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Report
from
Europe
Market for tropical hardwood lumber subdued but stable
The changing political situation in the Ivory Coast is a
major point of discussion by European traders and policy
makers and is affecting the availability of a few species.
However it has not had a significant impact on the overall
market for tropical wood in the EU. The further decline in
availability from Ivory Coast 每 which in any case has been
low now for many years - has been compensated by a
slight easing in the supply situation elsewhere in Africa.
At the same time, European demand for both tropical logs
and lumber remains subdued, so the overall balance
between supply and demand is being maintained and
prices for most species and products 每 with a few
exceptions 每 are stable.
The problems in the Ivory Coast have meant that framire
sawnwood is no longer available and prices have been
firming. Those European buyers that had become heavily
dependent on it 每 mainly in the UK for utility joinery
applications 每 are now being encouraged to switch to
sapele which, while more expensive, generally provides
higher quality.
The European market for sapele has improved slightly on
the back of this development and prices have firmed a
little. The Ivory Coast situation has also boosted prospects
for Ghanaian wawa which is substituting for Ivory Coast
samba. However, lack of availability of ceiba veneers
from Ivory Coast has remained a problem for European
blockboard manufacturers.
The impact of the log export ban in Gabon 每 now a year
old 每 is also being felt in the sawn lumber market.
Availability of some specialist niche species used in high
class interior furniture and joinery - such as zebrano and
padauk - is now restricted. This is because a significant
proportion of supplies were previously derived from
Gabonese logs custom-cut in the EU.
Shipping times for hardwood products from West and
Central Africa, which extended up to 4 months for some
products at the beginning of the year, have now shortened
slightly to 2-3 months.
At the same time, some larger European importers have
been taking advantage of the decline in African hardwood
processing capacity over the last two years by investing in
capacity for contract kiln drying in Europe.
This allows them to service importers that are now more
likely to buy green or shipping dry instead of KD from
Africa. These developments have meant that availability
of most standard items in Europe is keeping pace with
current levels of demand.
The supply situation for some popular specifications of SE
Asia hardwood lumber presents a contrast. Log prices in
Indonesia and Malaysia have been rising dramatically in
recent times due to high demand from the plywood
industry and the impact of the rain season on logging.
The weakness of the dollar against domestic currencies is
another reason for shippers in SE Asia to increase their
dollar-denominated prices for hardwood lumber products
on offer to European buyers. Supplies and US dollar CIF
Europe prices for bangkirai decking profiles, Meranti
lumber and window scantlings have all been rising in
recent weeks.
The supply problems are so intense in Indonesia, that
shippers are no longer taking new orders for bangkirai
decking from European buyers and delivery times even on
existing orders now extend to very late in the European
summer season.
Impact of Japan＊s earthquake on European plywood trade
The effects of the Japanese earthquake and tsunami are
being strongly felt in Europe＊s plywood trade and may
even have long-term repercussions for supply.
The destruction of a significant proportion of Japan＊s
domestic plywood capacity and diversion of plywood from
other parts of Asia for rebuilding work has led to
significant short-falls in supply available to European
buyers and a rapid increase in prices.
The effects of the earthquake on the plywood trade in
Europe have been particularly pronounced because the
event occurred at a time when tropical log supplies in
south-east Asia were already low and many traders were
working from depleted inventories.
Even before the earthquake, there were signs of rising
demand in Europe as importers were taking steps to
rebuild stocks of South East Asian plywood which were at
historically very low levels. Prices for Chinese plywood
were also on the rise in response to rising costs of fuel,
labour and transport during recent months.
The long-term impact of this turmoil on the European
market remains uncertain, but the immediate effect has
been to encourage a further switch in European buying
towards cheaper Chinese products and away from
Malaysian and Indonesian products.
The decision to reduce the volume of European trade in
South East Asian products has been mutual, with
Malaysian and Indonesian shippers actively switching out
of the European market in favour of the more lucrative
Japanese market. Availability of thin and film faced South
East Asian plywood grades which are more in demand in
Japan is particularly restricted. Standard BB/CC grades
have been less affected, although even here prices have
been rising and delivery times becoming more extended.
European orders of Chinese plywood received a
considerable boost and in recent weeks large volumes
have arrived in Europe, particularly the UK.
In fact so much Chinese plywood has arrived that there are
concerns that supply may overshoot demand.
While the supply equation has changed and importers
have rushed to buy on a rising market, the underlying
problem of sluggish consumption persists in the European
market. The cycle of boom and bust, which so often
characterises the European hardwood plywood market,
looks set to turn once again.
Demand robust in central Europe but weak on the periphery
Interviews with hardwood traders at the Interzum show
held at the end of May in Cologne (see below) suggest that
hardwood market conditions across Europe mirror overall
economic performance. Spanish agents and importers
report no end in sight to the extremely poor trading
conditions.
Italian agents also report poor trading conditions, with the
important furniture sector under intense pressure both
from weak domestic consumption and loss of
competitiveness in export markets. In contrast, German
importers seem optimistic about market prospects and
more concerned about lack of available supply than
underlying level of consumption. UK importers report a
reasonable start to the year, but are grim-faced about
market prospects going forward.
There is little change in the overall balance between
supply and demand of tropical hardwood lumber
supplying the European general joinery and furniture
market segments. Low levels of consumption are matched
by low levels of stock.
Sapele stands out as one of the few tropical species which
is readily available at short notice, at least in standard
sizes. Sapele prices quoted to European buyers have
remained stable in recent months and new orders may be
shipped in two to three months.
The continuing availability of sapele is one reason why
meranti lumber has less of a presence in the European
market at present. However equally important is the fact
that meranti lumber prices have been rising and more is
now being diverted to Asian markets. Meanwhile,
European importers report gaps in stocks of more
specialist species such as iroko, afzelia and bubinga.
At Interzum, it was noted that shortages of lighter tropical
species for furniture fittings is leading to their substitution
by temperate hardwoods, notably American tulipwood.
The situation in the European garden decking market is
dynamic at present. Consumption levels have picked up
considerably with improving weather during the spring
months. Coinciding with very tight supply conditions for
tropical decking woods in both the Far East and Brazil, the
inevitable result has been a steep rise in prices.
Shipping dates for new orders of bangkirai decking from
Indonesia now extend until September, well towards the
end of the current European season. This situation has led
to a lively internal trade in tropical decking material within
Europe as importers seek to cover gaps in stocks.
Suppliers of substitute decking materials 每 such as
thermally-treated temperate hardwoods 每 are also working
hard to exploit the tight tropical supply situation.
Numerous suppliers of these thermo products were present
at the Interzum show. However these products face
obstacles of their own in the battle for market share.
One German market analyst at Interzum noted that endusers
have been disappointed by the durability of some
thermo products. While many companies have ※jumped on
the bandwagon§, not all have the expertise to deliver
thermally-treated products with appropriate technical
performance. There are signs that the presence of a few
bad products on the market is already undermining the
overall reputation of these products.
European economies diverge
Economic conditions across Europe have been diverging
widely. On the fringes of the euro-zone, Greece, Ireland
and Portugal have become ensnared in a sovereign-debt
crisis. In Northern Europe, driven by the German
powerhouse, economies are reviving and public finances
are solid. Meanwhile in the UK, there are discouraging
signs that the recovery is already running out of steam.
These conflicting trends are manifest in recently published
GDP figures for the first three months of this year. The
core of the euro-area is basking in sunny economic
revival. German output grew by 1.5% in the first three
months of 2011 (6.1% on an annualised basis).
The French economy, which had dawdled last year, got
going too, expanding by 1% over the previous quarter. The
Swedish and Polish economies are bubbling along nicely
with annualised growth of 4.3% and 4.2% respectively. In
contrast, the big Italian and Spanish economies managed
to grow during the first quarter, but barely. Portugal
actually slipped back into recession in the first quarter of
2011.
The healthy performance of the German and French
economies, which together account for over 50% of eurozone
GDP, have contributed to the continuing strength of
the euro. Renewed jitters about Greece brought the euro
down from a near-$1.50 peak in early May but it is still
trading above $1.40 at the end of May which is higher
than at the start of 2011.
Another factor is that the ECB is the first big central bank
among rich economies to start tightening, when it bumped
up its main interest rate from 1% to 1.25% in April, with a
further quarter-point increase likely this summer.
For the rest of the year, Germany is expected to lead
robust growth in northern and central parts of Europe,
although the pace of growth is expected to slow.
Economic growth in Southern Europe and Ireland is
expected to remain weak.
The strong euro combined with high unit labour costs is
making it hard for these countries to boost exports to
offset weak domestic consumption. On top of all this, the
higher interest rates that may now be needed in Germany
will inflict another blow on the most vulnerable
economies.
Economic conditions in the UK are also less rosy, the
Economist Intelligence Unit forecasts that GDP will grow
by only 1.6% this year, rising to 2% in 2012. The headline
of the TTJ＊s latest review of wood end-user markets in the
UK carried the gloomy headline ※manufacturers＊ output
falls, costs rise§. The Construction Products Association is
now forecasting an overall decline in UK construction
output of 0.8% and 2% in 2011 and 2012 respectively. Related News:
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