With 30 members and guests the annual Market meeting was as ever a well attended event. Following on from a meeting of the National Hardwood Division of the TTF that was open to club members and was well supported.
Market reports were presented and are copied below in full, with questions raised and discussed at the end:
Europe – Presented by Rupert Walker of Timber Link International
With the largest growing stock and widest distribution of any hardwood species, this is certainly the timber most widely traded within (and exported from) Europe. The UK is a significant net importer and it is quite likely that European Oak, currently vies with American white Oak for the single largest volume imported in all species.
France has been a steady supplier to the UK, predominantly in Fresh sawn beams and boules/unedged material. Volumes harvested fall every year and annual price increases have been a consistent 10%+ for several years. The barrel stave market has been one of the main drivers of those price increases for both domestic and export wine production. Despite a dry summer and poor grape harvests demand is steady as the production cycle from log to finished barrel is at least 2 years. At the other end of the quality spectrum large volumes of low grade logs continue to be shipped to Asia, now predominantly as squared logs (cants) rather than round timber. France still has far too many sawmills and with reducing availability, no real alternative species to cut, and increasing prices the number of closures is steady in the smaller family run productions. There continues to be almost no FSC log availability in France.
Germany continues as a producer and exporter, but also imports from other parts of Europe. Round log exports (as well as sawn) continue to Asia. Domestically the fashion for rustic oak, even in many of the mid-high end furniture market enables the Germans to be a market that takes a much wider spectrum of grades and specifications than the UK.
Croatia, and for this read also Italy of course, is a concentrated resource of high quality Oak that is largely FSC certified. For most of the last 20 years this product has found its way to the rest of the world via Italy, who have either imported logs and processed them or bought fresh lumber and dried it. In recent years a log export ban and increasing restrictions on companies with government forest log quotas has led to two changes. 1) The Italians have bought or invested in sawmills in Croatia to ensure supply and 2) Croatian mills have invested in kilns and are exporting their own production with no need for Italian intermediaries. Overall log volumes and quality are falling and prices rising. The new log season has barely started due to a warm autumn period.
Other Eastern Europe
Poland has relatively small volumes of Oak and has a very advanced value added industry, so most exports are semi-finished or fully finished products.
Hungary has a small area of good oak forests adjacent to Croatia, but few quality productions that the UK would buy, they are mainly focussed on dimension stock for Scandinavia and Germany.
Serbia and Bosnia hold small but important Oak resources, that are (in the main) not certified and are outside the EU. Again little material coming directly to the UK, but clearly passing via countries where it is mixed and kilned.
Ukraine clearly has significant resources, but corruption, infrastructure problems and recent instability have not encouraged investors. In July this year there was a pretty damming report issue by Earthsight stating that a high percentage of Ukraine’s harvest was illegal. A number of Western European companies – predominantly large softwood groups – were accused of lax application of the EUTR. There is not a great deal of Ukrainian Oak coming directly to the UK, but it is quite possibly coming through third countries (Poland, Italy, Germany).
Current UK demand and worldwide trends
The UK is one of the leading importers of Oak from Europe and a slightly flat early summer demand that has not returned (Brexit , general lack of confidence) has caused some recent mild panic among some suppliers who need the cashflow. This has led to some discounted offers to move stock against a background of rising replacement prices. There is usually a shortage of certain items that begins to appear at this time of year as old stock has been sold and new season material hasn’t yet materialised. I expect that this trend may not be seen this year, but prices will have to increase at some point or suppliers will be losing money with new costs. There is a feeling that with the steadily rising prices of the past few years some end users may have switched back to American White Oak and even American Ash for certain interior applications, purely on price.
There is also concern that the trade tensions and tariffs between the US and China will lead the latter to increase demand on European Oak to replace American White and Red Oak.
Other European Hardwoods
Demand for this species is firm. In the UK the market is dominated by 2 main suppliers from Germany and Austria who produce a near identical product and who have successfully changed the market in the past 10-15 years. Log supplies in Germany have been especially tight owing to storms that have prioritised the harvesting of wind blown spruce over other species. In addition demand from Eastern Europe has been strong. As such 2019 looks like seeing price increases in this species for the first time in many years. Beech continues to be exported to Asia, the Middle East and North Africa where the markets are firm.
The once great hope for European Ash production – falling supply from the US as a result of EAB – has not materialised, but if predictions are right the US species may well disappear within a few years. However Ash dieback in Europe looks to have the potential to be on a similar scale. Combined with the fact that Ash just doesn’t seem to spark the public appetite as much as Oak, it’s take up as a cheap alternative for interior purposes doesn’t look like happening any time soon. The UK does import Ash from France, Germany and Croatia, but volumes are low.
Other species including Elm, Cherry, Sycamore, Walnut, Poplar, Chestnut and Acacia are all present and traded, but I would be surprised if cumulatively they accounted for even 5% of the UK’s import of European hardwoods.
North America – by Stuart McBride of NHG Timber
State of Market:
With over 50% of American products normally destined for China, the fallout from the US/China trade war is the biggest issue affecting exporters. Tariffs of 10% are already in place but these are threatened to increase to up to 25% in January. Some mills have seen a short burst of activity as Chinese importers seek to bring in stock prior to January but the future thereafter is extremely uncertain, not least because of the Chinese New Year. The habit of some larger exporters to put wood on the water unsold exacerbates the situation. The consequence has been very weak pricing in the lower grades, 1 com/2com Red Oak and poplar particularly, and FAS Red Oak in 4/4 and 5/4. In general, White Oak and 6/4 and thicker items are more insulated from this weakness as other world markets take these items.
The collapse of US log exports to China has made more logs available for domestic producers with the downward pressure on price but, as we know, many landowners just don't sell when pricing drops.
A saving grace has been the strength of the domestic US economy, with industrial products like pallet cants and railroad ties fetching high prices, in some case matching 2 com prices which is a relief to sawmills if it lasts. However, concentration yards have scaled back purchasing, and production is down. So, over the coming months there could be a lack of availability in special items and sorts which rely on large production runs to be produced.
Species: n.b low grades in any species are weaker in price
Ash - Ash is still in terminal decline and will be increasingly less available over the coming years as a lot of the trees that were EAB affected have now been logged and those killed by the bug do not yield good timber. However, pockets of availability do pop up.
White Oak - Availability varies from region to region, but prices are being maintained. Those with ready availability and a desire for quick cash are price flexible.
Red Oak - Random items weak, special items steady.
Cherry - Weak pricing as Chinese demand earlier in 2018 had stimulated production which has built inventories
Hard/Soft Maple - Pricing is more resilient with slightly more demand in Europe.
Walnut - Weaker, but the UK demands top superior grades and there is a finite supply.
Poplar/Tulipwood - A bit weaker, but large variations.
Africa – Presented by Ken Walsh of Danzer
State of Market
The supply situation remains quite difficult. Most suppliers are still experiencing transport issues on the roads and delays in the port of Douala. This continues to cause significant cash flow problems like those reported by Rougier earlier this year. Sawmills in North Congo are shipping containers via Pointe Noire which is resulting in higher ocean freight costs but at least is a less congested option. It is now the rainy season so log supply is somewhat restricted and many sawmills have already/will take the opportunity to close for maintenance for a period of up to four weeks. Global demand is keeping up with supply, so sawmills have healthy order files and are not under pressure to seek out orders. Drying capacity in Africa is fully committed for the next 6 - 9 months. Shortages in UK inventories have begun to appear in many items.
Framire - Supply ex Ivory Coast is limited (particularly for third party legality verified product). Easier if you are willing to rely on your own due diligence with pricing stable but firm. UK sales appear to be down on previous years.
Iroko - Remains extremely difficult to find with third party legality verification. A little easier if you are willing to rely on your own due diligence. Price is also stable but firm. UK sales remain constant.
Sapele and Sipo - Supply is roughly in line with demand at stable but firm pricing. Delays detailed above are limiting the supply line ability to get product to the market in a timely fashion. UK sales remain constant.
We are starting to be asked by some customers where we see the market heading and to lock down volumes for Q1 2019 as they are concerned about supply and if the current GBP/EUR rate of circa 1.12/1.14 remains then we will be seeing record prices on a GBP basis. Goodness only knows what a "No Deal" Brexit will bring to the table currency wise!
Asia – Presented by Frank Cosentino of Tradelink Wood Products
The result of the General Election on 9th May was a surprise to all, with the ruling Barisan Nasional coalition defeated after 61 years in power. This sweeping away of the old regime immediately kickstarted widespread anti-corruption investigations, which have spilled over into many different industries, including the Malaysian Timber Trade. Many policies have been stopped or changed, many forest concession licenses have been revoked or delayed for further investigation. This action has slowed down the normal flow of logs from the Forest resulting in far less wood being available in the wider market, and that is having the inevitable effect on prices!
Between January and August 2018, Malaysia’s wood product exports declined almost 6% to RM14.6 billion. compared to the same period last year.
Log Supply/Prices; The delay in approving Forest licenses has obviously resulted in restricting the volumes available in the market place which, inevitably, has pushed prices up as demand for logs (in all species) has increased. Overwhelming demand from the Plywood Industry and emerging markets particularly India, Phillipines and Middle East have all combined to keep the market hot and prices are set to increase during the impending rainy season At the same time there is a shortage of PEFC certified logs as the Authorities continue to reduce certified log production in line with MTC sustainable forest management policies. On 8th November the Pahang State Government announced a 2-month temporary suspension of logging activities (15th Nov to 15th Jan’ 19).
General prices of logs (ex. log yards) in Malaysian Ringit [MYR] per Hoppus Ton;
End 2017/Early 2018 Early October 2018
Meranti (Tembaga) 1400/1450 1800/1850
Keruing 1350 2100
Kapur 1700 2400
Yellow Balau 2700 3600
Sawn Timber Supply; The main markets for Sel/Bet Meranti are UK/France/ Germany/Poland/USA with lower grade DRM generally going to the Middle East & Philippines. South Africa buys increasing amounts of Meranti shorts. Supply of some species; Merbau, Keruing, Yellow Balau, remains difficult. The general stock levels of Sel/Bet sawn DRM are low and Keruing/Yellow Balau are mainly being cut back to back. Keruing for the UK market [in long lengths] is losing out to the USA where buyers accept easier lengths specs.
Market Info by some countries;
India Strong buying for Merbau, Tualang, Kasai and heavy density Meranti (Nemesu, Bukit and Seraya), Kapur and Mixed Heavy Hardwood
Philippines Heavy demand for LOW grade Red, Yellow and Dark Red Meranti
China Buying less as they could not compete with India
Middle East Continue to buy large volumes (esp Meranti) with prices surging to new levels
Netherlands About the same level as last year, with strong competition from Sapele
Germany/Belgium/Poland Slight increase in demand for |DRM
France Fair demand for Mengkulang as well as Laminated & sawn DRM
USA Strong demand for Keruing and a smaller quantity of Meranti.
Japan Prefer to buy logs from Sabah and Sarawak.
UK Good demand in the first half of 2018 slowed down considerably in the second half
Weather; In West Malaysia the rainy season often starts in Oct/Nov and ends in Jan/Feb although sometimes it can go on for a further unpredictable 1 -3 months. It is currently raining most afternoons but so far there has been no flooding in the main logging areas of Kelantan/Terengganu/Pahang & Kedah. Inevitably the more persistent weather will have its daily effect and log supply will tighten further.
Labour rates; There is still a massive Labour shortage in the Wood Manufacturing/Processing Industries as the Gov’t continues to clamp down on illegal workers and the indigenous [local] workforce shows next to no interest in employment in Hardwood Factories/sawmills; this is especially so of school leavers.
This situation is compounded by hikes in the West Malaysian minimum wage; currently MYR900/month, soon to increase to MYR1100/month [Jan 2019]. The Government is urging employers not to pass these increases on in the form of higher prices, but either way, Factories, especially Plywood Factories employing hundreds of workers, will be badly affected, and to cap it all, unions are pressing Government to stick to pre election promises of MYR1500/month! Needless to say, costs like fuel / electricity and transport have all increased and are adding to the pressure for price increases.
The Timber industry is not sitting by. There have been ministerial meetings with Timber Associations, and suggestions exchanged. There is optimism that concerns are being listened to and taken on board.
Currency; Another big factor in pricing (as we all know too well) is the exchange rate with the dollar. During the first quarter it was around MYR 3.87/USD1.00 but has since more or less stabilised at around 4.13 to 4.16 (an increase of 6-7%). This has helped to take some of the edge off price increases.
Freight rates; Surprisingly have fallen slightly for UK/French ports from USD1500/40’ to currently abt USD1300/40’. Compare to the USA rates which have increased in the last 6 months from USD2450/40’ to [current] about USD3650/40’
Shipping issues; It is unclear whether all lines or just some are engaging in a change of practice, but for many many years the vessels from Port Kelang to the UK have taken about 4 weeks to get here. In recent months there appears to be a change afoot
with Felixstowe no longer being the first port of call, for some lines. Instead vessels are discharging and loading along the European coast line and then on the return calling at Felixstowe to discharge and load up. This is adding an extra unpredictable 1-2 weeks. If a shipping line suddenly decides to take the UK containers off on the continent, then this compounds the delays……………..a disaster for those who have been used to and rely on a reliable shipping service.
For many years, the Furniture and Flooring Factories located in Western Indonesia (Java and Sumatra) were fed with logs from Eastern Indonesia (Kalimantan, Sulawesi and Irian Jaya/Papua.) In an effort to clamp down on illegal activity the Government banned the movement of logs and recently imposed a ban on the movement of chain sawn flitches. Many processors have been forced to opened up sawmills in these Eastern Provinces and are now sawing their own logs to ensure a steady flow of raw square edged material to Java and Sumatran Factories.
There has been little change in the underlying conditions which have led to significant price increases this past 12 months. Log prices are very firm with rising local demand from the Plywood and Furniture factories. Secondary markets, like the Philippines, Middle East, South Korea, Japan and India are all still very active and American buyers continue to press Indonesia for increased plywood production because of tariff issues with China. Plywood factories are buying peeler logs aggressively, resulting in higher prices and lower volumes for other industries such as those involved with Meranti & Keruing mouldings production.
In addition to the rising cost of logs, Indonesians have seen increases in the costs of production with industrial fuel up 40% and transport & labour up 10% each. Many Indonesian mills are running late with contracts.
There seems to be constant demand for Bangkirai from Japan and Korea. Kapur and Bangkirai still seem to be moving to India in good volumes and there is strong demand from the USA for Keruing, as well as Red Balau and Meranti Batu decking.
Despite the firm log prices, weaker finished Bangkirai decking prices have been seen recently for UK shipment! Four months ago, prices for 21 x 145mm seemed to reach between about US$1840-1900/m3 C&F and 19 x 90mm was between about US$1500-1550/m3. Since then C&F prices have fallen back by between 5/10% (with some offering lower.) This situation is probably due to two factors; weaker EU demand (as large volumes finally arrived at the start of the summer) and a lack of European buyers during a usually quiet period (August/October). Traditionally, European buyers would start to place 2019 Bangkirai decking orders at the back end of 2018. Given the overall lack of raw material and the impending rainy season, prices will firm and if the Euro moves wildly against the dollar, as it did this year, then prices will move up sharply again as people fight for finished product.
Some exporters are urging EU buyers to try alternative cheaper species like Red Balau and Meranti Batu with some success in Germany and Holland.
Finished Meranti mouldings prices increased about 20% (in US$ terms) in the past year but have since stabilised, although there are quite wide variations in pricing from one supplier to another
A new institution called the Indonesian Timber Council (ITC) was recently launched bringing together seven timber associations, namely ILWA, ISWA, APHI, APKINDO, APKI, ASMINDO and HIMKI. The function of the new Council includes promoting the timber trade and developing global markets, promoting the development of the timber industry by expanding the industrial manufacturing base, increasing added value production, increasing the pool of skilled workers and ensuring a sustainable supply of raw materials.
The Indonesian Trade Promotion Centre (ITPC) in Chicago has reported that US demand for Indonesian teak furniture is rising and that this is a US$1 million market opportunity for Indonesian exporters. During the recent ‘Casual Market 2018’ trade fair in Chicago, orders for teak products worth over US$300,000 were placed by US importers. The head of the ITPC, Billy Anugrah, said the US market for outdoor furniture is growing and that Indonesian manufacturers can benefit from this.
SABAH & SARAWAK
Earlier this year, Sabah was exporting over 50% of logs to markets such as India, Phillipines, China & Japan. But, following the May election, the new Sabah Chief Minister announced a log ban. Unfortunately, that decision did not created sufficient supply for the local sawmillers, who, faced with strong competition from the Plywood industry, have simply been unable to pay the loggers the prices being asked. Almost 80% of sawmillers are not in operation today, with many citing the cost of logs and the minimum wage as reasons for closure.
In May, the new Government set about investigating concessions that had been issued by the previous Sabah Government & the former Sabah Chief Minister (Musa Aman) has since been charged with 35 counts of corruption relating to logging contracts in Sabah. He allegedly received bribes in exchange for offering timber concessions in the East Malaysian state.
Recently the Sarawak Chief Minister proposed a log ban but was forced to drop the idea by the timber tycoons at a time when the Sarawak Government’s Deputy Chief Minister, Awang Tengah Ali Hasan, had said that the State government is committed to securing a sustainable timber industry!
Sarawak wood product exports comprise ~ 53% plywood (RM3.27 billion), ~ 20% logs (RM1.21 billion), ~ 13% sawn wood (RM803 million) & ~ 5% fibreboard (RM308 million). Despite this, the minister outlined the need to move to the export of higher-value wood products. To support this transformation of the timber sector the Sarawak Timber Industry Development Corporation has developed a “Timber Industry Transformation Plan’ the aim of which is to transform the industry from the current dependence on exports of Logs and Plywood to one exporting high-value timber products by 2030. One of the biggest challenges in seeing this plan become reality is the lack of skilled labour. The youth in Sarawak show no interest in working in the wood products sector!
Discussions / Q&A
Q: It was asked whether FSC was on the decline in Africa?
A: The general feeling was yes, since Greenpeace had left FSC and there was a general undervaluing of the environmental and social investments certified forestry companies were making.
Q: What was happening in the DRC, the bread basket of Africa.
A: With no FSC and European companies not active there, little information is available as to what is happening. It is suspected that most product is destined for Asia with no environmental concern whatsoever.
Q: Are things improving in the Port of Douala in Cameroon?
A: Things are better in shipping terms, congestion has eased and the new Chinese financed port at Kribi is now in operation. However there now seems to be more of a paperwork bottleneck in customs.
Q: What is the position in the UK with regard to Teak from Myanmar (Burma)?
A: Direct shipments of Teak to the UK are not being permitted by the UK’s EUTR competent authority, in common with some other EU countries, but there remain other mainly southern EU countries that have not brought in what is in effect a ban.
Q: What were the new Emerald Ash Borer (EAB) regulations recently brought in?
A: Not new regulations per say, but inspectors have been re-trained and fewer shipments are being passed for export at the mills.
Q: Was FSC Controlled Wood (CW) becoming more difficult.
A: Only a few traders in the UK were certificated to trade FSC CW and FSC are tightening the rules on the COC for mills and this is likely to result in them stopping offering FSC CW in the near future as the extra work is too onerous.
Q: What is the trend in UK Kitchens, species etc.
A: Definitely painted, but with an interest in ‘grain’ pattern showing through, so demand for lower grades of Oak or CND Ash/other species.
The LONDON HARDWOOD CLUB continues to host popular and well attended meetings that are relevant, interesting and informative for members and guests. The networking opportunity presented before, during and after our bi-monthly meetings are invaluable. We have had a number of new members join in 2018 and look forward to the club continuing to grow and thrive during 2020. Thank you for your support.
We look forward to seeing you next on 18th January 2019 for our annual New Year Lunch – still the Hardwood Trade’s Premier Event.
Canada Wood UK
CP Timber Ltd
Danzer UK Ltd
DW Mouldings Ltd
E O Burton & Co Ltd
East Brothers (Timber) Ltd
James Latham PLC
Millbrook Timber Ltd
Paterson Timber Ltd
Premier Forest Products Ltd
RJC Agencies Ltd
Robbins Timber Ltd
Robinson Lumber Europe
Solid Wood Flooring Company
TFT Woodexperts Ltd
Timber Link International Ltd
Timber Trade Federation (TTF)
Tradelink Wood Products Ltd
Wood For Good
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