Malaysia
Weakening ringgit of concern
The weakening of the ringgit is a cause for concern. So far this year the ringgit has weakened by around seven percent against the US dollar and by around five percent against the Singapore dollar.
These changes are important as Singapore is Malaysia’s second largest source of imports after China. Between January and June Singapore and the US collectively contributed almost one-fifth of Malaysia’s overall imports.
The higher import costs are passed on to consumers and this, along with high inflation, is hurting consumers.
Environmental, Social and Corporate Governance
The Malaysian Timber Council (MTC) plans to launch an environmental, social and corporate governance (ESG) charter for players in the country’s timber industry.
The charter will provide guidance to companies when they respond to questions on what initiatives Malaysia has to ensure the timber industry adheres to social and corporate governance that coincides with existing guidelines.
The ESG charter aims to reassure the international community on issue such as forced labour and sustainability in the industry.
Reducing dependence of foreign workers
The Malaysian Timber Council (MTC) has signed an agreement with the Technical and Vocational Education Training Division (BPLTV) of the Ministry of Education (MoE) to increase the number of local manpower in the timber sector whilst reducing the dependence on foreign labour as well as to support the development of Technical and Vocational Education and Training (TVET) in the country.
The aim is to encourage sharing of expertise and technology between industry players and the educational institution as well as promoting technical education.
This is part of MTC’s initiatives to collaborate with vocational colleges by providing internship placement as well as a ready-to-work programme for the Technical and Vocational Education and Training (TVET) students and graduates for the timber-based industry through MTC’s Engineer Placement and Internship Programme (EPIP).
Companies urged to adopt Economic Value Chain concept
The Sabah Chief Minister has urged timber companies in the state adopt an Economic Value Chain (EVC) concept that integrates both the upstream and downstream production sectors.
In Sabah, upstream and downstream timber sectors operate independently and at times there has been mis-matched supply and demand.
With an EVC concept production would be integrated which can lead to improved productivity, said the Chief Minister.
Record high trade in June
Malaysia’s total trade recorded double-digit growth of 43 percent year-on-year in June 2022. Exports increased 39 percent year-on-year in June, growing for the 22nd consecutive month since September 2020. Imports increased 49 percent year-on-year.
Malaysian wood product exports rose in the first quarter of 2022 driven by global demand. Exports of wood and wood products in the first quarter this year increased by eight percent to RM6.54 billion compared to the RM6.04 billion in the same period in 2021.
Wooden furniture remained the big earner at RM3.1 billion or 47 percent of Q1 exports followed by plywood with RM896.5 million or 14 percent and sawntimber, RM640.9 million (9.8%).
The top three export destinations were the US (35%), Japan (15%) and China (9%). Malaysia’s exports of wooden furniture were mainly to the US (59%) followed by Japan (6%) and Singapore (4%).
Johor furniture makers short of workers
Johor state, the country’s largest furniture producer, is facing a shortage of workers in the industry, not only in production but also the supervisory and mid-level managerial roles.
The issue of a shortage of foreign workers persists and many Malaysian workers prefer to work in nearby Singapore.
Furniture city and logistic hub for Sungai Buaya
Sungai Buaya in Selangor State will be home to a furniture business complex whose aim is to integrate the scattered furniture industry in Kuala Lumpur and Selangor.
The Kuala Lumpur and Selangor Furniture Association will join with B&G Capital Resources to develop the International Furniture City and Logistic Hub (SIFC).
The project is expected to improve resource utilisation and facilitate centralised procurement for domestic and foreign buyers. The SIFC project is expected to create nearly 16,000 jobs.
Sarawak—more on engineered wood
Sarawak is expected to attract RM120 million investment in an engineered wood plant project which will utilise timber from planted forests. The Sarawak Timber Industry Development Corp. (STIDC) is taking the lead with this investment.
Some 520,000 ha. in Sarawak have been planted with commercial species predominantly Acacia mangium. The state authorities have issued more than 40 licences for planted forests with a total area of 2.3 million ha.
Indonesia
Indonesia invites Japan to increase forestry investment
The Indonesian Ambassador to Japan, Heri Akhmadi, said that Indonesia/Japan trade cooperation is very close especially for wood products. He added that the transformation of the energy sector in Japan that focuses on bio-energy sources, such as wood pellets, opens up opportunities for Indonesia.
An Indonesian delegation visited Japan for the Indonesia-Japan Forestry Investment Dialogue in early August and the dialogue involved a number of Japanese forestry companies.
Government—economic growth above five percent
The government will continue to maintain the economy so it grows above five percent until the third quarter of 2022 despite the global turmoil and uncertainty.
The Coordinating Minister for the Economy, Airlangga Hartarto, said that if the economy is able to grow above five percent by the third quarter then the annual growth target of 5-5.2 percent for this year will be achieved.
Minister Hartarto said his optimism was in line with current economic growth driven by consumption, investment and exports. On the supply side, almost all sectors reported growth in the first half of 2022.
Disrupted global economies but wood product exports still positive
Despite the current global issues due to the prolonged Covid-19 pandemic and the continued aggression by Russia in Ukraine, wood product exports are encouraging. As of June wood product exports totalled US$7.06 billion, an increase of 11 percent year-on-year.
The performance up to June was driven by exports of three products, paper, wood-based panels and pulp.
The value of paper product exports was US$2.05 billion (up 6.4% YoY), wood-based panels at US$1.66 billion (up 27% YoY) and pulp at US$1.56 billion. The other product recording growth was prefabricated buildings.
The slowest growth was recorded for joinery products.
The upstream sector also experienced a positive trend. Production of logs from natural forests, plantation forests and Perhutani managed areas increased slightly. Until June log production from natural forests was 2.30 million cubic metres, an increase of 0.2 percent year-on-year. Log production from plantation forests was 22.44 million cubic metres, up 2.2 percent.
Breakthrough in exports of Lightwood products
The Minister of Trade, Zulkifli Hasan, said he applauds the efforts being made by the Indonesian Light Wood Association (ILWA) to improve exports through collaboration with a light wood processing company in Austria.
ILWA will work to increase the added value of light wood products through capacity expansion, product adaptation/innovation and technology utilisation.
In 2021, Indonesia's exports of light wood products (plywood and flooring) totalled US$3.2 billion or 45 percent of Indonesia's total exports of wood products. Indonesia's wood product exports in 2021 reached US$7.94 billion, an increase of 31 percent compared to the previous year.
‘NeXT Forest’ a technology for peat-forest management
Sumitomo Forestry Co., Ltd. and the IHI Corporation have joined forces to introduce satellite technology via ‘NeXT Forest’ a project that can guide companies holding Forest Utilisation Permits (PBPH) and oil palm plantations to address the challenges of managing peatlands and tropical forests.
The Director General of Sustainable Forest Management at the Ministry of Environment and Forestry (KLHK), Agus Justianto, indicated that he hopes NeXT Forest can support Indonesia's FOLU Net Sink 2030.
‘NeXT Forest’ combines Sumitomo’s Forestry experience and knowledge of best practices in peat management with satellite technology and weather monitoring system developed by a leading Japanese company, IHI Corporation.
NeXT Forest is a tool for oil palm plantation and peatland forest managers and is able to monitor the health of the forest and will support the development of Indonesia’s carbon credit market.
APHI Calls on EU to Promote SVLK
The Association of Indonesian Forest Concession Holders (APHI) has called on the European Union to jointly promote the Legality and Sustainability Verification System (SVLK) to further strengthen Indonesia’s efforts to improve forest governance in support of climate change action.
Chairman of APHI, Indroyono Soesilo said that Indonesia and the EU have had a Voluntary Partnership Agreement (VPA) for Forest Law Enforcement, Governance and Trade (FLEGT-VPA) since 2013.
He commented that under the Agreement the EU has an obligation to promote FLEGT licenses in accordance with article 13 of the FLEGT VPA.
Indroyono said during a meeting with the EU Ambassador to Indonesia at the APHI office that Article 13 must be implemented to support FLEGT licensing. Indroyono said, despite being one of the main markets, exports of Indonesian wood products to the EU are still relatively small and that Indonesia needs support to expand its market share.
In response, the Ambassador explained that EU consumers’ awareness of green products that are environmentally friendly is getting stronger, therefore fulfilling the elements of legality and sustainability is important.
Regarding Article 13 the Ambassador said this could be one of the points of discussion at the high-level meeting of the EU and Indonesia later in the year.
Forestry Congress reaffirms role of forestry sector in National Development
At the opening of the 7th Indonesian Forestry Congress themed "Managed Forests, Protected Earth and an Empowered Nation” the Minister of Environment and Forestry, Siti Nurbaya, called upon forestry sector stakeholders to strengthen their commitment in encouraging the progress in Indonesia's forestry development and to actively participate in international efforts to achieve sustainable development and address climate change.
The Congress aimed to play a role in the national agenda on climate change as formulated in the 2030 FoLU Net Sink.
The Minister was reported as saying “In responding to these global challenges, breakthrough steps, innovation and collaboration are needed to accelerate the implementation of climate change mitigation actions, as well as optimise scientific resources in earth management for completion and efforts for sustainability and prosperity as a legacy for our future generations".
Myanmar
Trade Department release timber export data
According to a recent release from the Trade Department the earnings from the export of wood products between October 2021 and May 2022 were US$108 million.
The figures for 2019-20 and 2020-21 were US$150 million and US$122 million. It has been suggested that exports to EU and US are likely to decline while those to countries that have not sanctioned Myanmar, such as India and China, will rise.
Changes to exchange regulations
On 9 August the Central Bank raised its official exchange rate from 1,850 Kyats per dollar to 2,100 Kyats. At the same time the Central Bank lowered the percent of earned hard currency that must be converted from 100 percent to 65 percent.
Previously, exporters had to convert the entire amount of export earning into Myanmar Kyats at the fixed rate of 1,850 Kyats per dollar. This change has been welcomed by exporters and manufactures.
As a result of the previous regulations manufacturers and sawmillers were unable to import necessary material and equipment as they had no access to hard currency.
Log supplies a challenge
Millers are experiencing a shortage of teak logs which fall outside the dates when sanctions on the Myanmar Timber Enterprise (MTE) were implemented (logs held by the MTE before 21 June 2021 are regarded as being exempted).
MTE appears to be facing a challenge in transporting teak and hardwood logs from the extraction sites to Yangon because of security concerns due to activities of resistance groups.
In related news a new regulation, effective at the end of this year, will ban the export of large sized sawn timber (baulks) which are regarded as raw material. Export to the EU and US are expected to decline.
Illegal timbers seized
The Anti-Illegal Trade Steering Committee has taken action. An inspection team led by Myanmar Police Force conducted raids on August 4 and 5 under the instructions of the Mon State Anti-Illicit Trade Task Force and a team led by the Yangon Region Forest Department carried out inspections under the supervision of the Yangon Region Anti-Illegal Trade Task Force.
A total of 6.1 tonnes of illegal timber worth K311,822 was seized in the Oakkan forest reserve in Taikkgyi Township of Yangon North District. In addition 17.8 tonnes of illegal teak, iron-wood and other timbers worth K8,566,372 were confiscated in the Bago, Thayawady and Pyi districts.
Timber drops from list of major exports
Exports of agricultural products earned US$4,624 million in fiscal 2020-2021. The main products were rice, broken rice, beans and pulses.
Despite of the depreciation of MMK, exporters did not enjoy a rise in income as earnings had to be exchanged for local currency at the fixed rate of 1850 MMK. In the unofficial market, the dollar earns MMK2,500 MMK.
Timber exports were previously among the top three export products since 2000 but the ranking declined from 2014 when the log export ban was introduced. Before 2014 timber exports were worth over US$500 million annually.
India
Supreme Court: Forests are forests
A recent Supreme Court ruling on the Aravalli forests case is a decisive win for forest conservation, environmental wellbeing and sustainable development.
The court made it clear that the protection accorded to forests by law cannot be limited to only those areas recognised in the Indian Forest Act, 1927.
The implications of the ruling are far wider than protection of one small forest. This ruling comes at a time when biodiversity loss has emerged as a major challenge with substantial economic implications.
The court rules that the Aravalli forests were legally required to be regarded as forests and that central government permission is required to allow any change of uses.
More trade with Russia
The Reserve Bank of India (RBI) has endorsed use of the rupee for international settlements which will likely increase Russia-Indian trade.
Indian imports from Russia jumped 272 percent in the April-May period this year as Russian companies search for alternative markets.
The Russian oil and gas sectors have been the main exporters to India, but it is reported the two countries are seeking ways to diversify trade beyond the traditional areas. India is looking at expanding into new areas such as coking coal, timber, LNG and agricultural products.
Rising interest rates dampen consumer sentiment
There were signs in June that economic activity was slowing as price increases, rising interest rates and a weakening rupee dampened consumer sentiment.
Pent-up demand drove an economic revival but now rising prices are biting. The RBI raised rates recently to slow price growth and is likely to raise rates when it meets again.
In mid-July, the rupee fell to an all-time low of 80.05 against the US dollar. This has pushed up import costs which are hard to pass on currently.
Declining investment in real estate
As prospects for continued growth in the short term have weakened institutional investments in the Indian real estate sector has fallen.
In the second quarter of this year, there was a 27 percent year-on-year drop in total investments. In the office segment, there was an increase in investment but it was the lower investment in the housing segment that pulled down the overall figure.
Vietnam
Wood and Wood Products (W&WP) Trade Highlights
Vietnam's W&WP exports to South Korea in July 2022 reached US$76.4 million, down 5.8 percent compared to July 2021.
In the first seven months of 2022, W&WP exports to South Korea were estimated at US$606.6 million, up 13 percent over the same period in 2021.
Vietnam's exports of office furniture in July 2022 reached US$33.1 million, down 34 percent compared to June 2021.
In general, over the first six months of 2022, exports of office furniture were worth US$190.1 million, down 28.3 percent over the same period in 2021.
Vietnam's imports of padauk in July 2022 accounted to 8,800 cubic metres, worth US$3.8 million, down 30 percent in volume and 45 percent in value year-on-year.
Over the first seven months of 2022, imports of padauk are estimated at 79,600 cubic metres, worth US$35.3 million, down 26 percent in volume and 21 percent in value over the same period in 2021.
Over the first seven months of 2022, exports of handicrafts are estimated at US$150.53 million, up 5.1 percent over the same period in 2021.
Vietnam's wood industry urged to seek new opportunities in UK
While many products exported to the UK enjoyed strong increases thanks to the UK-Vietnam Free Trade Agreement (UKVFTA), Vietnam’s timber industry is facing difficulties in expanding in this market and this requires manufacturers and exporters to change their business strategies.
Vietnam’s wood industry is seeing declining international sales.
Exports in July are estimated at US$1.41 billion, down 5.5 percent against June and down 1.6 percent year-on-year according to a report of the General Department of Forestry under the Ministry of Agriculture and Rural Development (MARD).
This was the second month that the export of wood and timber products decelerated.
Earlier, figures from the General Department of Customs showed exports of wood and wood products reached US$1.4 billion in June, down nearly 11 percent year-on-year.
Declining export orders
According to market insiders the wood industry will face a serious challenge due to a decrease in export orders in the latter half of this year.
A quick survey of 52 timber businesses conducted by the Vietnam Timber and Forest Products Association (Vifores) in collaboration with Forest Trends showed that most companies witnessed decreasing exports to the US, EU and UK markets.
Thirty-three out of 45 firms exporting to the US said their revenues decreased by nearly 40 percent compared to the first months of this year. A similar trend is seen in the EU and the UK with two-thirds of the surveyed enterprises reporting revenue drops of over 41 percent.
Moreover, about 71 percent of businesses said that orders will continue to decline towards the end of the year. Under the current market situation, 44 percent of businesses expect their revenues will fall by about 44 percent for the whole year.
Vietnam's wood industry is integrating deeply with international markets so high inflation and tightening credit policies in response to rising inflation in major markets are driving down demand.
New opportunities in the UK
W&WP export to the UK enjoyed an increase of 14 percent to US$72 million in the first three months of 2022 but sales to this market are also declining as consumers are tightening their spending.
In June the value of exports declined 38 percent year-on-year to US$16.3 million and in the first half the rate of reduction was 7.7 percent to US$135.5 million.
Like other parts of the world, inflation in the UK hit a 40-year high in June as food and energy prices continued to soar, worsening the country’s historic cost-of-living crisis.
The Bank of England has implemented five consecutive 25 basis point rate hikes to cool high inflation and is considering a 50 basis point hike at its August policy meeting.
According to David Hopkins, chief executive of ‘Timber Development UK’, the UK’s imports of wood and wood products rose in the first quarter as merchants start to rebuild stocks after the winter.
The UK’s economy is now struggling with high inflation, high interest rates and big logistics challenges due to Brexit and the Russian invasion of Ukraine.
So far, Vietnam’s predominant timber export to the UK is furniture but Hopkins sees another opportunity for Vietnamese exporters in niche areas such as plywood.
On furniture products, Hopkins said demand is expected to decline in the next two years after a boom in housing repair and maintenance during the pandemic before it can bounce back. This trend will likely happen in the US and the EU which are also suffering from high costs of living.
To better compete and expand sales in the UK, Hopkins suggested Vietnamese manufacturers and exporters invest in marketing and promotion to enhance awareness among UK consumers about Vietnamese products.
The concepts of legality and sustainability are important for consumers in the UK and are backed up by legislation.
Exports of wood and forest products down for 2nd consecutive month
According to a report by the General Department of Forestry, Ministry of Agriculture and Rural Development, the country’s export value of wood and forest products in July of 2022 was estimated at US$1.41 billion, the second month that the value of exports of wood and forest products fell.
In general, the export value of wood and forest products in the first seven months of 2022 was estimated at US$10.42 billion, up by 1.3 percent over the same period of 2021.
Exports of wood and wood products alone reached US$9.72 billion, an increase of 1.2 percent; of which, the exports of wood chips reached US$1.4 billion, up by 30 percent, the exports of wood pellets reached US$0.45 billion, up by 79 percent, the exports of all kinds of panel products reached US$0.91 billion, up by 22 percent, the export of wood products reached US$6.97 billion down by seven percent and the exports of nontimber forest products reached US$0.7 billion, up by 2.6 percent.
Regarding the markets, in the first seven months of 2022, timber and forest products were exported to 110 countries and territories, of which, the US, Japan, China, EU and South Korea continued to be the main export markets.
The total exports to those five markets were estimated at US$9.38 billion accounting for 90 percent of the total export value of the country.
Exports to the US market reached over US$5.84 billion, down by five percent over the same period of 2021, of which, the exports of wood and wood products reached US$5.58 billion, down by 51 percent. Exports of non-timber forest products reached US$0.25 billion, down by 0.6 percent.
Exports to the Japanese market reached US$1.04 billion, up by 19 percent over the same period of 2021 of which exports of wood and wood products reached US$999 million, up by 20 percent and the exports of non-timber forest products reached US$36 million, down by two percent.
Exports to the Chinese market reached US$1.161 billion, up by 24 percent over the same period of 2021.
The country’s exports of wood and wood products to China reached US$1.15 billion, up by 23 percent; while the exports of non-timber forest products reached US$15 million, up by 164.2 percent.
Exports to the EU market reached US$726 million, up by one percent over the same period of 2021, of which, exports of wood and wood products reached US$549 million, down by 2% and the exports of non-timber forest products reached US$177 million, up by 11 percent.
According to the Import-Export Department, Ministry of Industry and Trade, the United States was the largest export market of Vietnam's wood and wood products.
However, the decrease in export value of wood and wood products to this important market has affected the export activities of the whole industry.
The US is the main export market for the wood industry so the decrease in exports hinders the growth of wood and wood products export sector.
Exports of wood and wood products in the second half of 2022 may face many challenges both in terms of the market and the supply chain, when the world inflation is high, causing the purchasing power to decrease and the transportation costs to increase.
According to Vietnam Timber and Forest product Association, exports of wood and forest products in the last months of the year may continue to face difficulties due to the high price of production materials and products; countries tighten credit policies because inflation tends to increase, leading to a sharp decrease in consumer demand.
In addition, the wood industry is also facing the US DOC's initiation of an investigation into wooden cabinets and dressing tables.
In the context that the imports of raw materials from European markets decreased sharply, specifically the imports from Germany decreased by 2.2 percent, from France decreased by 6.9 percent, from Italy decreased by 10.1 percent, from Sweden decreased by 42.1 percent due to the influence of the Russian invasion of Ukrainian leading to transportation difficulties.
Imports of raw materials from some countries increased sharply such as from Russia, Finland, and Belgium due to the need to find alternative sources of raw materials due to reduced supply in other markets.
The supply of raw materials from domestically planted forest wood is still sufficient to meet production needs.
Currently, due to the increased demand for woodchips and pellets, prices have risen by over 30 percent so the forest owners tend to cut young forests (3-4 years old plantations), leading to the risk of shortage of wood materials for processing all kinds of other wood products.
In order to deal with the challenges ahead, the General Department of Forestry has recommended enterprises actively develop production and business plans; promptly respond to market fluctuations; strictly comply with regulations on records of forest product origin and other relevant regulations in timber and forest product production and trading activities.
Japan
Economy revived in second quarter
Japan's economy made a come-back in the second quarter 2022 after the contraction in the previous quarter. This was due to an upswing in consumer spending, especially in the services sector, which no longer has to apply strict protection rules.
There is concern, however, that consumer spending in the current quarter may slip.
The government is encouraging prefectural authorities to implement measures to contain the latest corona variant that has sent infections to record levels. There are no plans for nationwide control measures. The seventh wave of the BA.5 variant has pushed new cases in Japan to over 200,000 per day putting pressure on medical services and disrupting commercial operations.
Another record minimum-wage hike
A government panel has proposed raising the average minimum wage for fiscal 2022 by a record ¥30 per hour or more as the experiences accelerating inflation.
In discussions, there was little agreement between the panel and employers on by how much the increase should be.
The unions have been calling for a substantial rise as the cost of living is rising while the private sector, which is facing surging costs, has stressed the need for careful consideration.
In related news, a Kyodo News survey showed that 42 percent of major companies in Japan expect the economy to slow over the next 12 months as they struggle with surging commodity costs and the yen's weakness.
China
Dramatic decline in China’s softwood log imports
China’s log imports in the first half of 2022 totalled 22.38 million cubic metres valued at US$4.567 billion, down 29 percent in volume and 13 percent in value, However, the average price for imported logs was US$204 (CIF) per cubic metre, up 22 percent from the same period of 2021.
Of total log imports, softwood log imports plummeted 39 percent to 15.16 million cubic metres, accounting for 68 percent of the national total. However, the average price for imported softwood logs rose 17 percent to US$166 (CIF) per cubic metre over the same period.
The main reason for the decline in log import volumes was the drop in imports from the major suppliers; New Zealand, Germany, Russia and US fell 19 percent, 51 percent, 58 percent and 31 percent respectively due to the economic slowdown in China, lower harvest levels in some countries and surging sea freight rates.
No log imports from Australia
There were almost no log imports from Australia in the first half of 2022. Australia has completely disappeared from the list of major suppliers of logs to China.
China’s log imports from Australia have been declining and came to zero finally because of a ban on imports as the quarantine service in China once again detected pests in a log shipment.
Since the beginning of 2020, the quarantine service has repeatedly detected live pests such as the long horn beetle, Cerambycidae and jewel beetles, Buprestidae in logs imported from Australia.
France the largest supplier of China’s oak imports
Because of firm demand for oak flooring and furniture oak imports have been increasing and exceeded one million cubic metres annually in recent years. In 2021, imports of oak reached 1.351 million cubic metres, up 33 percent year-on-year.
France has been the largest supplier of oak to China since 2010 to 2021 (except in 2010 and 2013). China’s oak imports from France in 2021 were the largest ever at 425,230 cubic metres, up 43 percent year-on-year.
The top three suppliers of China’s oak imports were France, US and Russia. The proportions of the top three suppliers for China’s oak imports are around 70 percent of the national total from 2010 to 2021 (81% in 2013 and 79% in 2016).
Rise in China’s hardwood log imports in the first half of 2022
China’s hardwood log imports in the first half of 2022 rose six percent to 7.22 million cubic metres (32% of the national total log imports). The average price for imported hardwood logs in the first half of 2022 was US$285 (CIF) per cubic metre, up 11 percent from the same period of 2021.
Of total hardwood log imports, tropical log imports were 4.10 million cubic metres valued at US$1.167 billion CIF, up nine percent in volume and seven percent in value from the same period of 2021 and account for about 18 percent of the national total log import volume.
The average price for imported tropical logs was US$284 CIF per cubic metre, up 7% from the same period of 2021. Before its log export ban Myanmar was a major source of tropical logs to China.
However, China’s log imports from Myanmar have been decreasing for many years. China’s log imports from Myanmar fell 43 percent to 3,637 cubic metres and 46 percent in value to US$4.4 million in the first half of 2022.
The average price for imported logs from Myanmar declined five percent to US$1,203 (CIF) per cubic metre in the first half of 2022.
Accelerated construction of timber trading centre for One Belt and One Road
A timber trading centre is being established in the Xi’an international port to take advantage of Xi 'an’s location with the China-Europe Express.
The advantages identified include stable, efficient and convenient international railway logistics and developed industrial projects.
On completion, this centre is expected to have a cargo capacity exceeding one million cubic metres, at the same time more than 600 jobs can be created. The centre will play a strong role in improving people's livelihood and promoting the development of the forestry industry.
UK
Big increase in UK import value of wood furniture from all main tropical suppliers
The UK imported US$374 million of tropical wood furniture products in the first five months of 2022, which is 28 percent more than the same period in 2021.
In quantity terms, wood furniture imports were 78,000 tonnes during the five-month period, three percent more than the same period last year.
This indicates that the rise in value was driven more by price inflation than strong demand. Import value increased from all of the leading tropical supply countries to this market in the first five months of this year compared to last including Vietnam (+28% to US$182 million), Malaysia (+6% to US$67 million), India (+47% to US$45 million), Indonesia (+53% to US$39 million), Singapore (+2% to US$27 million), and Thailand (+25% to US$9 million).
UK imports of wood doors from Indonesia gather momentum
After the sharp dip in UK imports of tropical joinery products during the first lockdown period in the second quarter of 2020, imports of this commodity group have progressively built momentum.
This trend is mainly driven by Indonesia for which UK joinery imports, mainly consisting of doors, were US$77 million in the first five months this year, 37 percent more than the same period in 2021.
In quantity terms, UK joinery imports from Indonesia were 24,500 tonnes in the first five months of this year, 11 percent more than the same period in 2021.
UK imports of joinery products from Malaysia and Vietnam (mainly laminated products for kitchen and window applications) started this year more slowly.
Import value from Malaysia was US$18 million in the January to May period, 26 percent less than the same period last year. In quantity terms, imports from Malaysia were 5,800 tonnes, 37 percent less than the same period in 2021.
Joinery imports from Vietnam of 1100 tonnes valued at US$4 million were respectively 39 percent and 33 percent less than the same period last year.
UK imports of Chinese tropical joinery products, nearly all comprising doors, were 7,200 tonnes with value of US$19 million in the first five months of 2022, up from negligible levels in previous years.
Due to introduction from January 1, 2022 of new product codes in the EU Combined Nomenclature (still mirrored by the UK post-Brexit), it is now possible to identify wood doors and windows manufactured using a wider range of tropical wood species in UK and EU trade statistics.
The apparent rise in imports of ‘tropical’ wood joinery from China is very likely due to these products now being identifiable as of tropical species, whereas previously they were classified as ‘other non-coniferous’ in the trade statistics and excluded from the figures for tropical wood imports.
UK tropical hardwood plywood imports switch from China to Indonesia
In the first five months of 2022, the UK imported 106,000 cubic metres of tropical hardwood plywood, 18 percent less than the same period last year.
Tropical hardwood plywood imports from Indonesia have made gains this year, while imports from China have continued to slide.
The UK imported 30,300 cubic metres of tropical plywood from Indonesia in the first five months of this year, a gain of 21 percent compared to the same period last year.
Imports from Indonesia, which were quite slow between February and April this year, picked up pace again in May. The UK imported 29,100 cubic metres of plywood from Malaysia in the first five months of this year, nine percent less than the same period last year. Imports from Malaysia also picked up in May to their highest monthly level for over a year.
The UK imported 27,600 cubic metres of tropical hardwood plywood from China in the first five months of this year, 28 percent less than the same period in 2021, trade having been affected by Covid-19 lockdowns in China.
At the same time, Brexit is impacting on UK imports of tropical hardwood plywood from EU countries which were just 5,200 cubic metres in the opening five months of this year compared to over 10,000 cubic metres during the same period in the last two years.
Europe
Unprecedented period of change in European wooden furniture sector
The last two and half years, marked from the start of 2020 by the Covid-19 pandemic and from February this year by war in Ukraine, have seen unprecedented changes in Europe’s wood furniture sector.
The sector has passed through a period characterised by an initial but very short-lived fall in demand in the second quarter of 2020, followed by rapid demand escalation at a time when material shortages and other logistical challenges greatly reduced availability.
During this relatively short period, major changes have occurred in patterns of supply and demand, trade flows, consumer preferences and working conditions, distribution channels, design, and fashion trends. Companies throughout the sector are having to evolve new strategies in response to a transformed world.
Recent trends in the value of production trade and consumption of wood furniture in the EU27+UK are shown in Chart 1.
This highlights that wood furniture production and consumption was weakening in the years before the onset of the pandemic in response to sluggish growth of the EU27+UK economy and intense competition in global markets, particularly from Chinese manufacturers whose sales in the US market were being diverted elsewhere due to the trade dispute.
Due to the onset of the pandemic, there was an estimated five percent downturn in the euro value of EU27+UK wood furniture production and four percent decline in consumption.
However, this was followed in 2021 by an unexpectedly strong 12 percent and 15 percent rebound respectively in production and consumption.
According to CSIL, the Milan based furniture research organisation, the last two years of the European furniture sector have been marked by a significant mismatch between supply and demand.
A sharp reduction in production of wood and other essential material inputs, severe logistical problems in international trade, rapidly rising freight rates, shortages of key staff, social distancing measures at manufacturing plants, and a big increase in energy prices all placed limits on production and supply.
This meant that, while furniture production and imports rebounded strongly in many European countries, they failed to keep pace with an even sharper increase in demand. The rise in demand was mainly due to a shift in consumer spending away from travel and leisure towards home-related product categories and to cater for new home offices with the rise in remote working.
There was also resumption in export market growth in 2021.
The mismatch between demand and supply caused a general increase in furniture prices, initially at the manufacturing stage and partly absorbed by manufacturers, and then progressively transferred to final consumers.
Furniture sector performance varied widely between European countries. Eurostat data shows that while overall EU27 furniture production had rebounded to pre-pandemic levels before the end of 2021, production was still below these levels in many countries including Germany, France, Sweden, and Romania.
In contrast production in some countries, notably Poland and Lithuania, remained strong even during the first year of the pandemic in 2020, and continued to rise in 2021 and the first half of 2022.
Looking forward, CSIL forecast that after the exceptional rebound in European furniture production in 2021, 2022 is expected to be another strong year on the demand side, although the rebound effect will slow compared to last year.
This is partly due to reallocation of household spending back towards travel and other leisure activities. High inflation and soaring furniture prices are also expected to have a dampening effect on down.
On the other hand, purchasing in the commercial sector is expected to remain robust.
Supply chain disruptions are expected to persist, particularly due to rising energy prices, lack of qualified workers, and the fallout from the Russia-Ukraine war. The conflict is increasing material supply difficulties, notably for timber products, and commodity prices are expected to remain elevated at least for the remainder of this year.
The outlook for European inflation and wider economic growth is heavily dependent on how the war in Ukraine will unfold, the impact of sanctions and other measures, and how these feed through into energy prices and consumer confidence.
According to CSIL there are several positive factors expected to maintain strong demand for furniture in Europe in the coming months including the continuing roll-out of the EU's Recovery and Resilience Facility (RRF), some significant national level support measures, such as a fiscal bonus in Italy which was extended into 2022, growth in residential construction in several European countries, and improved export market prospects for European manufacturers, driven both by increased affluence of consumers in some emerging markets, and by continuing efforts in the US to reduce dependence on imports from China.
Recent trends in the quantity of European wood furniture trade as revealed by Eurostat trade data are somewhat surprising. The long-term rise in European trade which began in 2013 as the European economy gradually recovered from the 2008-09 global financial crises and subsequent eurozone currency crisis, continued apparently uninterrupted by the pandemic. The most notable recent trend is the upturn in trade in 2021, apparent both in EU27+UK external and internal trade.
Overall, the signs are that EU wood furniture manufacturers, while still dominant inside the EU single market, accounting for around 80 percent of total consumption value in the region, have been gradually losing competitiveness in other global markets.
Exports by EU27+UK manufacturers to other regions of the world were broadly flat in quantity terms and slightly declining in value terms before 2021.
Last year, EU27+UK wood furniture exports to countries outside the region increased sharply, rising 21 percent to both euro value and quantity terms, but it remains to be seen whether this growth can be sustained.
Meanwhile, manufacturers outside the region, notably in neighbouring non-EU countries and China, slowly increased their share of the EU27+UK market in the years before 2022.
The share of non-EU suppliers in EU27+UK wood furniture consumption increased to 21 percent in 2021, up from 18 percent the previous year and 15 percent five years earlier.
Between 2015 and 2019, EU27+UK imports of wood furniture from outside the region increased fairly consistently at an average rate of six percent per year. In 2020, the onset of the pandemic and related logistical problems led to a slower rate of import growth of only around three percent to 2.44 million tonnes.
Last year, import growth accelerated sharply, rising over 20 percent to 2.93 million tonnes.
In recent years, by far the largest growth in EU27+UK wood furniture imports in quantity terms was from China. In terms of percentage growth rate, the largest growth was from countries neighbouring the EU, notably Turkey, Ukraine, Belarus, Serbia and Russia.
EU27+UK wood furniture imports from tropical countries averaged no more than 2.4 percent per annum between 2015 and 2019, and then fell 10 percent to 560,000 tonnes in 2020. Last year, imports of tropical wood furniture rebounded 10 percent to 610,000 tonnes.
Notwithstanding CSIL’s prediction of continuing good demand for furniture in Europe in 2022, EU27+UK imports of wood furniture were down 10 percent in quantity terms, to 950,000 tonnes, in the first four months of this year.
Import tonnage decreased from all main supply regions during the first four months of 2022; by eight percent from China to 460,000 tonnes, by three percent from the tropics to 230,000 tonnes; and by 17 percent from other countries to 260,000 tonnes.
The decline is indicative of severe supply problems caused most notably by the renewed Covid-19 lockdown in parts of China, and the war in Ukraine and associated trade sanctions against Russia and Belarus.
Of tropical countries supplying wood furniture to the EU27+UK, Indonesia recorded the largest gain in this market in the first four months of 2022, rising 18 percent to 42,000 tonnes. Imports also increased from Brazil, by eight percent to 22,000 tonnes.
Imports from Vietnam were stable at 82,000 tonnes. Imports from all other leading tropical supply countries declined, including India (-16% to 35,000 tonnes), Malaysia (-15% to 37,000 tonnes), Thailand (-39% to 3,000 tonnes) and Singapore (-53% to 1,000 tonnes).
Tropical wood furniture import trends varied very widely between EU27+UK countries in the opening months of this year, with no clear pattern emerging.
In the first quarter of 2022, a rise in imports was recorded in the UK (+8% to 57,500 tonnes), Germany (+6% to 23,800 tonnes), Belgium (+29% to 12,600 tonnes), Spain (+7% to 7,000 tonnes), Italy (+9% to 4,300 tonnes) and Ireland (+24% to 3,500 tonnes).
However, imports declined into France (-8% to 25,900 tonnes), Netherlands (-16% to 16,900 tonnes), and Poland (-18% to 3,300 tonnes). Imports into Denmark were stable at 4,400 tonnes during the three-month period.
Major structural changes in European furniture distribution
A new CSIL report highlights major structural changes in Europe’s furniture sector. Although some of the trends have been underway now for at least a decade, recent events have brought about accelerating change.
According to the report, major trends include:
An unprecedented increase in online sales that now account for over 10% of the total European furniture market. The pandemic outbreak accelerated a massive change in consumer behaviour shifting from offline stores to e-commerce.
Moreover, the e-commerce channel has bolstered international penetration enabling leading furniture retailers to expand into new markets at lower costs (including countries where they may have a limited network of stores).
A slightly decreasing share of the overall market occupied 'specialist' retailers. This trend is mainly due to the increasing role of the online channel that has eroded market share of organised chains specialised in home furniture and of independent stores.
The latter particularly suffered in 2020 during the months of lockdown.
Relative stability of market share of ‘non-specialised’ retailers. During and after the pandemic outbreak, home improvement projects increased particularly benefitting DIY chains. DIY chains were also able to remain open during the months of the lockdowns while other competitors were forced to close.
Changing behaviour of consumers impacting on distribution of big supermarkets and hypermarkets.
Shopping districts in large towns and city centres have become a far more attractive place to purchase. Leading international furniture retail chains, such as IKEA and Maisons du Monde are developing new store concepts.
For more than half a decade, IKEA has been a singleformat retailer. However, it is now investigating new ways of meeting customer needs. For example, by establishing stores in inner-city locations and by balancing the big-box superstore format with smaller format stores that use digital technology to provide access to the full product range.
