Forest Industries Intelligence

The Indonesian government and European Commission (EC) have announced that the first FLEGT licenses will be issued in November 2016. After 13 years of effort to develop a framework to license the legality of all wood exported from Indonesia to the EU, this is a major achievement. The key issue now is whether the licensing system will deliver in terms of improved export market access, sales and profitability. The jury is still out on that and there are downside risks in the short term, but long-term prospects are good.

EU imports of tropical sawnwood have continued to recover slowly in 2016 from the depths of recession in early 2013. There was a particularly significant surge in trade in the second quarter of this year, notably from Cameroon. (Chart 1).

Chatham House, the UK-based think tank, hosted the annual “Illegal logging Update” meeting in London in June, a two-day event with participants from a range of producer and consumer countries in both tropical and temperate regions – mainly government, NGOs, academics, consultants, trade association and corporate representatives.

Latest trade data shows that the rising trend in EU import value of tropical wood products that began in the second half of 2014 levelled off in the first five months of this year. No trade data is yet available for the period after May when the effects of the UK vote to leave the EU might become clearer. Early indications are that it will lead to a significant slowdown in European tropical wood imports in the second half of 2016 in response to currency movements and economic uncertainty in the UK, currently the largest European market for tropical wood products.

The UK’s decision to leave the EU – so-called “Brexit” – by a narrow majority of 52% to 48% in a referendum on 23 June is already being felt in currency markets and stock exchanges around the world. The short term economic effects are already evident – a slowdown in growth, certainly in the UK which might even dip back into recession, and also in the wider EU economy.

Preliminary analysis of Eurostat data indicates that the European veneer market, which was in decline between 2010 and 2014, staged a partial recovery in 2015. Total EU veneer consumption increased by 9% from 1.47 million m3 in 2014 to 1.60 million m3 in 2015. This rise was driven both by a 7% rise in domestic production, from 1.17 million m3 to 1.25 million m3, and a 12% rise in imports from 448,000 m3 to 500,000 m3 (Chart 1).

On 4 May, the European Commission (EC) published a comprehensive independent evaluation of the EU FLEGT Action Plan. The Plan encompasses the wide range of EU policy measures introduced over the last decade to support good forest governance and remove illegal wood from trade. Key amongst these are the EU Timber Regulation (EUTR) and the Voluntary Partnership Agreements (VPAs) now being implemented by six tropical countries and negotiated by another nine countries. The report assesses progress since the Plan’s publication in 2003 and makes recommendations for future action.

Latest trade data shows that the sharp rising trend in EU import value of tropical wood products that began in the second half of 2014 levelled off in the opening months of this year. This was mainly due to slowing imports of tropical sawn wood and decking, notably from Brazil and into the UK and France.

After a steep fall of more than 6% in 2014, the European Federation of the Parquet Industry (FEP) reports that European wood flooring consumption increased both in 2015 and in the first few months of 2016. In 2015, FEP observed “a stabilisation in parquet sales across Europe, with an upward tendency during the last months”. And in early 2016, FEP report market recovery across much of Europe.

In 2015, EU imports of tropical sawn hardwood were 1.05 million m3, 9% more than previous year. The value of EU imports increased by 15% to €772 million. The average unit value of tropical sawn hardwood imports into the EU in 2015 was €732 per cubic meter, up from €670 per cubic meter the previous year, the increase due to the euro being on average 20% weaker against the US$ in 2015 compared to 2014.