What are our expectations for 2022?

By Michael Hermens, Group Managing Director of APP Timber, a ‘solution provider’ company he founded 23 years ago that specialises in imported certified timber solutions

Last year was relatively good despite the enormous challenges our industry faced. Key markets like Malaysia, Thailand and Vietnam were most affected by the pandemic due to full or part-time closures. Many Vietnamese factories are still operating at lower than usual capacity, even as we speak. Indonesia, which is the largest market in Southeast Asia, luckily was the least affected, and most factories continued to operate throughout the whole of 2021. 

Our exports of Southeast Asian-made products to Europe, the US and some other markets were robust, but finding container space (even at crazy high prices) was and remains a challenge. The demand for raw materials outpaced the supply, resulting in fast-rising prices of any type of manufactured wood products.

What can we expect this year? We believe that the overall demand for timber products will weaken worldwide, but not by too much. The unusual spike in demand for wood which started in late 2020 and lasted into last year, is easing; many house renovations have been completed, and inflation will affect the buying power this year. 

China faces a housing crisis: there is a huge oversupply of housing across China, and many, often incomplete, projects are put on hold. China’s construction industry will collapse due to the pending bankruptcy of development giants like Evergrande and many smaller ones. It remains questionable if the Chinese government can control the outfall from this, but we can expect the demand for timber construction materials to be less this year.

The lack of supply of rough sawn timber that posed already a problem last year will certainly continue to be a major issue during 2022. 

The changing climate plays an important role in this. The world encountered more major weather changes. Floods, fires, or too warm winters make logging more difficult. The public, supported by populist governments, often blames logging as the major cause of global warming. 

We will surely see increased limitations on logging (of natural forests) worldwide. The continuation of reduced supply will put pressure on prices that continue to increase, as already visible in Southeast Asia. 

The pandemic has resulted in a shortage of workers at sawmills and woodworking factories and most of the ports. Many people have decided to stay home to enjoy governmental unemployment benefits. Migrant workers who returned to their home countries cannot come back under the actual and ongoing travel restrictions. 

There is no fast solution to this problem. This worldwide workforce shortage requires a new balance between manual labour supply, automation, higher pay, and, probably, better work conditions. 

Lastly, the freight has been a business killer, especially for exports from Asia to the rest of the world, where sea-freight rates were up to ten-fold pre-Covid rates. Also, freight rates from Africa and America to Europe increased, but not to the same extent. 

Asian outbound freight reached US$16,000/40’ to Europe and even US$25,000/40’ to the US. This imbalance created an enormous disadvantage for Asian timber product producers, and many overseas buyers have decided to source rough sawn timber and products from other continents. 

We see a slight weakening of the Asian freight rates, but this might be temporary due to the upcoming Chinese New Year in early February, with reduced traffic from/to China every year. 

It remains very difficult to predict freight rates for the months to come, hoping it will continue to weaken. Surely, it will never return to the rates of 2018/2019. 

In conclusion, 2022 will probably become more challenging than last year, which might be the trend for the years to come.

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