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Report
from
Europe
Low European demand for African hardwood balanced by limited
supply
European demand for African hardwood remains quiet, with orders in
northern European markets similar to last year and demand very weak in
southern Europe. However, low demand is balanced by restricted supply.
Prices for sapele logs and sawn have been rising in recent months due to
shortfalls in EU landed stocks and uncertainty surrounding deliveries
from Africa. Most African sawmills are now fully sold out of sapele and
are only willing to accept new orders for shipment in the third quarter
of 2013. Prices for other key species such as iroko and utile have been
stable.
According to the Germany-based journal EUWID, African hardwood supplies
are being disrupted due to internal political problems in some African
countries and increasingly irregular shipment from African ports.
Particular problems are reported in supply from the Central African
Republic due to the civil war in the country. Lack of wood volume has
also discouraged shipping companies from calling at Douala port in
Cameroon and to other commodities being prioritised for shipment for the
limited number vessels that are calling.
Although the European market for tropical logs is now much reduced,
European importers report difficulties in securing the limited volumes
still required.
European log buyers are struggling to compete on price with Asian buyers
and log supply is also restricted by the Liberian log export ban
introduced at the start of the year.
Rougier hit by shipment delays and weak French market
Supply problems also feature prominently in the financial statement of
the French company Rougier for the first quarter of 2013 which explained
that a 14.6% fall in International Division quarterly revenue relative
to the same period in 2012 was ¡°due to certain exceptional external
events¡. In Cameroon, the introduction of new customs regulations and
delays with issuing administrative authorizations led to delays with
shipments during the quarter. In Congo, shipments were affected by
changes to land logistics due to blockages when crossing the Central
African Republic. In Gabon, business levels remained low as a result of
industrial and timber difficulties linked to the transformation of the
business model¡±.
The Rougier quarterly financial statement also highlights the extent of
the recent downturn in the French market for African hardwood.
Rougier report revenues for the France Import-Distribution segment were
down 20.9% in the first quarter of 2013 compared with the first quarter
of 2012.
According to Rougier ¡°sales for the past quarter reflect the low point
reached by the market faced with a significant deterioration in the
national economic environment and unfavourable weather conditions.¡±
Italian market slow and uncertain
The market in Italy also remains slow with much uncertainty over future
prospects. Many large Italian wood manufacturing companies are believed
to be in serious financial difficulty following a big downturn in
Italy¡¯s domestic market.
Some importers are limiting sales to certain customers in order to
reduce liability and protect against bad debt.
Problems of bad debt also extend to Italian government departments that,
in some cases, have been delaying payment under procurement contracts
for over 12 months.
This has led to passage of a new law in Italy that will require payment
on these contracts within 30 days. This measure should at least remove
one existing impediment to recovery of the Italian wood market.
Some of the larger Italian importers with large distribution networks to
other parts of the EU recently took steps to replenish depleted stocks
of tropical sawn hardwood in anticipation of rising prices and declining
supplies.
However smaller Italian importers selling mainly into the domestic
market are now much less willing to buy wood direct from tropical
producers, due to the combined effects of limited bank credit, uncertain
market prospects, and concern about the legal liabilities associated
with the EU Timber Regulation.
No improvement in Spanish market for tropical sawn hardwood
In Spain, sawn hardwood imports last year suffered a 37% fall compared
to the previous year and were less than a quarter of the volume that
prevailed before the economic crises.
This year Spanish importers are reporting no improvement in market
conditions, with very little consumption and widespread lack of
liquidity throughout the wood distribution chain. Spain still has a
large surplus of partially built or unsold houses which is stifling any
demand for new buildings.
Those Spanish wood manufacturers offering specialised products, or that
are more focused on exports, are doing better. Few Spanish importers are
expecting any increase in demand during 2013, although there is some
hope that the situation will improve in 2014.
Erratic buying in the UK
Market conditions are better, although hardly buoyant, in parts of
northern Europe. The UK has been one of the more robust markets in
Europe for tropical wood.
UK imports of sawn tropical hardwood were 122,000 m3 in 2012, very close
to the 120,000 m3 recorded in 2011.
UK importers also report reasonable demand so far this year with most
expecting sales for 2013 to be similar to last year.
However UK buying of tropical sawn hardwood has been erratic. Stocks of
sapele, the mainstay of the UK trade, are low and few importers have
been willing to build inventory with future market demand uncertain and
credit still tight.
However this means that any slight upturn in demand quickly leads to
shortages and importers looking around to secure wood. Introduction of
the EUTR has also meant that UK importers are now more restricted in the
range of tropical sawn hardwood suppliers they are willing to deal with.
Lack of existing landed stock in the UK has led to distributors buying
more sapele from continental Europe, including significant volumes from
large Italian importers.
In contrast, there are reports of significant unsold landed stocks of
framire/idgbo in the UK imported from Ivory Coast.
Despite these stocks being imported in advance of EUTR enforcement in
March 2013, distributors have been reluctant to purchase the wood due to
concerns about lack of clear documentation to demonstrate legal
provenance.
There is some concern about the potential for a slowdown in the UK
joinery sector, by far the main market for sawn hardwood in the UK. The
UK Construction Products Association is now predicting a 2% fall in
construction output in 2013.
A very sharp 7% fall in private commercial construction is expected to
be offset by improving activity in private housing and the
infrastructure sectors.
More enquiries for tropical sawn hardwood in Germany
Germany has also been a reasonably consistent market for sawn tropical
hardwood in recent times. Although unseasonably cold weather meant
sluggish demand in March and April, enquiries for tropical sawn hardwood
have increased in Germany in recent weeks.
So far these only occasionally result in significant sales and buying
remains concentrated in small volumes at short notice.
Although austerity measures have curbed some public spending in Germany,
the private sector is continuing to generate demand. Unemployment is low
in Germany compared to other European countries helping to maintain
consumer confidence and spending.
Building activity, particularly in renovation and refurbishment sector,
is adequate to provide steady demand for hardwood. German distributors
are also servicing a growing demand for hardwoods from manufacturers in
Central Europe.
EUTR creates uncertainty in UK plywood market
According to the latest plywood market report from the UK¡¯s TTJ, the
country is still digesting substantially higher imports of Chinese
plywood that preceded implementation of the EU Timber Regulation (EUTR)
on 3 March.
Plywood market specialists interviewed by TTJ report that stocks have
built up in the UK as consumption has not kept pace with imports in the
first two months of the year. TTJ quotes HM Revenue and Customs data
which suggests that in value terms, UK imports of Chinese plywood surged
to ¡ê26.76m in the January-February 2013 period, almost 44% more than the
same period in 2012.
According to UK Timber Trade Federation statistics, China accounted for
57% of UK hardwood plywood imports in January 2013 compared to 48% in
January 2012.
TTJ also suggests that EUTR is causing problems in China itself, noting
that many exporters who said they would be able to comply to EUTR have
not been able to secure adequate documentation regarding legality of
logs.
Some Chinese plywood manufacturers exporting to Europe are now looking
for alternatives to tropical species for the face and back veneers, the
most popular currently being dyed poplar ¨C although this is
significantly more expensive.
According to TTJ UK demand for Malaysian plywood is slow. Malaysian
mills are pushing for higher prices, but UK importers are in no rush to
buy in current market conditions.
EUTR offers both risks and opportunities
A key issue for tropical wood suppliers to the EU is the
effectiveness, efficiency and equity of enforcement of the EUTR.
If managed well, the law should boost market prospects and prices for
legally sourced tropical wood products. It could provide a firm
foundation for proactive communication of good forest governance and
responsible timber trade practices.
On the other hand, if managed badly, the law could encourage imposition
of unnecessary and ineffective new controls and create added uncertainty
at a time when consumption is already weak and declining.
This could be to the detriment of tropical hardwoods compared to other
wood products, and of all wood products compared to alternative
materials.
Early reports indicate that the European Commission (EC) and EUTR
competent authorities in Member States still have considerable work to
do if the law is to contribute positively to forest governance in timber
supplying countries.
Government authorities in countries engaged in FLEGT Voluntary
Partnership Agreements (VPA) with the EU also have a daunting task to
establish operational legality licensing systems that will have a ¡°green
light¡± under EUTR and not require any further legality due diligence by
EU importers.
In addition, the private sector has to act on the far-reaching
responsibilities it has been given through EUTR to develop due diligence
systems, both at corporate level, and through so-called ¡°Monitoring
Organisations¡± which will be formally recognised by the EC to act on
behalf of groups of small timber traders in the EU.
Continued economic weakness in EU makes EUTR more challenging
It¡¯s hard to imagine a worse time than the present for introduction
of EUTR. The economic downturn in Europe has reduced EU consumption of
tropical hardwoods by about 50% in the last five years.
This means that EU leverage, both politically in the FLEGT VPA process
and commercially in day-to-day buying power, has been considerably
weakened in tropical countries.
EU importers are, with justification, concerned that while they become
increasingly discriminatory in their procurement practices, tropical
wood trade flows will simply be diverted to other markets.
At the same time, the economic downturn means that both government
authorities and the private sector in EU countries lack the resources to
implement the regulatory and due diligence procedures required by EUTR.
Lack of credit and very uncertain consumption patterns has meant that
European importers have already become very risk adverse and less
inclined to stock tropical hardwoods. For many, EUTR will provide yet
another reason to switch to less contentious products.
With such challenges, it is not surprising that implementation of every
aspect of EUTR is behind schedule.
Implementation of EUTR before VPAs ratified creates dangers for
tropical wood
A key problem for tropical producers is that the EUTR has been
introduced before any tropical country is able to offer FLEGT VPA
licensed timber. Indonesia is probably the closest to doing so, having
already pilot-tested delivery into Europe of ¡°V-Legal¡± timber under the
SVLK system.
However, even in this case, first deliveries of fully FLEGT licensed
timber are not expected at least until the end of 2013 and more likely
in 2014. In the meantime, all timber supplied by the SVLK system is
subject to due diligence by EU importers in the same way as other wood
products.
The gap between introduction of EUTR and supply of FLEGT VPA licensed
timber is a dangerous one for the tropical timber trade in Europe.
If importers are discouraged from buying from VPA countries due to legal
uncertainties in the intervening period and instead seek out
substitutes, lack of continuity in supply may make it more difficult to
claw back market share once licenses become available.
At the same time, it is important that the FLEGT VPA process is not
rushed. The licensing systems must be robust, credible and equitable
with respect to different forestry operators. Failure to achieve this
would undermine the reputation of EUTR and the VPA process amongst both
consumers and producers.
The parties to the VPAs have a very difficult challenge and heavy
responsibility to operationalize and reach agreement on the licensing
systems as soon as possible.
The complexities of this process also imply that the FLEGT VPA process
is not likely to supersede existing private sector procedures any time
soon. Certification systems like FSC and PEFC have been very active
adapting their standards so that they align more closely to the EUTR and
these are likely to remain a key component of EU importers due diligence
systems.
The role of voluntary private sector supplier-based legality
verification and stepwise certification systems - such as those operated
by Smartwood, Bureau Veritas, SGS, SCS, and TFT ¨C is likely to increase
rather than diminish over the next few years.
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Patchy EUTR enforcement in EU Member States
Meanwhile, implementation of EUTR within the EU itself remains very
patchy.
The EC has yet to recognise any Monitoring Organisations which implies
significant gaps in implementation by small traders across the EU. Some
EU Member States ¨C like the UK, Netherlands and Germany ¨C have announced
sanction regimes and initiated inspection regimes.
But even in these Member States, EUTR competent authorities have limited
experience of the timber trade and are just beginning to wrestle with
the complexities and numerous ¡°grey areas¡± associated with legality
enforcement in the forest products sector.
Other Member States are even further behind. Some have not yet passed
the laws necessary to implement EUTR within their national territories.
At the inaugural meeting of the Global Timber Forum in Rome in May 2013,
an Italian importer reported that ¡°in Italy there is no legislation [to
enforce EUTR], no approved due diligence systems, suppliers are not keen
to move forward and do not want to provide information on supply chains,
there is no money in the profession to invest in this project, there is
no decent guidance.
The first Italian [timber importers] federation meeting to discuss EUTR
in June 2012 was attended by only 8 companies out of 120, the second
meeting in February 2013 attracted only 20 members.¡±
EUTR and VPAs key role in future of tropical wood trade
So the challenges of the EUTR and FLEGT VPA processes are profound
and made all the more challenging by the current market environment.
However, it would be wrong to conclude from this that the EUTR and FLEGT
VPA processes are any less relevant to the future of the European and
wider international wood trade.
Even after the downturn, the EU is the world¡¯s second largest importer
of timber products (after China), accounting for around 17% by US$
value.
The EU¡¯s construction sector continues to purchase materials and
services with a value of around €1 billion every year.
The EU also buys less logs and more added-value forest products than
most other large consuming markets and therefore remains central to
efforts by tropical countries to move up the value chain.
It¡¯s also important not to lose sight of the key feature of the EUTR,
which is that it gives the main role and responsibility for due
diligence to the private sector.
Lack of guidance from the EC and other government authorities, while
creating uncertainty in the short term, also represents a major
opportunity for the private sector to build on existing programs like
PEFC, FSC and numerous timber trade association and NGO procurement
codes and policies to develop innovative solutions.
While the situation in Italy suggests there are significant gaps in the
private sector response to EUTR, there are very positive signs
elsewhere. For example, EUTR has been a major driving force behind
formation of the European Timber Trade Federation (ETTF), an
organisation bringing together national federations from around Europe
in pursuit of common goals.
The ETTF has developed a harmonised due diligence system in
collaboration with the Danish environmental consultancy NEPCon. The aim
is to provide a system that works across the EU for entire timber
federations or individual companies.
ETTF is now very actively promoting EUTR and its harmonised due
diligence approach both within and outside Europe.
Launch of Global Timber Forum
The emergence of parallel regulatory programs like EUTR, the Lacey
Act Amendment and the Australian Illegal Logging Bill, has emphasised
the importance of the private sector timber trade working more closely
together at an international level.
Recognition of common interest of both producers and consumers in
finding solutions to the challenges of this legislation was a major
factor encouraging broad international participation in the first Global
Timber Forum held in Rome on 22-23 May 2013.
The meeting was convened with support from the FAO Forestry Department,
the European Timber Trade Federation (ETTF) and The Forest Trust (TFT).
It was attended by over 80 participants, mainly representatives of
timber trade associations, including from North and South America,
Africa, South East Asia, China, Europe and Australasia.
The meeting concluded with the agreement of all parties to formally
establish an international networked organisation, making maximum use of
web-based tools and holding a regular annual meeting. The network is
established to facilitate information exchange in the first instance.
However, in time it is expected to take a lead in development and
implementation of action plans and programs on issues of common concern
and to leverage the required project finance. More details: http://www.fao.org/forestry/trade/82078/en/.
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