Tag: Market Report

The on-going financial crises across Europe and the housing market bust in several key markets including Spain and the UK have dented confidence amongst European hardwood buyers. While hardwoods remain a fashionable product in the EU, valued for their quality, aesthetic appeal and natural warmth, overall levels of consumption are falling as the market has shrunk, and as more buyers look for ways to cut costs. Trade contacts indicate that demand did not pick up in September as is usual after the summer vacation period. Meanwhile on-ground sales prices for headline tropical species such as sapele and meranti are below replacement cost as importers’ main concerns have been to off-load existing stocks and maintain cash flow rather than to consider the possibility of future short falls.

Newly released trade data reinforces anecdotal reports of a significant slowdown in Europe’s hardwood imports from tropical countries this year. However the news is not all bad. There has been growth in imports of some commodities into a few countries. Plywood imports from tropical countries increased significantly in the second quarter of 2008. In addition EU imports of hardwood flooring have been rising this year.

Reports from the EU sawn hardwood market are generally gloomy. Signs are that importers have returned from their summer vacations in a very cautious frame of mind, no doubt influenced by the release of yet more data to indicate that economic growth is slowing. Generally European agents report that both sales volumes and profit margins are down. Importers are focusing heavily on getting the best deal possible, closely scrutinising specifications and bargaining down prices. This is despite the fact that on-ground stocks of many hardwood specifications are no longer particularly high while available supply in the major producing regions is not great. Agents suggest that even a minor uptick in demand in the EU could soon lead to shortages as overseas producers would be unable to respond quickly enough. Agents are concerned that the European hardwood trade, having bought too much forward last year, may now respond by buying too little too late this year.

A report in the Economist suggests that European economic prospects are deteriorating. It notes that “Europe is struggling to stay above water. Figures released on August 14th showed that the euro-area economy shrank at an annualised rate of 0.8% in the second quarter, the first such reverse since 2001. Nor are things likely to improve soon. A closely watched survey of purchasing managers in manufacturing and services slumped in July to its lowest level since 2001. Business confidence has turned down sharply in all of the three biggest economies in the euro area: Germany, France and Italy. Indeed, in the second quarter GDP fell in all three countries, paring their annual growth rates…Meanwhile Spain’s GDP has predictably stuttered as it endures a painful shock from its burst housing bubble…Ireland’s GDP which grew by 6% in 2007 is likely to shrink this year… Britain is on the brink of recession.”

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.