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Report
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Europe
Economic signals remain mixed
Economic prospects are very mixed across the European
continent. On the upside, business confidence has
improved and economic growth in Germany and France is
picking up. On the downside, economic data in most other
European countries remains disappointing and inflation is
rising. The latter is reducing spending power and putting
pressure on central banks in the EU to raise interest rates
at a time when the economic recovery still looks fragile.
European indices of business confidence and activity have
turned upwards in recent months. The latest data on
industrial orders across the Euro-zone showed a 2.1%
jump in November 2010 compared with October.
Similarly, the Euro-zone purchasing managers＊ index
released at the end of January showed private sector
activity expanding at its fastest rate in six months. The
composite Euro-zone index, covering manufacturing and
services and regarded as an up-to-date indicator of growth
trends, rose from 55.5 in December to 56.3 in January (a
figure over 50 indicates an expansion in activity).
According to Markit, the agency that compiles the index,
this recent increase is consistent with Euro-zone gross
domestic product expanding at a quarterly rate of 0.7% 每 a
substantial improvement on the 0.3% GDP rise reported in
the third quarter of last year.
Economic conditions vary widely across Europe and
individual Euro-zone countries are, if anything, diverging
further. While the German economy continues to rebound
strongly and more positive trends are beginning to emerge
in France, conditions in several countries on the periphery
of the Euro-zone, including Spain, Portugal, Ireland and
Greece continue to look bleak. In these countries,
companies＊ orders books and employment are falling,
especially in the austerity-hit service sector.
Germany＊s economy, the Europe＊s largest, has been
expanding at its fastest rate since June 2006. Its
acceleration has been powered by service sector
companies, which in the January purchasing managers＊
survey were more optimistic about the 12 months ahead
than at any time in the past seven years. Germany＊s Ifo
business confidence index also reached a record high in
the last week of January.
The French economy appears to have closed the year
strongly in the 4th quarter, fuelled partly by robust private
consumption. While growth in 2011 may be constrained
by austerity measures and rising inflation, there is
increasing confidence that this will be offset by rising
business investment and stronger exports.
The recovery in Spain this year is expected to be very
sluggish, similar to last year. Continuing structural
changes following collapse of the overheated real estate
sector will continue to constrain growth.
Economic conditions in the important Dutch market for
tropical wood remain uncertain. Consumer confidence is
very weak with many people pessimistic about the general
economic situation and their own financial situation. On
the other hand, business confidence climbed sharply in
December last year, the first clear expression of positive
sentiment in the Netherlands since the start of the crisis in
2008.
Outside the Euro-zone, some very disappointing economic
statistics have been posted in the UK recently. Contrary to
expectations and following two successive quarters of
stronger-than-expected growth, GDP in the UK shrank by
0.5% in the last quarter of 2010. The government blamed
the downturn on the severe winter weather which hit the
country in December. However government critics claim
that public spending cuts designed to balance the budget
have been pushed through too quick and too hard, putting
the recovery at risk. The GB pound posted substantial
losses at the end of January against other internationally
traded currencies on the back of the news.
Good market prospects in Germany, but still weak elsewhere
The German trade journal EUWID reports that Central
European buying of bangkirai decking products for the
coming spring garden season is already well advanced.
Most importers placed their advance orders with Southeast
Asian mills in the last quarter of 2010, with particularly
strong buying in November and the first two weeks of
December. This buying pattern is described by EUWID as
a return to ※normal§ trading conditions 每 during the
previous two years most importers delayed their purchases
until after the European new year 每 and may reflect more
confidence in market demand this year. Volumes ordered
this year are also likely to have exceeded last year＊s level
and some importers have built up significant stocks.
However, EUWID suggests that remaining stocks in the
Far East are now much reduced so that importers that have
delayed purchasing may now have difficulty sourcing
product. Although FOB prices of bangkirai decking have
remained stable in recent months, supply constraints
suggest that price hikes are more likely in the future.
EUWID also reports that availability of meranti lumber
grades favoured by German importers is now restricted
and that some importers would be willing to order larger
volumes if more wood were made available. On the hand,
weakening in the Euro exchange rate against the US dollar
during the last two months has dampened the enthusiasm
of some buyers.
Tropical hardwood faces mounting competition from
heat treated wood
The German trade journal EUWID has reported on the
development of European production capacity for
thermally modified wood. In recent years, a widening
range of heat-treated softwood and temperate hardwood
products have been marketed as alternatives to tropical
hardwood in the external joinery and furniture sectors. The
recent economic downturn has had an impact on the
development of this sector. Some companies that
expanded too fast just before the downturn have suffered
from low and declining sales and have been reducing
capacity. Others have made it through the downturn
largely unscathed and are pushing ahead with plans to
expand capacity. There are also joinery manufacturing
companies that have plans in place to develop thermal
treatment plants to supply raw material for their own
product lines.
Overall EUWID identifies 30 companies across Europe
operating thermal treatment plants with a total capacity of
around 300,000 cu.m. Around 40% of this capacity is in
Finland, 13% in Germany, 12% in the Netherlands, and
8% in Estonia. The remainder is distributed in France,
Croatia, Austria, Switzerland, Sweden and Turkey.
Current production capacity may seem relatively
insignificant when considered against the total EU imports
of tropical sawn hardwood of 2.3 million cu.m per year in
2007 before the economic downturn. However, 300,000
cu.m of potential production takes on a whole new
significance when considered in relation to the total
tropical hardwood sawn imports in the EU of only around
1.2 million cu.m per year in the last two years.
Although there are still technical challenges associated
with thermal treatment of some softwood and temperate
hardwood species, and prices for these products can be
very high, it is hard to escape the conclusion that thermally
modified wood now has real potential to take a large share
of the existing European market for hardwood in external
applications.
Cologne furniture fair exceeds all expectations
The Milan furniture fair held in Italy during April every
year tends to be regarded as the world＊s premier event for
furniture design. However, in recent years the Cologne
imm fair has forged a reputation as Europe＊s leading event
when it comes to the business side of the industry. By all
accounts this year＊s show, which ended on 23rd January,
considerably reinforced this reputation.
The imm Cologne show, alongside the LivingKitchen
show held at the same time, drew around 138,000 visitors
to Cologne - an increase of 38% on the previous year. The
show this year played host to 1,213 exhibitors from 48
countries.
These results are testament not only to the increasing
prominence of the Cologne fair within the wider European
and International furniture business, but also to the rising
mood of optimism that now pervades the German furniture
sector.
According to Dirk Uwe Klaas, Chief Executive of the
Association of the German Furniture Industry (Verband
der Deutschen Möbelindustrie), "it was by far the best
furniture fair we've had in the last 10 years: more visitors,
more contracts signed and an excellent mood. An excellent
start to the 2011 furniture year for our national furniture
industry".
There was particularly good news for the wood furniture
sector at the show. According to show organiser
Koelnmesse, the trend towards increased emphasis on
sustainable furniture design has meant that ※wood is
becoming more and more popular, not only for storage and
kitchen furniture but for comfortable chairs and loungers
and as a visible component of sofas§. Koelnmesse go on to
note that ※wood is reclaiming its former status in the
furniture sector. One striking development: the many
items featuring untreated oak, sometimes even complete
with bark§.
These comments lend credence to anecdotal reports by
market participants that the German market for solid wood
furniture developed better than the rest of the German
furniture industry during 2010.
Oak continues to dominate at Domotex
The Domotex flooring show held in Hanover during
January was less upbeat than the Cologne furniture fair, a
reflection of continuing high levels of uncertainty in the
European flooring sector. There was at least a feeling
amongst participants that the market stabilised during
2010 after the 20% decrease in sales during 2009, but few
were willing to predict a stronger rebound during 2011.
Market commentary at the show indicated that flooring
demand in Germany has been picking up this year 每 in line
with broader economic trends 每 while demand remains
weak in many other European markets.
Reports from the show suggest that the level of visitors
was quite low again this year and there were some large
industry players absent from the exhibitor list. On the
other hand, those visitors that did attend seemed intent on
doing business. Overall there were 1,350 flooringcovering
exhibitors from 70 countries and around 40,000
15 ITTO TTM Report 16:2 16 - 31 January 2011
visitors from 87 countries including 60% outside
Germany.
Oak remained very dominant within the wood flooring
section, an observation well aligned with data produced by
the European Parquet Flooring Association (FEP) which
indicates that oak now accounts for nearly two thirds of all
wood flooring production in Europe. Considerable efforts
have been made in recent years to broaden the range of
looks available in oak by means of various treatments
including staining, scarifying, oiling, and charring. This
year at Domotex there was a particularly strong focus on
looks which appear ※natural§ and ※used§.
According to FEP, tropical hardwood now accounts for
only around 10% of European production. Tropical
hardwoods were not widely displayed at the show and
there was a feeling amongst some participants that these
species are on a downward trend in the European flooring
sector. This is partly due to oak continuing to consolidate
its leading market position, partly to sustainability
concerns, and partly to a growing preference for more
readily available local sources of raw material supply.
The trend observed in previous shows towards wider and
longer boards was again in evidence at this show. In
addition, there seems to be a continuing shift away from
solid products in favour of engineered wood flooring.
Suppliers of laminated products with artificial non-wood
surfaces were out in force, some with large high-profile
stands and exhibiting products of such technical quality
that it is becoming increasingly difficult to differentiate
from real wood.
Russia agrees to reduce log export taxes
The Russian government made a formal commitment to
reduce log export taxes at a meeting with European trade
representatives on 7 December 2010. Russia made the
commitment 每 alongside various other trade measures - in
exchange for EU agreement to end its veto of Russian
membership of the World Trade Organisation (WTO). The
agreement removes the last significant obstacle in the way
of Russia＊s formal accession to the WTO.
The announcement of the decision to reduce log export
taxes seems to represent a major reversal of policy by the
Russian government which had previously aimed to
introduce swingeing tax levels so as to eradicate the log
export trade and help boost domestic processing.
Russian log export taxes currently stand at 25% of the
invoice value or at least Euro 15 per cu.m on softwood and
birch logs with a diameter of greater than 15 cm (birch
logs with diameters below 15 cm are currently free of
duty). Duties of 10% of the invoice value or at least Euro 5
per cu.m apply to poplar, eucalyptus and other hardwood
logs.
Taxes had been due to rise to 80% of invoice value or at
least Euro 50 per cu.m in January 2011. This increase will
no longer be imposed and taxes will remain at their current
level at least until Russia has acceded to the WTO, now
expected some time before the end of 2011.
The level of taxes after Russia＊s accession to the WTO is
still not clear. Drawing on conversations with
representatives of the Finnish Forest Industries Federation,
EUWID reports that the Russia-EU agreement provides
for halving of the present duty on softwood logs and a
75% reduction in the present duty on hardwood logs.
Other observers of the Russian market are more sceptical
of the reality of the apparent policy change. Bob Flynn,
Editor of the RISI Wood Biomass Markets newsletter
(rflynn@risi.com), comments that ※certainly there has
been no change in Russia's policy to push greater domestic
processing for its timber 每 Prime Minister Putin was in the
Russian Far East on December 6 [2010], where he stated
that in ＆seven or eight years＊ all of the timber harvested in
the region would be processed within the country§. Flynn
also points out that Canada and the USA, both long-term
WTO members, have restrictions on log exports and there
is in fact nothing to stop Russia from imposing a ban on
log exports even after it joins the WTO.
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