake adequate due diligence under the terms of the EUTR.

Authorities in several EU member states have sanctioned operators trading in Myanmar teak. In the three years since 2017, a variety of legal cases have been brought against importers of teak in Belgium, Denmark, Germany, Netherlands, Sweden, and the UK, involving confiscation of the timber or requiring it’s return to Myanmar, and additional sanctions such as fines.

The report of the Expert Group’s December meeting indicated that additional cases are now being brought in the Czech Republic and Austria. The Expert Group observed that these enforcement activities are leading to changes in the direction of trade around the EU.

ITTO’s own analysis of trade flow data confirms that there have been significant changes in the direction of trade, but no sign of decline in overall imports from Myanmar. EU imports of wood products from Myanmar were valued in excess of US$50 million in the 12 months to September 2019, double that of five years before.

During this period imports into Italy increased four-fold to over US$30 million.

During the same period direct imports from Myanmar into Germany, Netherlands, Belgium and Denmark fell to negligible levels. However, in addition to Italy, there was a significant increase in imports (from a very small base), into Greece, Croatia and Sweden. Imports into France remained low but consistent at around US$2 million per year.

The continuing reluctance of EU officials to accept that negligible risk of illegal harvest can be demonstrated in Myanmar comes despite additional information and wide-ranging discussion of EU due diligence requirements at a national FLEGT multi-stakeholder dialogue held in Nay Pyi Thaw, Myanmar, in November.

According to a report on the dialogue in the minutes of the EU Expert Group meeting in December, “this multi-stakeholder group (MSG) was set up in the course of the pre-preparatory process towards a VPA in Myanmar”, although “already last year it was made clear that the [VPA] process was halted”.

The MSG, which operates at national level with associated regional groups, includes representatives of government (including State-owned Myanmar Timber Enterprise, MTE), private sector and civil society organisations (CSOs). The dialogue meeting in November involved about 150 people.

The dialogue was funded and facilitated by the EU FLEGT facility and the FAO-EU FLEGT Programme. The EU Expert Group minutes go on to note that “although the VPA process is stopped, having the MSG as an interlocutor is very helpful in the strife for improved forest governance and law enforcement in Myanmar”.

The EU Expert Group minutes state that “Myanmar applied for funding from the FAO-EU FLEGT Programme for further multi-stakeholder meetings to prepare a work programme for activities that could be funded by the Programme from 2020-2021 and build capacity to submit quality project proposals”.

“The intention is to ensure ownership of the process [in Myanmar] of all stakeholders and at the same time avoid the pursuit of (often costly) activities promoted by some stakeholders predominantly interested in trade, which, in the end, do not constitute adequate measures to ensure good forest governance and legal timber harvest”, according to the EU Expert Group minutes.

The EU Expert Group meeting minutes conclude that “dialogue with Myanmar has clarified what issues must be addressed in order to outline a way forward towards good forest governance and legal timber harvest, which would provide sufficient transparency to enable operators to carry our due diligence correctly and adequately mitigate to a negligible level the risk of illegal harvested timber being placed on the internal market. It also showed avenues for working together with IMM in this context, without giving false expectations”.

The EU Expert Group also “took note of the fact that the Annual Allowable Cut (AAC) for the 2019/2020 season was made available online in November”.

However, the EU Expert Group also note that “other applicable legislation is not fully accessible for EU operators within the meaning of Article 6 (1)(a) of the EUTR, enabling operators to fully comply with Article 5 of Implementing Regulation (EU) No 607/2012, e.g. because it is declared internal or it only exists in Burmese.

Full risk assessment and choosing and applying adequate mitigation measures to address each of these risks is therefore not possible”.

 

France requires public buildings to be at least 50% wood

According to the newspaper Times of London, President Macron has ordered that new public buildings financed by the French state must contain 50 percent wood or other organic material by 2022 under an ambitious government plan for a greener urban life.

The government announcement, made on 5 February, is part of a drive for sustainability by Mr. Macron, who wants France to set an example in the face of climate change.

Julien Denormandie the minister for cities and housing, said the plan would promote low-carbon towns “that are capable of adapting to heatwaves and floods. To show an example by the state, I am imposing on all the public entities that depend on me and which manage development to construct buildings with material that is at least 50 percent wood or from bio-sourced material.”

According to the Times, bio-sourced material can include a vegetable component such as hemp or straw.

Building works covered by the new 50 percent rule include urban development projects co-financed by the state and local government in Paris and 13 other cities. According to the Times, in two decades some €9 billion has been spent on these projects, which mix housing and business premises.

The Times also reports that Paris has promised to include a high level of wood in all new construction for its 2024 Olympic games. Olympic buildings of up to eight storeys must be 100 percent wood and if higher contain some wood in their structure.

Elsewhere in France, according to the Times, work has begun on a 16-storey 181 ft all-wood building with 98 apartments in Bordeaux, which will be France’s tallest wooden construction.

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