After reaching the highest level for nearly a decade in the first half of this year, the US$ value of EU27 imports of wood and wood furniture products from tropical countries declined sharply in July and August. However, import value during the summer months was still higher than is usual at that time of year (Chart 1).
While the value of EU27 imports from the tropics has strongly rebounded this year, imports from other parts of the world have risen at an even faster pace so that the decline in market share for tropical countries has continued (Chart 2).
The extraordinary market conditions that have emerged during the COVID-19 pandemic have driven total EU27 imports of wood and wood furniture products from all non-EU countries this year close to the record levels of 2007 and 2008, just prior to the global financial crises.
Total EU27 import value of wood and wood furniture in the first eight months of this year was US$13.53 billion, 40% more than in the same period in 2020. Import value of tropical products was US$2.46 billion, 24% more than the same period in 2020. However import value from non-tropical regions was US$11.08 billion, a 44% increase. Imports were up by 39% from China to US$3.44 billion, by 65% from Russia to US$2.15 billion, by 76% from Belarus to US$1.16 billion, and by 57% from Ukraine to US$1.11 billion.
The 40% increase in EU27 import value from the tropics this year is not mirrored by an equivalent increase in import quantity. In quantity terms, imports from tropical countries in the first eight months were 1.17 million tonnes this year, only 7% more than in 2020 and still 9% down compared to 2019.
A large part of the gain in import value of tropical products is due to a significant rise in prices. Freight rates have been at unprecedented levels this year. The Drewry World Container Index indicates that global rates for a 40 foot container peaked at over US$10000 dollars in the middle of September this year compared to US$2000 in the same month in 2020.
FOB prices for tropical wood products have also been driven up this year in response to the sharp increase in global demand at a time when supplies are scarce and tropical producers continue to operate under extremely challenging conditions during the pandemic. This in turn has led to EU27 importers buying more from more accessible suppliers in the European neighbourhood and a continued loss of market share for tropical suppliers in the EU market.
Highest tropical import value into the EU27 since 2012
The increase in the value of EU27 imports from tropical countries this year is heavily concentrated in wood furniture products. Although import value of most other wood products from tropical countries has made up some of the ground lost in 2020, it is still below the level prevailing before the COVID pandemic in 2019 (Chart 3).
In the first eight months this year, import value into all the largest EU27 destinations for tropical wood and wood furniture products was significantly higher than in the same period in 2020. Furthermore, of the largest markets, only in Italy was import value in the first eight months of this year less than in the same period in 2019 before the pandemic (Chart 4).
EU recovery expected to continue but significant downside risks are emerging
Longer term market prospects in the EU27 look reasonable as the economic expansion in the region is expected to continue, although there are significant downside risks emerging, according to the EU Autumn 2021 Economic Forecast published on 11 November.
According to the Forecast, the EU economy is set to grow by 5% this year and to keep a solid pace of growth of 4.3% next year before easing to 2.5% in 2023. A strong rebound in the second and third quarters of this year pushed the EU economy back to around its level of the last quarter of 2019. This happened one quarter earlier than the EU expected in the Spring Forecast issued in May.
Disruptions in global logistics and shortages of several raw and intermediate inputs have been increasingly weighing on activity in the EU this year. Manufacturing, in particular, is being held back by production input shortages, delays in input delivery and increased strains on available production capacity. Surging energy prices, most notably for natural gas and electricity, are also expected to dampen the growth momentum in the short term.
Still, strong domestic demand is expected to continue fuelling the economic expansion in the EU. The Commission’s October business surveys indicate that economic sentiment increased slightly in all main sectors except construction.
An improving labour market, decreasing household saving rates, favourable financing conditions and full deployment of the “Recovery and Resilience Facility” (RFF), are expected to drive the economic expansion and fuel domestic consumption. Foreign demand is also expected to be supportive of growth. The global economy is expected to strongly rebound this year and to continue expanding in the next two years, albeit at a more moderate pace and with quite divergent paths.
The RFF is the EU €723.8 billion stimulus package – comprising €385.8 billion in loans and €338 billion in grants – in support of Member State Covid recovery measures which extends until 2026, with two thirds of the money expected to be allocated before the end of 2023. Model simulations conducted by the Commission indicate the package could increase EU GDP by up to 1.5% during its years of active operation. RFF support measures are particularly targeted at southern and eastern Member States and at green investments to help achieve the EU 2050 net zero carbon commitment.
According to the EU Forecast, while the RFF is being rolled out to support the most indebted Member States, many governments have started to phase out emergency support measures at national level and budget deficits are being reduced. Employment levels are also expected to increase above pre-pandemic levels and the unemployment rate should decrease to 6.5% in 2023.
The Forecast suggests that strong demand following the re-opening of economies, combined with supply bottlenecks and higher energy prices, have contributed to higher levels of inflation. This situation is expected to be largely transitory. Inflation in the EU is expected to peak at 2.6% this year before easing slightly to 2.5% next year and 1.6% in 2023.
However, the Forecast also notes that uncertainty remains substantial, and the risks to the outlook are tilted to the downside. The recovery continues to be heavily dependent on the evolution of the pandemic, both within and outside the EU.
The improving health situation, which allowed the economy to bounce back, is now being challenged by rising infections across the EU. Since the beginning of October, the 14-day average incidence of infections in the EU has recorded the highest level since mid-May. The strongest increases are reported in countries with below EU-average vaccination rates. For now, hospitalisations and deaths associated with COVID-19 infections remain low compared to previous waves. But they are slowly rising, posing a risk to economic prospects.
Economic conditions vary widely between Member States, according to the EU Forecast. Germany’s GDP rebounded in the second and third quarters as the easing of containment measures spurred spending on services. However, supply bottlenecks are slowing down manufacturing and putting a lid on the rebound of exports and investment. So growth is projected at a modest 2.7% this year and is set to reach 4.6% in 2022 before moderating to 1.7% in 2023.
In France, economic activity is forecast to rebound by 6.5% in 2021, reaching its pre-crisis level by the end of this year. The third quarter growth rate was particularly strong thanks to largely eased restrictions. Growth is expected to remain solid in 2022 and 2023 at 3.8% and 2.3% respectively.
For Italy, real GDP is projected to increase by 6.2% this year. The economy rebounded strongly in the second and third quarters thanks mainly to consumer services. Growth is set to continue at a robust pace of 4.3% in 2022 thanks to easing supply shortages and RRF-supported investments and reforms. GDP is set to expand by 2.3% in 2023, a growth rate still sizeably above the long-term average.
In Spain, growth is projected at 4.6% this year, below the EU’s Summer expectations. However, Spain’s GDP is expected to remain on a very strong growth path over the next two years, also thanks to the implementation of the RRF. Growth is projected at 5.5% in 2022 and at 4.4% in 2023.
In Poland the economy is expected to embark on a solid expansion after a mild recession last year. GDP growth is expected at 4.9% in 2021, 5.2% in 2022 and 4.4% in 2023.
EU construction sector still fragile
The fragile position of the construction sector in the EU, a key driver of timber demand in the region, is revealed by the IHS Markit Eurozone Construction Index. The index increased from 49.5 in August to 50.0 in September and then to 51.2 in October. The trend is positive but, with 50.0 being the dividing line between contraction and growth, the index implies that sentiment in the sector is very mixed.
Where construction activity rose, companies often cited stronger demand growth, although this was offset by a lack of raw materials which halted work on site. Underlying data indicated that growth was centred around house building, while commercial construction was steady but infrastructure activity was still slow.
Overall though, IHS Markit reports that construction firms are still confident that activity will increase over the next 12 months amid forecasts of strengthening economic conditions, improved supplier performance and new projects.
Strong recovery in EU27 wood furniture imports from tropical countries
In the first eight months of 2021, EU27 import value of wood furniture from tropical countries was US$1.1 billion, 38% and 29% higher than the same period in 2020 and 2019 respectively. After a slow start to the year, the value of EU27 wood furniture imports from the two largest tropical suppliers – Vietnam and Indonesia – increased sharply from the second quarter onwards. By the end of the first eight months, import value was up 29% from Vietnam to US$455 million and up 33% from Indonesia to US$293 million.
Meanwhile EU27 imports of wood furniture from India and Malaysia, which were very strong in the first half of this year, slowed a little during the summer months. After eight months this year, import value from India was US$237 million, 78% greater than the same period in 2020, while import value from Malaysia was US$85 million, a gain of 42%. For all four leading tropical suppliers, EU27 wood furniture import value in the first eight months of 2021 was higher even than in 2019 before the pandemic (Chart 5).
EU27 imports of tropical sawnwood still below pre-COVID level
In the first eight months of 2021, EU27 import value of tropical sawnwood was US$475 million, up 10% on 2020 but down 8% on 2019. In quantity terms, imports of 554,000 cu.m in the first eight months were 7% higher than the same period in 2020 but still down 11% compared to the same period in 2019 before the pandemic.
Imports of 189,500 cu.m from Cameroon in the first eight months this year were 4% higher than the same period in 2020 and still 13% down compared to 2019. Imports of 86,500 cu.m from Brazil were up 5% compared to 2020 but down 20% compared to 2019.
Sawnwood imports from Gabon and Congo fared better during the first eight months of this year. Imports from Gabon, at 89,000 cu.m, were up 31% on 2020 and up 10% compared to 2019. For the Congo, imports were 42,500 cu.m in the eight month period, up 26% on 2020 and 6% on 2019.
Imports of sawnwood from Côte d’Ivoire were 17,750 cu.m in the first eight months of this year, up 13% compared to 2020 but down 25% on 2019. The long term decline in EU27 imports of sawnwood from Malaysia continued in the first eight months this year, at 51,500 cu.m 14% less than the same period in 2020 and 27% down on 2019 (Chart 6).
In the first eight months of 2021, EU27 import value of tropical mouldings/decking was US$216 million, up 20% on 2020 but down 5% on 2019. In quantity terms, tropical mouldings/decking imports increased 11% to 128,500 tonnes in the first eight months of this year compared to last. However import quantity was still down 5% compared to 2019. Imports of 51,900 tonnes from the largest supplier Brazil, were 3% down on the same period last year and 14% less than in 2019.
Despite widespread reports of supply shortages for Indonesian bangkirai decking, imports of mouldings/decking from Indonesia were 43,100 tonnes during the first eight months of 2021, 21% more than the same period in 2020 and 1% more than in 2019. Imports of mouldings/decking from Peru were 10,000 tonnes, 54% more than in 2020 and 28% up on 2019. Sawnwood imports from Gabon were 5,900 tonnes in the first eight months this year, 49% more than the same period in 2020 and 13% more than in 2019. Imports from Malaysia were 4,600 tonnes in the first eight months this year, 10% less than in 2020 and 29% down compared to 2019. (Chart 7).
In the first eight months of 2021, EU27 import value of tropical logs was US$36 million, 31% up on 2020 but still 3% less than 2019. In quantity terms, imports of 66,000 cu.m were 22% more than the same period in 2020 but 11% less than the same period in 2019. Imports of 29,400 cu.m from Congo, now by far the largest supplier of tropical logs to the EU, were 38% more than the same period in 2020 and 29% more than the same period in 2019. Imports in the first eight months this year from all other leading supply countries – CAR (11,300 cu.m), Cameroon (9,000 cu.m), DRC (5,600 cu.m), Liberia (5,800 cu.m) – were all more than the same period in 2020 but still down on the level of 2019 before the pandemic.
Gabon leads slow recovery in EU27 imports of tropical veneer and plywood
In the first eight months of 2021, EU27 import value of tropical veneer was US$131 million, 9% more than in 2020 but 2% less than 2019. In quantity terms, imports were 192,900 cu.m in the first eight months of this year, a gain of 2% compared to 2020 and 3% less than in 2019.
After a rapid rise last year, veneer imports from Gabon were 102,800 cu.m in the first eight months this year, down 3% compared to 2020 but still 23% more than in 2019. At 41,300 cu.m, veneer imports from Côte d’Ivoire were 13% more than in 2020 but still down 16% compared to 2019. Imports of 17,800 cu.m from Cameroon were 3% more than in 2020 but 35% less than in 2019. Veneer imports from Congo were 11,700 cu.m in the first eight months this year, 20% and 4% more than the same period in 2020 and 2019 respectively (Chart 9).
Overall the signs are that tropical hardwood plywood has been a big loser in the competitive battle for dominance of the EU plywood market, particularly against Russian birch plywood. In the first eight months of 2021, EU27 import value of tropical plywood was US$98 million, up 6% compared to 2020 but down 18% on 2019. In volume terms, imports of 135,500 cu.m in the first eight months this year were 11% less than the same period in 2020 and 31% down compared to 2019.
EU27 plywood imports from Indonesia were 48,100 cu.m in the first eight months this year, 3% less than the same period in 2020 and 22% down compared to the same period in 2019. Imports of tropical hardwood faced plywood from China were 29,700 cu.m, 34% less than in 2020 and 49% down compared to 2019. EU27 imports of tropical hardwood plywood from Vietnam and indirect imports from the UK also continued to slide in the first eight months of this year.
More positively, imports of tropical hardwood plywood from Gabon and Morocco made more inroads into the EU27 market in the first eight months of this year. Imports from Gabon were 21,400 cu.m in the eight month period, 23% more than the same period in 2020 and 18% more than in 2019. Imports from Morocco were 9,400 cu.m, 29% and 11% more than the same period in 2020 and 2019 respectively (Chart 10).
Rise in EU27 imports of tropical flooring from Malaysia continues
In the first eight months of 2021, EU27 import value of tropical flooring products was US$43 million, 7% higher than the same period in both 2020 and 2019. However in quantity terms, imports of 11,300 tonnes in the first eight months this year were 5% down compared to 2020 and 3% less than in 2019. The rise in EU27 wood flooring imports from Malaysia, that began last year, has continued into 2021. Imports of 6,850 tonnes from Malaysia in the first eight months this year were 22% more than the same period in 2020 and 59% greater than in 2019. In contrast, flooring imports from Indonesia of only 3,300 tonnes were 12% less than in 2020 and 15% down compared to 2019. Imports from Brazil have also continued to slide, at just 1,400 tonnes in the first eight months, 60% down compared to both 2020 and 2019 (Chart 11).
The value of EU27 imports of other joinery products from tropical countries – which mainly comprise laminated window scantlings, kitchen tops and wood doors – increased 31% to US$141 million in the first eight months of this year. Imports were up 32% to US$72 million from Indonesia, up 15% to US$39 million from Malaysia, and up 44% to US$15 million from Vietnam. This year the EU27 has also begun to import joinery products manufactured using tropical hardwood from Bosnia. Import value from Bosnia was US$6.4 million in the first eight months of 2021 (Chart 12).
Draft EU “global deforestation” law to be presented on 17th November
The much anticipated proposal for an EU legal framework to “halt and reverse EU-driven global deforestation” is due to be published by the European Commission on 17th November. The proposal follows a European Parliament decision of 22 October 2020 calling on the European Commission to draft such a legal framework.
This decision was backed by a resolution on 9 June 2021 on the EU Biodiversity Strategy for 2030, in which the Parliament asked the Commission to urgently present a proposal for an EU legal framework based on mandatory due diligence that ensures that value chains are sustainable and that products or commodities placed on the EU market do not result in or derive from deforestation, forest degradation, ecosystem conversion or degradation or human rights violations.
The implications of the new legal framework are potentially far-reaching, particularly for the future of the existing framework of FLEGT Voluntary Partnerships Agreements, FLEGT licensing and the EU Timber Regulation. Early indications are that the EUTR may be rolled into this broader regulation imposing due diligence requirements on a range of “forest-risk” commodities. Furthermore the FLEGT licenses – so far only issued for Indonesian timber products exports to the EU – while accepted as evidence of legality under the new law may not necessarily be accepted as fulfilling the “deforestation free” criteria. Also, the EU may not seek to extend FLEGT licensing into any other country once the new regulation is in place.
The Commission proposal to be issued on 17th November will be a draft of the new regulation most likely adopted using the ordinary legislative procedure. It will be subject to review and possible amendment by both the European Parliament (directly elected) and the European Council (representatives of the 27 EU countries). Both the Parliament and European Council must agree on the legal text and any amendments before the draft can become law.
Further details of the content and implications of the draft legislation, and of the legislative process, will be provided in the next market report once the official draft is available.