Forest Industries Intelligence

An analysis of Eurostat import data during the period January to March 2008 for the EU-25 group of countries (all EU members excluding Romania and Bulgaria) carried out by Forest Industries Intelligence Limited tends to confirm the rather negative anecdotal reports of trading conditions this year (see data in attached Excel file). While EU-25 import volumes of tropical hardwood logs and veneers held up reasonably well during the review period (down 2% and up 8% respectively), imports of tropical hardwood sawn and plywood were significantly down on the previous year (down 11% and 6% respectively).

European forward buying of African hardwood sawn lumber, particularly the major commercial redwoods such as sapele and sipo, remains very subdued and is slowing further now with the onset of the summer holiday season. There are reports that some buyers are using even minor shipment delays as an excuse for cancelling orders. The market for some whitewood species – such as ayous and koto – is a little better, while the European ban on the import of Burmese teak imposed in March this year has generated some new interest in iroko for the boat building industry.  

Prices for existing landed stocks of sapele sawn lumber in the EU are now under significant pressure. Although underlying levels of consumption are still holding up reasonably well, despite the gloomy economic news, importers are nervous about future prospects. Many are also holding high stocks of sapele sawn lumber – partly a hangover from last year when a lot of product wasn’t shipped on time due to transport difficulties. A significant volume arrived earlier this year which is now a depreciating asset sitting in importers yards.

The optimist’s view of economic conditions in the EU can be summed up in a few sentences. Banks in the EU have avoided America’s subprime follies and are in better shape than their US counter-parts. Average euro-area unemployment stands at 7.1%, the lowest level in almost 20 years. The euro is resurgent and there is no sign of a recession. Manufacturers in some European countries – especially Germany – have responded to the high euro by increasing efficiency and, as a result, have managed to maintain healthy levels of exports. The European Commission plans to trim its economic forecasts later this month, but euro-area growth is likely to stay close to 2% this year.

There are some reports that interest in Chinese hardwood plywood, which now leads the UK market for this commodity, revived a little after EC formally announced it would not impose ant-dumping duties on Chinese tropical redwood-faced plywood. However, during the period of uncertainty over the future status of Chinese plywood in the EU market, a significant number of UK buyers are believed to have switched to alternative suppliers, particularly in Malaysia. It’s not certain how willing these buyers will be to return to Chinese product particularly as the price advantage that Chinese plywood has long held over Malaysian and Brazilian alternatives has narrowed slightly. This reflects strengthening of the yuan against the dollar and rising production costs in China which have been only partly offset by a recent decrease in freight rates between China and the EU. And following high-profile environmental campaigns targeting Chinese plywood (particularly faced with bintangor from PNG), UK buyers also tend to be more comfortable with the environmental credentials of Malaysian plywood over uncertified Chinese plywood. Overall, the expectation is that UK imports of Chinese plywood may already have peaked.

European demand for tropical hardwoods remains subdued due to uncertain economic conditions in all the main markets. The strong euro has meant particularly slow buying of African species and given dollar denominated species an edge. Importers stocks of African hardwood species are generally high and it is becoming increasingly difficult for importers to pass on replacement prices.

Over the last 12 months the European Commission has been investigating the potential to introduce EU-wide legislation designed to prevent imports of illegal wood.

The latest hardwood market report from TTJ, the UK’s timber industry magazine (www.ttjonline.com) suggests that while 2007 was a year when timber supply issues came to the fore, demand-side factors might well dominate 2008. Economic uncertainty in Europe has generally led to a more cautious approach to purchasing. One UK-based agent specialising in African wood suggested that “this has been the worst start to the year for West African hardwood suppliers for a number of years…the US, European and Chinese markets have all gone cold”. It was noted that some trading companies in Africa are now heavily discounting prices of sawn lumber because of high stocks, particularly in sapele. Due to the current strength of the euro, is also encouraging reductions in euro prices. The sapele inventory both in continental Europe and the UK is regarded as ample to service existing levels of demand. Framire supplies have become easier to source as significant volumes are now being shipped against old contracts. Iroko demand remains weak in major markets of Ireland, Spain and Italy, but a reduction in production levels has helped keep prices stable. Availability of good quality wawa remains restricted. Demand for this species is quiet in the UK but there are signs of greater interest in Italy. UK demand for Malaysian meranti tembaga remains weak, foiling efforts by Malaysian mills to boost CIF prices in response to rising freight rates.

Reports from around north-western Europe suggest subdued demand for tropical hardwoods. Europe’s tropical log imports continue to decline while demand for sawn lumber in countries throughout the region – including UK, Ireland, Benelux and Germany – is described, at best, as stable. Some suggest that sales of tropical sawn lumber in the region are down on the same period last year.  Economic uncertainty is sapping confidence in future sales and encouraging importers to be cautious over restocking. Nevertheless the spring season is approaching which, with its promise of increased construction activity, may provide at least some short-term improvement in demand.

Signs are mounting that this may be a difficult year for the hardwood trade in Europe. Economic forecasts are becoming more gloomy. According to this week’s Economist journal “the facts suggest that Europe is not weathering the global financial storms well. Figures released on February 14th reveal that the euro-area economy slowed abruptly at the end of 2007. GDP rose by only 1.6% at an annual rate in the fourth quarter-stronger than in America, admittedly, but still a lot slower than before.” The Economist goes on to note that GDP growth in the two largest euro-zone economies, Germany and France, was weaker than the euro-area average. Figures for Italy are not yet out, but existing indications are that the economy may have shrunk in the last quarter of 2007.