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Report from
Europe
Tropical hardwood market insights from the UK
The September meeting of London Hardwood Club
included a series of presentations on the hardwood market
situation in South America, Africa and Southeast Asia,
alongside discussion of European and North American
hardwoods.
Ken Walsh of Danzer reported on the market situation for
West African hardwoods. After two very good years of
trading, supply is now quite limited overall and the rising
cost of crude oil is becoming an issue and causing
increases in both shipping and production costs.
Shipments from the port of Douala are delayed due to
ongoing problems surrounding the dredging of the estuary
to allow larger boats to access the terminals and boats are
skipping the port causing more delays.
Mr. Walsh also referred to delays in obtaining the correct
documentation and certificates for exporters in Cameroon
and production delays due to routine sawmill equipment
maintenance. He forecast that prices for West African
hardwoods should stay firm into this Autumn, with little
chance of over production in the coming months and
supply remaining tight.
Frank Cosentino of Tradelink reported on the Southeast
Asian market, highlighting shortages of supply from
Indonesia since the beginning of this year. Replacement
costs are up due to increased production costs associated
with labor and tight supply. Sea freight rates have started
to fall from their peaks of around $17,000 per 40ft
container (compared to a pre covid average of around
$1,500).
Mr. Cosentino said that availability and shipments of
Meranti eased in June of this year but, in the European
market, this species is now a relatively small volume
specialist timber product in comparison to years gone by.
Balau decking shipments have become more regular but
GBP prices are now higher due to weakness of the GBP
rate against the USD.
Hank Marchal of the US-based Robinson Lumber
Company spoke about production and supply from South
America. He said that production has exceeded demand in
the most popular commercial species like Ipe and Cumaru.
He noted that overall tropical hardwood production in
South America has started to slow and that mills are now
concentrating on satisfying demand in their domestic
markets. This is partly because sea freight rates from
South America continue to rise and availability of
container ships calling into ports for loading in the region
has reduced.
On the European market for North American hardwoods,
Mr. Marchal said that during the second quarter this year
the USA exported large volumes into Europe with the UK
taking the most volume. In particular, shipments of White
oak and Tulipwood were up some 40% in comparison to
the same period in 2021.
After shortfalls in supply last year, North American
sawmills and exporters caught up quickly this year with
existing and older contracts and there was more space
available on container ships leaving the East Coast USA
for Europe.
Mr. Marchal said that as a result of the extra volumes of
North American hardwoods all arriving into Europe in a
relatively short time frame, the summer holiday season on
the continent and a slowdown in demand, prices have now
come down as sawmills started to discount to stimulate
sales. In some sizes (4/4 mainly) price reductions have
been sharp and come in a relatively short time frame.
Thicker sections (6/4 and up) seem to be less affected due
to longer time in the dry kilns.
Mr. Marchal suggested that North American producers
have come to accept they will take a ‘hit’ on current
inventory. However, production will fall if profit margins
do not improve. Therefore sawmill volumes will likely be
reduced in North America in line with demand. Log prices
are also likely to fall as other production costs continue to
rise (labour & transportation) and sawmill margins are
being squeezed. He noted however that North America is
not seeing the same steep rises in energy prices as in the
UK and across Europe.
Rupert Walker of Timber Link International reported on
the market for European hardwoods. He observed that
there are shortages of White oak logs across Europe. The
current situation in Ukraine (which was the 2nd largest
producer of White Oak behind France) is adding to the
supply shortage. As a result European manufacturers and
buyers are looking for alternative sources of supply.
Mr. Walker also said that French sawmills are facing large
increases in log prices going into this Autumn. Mills are
also facing rising production and drying costs due to
increases in energy prices and staff shortages and higher
labour costs.
Road transport prices are on the rise throughout Europe.
He noted strong demand for Croatian white oak despite
log prices increasing by around 25% in the country.
European Ash is still trying to find its place in the market
as an alternative to American ash which is now less
readily available, partly owing to the ash borer epidemic,
and European Beech prices and supply are stable.
Emerging hardwood market challenges and
opportunities in Europe
The sawn hardwood trade in Europe experienced a period
of unprecedented demand and good margins in 2021 and
the first half of 2022. Growing recognition of the
environmental benefits of hardwoods, particularly with a
rising focus on zero carbon commitments, also implies
strong long term prospects for hardwood products in the
region.
However short-term market prospects are clouded with
uncertainty against the background of sharply rising
inflation and declining business and consumer confidence.
There are also serious concerns about long-term supply,
particularly of oak, due to the volatile geopolitical
situation, impact of climate change on European forests,
and rising log exports to other regions.
These are the main insights from the International
Hardwood Conference held on 28th of October in Lyon,
France, and organised by the French National Wood
Federation (FNB), the European Organisation of the
Sawmill Industry (EOS) and the European Timber Trade
Federation (ETTF). This event gathered around 100
industrialists, traders, and experts of the sectors to discuss
market trends, with a focus on the shortage of raw material
availability and impact of skyrocketing energy costs for
hardwood industries in Europe.
Maria Kiefer-Polz, President of the Hardwood section,
presented the point of view of European hardwood
producers. The EOS Hardwood members expect a
sawnwood production decline of at least 3% this year
following a double-digit increase in 2021. After a good
2021 and a bright first half of the year 2022, demand has
slowed over the last few months and production has
adapted to weakening sales, both in home European
markets and in overseas markets.
The situation at present is quite challenging with high
energy prices taking a toll on the industry, particularly in
the more energy-intensive beech sector. Hampered by high
inflation and increasing mortgage rates, demand from
European consumers is now much weaker. Stocks at
sawmills are high and many producers expect a difficult
few months ahead. Lack of labour is also reported by
many countries.
According to Ms. Kiefer-Polz, this challenging situation is
compounded for European sawmills by increasing export
of oak logs, partriculaly to China. Exports of European
oak logs to China have been increasing for many years and
that China’s appetite for European oak sawlogs continues
to grow. This is particularly the case now that Russia has
implemented a log export ban, increasing China’s reliance
on imports from Europe.
Of China’s total imports of oak logs of 1.35M cu.m in
2021, 52% derived from the EU. China’s imports of oak
logs from the EU increased from 561,000 cu.m in 2020 to
702,000 cu.m in 2021. Imports from EU in the first nine of
this year were 689,000 cu.m, a 30% increase on the same
period in 2021. So far this year, over two thirds of total
Chinese imports of oak logs have been sourced from the
EU.
Ms. Kiefer-Polz suggested that the current level of oak log
exports from Europe is unsustainable. As a result EOS
together with the European Furniture Confederation
(EFIC), the European Panel Federation (EPF), the Italian
umbrella association Federlegno , and the European
Parquet Federation (FEP) have joined forces to form a
coalition with the advice of a legal study to consider
options to reduce oak log exports.
The coalition is working with DG Trade of the European
Commission. However, according to Ms. Kiefer-Polz the
EC is reluctant to put in place any formal trade restrictions
for several reasons. First, there is concern about a risk of
retaliation as China could impose measures in response to
such action by the EU. Second, the EU has itself
challenged at the WTO and in bilateral discussions log
export bans introduced by many neighbouring countries. If
the EU put in place a similar log export ban, that would be
inconsistent with its own actions on this issue.
DG Trade has also pointed out that the rise in European
log exports is a market outcome that, while bad for the
European woodworking industry, is good for forest
owners. By selling into a large global market, European
forest owners achieve better prices for their logs. For these
various reasons, EC DG Trade are advising the European
woodworking sector to negotiate and find solutions locally
with forest owners, according to Ms. Kiefer-Polz.
The presentation by Aymeric Albert of the French
Forestry Office (ONF), which focused on the impact of
climate change on French hardwood resources, strongly
implied that rising log exports and obstacles due to the war
in Ukraine are not the only reasons for declining hardwood
log availability in Europe. There are also major long-term
changes in the forest resource driven largely by climate
change that imply long term reductions in hardwood log
availability in some parts of Europe.
The figures provided by Mr. Albert on declining
availability of good quality logs in France were startling.
During the five year period between 2017 and 2021, the
total harvest volume of healthy hardwood trees in French
forests fell from 7.8M cu.m to 6.6M cu.m, while harvest
volume of sanitary products increased from 433,000 cu.m
to 1.41M cu.m.
The damage to hardwood stands is largely attributed to
climate change, which is driving drought conditions that
stress trees, making them more vulnerable to insect
damage and leading to more frequent wildfires.
The volume of oaks designated for harvest in French
public forests decreased from 2.1M cu.m at the end of
2017 to 1.8M cu.m in October 2022. In contrast the
volume of dying oaks increased from 170,000 cu.m to
330,000 cu.m in the same period. Similarly for beech, the
total volume designated for harvest in public forests
decreased from 2.9M cu.m at the end of 2017 to 2.5M
cu.m in October 2022 while the volume of dying beech
increased from 155,000 cu.m to 580,000 cu.m in the same
period.
For hardwood species other than oak and beech, Mr.
Albert explained that the level of die-back had strongly
increased through successive droughts, rising from
283,000 cu.m in 2018 to 602 000 cu.m in 2021. Hardwood
species such as ash are dying from a fungal disease of the
same nature as Dutch Elm disease so they’re expecting a
complete die-back within the next ten years.
On future prospects Mr. Albert said that the total
hardwood harvest in France will remain “cautious” and
that French forest policy is now focused on efforts to
increase stand stability over time. The aim is to rely where
possible on enhanced natural regeneration, while
introducing new species or new provenances to increase
forest resilience where necessary. He closed by saying that
a decline in the availability of wood from French forests,
both in terms in quantity and quality, will become the
norm and the wood sector must adapt to it.
With domestic hardwood supplies under pressure and
strong demand on the consumer side, Ad Wesselink,
Hardwood President of the European Timber Trade
Federation noted that European imports of sawn hardwood
were rising in 2021 and the first half of 2022. EU27+UK
imports of sawn hardwood were up 6% at 1.15 million
cu.m in the first 6 months of this year, after rising 13% to
2.2 million cu.m the previous year. There has been
particularly strong growth in imports of sawn tropical
hardwood.
At the same time, Mr. Wesselink stated that about 22,000
tons of oak is missing from the EU27+UK market due to
cessation of imports from Russia and Belarus. This
combined with increased logistical and energy costs has
led to sharply increasing prices. On the bright side, Mr.
Wesselink echoed Ms. Kiefer-Polz in stressing the
undeniable recognition of wood as an environmentally
friendly construction product. Increased market share for
wood might help compensate the expected slowdown in
the construction market.
Michael Snow, presenting from the vantage point of North
American producers, reported a slowdown in economic
growth in China, with a housing market that is rapidly
declining having a direct impact also on the selling of
furniture. Mr. Snow commented as well that the new
deforestation free products Regulation, discussed right
now at EU level, if introduced in its current form, “would
effectively eliminate American Hardwood from the EU
markets, due to extreme challenges of implementing the
geolocation requirement in those situations where forests
are both highly diverse and in the hands of numerous
smallholders”.
While AHEC is very supportive of this new EU
legislation, since it targets agricultural products which are
by far the main drivers of deforestation, it is advocating
that the geolocation definition be adjusted in the final
legislation. According to Mr. Snow, products should be
identified to a specific low risk jurisdiction, rather than to
an individual real-estate property which is the current
requirement, when dealing with diverse hardwoods from
smallholders.
James Xu showed that neither the US nor Europe is the
leading hardwood lumber exporter to China because other
regions took advantage: China now imports large volumes
of wood from Russia and Thailand due to lower costs.
At the same time, Mr. Xu, stressed that not only costs
influence consumers’ decisions, but "fashion" is also a key
factor.
Business opportunities might instead be found on the
Indian market, as highlighted by Dr. Michael Adams: "The
Indian economy grew at a stunning 13,5% year on year in
the second quarter of 2022. Growth prospects remain
sound and the large companies are continuing to invest
while the building material market is expected to grow in
the coming 5-6 years".
The European parquet market, as presented by Mr.
Lorenzo Onofri, was good in 2021 (+6.2% compared to
the previous year) but already started to decline in 2022
reflecting decreasing consumer confidence (war, energy
prices, and lack of affordable oak and birch plywood -
mainly coming from Russia).
The EU parquet producers (represented at EU level by
FEP) alongside other associations, is calling for limits to
be placed on oak log exports from the EU. Due to the lack
of oak and birch plywood, the parquet industry is
searching for new sustainable raw material substitutes,
while they continue investing in the REAL WOOD
initiative to convince the consumers to use real wood
flooring and not artificial products that pretend to be made
of wood.
Sharing the same challenges of the parquet industries, the
European furniture sector, as reported by Mr. De Jaeger, is
expecting a further market slowdown in 2023 with
increased challenges for raw material procurements and
prices expected to increase.
To conclude, as emphasized by most speakers, the
hardwood industries can benefit from the positive
environmental value of wood products as increasingly
recognized by European policymakers and consumers
alike.
At the same time, the sector needs to find new markets and
opportunities: some hardwood species are under-utilized,
and forests will potentially supply more of the species
which are ‘minor’ at present. In this sense, research and
the development of standards for new applications of
hardwood products will be key for the sector in the
coming years.
The International Hardwood conference presentations can
be found at:
https://www.ihc2022.fr/presentations
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