New tax regime
The Goods and Service Tax (GST) will come into force on 1 April this year and businesses are concerned about how this will impact consumer sentiment, especially when it comes to the property market. Most analysts say property prices are sure to dip immediately after the new tax is introduced but should rebound once the initial shock subsides.
Timber traders are watching development closely and trying to anticipate how the GST will impact the industry.
Sabah plywood exports
According to trade data released by the Sabah Statistics Department, in the first eleven months of 2014, Sabah exported RM865 million (US$240 million) worth of plywood. By comparison, the state exported RM949 million worth of plywood in the same period in 2013.
In addition, Sabah also exported RM358 million worth of sawnwood compared to RM333 million in 2013.
Sarawak Forestry Enlists Help
Sarawak is refocussing its attention on plantation forests as the rate of planting in recent years has been falling. The state government has stepped in to help the industry move forward.
Sarawak Forestry Corp has recently signed a three year contract with Forest Solutions Services as part of the corporation’s Planted Forest R&D program.
Dr Yusoff Hanifah, chairman of the corporation, said that the project, fully funded by the government of Sarawak, is designed to achieve fast tract acquisition of research and development capacity and to address the shortage of high-quality planting materials and resolving pressing technical issues.
Glen MacNair, MD of the service provider, said that the company will provide a team of international specialists in various fields such as tree breeding and forest genetics to assist the state government achieve its objectives.
Indonesian timber companies will see improved access to international markets after the Programme for the Endorsement of Forest Certification (PEFC) endorsed the domestic Indonesian Forestry Certification Cooperation Programme (IFCC).
The PEFC requires standards to be developed through multi-stakeholder and consensus-based processes at the national level and the Indonesian program.
Revised export controls
The Indonesian Ministry of Forestry has announced revised regulations for wood product export controls.
According to the ministry, beginning 1 January this year, the revised regulations for the country’s domestic Timber Legality Assurance System (TLAS) will come into effect. The revisions were agreed by the Ministry of Environment and Forestry, Ministry of Trade and Ministry of Industry, and are aimed at supporting export growth through simplifying the TLAS requirements for small and medium sized enterprises.
Changes have also been made to the regulation on Performance Assessment of Sustainable Production Forest Management, Timber Legality Verification and a Regulation on Export Control of forest products.
Under the previous regulations, exports of wood products were only permitted from Registered Exporter of Forestry Industry (ETPIK), which are those that have valid TLAS certificates.
However, under the new system, the requirements for SMEs and furniture manufacturers have been simplified.
Despite the simplified arrangements for small companies, as many as 40 percent of the larger furniture manufacturers in Indonesia do not have TLAS certificates.
Reorganisation of forestry administration
The Ministry of Environmental and Forestry has completed preparations for their organisational restructuring. Under the new structure, the management of the Reduced Emissions from Deforestation and Forest Degradation Programme (REDD + BP) has been merged into the Directorate General for Control of Climate Change.
The Minister of Environment and Forestry, Siti Nurbaya Bakar, explained that the ministry will now comprise a secretariat-general, inspectorate general and nine directorate generals.
No decline in prices after ban
Although most analysts have expected a sharp decline in the price of teak logs following the export ban, prices have managed to sustained even though the supply of logs in the monthly sales have remained almost the same as the previous year.
With the domestic boom in the building and construction sector, there is a need for more timber which will help maintain price levels. However, aluminium and steel are now replacing timber for structural use in the construction of homes and bridges, but for interior use, decorative species are in demand.
Focus on environmental protection
The Indian government is examining a range of options to achieve its twin goals of economic growth and environmental protection.
Most of the new suggestions have come from the Ministry of Environment and could be incorporated into existing legislation or included as part of a new law which could be introduced in February. The suggestions include new measures to deal with air pollution, environmental risk mapping of the country, solid waste disposal, noise pollution as well as regulations on animal trapping.
Environmental mapping of the country would provide the basis for identifying sensitive areas were developments would be restricted. Such areas could include forests with as much as 70 percent tree cover, wildlife protected areas, eco-sensitive zones and biodiversity hotspots.
The creation of a National Environment Management Authority (NEMA) at the national level and State Environment Management Authorities have been proposed.
Traders resist e-commerce
Log stocks at various deports in the northern and southern divisions of the Dang Forests District are abundant and log auctions will be taking place this month.
Approximately 12,000 cubic metres of mostly newly harvested teak logs and about 1,000 cubic metres of hardwoods are expected to be sold. Additional logs are arriving in readiness for auctions in the next month and analysts expect around 20,000 cubic metres will be available.
The e-auction method adopted in recent sales has not been well received by buyers who prefer the old system where logs were sold by on the spot bids. However, the Forestry Department wants to continue with the e-auction method.
Balance teak imports
The level of imports and domestic consumption of imported plantation teak are currently well balanced such that stock levels remain steady. Importers have reported a general improvement in size and quality of the logs that have been arriving recently and this has lifted some price levels.
Sawn teak prices go up
Indian importers of sawn teak from Myanmar are optimistic that with some relaxation of the export regulations for sawn teak, the flow of imports from Myanmar could improve.
Indian traders holding stocks of Myanmar teak logs have been pushing for price increases and have had some success in lifting prices during recent weeks.
Housing to boost plywood sales
The CREDAI e-newsletter has reported on changes to foreign direct investment (FDI) investment rules that could boost the housing market. According to the newsletter, the government has eased on FDI norms for the construction sector which is expected to provide a substantial boost to the sector in terms of greater foreign capital inflows.
Construction companies report firm orders
Data from Japan’s Ministry of Land, Infrastructure, Transport and Tourism has shown that housing starts fell sharply in November, dropping by 14 percent year on year following the 12 percent drop in October.
As of November 2014, annual stats are likely to end the end at 888,000 units, a disappointing figure for the suppliers of wood products. On a brighter note, the largest construction companies have reported new orders grew by 17 percent in November, which is better than the October level.
In addition to reintroducing the eco-point system for energy efficient homes, the government is working on guidelines for housing features deemed helpful to families with children. This is part of the government’s effort to reverse the falling birth rate in Japan.
Consumer sentiment remains weak
According to Japan’s cabinet office’s assessment of the current state of the Japanese economy, the Japanese economy is on a moderate recovery, while weakness can be seen in private consumption.
Concerning short-term prospects, although weakness remains for the time being, the economy is expected to recover, supported by the effects of the policies, while employment and income situation show a trend towards improvement.
However, attention should be given to the downside risks of the Japanese economy such s declining in consumer sentiment and slowing down of overseas economies.
Companies relocating back to Japan
The Japanese government has implemented policies to weaken the yen in the hope of reversing deflation. The falling yen has benefitted exporters but companies dependent on imported raw materials have suffered.
The yen has continued to weaken and has fallen almost 10 percent since the Bank of Japan poured more cash into the economy in October and is now at a seven year low.
One the positive side, the weaken yen is causing some large manufacturers to consider returning some of their production facilities back to Japan as the declining yen makes domestically made goods more competitive.
Japan’s November 2014 office furniture imports rose slightly with China boosting its market share to 57 percent. Three countries accounted for 15 percent of the country’s office furniture imports in November: Malaysia (12.4 percent), Indonesia (2.4 percent) and a small quantity was supplied from Thailand.
Kitchen furniture imports to Japan are dominated by suppliers in Southeast Asia, which accounted for 78 percent of all kitchen furniture imports in November 2014. Vietnam was a major supplier (49 percent), followed by the Philippines (14.5 percent), Indonesia (13.6 percent), Thailand (seven percent) and Malaysia (6.2 percent). Japan’s imports of kitchen furniture from China amounted to just 16 percent of total imports of this category of furniture.
In contrast, China supplied 56 percent of Japan’s November imports of bedroom furniture with a further 37 percent coming from other countries in Asia. The top Asian suppliers were Vietnam (28 percent) followed by Thailand (4.5 percent), Malaysia (3.4 percent) and a small quantity of bedroom furniture coming from Indonesia.
Flooring and plywood imports
Japan’s assembled flooring imports in November were down two percent compared to October but November 2014 imports were two percent high than in November 2013.
Imports of plywood from China rose 15.8 percent in November compared to October, but November imports were 14 percent lower than in November 2013.
Japan’s imports of plywood from Malaysia rose sharply in November (up 41 percent on October) but overall November 2014 imports were only four percent higher than in November 2013. In contrast, plywood imports from Indonesia fell month on month and year on year.
Lowest PMI in 18 months
There was further evidence of weakness in China’s manufacturing sector with the December purchasing managers index (PMI) falling. This suggests the 2014 economic growth target may be missed.
China’s National Bureau of Statistics has released the December PMI data which shows a decline of 0.2 percent compared to a month earlier. However, the overall December figure was still just about the negative threshold.
The PMI of large-sized enterprises was 51.4 percent, down 0.2 percent month-on-month, that of medium-sized enterprises was 48.7 percent, up by 0.3 percent month-on-month, but still below the positive threshold. The PMI of small-sized enterprises was down sharply to 45.5 percent and continues to contract.
Oversupply drives down home prices
The declines in home prices in China quickened in December according to the statistics released by the National Bureau of Statistics. Oversupply appears to be the main issue and home builders are beginning to offer steep discounts to generate cash flow.
Compared to prices in October amongst the 70 cities surveyed new home prices fell in 67, and remained unchanged in just 3 cities. A similar trend was reported for second hand homes with prices falling in 58 cities, being unchanged in six and rose in the others.
Year on year home prices are around three percent down and the pace of year on year declines appears to be quickening.
First domestic emission standard
A domestic standard for low formaldehyde plywood has been introduced by the Anhui Provincial Bureau of Quality and Technical Supervision and this fills a blank in the domestic industry.
This standard specifies the classification, technical requirements, test method, inspection rules, labelling and packaging of formaldehyde free plywood. The standard will be applied to wood composite flooring, doors and furniture where plywood is used.
Before the new standard became mandatory the standard for the E0, E1 level of formaldehyde emission in China exceeded the 0.3mg/L international standard and because of this the US rejected a huge amount of China’s wood products for failing to meet their formaldehyde standards.
Acceleration of furniture exports
Between January and September 2014, China’s furniture exports rose 10 percent to US$10.18 billion, up 16 percent from the same period in 2013. The main destinations for China’s furniture exports were North America, Asia and Europe which together accounted for 90 percent of the national total.
Central and South American, Australian and African markets accounted for most of the balance. The US was the largest market for China’s furniture accounting for 31 percent of the national total in the first nine months of 2014. The second largest market was Japan, at eight percent.
China’s furniture exports to the UK, Germany and France made up more than 50 percent of China’s furniture exports to Europe. The pace of growth in China’s furniture exports to Germany and the UK reached 20 percent and 17 percent respectively in the first nine months of last year.
Guangxi timber reserve
A national fund for strategic timber reserves in seven provinces has been established and in Guangxi some RMB50 billion will be invested up to 2020 to establish around three million hectares of forest.
This area is expected to produce 25 percent of the national total timber output by 2020.
Fujian sources from New Zealand and US
According to statistics for the first ten months of 2014, log imports through Fujian province amounted to 6.44 million cubic metres valued at RMB6.85 billion, up 29 percent in volume and 38 percent in value from the same period of 2013.
New Zealand and the US are the main sources of log imports to Fujian with 39 percent (2.51 million cubic metres) coming from New Zealand (up 13 percent year on year) and 19 percent (1.24 million cubic metres) were from the US (up 60 percent). A further 11 percent of Fujian log imports were supplied by Australia (up 14 percent to740,000 cubic metres).
‘Redwood’ imports increase
According to China Customs, between January and October 2014 China’s redwood imports totalled 1.85 million cubic metres valued at US$2.4 billion, up 92 percent in volume and 124 percent in value from the same period of 2013.
Of the total, redwood log imports were 1.57 million cubic metres valued at US$2.05 billion, up 82 percent in volume and 113 percent in value from the same period of 2013. The average price for redwood log imports rose 16 percent to US$1,280 per cubic metre.
Redwood sawnwood imports totalled 195,900 cubic metres valued at US$355 million, up 178 percent in volume from the same period of 2013. The average price for redwood sawnwood imports rose 2.5 percent to US$1,631 per cubic metre.
Between January and October 2014 close to 1.07 million cubic metres of China’s redwood imports were from Southeast Asia. A further 750,200 cubic metres were from Africa with most of the remaining volumes coming from Central and South America.
Between January and October 2014, the value of China’s redwood furniture and other redwood product exports increased 18 percent from the same period of 2013.