‘Turbulent’ might be too mild an expression to describe the developments this year, especially in the second half of 2022. Business, in general, was still going strong in the first few months, but that drastically changed, and business rapidly collapsed in late June.
Vietnam and Malaysian woodworking factories were the hardest hit, with some reporting 60 to 80 percent cancellation of orders from the US and Europe. This resulted in an unusually high number of cancellations of raw material orders, including many that were already shipped to Southeast Asia.
The ongoing Covid-19 closures in China continue to affect productivity, and the export of wood-based products like lumber, panels, and veneer is at its lowest since China's phenomenal economic rise. It is hard to comprehend what the Chinese leadership wants to achieve with their strict policies, but two things are for sure; their positive Covid-19 cases continue to rise, and consequently, the economy is suffering badly.
Russia’s war in Ukraine has evoked serious trade restrictions, and Russia has very few options to export its lumber except to China. All the above has resulted in substantial drops in lumber prices, which may soon reach pre-Covid-19 levels and might even drop further.
We all remember the fast-rising sea-freight rates over the last two years. This development has been reversed, and the good news is that container freight rates are dropping faster than they rose. It can be expected that these rates will drop at least to pre-Covid-19 levels or even lower.
The only segment going strong is the domestic project business in Southeast Asia, and most of our interior outfitting companies are busy with a good order book. The reason might be that this segment was almost halted during the pandemic, but office and hotel renovations are now picking up full steam.
What is our outlook for 2023?
Many overseas buyers are stuck with products bought at much higher prices when raw material costs and freight rates were still high in the first half of this year. It will take a while before these products are sold against the same products available at lower prices today.
The world’s economic slowdown is resulting in unusually high inflation and interest rates are affecting the housing market. Many people will focus on basic items such as food and energy, and be less interested in renovation works or purchasing furniture and other wood-based articles.
Let’s hope that the upcoming winter will not be too cold, so that people have some money left to purchase wood-based products and that governments continue to invest in housing projects.
Sadly, I do expect that our business will hibernate for many months to come.
