Supply Restrictions Drives Sapele Price Rise – ITTO European Market Report 30th August 2013

Overall demand for African sawn hardwood across Europe is slow. However the strong focus of the EU market on sapele, and local shortfalls in supply after a long period of limited buying, is now translating into rising prices for this species. UK inventories of kiln dried sapele are particularly low relative to demand and distributors have been restocking.

FOB prices for sapele sawn timber have risen 15-20% since the start of the year. Air-dried 52mm sapele sawn timber is currently being sold for around €650/m3 FOB. So far, European importers have only been able to pass on part of the price increase to their customers. However higher prices are now filtering throughout the supply chain as European landed stocks have gradually declined.

European importers report availability of sapele lumber in Africa is now very restricted and lead times between orders and delivery are getting longer and more uncertain. Many mills are now unwilling to commit to delivery of new orders before the end of the year. This is generating more interest in sipo sawn timber, prices of which are now comparable to sapele. However, stocks of this species are also quite limited and would soon disappear if there is a significant rise in demand.

Low availability of African sawn timber is due to several factors. Larger volumes are now being diverted to the Chinese market. The US market has also improved this year. Overall production capacity declined in African countries during the financial crises and has yet to recover. Short term political and transport problems have also restricted the harvesting and movement of logs and sawnwood in central Africa during the first half of 2013.

Variable prices for framire

Prices for framire have been quite variable owing to uncertainty both on the supply and demand side. Although stocks are available, some European buyers have been wary of purchasing framire from Ivory Coast following introduction of EUTR due to concerns over the reliability of legality documentation. Buying has focused on a limited number of exporters seen as better able to provide the assurances required. Ivory Coast’s recent decision to work towards development of a VPA with the EU offers potential to resolve this situation in the long term. However exports of framire and other hardwoods from Ivory Coast to the EU are likely to suffer in the short term.

Prices for most other African hardwoods have been stable in recent months and availability is less of a problem. European importers report that new orders for most African species other than sapele are being offered for shipment in October/November.

Weak Dutch demand for sawn meranti

European consumption and imports of Asian sawn hardwood have remained very slow this year. The Dutch market, traditionally a major consumer of meranti sawn timber, is very slow against the background of a serious downturn in construction.  Demand for meranti sawn timber in France, Belgium and the UK has also been weak this year. However demand for meranti sawn timber and window scantlings has been more robust in Germany during 2013.

Overall meranti supplies in Europe are generally well balanced with demand. This fact, together with reduced production of European specifications of meranti sawn and scantlings in Malaysia and Indonesia, has meant that FOB prices have remained stable.

However trends in CIF North Europe prices have been variable due to big swings in container rates over recent months. Freight rates on the Asia Europe route fell consistently and steeply to a low of only around $1000 per 40ft container during the first 6 months of 2013, but then rebounded strongly to over $2500 by early August. The latest freight increases have added around $30-35 to the CIF North Sea price of meranti sawn timber which currently stands at around $870/m3 for 3×6”.

No improvement in demand for decking timbers

European demand for tropical decking hardwoods has been subdued during 2013. The decking season started late this year due to poor weather and then failed to pick up pace even as conditions improved. Demand is very weak in Belgium, Netherlands and France. Demand is a little better in Germany and the UK. In all European countries, tropical hardwood is suffering from competition from wood-plastic composites, demand for which is continuing to rise this year.

At present, new orders of Indonesian bangkirai decking can be shipped fairly promptly and FOB prices are tending to weaken. However this trend has been offset in Europe by the recent freight rate increases. CIF North Sea prices currently stand at around $1425/m3 to $1475/m3 for “standard and better” products. 

CIF prices actually exceed some offers now being made on sales from existing European landed stocks as importers are seeking to encourage greater consumption. As a result, European interest in new orders in Asia is very limited. Lack of European demand this season has raised concerns about longer term supply prospects as there is a risk that many manufacturers previously cutting for the European market will either cease production or switch to alternative more consistent markets elsewhere.

German sawmills switch from tropical to temperate hardwoods

The Germany-based journal EUWID reports that the numbers of companies in Germany sawing tropical hardwood logs has diminished rapidly in recent years. Many have shifted their focus to processing of domestic and other temperate hardwoods. Mills located in central Europe at some distance from major ports have been most inclined to switch to alternative locally-sourced logs due to the high costs of overland transport in Europe.  Those that still process tropical wood are focusing on very high quality products, mainly for the boat building and landscaping sectors. Sapele, sipo and iroko are the main species of tropical hardwood log now being imported into Germany.

Drawing on comments from German sawmillers, EUWID report that declining use of tropical hardwood is due to several factors. Sawmilling capacity has gradually increased in some tropical supplying countries, so that adequate supplies of tropical sawnwood of sufficient quality and appropriate specification may now be imported. Meanwhile, demand for tropical timber has declined in a number of business sectors in Germany and the wider European market, particularly in the furniture and veneer sectors, in the wake of the financial crises. A number of African countries have also imposed bans on log exports, restricting raw material supplies.

CĂ´te d’Ivoire and EU announce start of VPA negotiations

CĂ´te d’Ivoire and the European Union have announced the start of negotiations towards a Voluntary Partnership Agreement (VPA) on Forest Law Enforcement, Governance and Trade (FLEGT). The CĂ´te d’Ivoire Minister of Water and Forests, Mr. Mathieu Babaud Darret and the EU Ambassador in CĂ´te d’Ivoire, Mr. Thierry de Saint Maurice, signed a joint statement to initiate the process at an official ceremony on 13 June 2013 in Abidjan.

The FLEGT VPA is a binding bilateral trade agreement between the EU and timber exporting nation. It is designed to improve forest governance in the signatory countries and ensure that timber exported to the European market complies with all regulatory requirements of the partner country. On completion of the process, all timber products within the scope of the VPA imported into the EU from CĂ´te d’Ivoire will be subject to mandatory legality licensing. VPA licensed timber is exempt from the due diligence requirements of the EU Timber Regulation.

CĂ´te d’Ivoire aims to join the five African countries that have already signed a VPA (Liberia, Ghana, Cameroon, CAR and Congo Republic). CĂ´te d’Ivoire has established a seventeen-strong Technical Negotiating Committee (TNC) including representatives of the Presidency of the Republic, the Prime Minister, the National Assembly, responsible government authorities, Private Sector, Civil Society and Traditional chiefs.

Proposal for new ISO chain of custody standard

DIN, the German member body to the International Organization for Standardization (ISO), and ABNT, the Brazilian member body to ISO, have submitted a proposal for a new International Standard focusing on chain-of-custody requirements for forest-based products.

According to the proponents, the new standard – which would be overseen by a new ISO Project Committee (PC) – would seek to establish methods to allow forestry companies and related businesses to demonstrate to consumers that their forestry products originated in a sustainable managed forest and were created in an ethical manner. The scope of the proposed standard covers social, economic, and environmental topics and concerns related to chain-of-custody and sustainable forestry issues.

The proposal has already caused controversy. The FSC and PEFC immediately released a joint statement urging ISO members to vote against the proposal. They noted that together FSC and PEFC account for some 98% of the world’s certified forests and chain of custody certificates, that there are synergies between FSC and PEFC and that they already have long experience of multi-stakeholder standard development. They claim that offering a chain of custody certificate disconnected from PEFC and FSC forest management certification would lead to uncertainty and “sub-optimal results”.

This in turn led to accusations that FSC and PEFC are wilfully overlooking existing weaknesses in their own chain of custody systems – weaknesses which partly stem from a failure on the part of the two systems to talk to one another. Trading companies can be frustrated when they make a product from a mix of FSC and PEFC material but can’t make any claim because the product falls below the percentage threshold requirements of both systems and there is no mutual recognition. So there may be merit in a process to develop a single chain of custody standard that facilitates recognition of timber derived from both FSC and PEFC certified forests, or indeed other credible forest certification mechanisms.

The ISO proposal for a chain of custody standard is at:

http://publicaa.ansi.org/sites/apdl/Documents/News%20and%20Publications/Links%20Within%20Stories/ISO%20NWIP%20(Chain%20of%20custody%20of%20forest%20based%20products%20-%20Requirements).pdf

The FSC and PEFC joint statement urging ISO members to vote against the proposal is at: http://pefc.org/images/documents/external/Joint_Statement_FSC_PEFC_July_8_2013.pdf).

The Forest Trust questions the value of chain of custody certification

The publication of the ISO proposal, and the FSC and PEFC response, also encouraged one commentator to raise even more fundamental questions about the real value of certification as a mechanism to promote sustainable forest management.

In an article for the Monga Bay website, Scott Poynton, Executive Director of The Forest Trust criticised FSC and PEFC for issuing what he claims amounts to a “call for no new competition”. Poynton goes on to criticise FSC and PEFC for allowing chain of custody certificates to be issued to companies that have little or no intention of sourcing certified timber, but only want to associate themselves with the certification brands.

Poynton alleges that “an inherently unsuitable financing model corrupts the whole system. The FSC and PEFC, the auditors, the consultants must all issue certificates to safeguard their income streams. NGOs who carry out COC training to transform the wood industry must point to the growing numbers of certificates to safeguard their budgets too“.

While generating income for the certification bodies and providing companies with a veneer of respectability, Poynton argues that this process does nothing to transform the industry and instead promotes business as usual while diverting attention and resources from the real issues. Poynton asks whether the small trading companies investing in chain of custody certification might spend that money in a more productive way.

“They might consider investing it back into their businesses, perhaps in better equipment and safer working conditions for their employees. They might invest it – if they were wise – upstream to improve stewardship of the forests that supply their raw materials“, says Poynton.

Poynton’s article is available at http://news.mongabay.com/2013/0710-poynton-fsc-pefc-coc-commentary.html.

A response to this article by FSC is available at:

http://news.mongabay.com/2013/0723-fsc-coc-response-tft.html

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