Forest Industries Intelligence

Overall market conditions for tropical wood products in Europe remain very subdued. There continues to be uncertainty over the sustainability of economic recovery now that government stimulus measures are being removed and austerity measures are being introduced in an effort to calm market concerns over the level of public debt. The construction sector – particularly new residential activity – also remains very weak across the continent.

The latest TTJ report on the UK plywood market notes that CIF Europe plywood prices from just about all sources – including both hardwood and softwood product – have increased over the last couple of months. In normal times this would generally encourage more buying as importers try to avoid having to pay more later and seek to exploit a rising market.

The TTJ’s recent hardwood market report highlights the extent to to which the UK has shifted during the recession away from speculative purchasing towards just-in-time ordering. Hardwood traders are having to act “more than ever as the customer’s stock-holder” as manufacturers and merchants have responded to tight credit and uncertainty over future consumption by reducing their own stocks. The TTJ speculates that this effect is long term and that for many, especially smaller companies, today’s just-in-time approach may be the new norm.

In its latest forecasts released on 21^st April, the IMF predicts that global output on a purchasing power basis will see healthy growth of 4.2% this year, a full percentage point more than it foresaw only six months ago. Other forecasts are even more optimistic, predicting global growth of 4.5% in 2010 – close to the average pace of the boom years prior to the recession.

During 2009 EU imports of hardwood logs reached only 4.38 million m3, down a massive 60% on the previous year (Table 1). In addition to recessionary pressures and a lengthy period of destocking by European importers, the figures are strongly influenced by Russia’s phased introduction of log export taxes. This contributed to a 76% fall in the volume of EU imports from Russia during the year. However log imports were also well down from key tropical hardwood supplying countries including Gabon (-31%), Cameroon (-22%), the Congo Democratic Republic (-48%), and the Congo Republic (-59%).

After many months of limited forward buying, signs are that UK stocks of tropical hardwood plywood are now extremely low. With tight supplies and rising prices from all the main supply regions, concerns are mounting that significant shortages could emerge as consumption begins to pick up with rising construction activity in the spring. Meanwhile, suppliers of alternative new products are hoping to step into the void previously filled by tropical hardwoods.

Much of the economic news in Europe in recent weeks has focused on the challenges faced by Greece in its struggle to finance huge debts, a crises threatening the credibility of the whole euro-zone financial system of which Greece forms a part.

The European surface materials market is important to the tropical hardwood sector for two reasons. First, because significant volumes of tropical hardwood sliced veneer continue to be used by European door, flooring and furniture manufacturers. Second, because European furniture designers and manufacturers are influential in setting fashions for interiors worldwide, impacting on the choice of all materials, both wood and non-wood.

At this time of year, European garden furniture merchants and retailers are typically busy preparing for the spring season. But reports from European agents and distributors suggest demand is likely to be very slow this year. In public, designers and manufacturers continue to talk-up the market opportunities in the recession from the trend to “improve not move” and consumers’ desire to protect themselves from the harsh realities of life through home improvement. But in private, there is more talk of the very real difficulties of parting consumers from their money, particularly for “non-essential” items like garden furniture.

Severe winter weather across much of north western Europe made for a slow start to plywood business this year, keeping both traders and builders away from work.  Although weather conditions improved later in January, few are expecting a significant upturn in business at least during the first half of the year. Even with clear indications that CIF prices for tropical hardwood plywood are now rising, there are reports of UK distributors off-loading stock at below replacement cost in the face of very slow consumption. This suggests that prospects for any significant increase in forward orders are limited, at least in the short term.