Tag: ITTO

The relationship between hardwood demand and overall construction activity in the EU is not a simple one. Hardwoods tend to be used in the finishing trades rather than for structural elements and demand is often driven more by refurbishment than new build. That said, there is no doubt that indices of overall construction sector activity are a useful guide to likely levels of hardwood consumption. And since hardwoods tend to arrive on-site at the end rather than the beginning of construction projects, a recent upturn in construction activity can usually be interpreted as a sign that hardwood demand is about to pick up.

The most recent data released by European countries continues to show very mixed economic conditions across the continent. While much of the data is still gloomy, some more positive trends are beginning to emerge. Notable amongst the latter are signs of robust recovery in Germany and the UK, together with a rise in the level of loans to European households which suggests improved consumer confidence and some loosening of the exceptionally tight credit conditions so prevalent over the last two years.

In 2009, the UNECE region (which includes Europe, North America and the CIS) experienced an 11.6% fall in consumption of wood and paper products, the largest year-on-year drop since the oil crisis of the 1970s. This is a key conclusion of the Forest Products Annual Market Review 2009-2010 jointly published by the UNECE and FAO earlier this month (see http://timber.unece.org/index.php?id=303).

The latest EU-wide trade data indicates that imports of hardwoods from less developed countries (LDCs) remained at an extremely low level during the first quarter of 2010 (see table). During this period, European imports of hardwood logs, sawn, plywood and veneers from LDCs totalled no more than 775,000 m3. This is almost exactly equivalent to the volume achieved in the first quarter of 2009, a year when total European imports of LDC hardwood products fell by over 40%. The total value of EU imports of these commodities during the first quarter of 2010 was actually down 12% compared to the same period in 2009.

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.