Malaysia
Weak ringgit pushing up production costs
The issue currently dominating business community debate is the weakening ringgit/US dollar exchange rate. The ringgit fell to 3.928 in August, the weakest since September 1998 during the Asian currency crisis when the government pegged the currency to the US dollar.
From the beginning of this year, the exchange rate was stable but slowing demand, mainly in China, and domestic issues served to undermine the domestic currency. The Malaysian Central Bank (Bank Negara Malaysia) has been forcefully supporting the ringgit but at a huge cost to foreign exchange reserves which recent fell below US$100 billion.
This in itself undermined confidence and exacerbated the situation. During the early part of August, following the release of data showing exports declined for the fifth consecutive month, China began a round of devaluations of the yuan.
This impacted the ringgit/dollar exchange rate which tipped to 3.9605 at one point mid-month. The ringgit is Asia’s worst performing currency over the past 12 months.
The chairman of the Sarawak Timber Association, Wong KieYik, pointed out that while sales priced in dollars resulted in higher ringgit earnings the increased cost of raw material inputs is eating up the currency gains.
Sarawak Furniture Industry Association president, Lai Kim Min, said manufacturers are disadvantaged by the weakening ringgit. In addition, Malaysian consumers are finding that prices for imported goods from China and Vietnam are rising.
Active promotion of high value goods key to increased export earnings
The director-general of the Malaysian Timber Industry Board (MTIB), Dr Jalaluddin Harun, is forecasting wood product exports of RM22 billion this year. In a press release, he said from January to May export revenue from wood products increased 0.6 percent year on year to RM8 billion.
Third quarter exports traditionally rise such that the target RM20-22 billion is attainable provided promotion of high value added products is maintained and Malaysia aggressively participates in international exhibitions. In 2014, the top five export destinations Japan, the US, EU, India and Australia.
Sarawak company commissions new plywood mill in Australia
Ta Ann has recently commission a plywood mill in North West Tasmania after several delays. The investment began at the time of the previous Australian government which provided a large proportion of the capital required.
The mill will create some 120 jobs when at full production producing panels for the Australian market. The company hopes to capture 15 percent of the Australian market for plywood.
Indonesia
Reviving the Economic Partnership Agreement with EU
Minister of Trade, RachmatGobel, said that the Indonesian government plans to open negotiations with theEU on resumption of the Comprehensive EconomicPartnership Agreement (CEPA) with the aim of improvingmarket access for Indonesian products into the EU.
This was discussed when the British PM visited Indonesia. Trade between Indonesia and the UK in2014 amounted to US$2.5 billion with Indonesia‟s exportsvalued at US$1.6 billion and imports valued at US$894million.
Investment funds for SMEs
Since 2007, the Ministry of Environment and Forestry hashad a revolving fund of IDR2.1 trillion to financecommunity forest sector developments by furniture SMEsand community forest groups. Unfortunately, the fundshave not been accessed by local entrepreneurs.
Recently, community forestry entrepreneurs and SMEswere invited to the forestry ministry for a BusinessInvestment Forum attended by representatives from theBank of Central Java and Bank of East Java.During the Forum the reasons for the slow uptake of loanswas discussed along with issues related to implementation of Indonesia’s domestic timber legality verification system.
Gearing up to tackle forest fires
Hot dry weather is affecting Indonesia and authorities areconcerned about the high fire risk brought on by the ElNino phenomenon.Indonesia suffered serious forest fires because of the 1997-98 El Nino when fire destroyed millions of hectares offorests and plantations valued at almost US$2.5 billion.
Impact of yuan devaluation
The surprise devaluation of the yuan in August droveIndonesian stocks lower on concern that China’s importswill slow which would weaken Indonesia’s exports to China, Indonesia’s largest trading partner.
Indonesia’sexports to China already fell a quarter in the first half of2015.On the possible impact on exchange rates, Bank ofIndonesia deputy governor, Mirza Adityaswara, reassuredmarkets that the yuan devaluation is unlikely to impact therupiah which is already at very competitive levels.
The International Monetary Fund welcomed China’s moveto devalue the yuan and said it does not directly impact China’s aim to win reserve currency status for the yuan.
Myanmar
Monsoon floods
Floods in the last week of July affected 12 out of 14 states and divisions in Myanmar with the Chin and Rakhine states as well as the Sagaing and Magway divisions being declared disaster areas.
According to Ministry of Social Welfare between 16 July and 8 August 223,700 families were affected.
These floods are the worst in decades. Kachin, Sagaing, Magway, Rakhine suffered the heaviest flooding. Flooding has affected transportation of wood products. Logs and other wood products are commonly transported by barges but swollen rivers have brought shipments to a halt.
India
Real estate companies under pressure from unsold units—prices set to fall
Because of rapid urbanisation and increasing income levels the Indian housing market is witnessing considerable change. RNCOS, a business consulting service firm, has released a new report, ‘Indian Housing Sector Outlook 2020’.
The report highlights the strong growth in the Indian housing sector over the past few years driven by rising purchasing power, continuously rising population, increasing investments in socio-economic infrastructures, urbanisation and migration of people from rural areas. The press release says the report provides an overview of the Indian housing market and provides information on opportunities in the different industry supply materials to the sector. Forecast for housing market potential and demand have been provided till 2020.
In recent months, Indian real estate developers have had a difficult time in disposing of the stock of housing. While it is difficult to get details on housing sales and indication of the problem of poor sales can be gauged from reports by the Reserve Bank of India (RBI).
The Bank has recently released details on lending by commercial banks to the real estate sector. The RBI notes that lending commercial banks to the estate sector in March was down 0.7 percent. While this may not seem a significant drop when viewed against overall lending the reality becomes apparent.
Over a period of one year, lending to housing developers was around one percent below the rate of overall lending as developers are holding back on new project developments in the face of high levels of unsold units and this is affecting sales of wood products in the country.
The pressure is now on developers holding high levels of unsold units which should be good news for home buyers as the indications are that house prices will have to come down before further developments are started.
Slight weakening of consumer sentiment
India’s Consumer Confidence Survey provides an assessment of the perceptions of respondents on general economic conditions and their financial situation currently and looking ahead 12 months. The survey determines if respondents consider their financial situation likely to improve, be unchanged orworsen.
Respondents in Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi are surveyed. The information collected is analysed in two parts- current situation as compared with a year ago and the expectations for a year ahead. The latest survey was conducted during the second to third week of June 2015 and secured responses from 5,400 people.
Findings from the latest survey show:
•Consumer perception on the general economic conditions for the current period and the year ahead continues to be positive.
•Both the Current Situation Index (CSI) and Future Expectations Index (FEI), which had steadily risen since September 2013 remained positive but there was moderation in sentiment on all the indicators except perceptions on spending.
GST to level playing field and benefit Indian plywood end-users
India is set to bring into law the Goods and Service Tax (GST) Bill officially titled The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014.
This would bring in a unified Central and State wide Value added Tax as of April 2016. The GST will replace all indirect taxes levied on goods and services by the Indian Central and State governments. The new tax regime will benefit the corporate sector through reducing the tax burden on companies and through reducing production costs.
From a consumer view point, GST will herald a reduction in the tax burden on goods which is currently around 25-30 percent. Introduction of the GST will improve competiveness at home and in international markets.
Major plywood manufacturers are looking forward to the introduction of the unified tax structure particularly as it will level the playing field for them and plywood makers in the so-called ‘unorganised sector’ as the price advantage enjoyed by ‘unorganised’ manufacturers would narrow.
Existing corporate manufacturers pay 16 perecent excise duty and four percent sales tax on their products. The Indian Plywood Industries Research and Training Institute has said introduction of the GST will maketrading conditions tougher for the ‘unorganised’ plywood makers which generally produce low quality plywood and undercut plywood from major producers.
It is estimated that ‘unorganised’ plywood producers have a 60-65 percent share of the domestic market for plywood.
Japan
Negative long-term prospects brings down consumer confidence index
The consumer confidence index released by Japan’s Cabinet Office shows there was a weakening of sentiment in July, the index fell to 40.3 from the 41.7 in June, the lowest in six months.
All associated indicators contributed to the negative trend in sentiment in the July indices. The overall livelihood index fell to 38.1, the income growth index fell to 39.6 from 40.3, the employment prospect index dropped sharply and the willingness to buy durable goods index also fell.
The main reasons cited for the poor second quarter data are slow income growth, rising prices and negative long term perceptions for economic recovery.
First half housing starts
Despite the swings in month housing start data for the first quarter of 2015, overall starts for the six months to June 2105 are only marginally down on levels in the same period in 2014.
Reassuringly, the trend in starts in the first half of each of the two years is following a similar pattern. Japanese house buyers, especially those with young families, are beginning to look at second hand as they can get a good house at a reasonable cost.
Second hand homes are attracting those currently in rented apartments as monthly repayments on housing loans are turning out to be lower than the apartment rent in this time of low interest rates. But sales of homes, especially second hand homes are slow with around 10 homes available for every buyer.
Import data
June 2015 imports of wooden doors by Japan were slightly up on levels in May however figures for the first half of 2014 and 2015 show that Japan’s wooden door imports fell around 18 percent in the first half of 2015.
China and the Philippines top the list of suppliers in June (59 percent and 16 percent respectively) but imports from Malaysia lifted the Southeast Asian nation into third place as a supplier of doors to Japan.
Japan’s June 2015 imports of wooden windows were unchanged from a month earlier but, compared to the first half of 2014, 2015 imports were down a massive 28 percent. Imports from China accounted for 32 percent of imports as did imports from the Philippines. The third ranked supplier in June 2015 was the US at 23 percent.
June imports broke the firm upswing in imports of assembled flooring recorded during the early part of this year. First half 2015 imports of assembled flooring were down 21 percent on the same period in 2014.
Suppliers in China hold a commanding position in Japan’s market for imported assembled flooring accounting for around 68 percent of total imports of this product. The other main suppliers in June were Indonesia and Finland which each accounted for around six percent of assembled flooring imports.
There has been a steady decline in Japan’s plywood imports from the beginning of the year. First quarter 2015 plywood imports were down 26 percent on the first quarter of 2014 and all three major supply countries booked losses for 2015.
First half 2015 imports of plywood by Japan from China, Malaysia and Indonesia were down 36 percent, 21 percent and 22 percent respectively. June 2015 imports from all three of the main suppliers fell even more sharply than in the first half year. Imports of plywood from China were down 33 percent, Malaysia saw a 27 percent drop while Indonesia recorded a 31 percent decline.
Demand projections
The Forest Agency made up demand projection of major wood products for the second half of this year. On domestic wood, demand for lumber increases while that for plywood declines and total year figures would be less than last year. Imported lumber declines in the third quarter but increases in the fourth quarter and imported logs increases.
Imported products will be less than last year. While new housing starts are estimated to increase but total wood demand would decline. Domestic logs for lumber increased toward December but less than last year.
Logs for plywood decreases because of plywood mills’ production curtailment and rebound of large volume of last year. Imported logs increases in the second half of the year as they were low in the first half of the year.
Imported lumber is low for the third quarter but the demand increases in the fourth quarter after the inventories decline. Plywood declines because of market slump and mills production curtailment programs plus decline of imported plywood from Southeast Asian countries. Laminated lumber domestic production decreases in the second half while the imports increases for both third and fourth quarters.
Nitori to build furniture plant in Vietnam
Nitori announced plan to set up a subsidiary company in September to manufacture furniture and home furnishings (cabinet, bed, laundry and tableware related products) in Ba RiaVung Tau province in Southern Vietnam.
Total capital is 2.7 billion yen and the company will be sole investor. This is the second manufacturing facility for the company in Vietnam and total overseas subsidiaries are twelve in total.
The company will build manufacturing plant by leasing 400,000 hectares of property in some industrial park. Details of manufacturing products and production is not decided yet. The plan is to start up the plant in 2017. Manufactured products will be shipped to Japan, Taiwan and China and will be marketed through the company’s sales network.
China
Yuan devaluations reverberate through the timber trade
The devaluation of China’s currency is reverberating through the timber trade as exporters assess the prospects of further cuts in buying by the Chinese timber sector. The devaluation is also having a ripple effect on currencies in emerging countries.
The devaluation in China follows on the heels of falling industrial production, investment and retail sales and disappointing export figures for July. The devaluation will make China’s exports that much more competitive but will also increase the cost to Chinese importers of wood products. Most analysts expect further devaluations.
Ash imports to resume
According to China’s Quality Supervision, Inspection and Quarantine Announcement No.143, 2015 imports of the species of ash associated with a die-back disease can be resumed provided the timber undergoes high temperature treatment. Ash products must be accompanied by a plant quarantine certificate issued by the exporting country and this must provide details of treatment.
Ash sawnwood from areas where the die-back disease is not found must also be accompanied by a phytosanitary certificate. Designated regions and countries where ash die-back is endemic are listed in the announcement No.156 in 2013 jointly issued by the quarantine office and the State Forestry Administration.
National logo for commercial wood products
A national logo for commercial wood products has been drafted by the Timber Saving Center and the China Timber and Wood Products Distribution Association. The new logo will come into use in November 2015.
Use of the new logo will help eliminate the manufacture and sale of counterfeit/copied wood products, aid the development of standardisation in the market and protect consumer rights.
The logo will also further stimulate efforts at reducing the waste, protecting the environment securing the health and safety of consumers.
Streamlining forestry administration
It has been reported that the State Council has recently issue a notice ‘Cancellation of Non Administrative Licensing Approvals’. Through this administrative procedures will be streamlined. Some 133 approval processes will be adjusted or eliminated.
The following approval items will be abolished:
•Technical scheme and measures for preventing America white moth entry
•Sino Japanese non-governmental green cooperation project
•Harvesting quotas in natural and plantation forests in natural forest protection regions
•National ecological education base
•International wetland certification
•Import regulations on imported animal and plant species (CITES to take precedence)
The following regulations have been adjusted:
•Annual quota for the construction projects—requisition or occupancy of forestry land
•Planning of desert prevention and control
•Provincial planning registration of Beijing Tianjin sandstorm source control projects
•Forestry fixed assets investment projects
•Planning of national level natural protection regions managed by the forestry sector
