Tag: ITTO

Consumption in the European hardwood market continues to slump on the back of poor economic news and uncertainty, lack of bank credit and the restrictive policies of credit insurers.

There is little change in the European market for tropical sawn lumber. There is still very little forward demand for sapele, the main commodity species, as large importers in the UK and the Benelux countries continue to off-load stocks at below replacement value. Due to very slim margins, there is very limited incentive for importers to engage in trade in this species – as one major UK importer commented recently “I haven’t made any money on sapele in over a year”. He noted that the same could be said of sipo, although a few other lower volume species have been performing a little better, for example iroko and framire.

Forward demand for tropical hardwood sawn lumber in the EU remains very subdued across the board, both in terms of products and EU countries. Anecdotal reports suggest that European door, furniture and joinery manufacturers have continued to buy only slowly against the background of uncertainty created by deteriorating conditions in the housing, banking and credit markets.

Until recently, the European flooring market was a key growth area for hardwood products. As in other sectors, the global economic crises is having a significant impact to reduce short term growth prospects. It is also encouraging manufacturers to take a good hard look at their investment, sourcing and marketing strategies. While the long term outlook for hardwood flooring in Europe remains positive, there will be great pressure on materials suppliers – particularly of tropical hardwoods – to adapt quickly to new emerging demands if they are to remain competitive.

Economic problems continue to mount in Europe. The UK, Spain and Ireland were hit hard early on by the collapse of their respective property markets. The UK’s economy, with its heavy dependence on financial services, has also suffered more profoundly than other economies from the crises in the banking sector. Now contagion has set in and conditions are deteriorating rapidly throughout the EU.

Short term prospects for the European hardwood sector appear very poor. Hardwood consumption has been hit by serious economic disruption resulting from the bursting of the property bubble and associated credit crunch. This has created a vicious downward spiral as lack of credit to businesses and individuals is now causing severe cash flow problems and reducing economic activity further, contributing to rising levels of unemployment, higher debt default rates, and further falls in consumer spending. Media reports highlighting these problems are helping to reinforce and deepen negative sentiment. It should be said, however, that the world keeps turning, there is economic activity and wood is being consumed. Although the market is extremely competitive, those with the right stock at the right price are finding buyers.

The US trade journal Hardwood Review Global provides a flavour of current depressed market conditions for hardwoods within the EU. In their November issue they note: “one major exporter said that hardwood demand in every European market – from the United Kingdom to Scandinavia to Germany to the Mediterranean – has been hurt by the economic downturn. European buyers were purchasing only enough lumber to fill gaps in inventory, and most were shopping around to get the best specifications for the lowest prices”. Hardwood Review Global go on to note that Italy’s export oriented furniture industry is suffering severely in the economic downturn, while the poor housing market has had a particularly profound impact on the Spanish and Portuguese door and window manufacturing sectors. Belgian importers are reporting that their purchases are down 40% compared to last year.

Overall economic conditions in the EU have continued to deteriorate. According to figures published on 14 November which showed that the euro-area economy shrank in the third quarter following a similar decline in the three months to June, the region is now technically in recession. This is the first time that GDP growth across the area has fallen in successive quarters since the euro was launched in 1999. Overall GDP in the euro-area has grown by 0.7% this year, with all the growth concentrated in the third quarter. Germany and Spain have performed slightly better than the euro-area average, France has done a little worse. Italy stands out as the worst performer – its GDP is down 0.9% on a year ago. Meanwhile unemployment has jumped in Spain and Ireland, the two countries hardest hit by the property bust and scarcity of mortgage credit. On this measure Germany has performed reasonably well, unemployment in the country having actually fallen slightly this year.

The European hardwood import trade is now very focused on stock reduction and receiving delivery of outstanding contracts. While hardwood stock levels across the main European markets have been whittled down during the course of 2008, the general view is that they are still adequate to meet current very subdued levels of demand.

Widely reported measures by national government’s to bail-out failing banks, involving a massive injection of state money amounting to partial nationalisation of leading retail banks in several countries, has quelled the worst fears of European investors and depositors of an imminent and disastrous economic collapse. Steps have also been taken to kick-start national economies through a significant reduction in interest rates by several central banks including the euro area’s ECB and the Bank of England in a move co-ordinated with the American Fed. Nevertheless, economic confidence in Europe has taken a severe beating over recent weeks, a fact reflected in weakening currencies and forecasts that Europe may be facing its worst recession since the early 1990s.