Category: ITTO Market Reports

The eurozone debt crises is having an increasingly malign influence on economic growth and sentiment across Europe. The eurozone itself is almost certainly back in recession, dashing hopes that it can grow its way out of trouble. In a forecast issued in the second week of November, the European Commission warns that “sharply deteriorating confidence and intensified financial turmoil are affecting investment and consumption, while urgent fiscal consolidation is weighing on domestic demand and weakening global economic conditions are holding back exports. The best Europe can look forward to is “a gradual and feeble return to growth” in the second half of next year, according to the Commission.

During the first half of 2011, the EU imported 198,300 m3 of hardwood logs from tropical countries, a 5% increase compared to the same period in 2010. As commercially valuable logs can no longer be exported from Gabon, EU imports from all the other main producing countries in the Congo region increased dramatically during the 6 month period (Table 1).  

Table 1 shows imports of hardwood lumber into the EU-25 group of countries during the January to June 2011 period.  Overall imports are up only slightly compared to the same period in 2010, with most of the growth in temperate hardwood, particularly from the countries of former Yugoslavia. These countries are capable of supplying high quality oak, a timber which has consolidated its hugely dominant position in the European market this year.  

At 630,000 m3, EU hardwood plywood imports in the second quarter of 2011 were up 12% on the previous quarter and up 9% on the same quarter of the previous year (Chart 1). Imports during the second quarter of 2011 were at levels not seen since before the onset of the economic crises in 2008. Imports over the first 6 months of 2011 stood at 1.2 million m3, up 12% on the same period in 2010.  

There is a tendency when analysing markets for tropical wood in Europe to focus heavily on demand for the main primary wood products –tropical hardwood logs, sawn, veneers and plywood. However globalisation trends, particularly the strong growth of China as a wood processing hub, combined with efforts by tropical producing countries to move up the value chain, has meant that these products have become relatively less important in the European market. Tropical and other developing countries are supplying a very wide range of secondary and tertiary processed products into this market.  

As usual during Europe’s lengthy summer vacation period, there has been a slowdown in tropical hardwood trading. Importers in many parts of Europe suggest that overall trade during the first half of 2011, while unspectacular, was an improvement on the same period the previous year. However, the volumes involved were well down on levels prevailing before the recession and there is little expectation of any significant upturn when buyers return at the end of August. On-going concerns about the debt crises in the euro-zone and government austerity measures has contributed to a general feeling of uncertainty about the future direction of demand and raised the spectre of volatile exchange rates. Nor has the long-term problem of limited access to credit amongst importers been resolved.

Data from the UNECE Timber Committee indicates that hardwood production across the European subregion rebounded during 2010 (the UNECE European subregion includes all countries within the continent of Europe plus Turkey but excluding Russia). Following an 18% decline in hardwood saw and veneer log production in the region between 2007 and 2009 to 29.7 million m3, production rebounded by 12% to 33.2 million m3 in 2010 (Chart 1). Significant increases in hardwood log production were recorded in Romania, Germany, Turkey, and Latvia during 2010. 26.2 million m3 (78%) of total European hardwood log production during 2010 was in EU countries. 

The European market for tropical hardwood lumber is quiet but relatively stable. Uncertainty about future demand has meant that speculative purchasing is being kept to a minimum. Overall European stocks of lumber of the most popular species such as meranti, bankirai, sapele, sipo, and wawa remain at historically low levels. However with slow consumption this has not led to reports of significant supply problems. Orders are being placed to replace stocks as and when gaps open up.

CIF Europe prices for South East Asian and Chinese hardwood plywood increased dramatically in the second quarter of 2011 in response to tight supplies, rising production costs, currency movements and firm demand in Asia. Prices have continued to rise for July and August shipment. Prices for Malaysian BB/CC raw plywood on offer to European buyers now exceed Indo96+40% and those for equivalent Indonesian products may be over Indo96+50%, levels never seen before. 

Traditionally France has played a central role in the international tropical hardwood trade. Over recent year’s this influence has diminished as a greater proportion of tropical hardwood is diverted away from Europe and into emerging markets, as tropical hardwood has lost competitiveness in Europe, and as tropical producing countries have restricted log exports and increased domestic production. Nevertheless France remains the leading European importer of tropical wood, accounting for around 900,000 m3 (roundwood equivalent volume) of the 4.5 million m3 of tropical wood products imported into the EU during 2010. French companies retain large investments in the tropical wood industry, notably in Central and West Africa.