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Report
from
Europe, the UK
and
Russia
EU economies under stress
Economic news coverage in Europe in recent weeks has
highlighted the challenges faced by Greece as it struggles
to finance its huge debts. The problems in Greece are
particularly worrying because of the threat posed to the
credibility of the euro-zone¡¯s financial system of which
Greece forms a part.
During February, European leaders signed an agreement
supporting Greece which they had hoped would draw a
line under the issue. But no sooner had the ink dried on the
agreement, more bad news arrived in the form of figures
indicating that GDP in the 16-country currency zone rose
by just 0.1% in the three months to the end of December
compared with the previous quarter.
The only reason for any improvement in GDP at the end of
last year was largely down to France, where an increase in
consumer spending lifted the economy by 0.6%. France¡¯s
large and reasonably self-contained economy has been
relatively less exposed to the global financial and
property-market crises.
France also bucked the downward trend partly because its
government plays a dominant role in the economy. French
public spending rose by 0.7% in the fourth quarter, after
similar increases in the previous two quarters.
Nevertheless, the budget deficit in France was still a hefty
8% of GDP in 2010, placing strict limits on the public
sector¡¯s ability to support the economy in the absence of
stronger private consumption.
Elsewhere in Europe, GDP during the last quarter of 2009
was either flat¡ªas in Germany¡ªor falling, as in the UK,
Italy and Spain. A key problem throughout Europe is that
consumers are not spending enough. In the euro-zone, this
problem is compounded by the strong currency which
makes it difficult for manufacturers to boost sales in other
parts of the world.
Weak export growth is a particular problem in Germany
where manufacturers tend to be more heavily dependent
on export markets but at least Germany has stronger
domestic consumption than most other European
countries. German consumers were thriftier during the
boom years and are now less indebted. Nevertheless, cold
winter weather could have pushed Germany back into
recession during the first quarter of 2010.
Prospects for improved consumption are very weak in
other European countries. Spain was once a rich source of
internal euro-area demand but its consumers are now
weighed down by debts accumulated during a long
housing boom.
Recent data from the UK indicates that January¡¯s cold
weather had an adverse impact on consumption,
particularly in the timber and wood products markets.
Both supply and demand in the housing market came
almost to a standstill, while retail sales of furniture and
DIY materials took a hit as snowed-in consumers put off
shopping for non-essentials.
In the UK there are at least some signs of rising
confidence in future market prospects. Some 29% of
British furniture makers polled by the Confederation of
British Industry in January expected the volume of new
orders to increase over the coming three months, although
6% expect output to fall. 12% of furniture makers are
more confident about the business outlook than they were
three months ago; in October 2009 the figure was -7%.
Confidence among wood and wood product producers,
apart from furniture manufacturers, was sharply higher
than in the autumn, when 32% of firms said they were less
optimistic than in the previous quarter; the corresponding
figure on optimism now stands at +14%.
Speculative purchasing of hardwoods
The generally poor economic forecast has been reflected
in commentary from European hardwood lumber
importers in recent days. While most reckon the worst of
the downturn could be over, they are still forecasting
tough trading conditions until at least the end of this year.
Analysts report that short supplies, lengthening lead times
and rising prices in all the major hardwood producing
regions have encouraged some speculative purchasing of
hardwood lumber by a few of the larger importers.
The bigger importers, with access to finance, have been
building stock levels and now find themselves in a
reasonably strong position, particularly as they can offer
mixed loads for quick delivery to the smaller distributors.
On the other hand, some of the larger traders and
importers are also suffering severely from their relatively
high overheads and are looking for ways to cut these, for
example by reducing staff in their sales networks.
Rising CIF prices for tropical hardwoods
European CIF prices for many tropical hardwoods have
been rising due both to tightening availability and to rising
freight rates. These trends are set to continue. Most mills
are reported as still producing at well below capacity and
lacking raw materials and other resources to quickly
increase supply.
The shipping lines also seem determined to keep pushing
freight rates higher. As a result of this some Asian
shippers are now incorporating freight clauses into their
contracts to avoid the need for new price negotiations.
Some are even considering only quoting on an FOB basis.
Euro CIF prices for sapele, sipo and iroko lumber are now
around 10% higher than at the end of 2009. US$ CIF
Europe prices for the various meranti lumber types and for
bangkirai decking profiles have also experienced around a
10% rise over the same period.
On the other hand, prices for replacing sold out stocks of
African whitewood species like ayous/wawa remain
stable.
Low stock levels in EU
Despite some increased forward buying, hardwood stocks
across Europe remain generally very low. The long lead
times between ordering and despatch has meant that gaps
in stocks have been generally widening.
Lead times for African hardwoods are now up to 6
months, with no guarantee that products will arrive or that
prices will be adhered to. As a result, the intense
competition between importers that dampened prices in
2009 for onward sales of existing landed stock of some
species, notably sapele, is now less aggressive.
Only the low level of manufacturing and consumption in
Europe is preventing lack of supply becoming a more
critical problem.
The fear is that when manufacturing does at last begin to
pick up, the inability of tropical producers to respond
quickly and to deliver more wood to market may
encourage manufacturers to switch to alternative more
readily available products.
Gabon log ban impacts EU plywood market
According to EUWID, the European market for okoume
plywood has been slow during the last two months.
Merchants are reported to be carrying heavy stocks and
enquiry levels are low.
The okoume plywood market, which is focused heavily on
France, with lesser volumes destined for the Netherlands
and southern Europe, has been badly affected by weak
construction activity over the winter months. Nevertheless,
there are expectations that improved spring weather will
improve demand in April and May.
A critical factor affecting both supply and demand of
okoume plywood in recent months has been uncertainty
surrounding Gabon¡¯s log export regulations. According to
EUWID, a surge in buying by European merchants
occurred at the end of 2009 due to expectations that the
log export ban - scheduled originally for 1 January this
year - would lead to supply disruption.
French manufacturers received an upsurge in orders at that
time. Meanwhile, mills in Gabon also reported an increase
in their European customer base. Howeve,r EUWID
reports that the upsurge in demand from European
merchants has tailed away this year.
The announcement that log exports would continue
temporarily was sufficient to reassure merchants that
supplies would not suffer immediate disruption. It remains
to be seen how the European market will react to these
changing circumstances.
Okoume plywood, imported both from Gabon and
manufactured in France from imported logs, has been a
standard reference product on the French market for many
years. It remains popular at the high end of the French and
Dutch markets, valued for its consistent quality and its
adaptability to a wide range of end-uses.
However, it has also been losing market share mainly
because of the introduction of much cheaper alternative
plywood (notably from China) and other panel products.
Because of declining consumption and a big reduction in
European okoume manufacturing capacity in recent years,
the significance of Gabon¡¯s log export ban to the European
market is considerably less now than it would have been
only a few years ago. The volume of okoume plywood
manufactured in Europe is estimated to have declined
from around 300,000 m3 a decade ago to only 95,000 m3
in 2008.
Meanwhile, mills in Gabon have not yet made much
headway to penetrate the European plywood market,
volumes rising from only around 20,000m3 in 2003 to
45,000m3 in 2008 (with much of this volume destined for
Italy rather than France).
To date much more progress has been made by Gabon to
develop European export markets for sawn lumber.
European imports of sawn lumber from Gabon increased
from 20,000m3 in 2003 to 94,000 m3 in 2008.
With the large mainly French-owned plywood
manufacturers in Gabon pushing product onto the
European market, there is every prospect of Gabon
becoming a more significant plywood supplier to the
European market in the future. But there will be
significant hurdles to overcome of which the development
of sufficient processing capacity in Gabon will only be the
first.
Other hurdles include the need to ensure that product
manufactured in Gabon meets tough quality and
environmental standards, that products of consistent
quality and price are available promptly, and that
marketing efforts are stepped up to counter the mounting
threat from alternative materials.
Wageningen report on certification
The Wageningen University and Research Centre
(Wageningen UR) in the Netherlands has just published a
paper assessing the progress made by FSC to certify
natural tropical forest and the impact on forestry practices.
The report says that there are now 10.9 million hectares of
FSC certified forest in tropical regions of which 74% are
managed natural forests. There are 119 FSC certified
FMU, most located in the Americas. About 28% of the
certified area is in Bolivia, 16% in Brazil, and another
22% is distributed over 16 different countries. FSC
certification has expanded more rapidly in privately owned
FMUs than in community or state-owned FMUs.
The report notes that stronger incentives are needed to
increase the total area of certified tropical forest,
particularly for local communities or indigenous groups.
The results indicate strongly that forest management
certification improves the working standards of FMU in
the tropics, with about 98% of problems raised in
Corrective Action Requests by certification bodies solved
within the first five years of certification.
The full report is available at: http://www.illegallogging.
info/uploads/March10Assessingtheprogressforest
mgtintropics.pdf
Draft versions of EU ¡°Due Diligence¡± Legislation now available
As noted in a previous report (ITTO MIS Volume 15
Number 3), the EU Council reached final agreement on its
amendments to the draft ¡®due diligence¡¯ regulation on 29
January. The Council and the European Parliament, which
passed its own amendments to the original proposal last
year, will now attempt to reach agreement on the final
version of the regulation.
he text of the Council resolution is now available at:
http://www.illegallogging.
info/uploads/st05885re04.en10.pdf
Parliament's proposed amendments can be accessed at:
http://www.illegallogging.
info/uploads/EPDDamendmentsA601152009EN1.
pdf
TAlso, a website monitoring progress of the legislation can
be viewed at:
http://www.europarl.europa.eu/oeil/file.jsp?id=5704232&
noticeType=null&language=en
Overview of EU Voluntary Partnership Agreements
with tropical countries
The European environmental group FERN has published a
Forest Watch Special Report offering a brief overview of
VPAs and an update on the status of negotiations with
Ghana, Republic of Congo, Cameroon, Malaysia, Central
African Republic, Liberia, Indonesia, Gabon and Vietnam.
This may be accessed at:
http://www.illegal-logging.info/uploads/VPAupdate.pdf
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