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Report from
the UK
Subdued mood amongst hardwood traders at Interzum
The general mood of hardwood traders attending the Interzum
2023 show in Cologne 9 to 12 May was that the overall market, having
slowed dramatically in the second half of 2022, has remained very
subdued this year.
There were many references to economic uncertainty owing to the Ukraine
war, extremely high energy costs, rising inflation leading in turn to
higher interest rates, and consumers becoming increasingly cautious
after two years of high spending immediately after lockdowns.
The boom in home improvement, that started in the pandemic and helped
drive hardwood sales in Europe and which was encouraged by government
stimulus measures, is now well and truly over.
This informal view chimes with the formal economic analysis of
organistions like the IMF whose latest Regional Economic Outlook report
for Europe published in April notes that “Europe faces the difficult
task of simultaneously bringing down inflation, sustaining economic
growth and preserving financial stability as it grapples with the
fallout of the energy crisis triggered by Russia’s invasion of Ukraine
and the aftermath of the COVID-19 pandemic. While declining, inflation
remains very high and growth has tumbled since the middle of last year
as inflation lowered households’ real incomes”.
Many hardwood importers in Europe were caught out by the sharp fall in
prices for some hardwood products, including from South East Asia and
North America and for lower grades of European hardwood, starting from
the summer of last year.
The price drop was driven by the sharp fall in global demand last year
as all the major economies, including the US, China and Europe, suffered
a downturn.
The global freight rate index (as reported by Statista) fell from a high
of US$10,361 for a 40 ft container in September 2021 to US$2,119 in
December 2022. On some routes the fall was even greater, for example one
UK importer of Asian plywood said the fall from South East Asia into the
UK fell from a high of US$18,000 to just US$1,800 during this period.
As prices fell on global markets, hardwood importers in Europe that had
bought heavily in the first half of 2022 found that they were now
carrying a lot of overpriced stock that was increasingly difficult to
sell. Over the last six months, importers have been slowly offloading
that stock, frequently at a loss, to maintain cashflow.
While that is the general picture, the situation has varied widely
throughout the hardwood trade in Europe and dependent on the species and
end-sectors involved. The problems of high stocks of overvalued products
particularly apply, in the case of tropical hardwoods, to Indonesian
products including bangkirai decking and laminated window scantlings and
in the case of temperate woods, to American hardwood and flooring grades
of European oak.
In the case of African sawn hardwood, although prices for existing
landed stock in Europe have been falling as large volumes arrived last
year and consumption has been slow, availability for forward orders from
African sawmills in the second half of this year is restricted and
prices are firm and expected to remain so. This reflects rising
overheads for African producers, driven by fuel and energy inflation,
which is resulting in falling output.
An increase in Cameroon’s export tax from 10 to 15% on the FOB value of
sawn timber has also contributed to firmer prices for forward orders.
After all the work carried out on garden improvement during the pandemic,
the European market for tropical hardwood decking has now slowed to a
crawl. European importers are carrying heavy stocks bought at high
prices last year and are not in the market for new supplies.
With demand so weak, exporters in Malaysia and Indonesian have struggled
in their efforts to push for higher FOB prices in response to lower
harvesting and production volumes.
The volatility in prices for American hardwoods in the last two years
months has impacted on demand for those tropical species where there is
direct competition. The most obvious overlap is in the market for
tropical species like ayous, okoume and abura/bahia which compete
directly with American tulipwood for interior joinery and furniture
applications.
Prices for American tulipwood rose sharply between 2020 and early 2022,
but then fell sharply from the middle of last year. Ready availability
of the American species at low prices is now acting as a further drag on
demand for the tropical timbers in Europe.
The extent to which applications for American hardwoods and tropical
hardwoods overlap in the European market is increasing as production
volumes of thermally modified American hardwoods suitable for external
applications continue to rise. Ash was formerly preferred for thermal
modification, but with production volumes of that species declining
sharply due to the Emerald Ash Borer infestation in the U.S., attention
has now switched to red oak and tulipwood.
According to reports from traders at Interzum, the European market for
wood furniture and flooring is particularly slow. There were some
positive reports of reasonable activity in the windows and doors sectors
in parts of the continent.
Overall anxiety about future prospects seems particularly pronounced in
Germany and in some central European countries most directly affected by
the war in Ukraine. Some more positive reports came from traders
operating in Italy, Spain, France, the Netherlands, and Ireland. Reports
from the UK were very mixed, the overall impression being of a very slow
start to the year but with rising optimism that the worst of the
downturn is already over. Gaps are beginning to appear in UK stocks and
more importers are taking steps to fill these. This mirrors wider
economic data.
On a positive note, the IMF Regional Economic Outlook report notes that
an all-out recession was avoided in Europe this winter thanks to sharply
lower energy prices and government relief measures.
The expectation is that the continent’s economy will continue to grow at
the slow pace of 0.7% this year, rising to 1.4% in 2024 due to
“gradually easing headwinds” with lower energy prices, easing supply
bottlenecks, improving household purchasing power, and “some unwinding
of the tightening of financial conditions later next year”.
This year GDP is forecast to grow by 1.5% in Spain, by 1% in the
Netherlands, by 0.7% in Italy and France, and by 5.6% in Ireland.
However, GDP in Germany and the UK is expected to decline this year, by
0.1% and 0.3% respectively.
Construction sector data indicates weak prospects in Germany
Latest data from the construction sector suggests that
prospects in Germany are particularly weak at present. The HCOB
Purchasing Managers Index (PMI) for German construction stood at only
42.0 in April, down from 42.9 in March and well into sub-50 contraction
territory, registering the deepest downturn since February 2012.
France is also weak on this measure, the HCOB PMI posting 46.0 in April,
which at least was marginally up on 45.3 in March. More positively,
Italy posted 49.0 in April, up from 47.4 in March and now close to
neutral.
In the UK, the construction sector is performing better than the wider
economy. At 51.1 in April, the S&P Global/CIPS UK PMI was up slightly
from 50.7 in March and above the neutral 50.0 value for the third month
in a row.
New build residential activity is very slow in the UK but this is being
offset by a reasonable level of commercial building work which is
creating continuing demand for hardwood for joinery applications.
German woodworking trade fairs underway
Interzum and LIGNA, Europe’s two biggest wood-working shows,
are now being held in Germany. Running back-to-back, Interzum was held
between 9th and 12th May in Cologne and LIGNA is on between 15th and
19th May in Hanover. Koelnmesse, the organisers of Interzum, reported
that there were just under 1,600 exhibitors at this year’s show, down
from around 1,800 when the show was last held in 2019 but a good turnout
given current uncertainties in the furniture and joinery market.
Interzum is a truly international fair with around 80% of exhibitors
based outside Germany. A huge range of wood materials suppliers and
manufacturers exhibit at the show, covering the full range from lumber
and veneer through furniture and flooring component manufacturers to
finished furniture products.
The central importance of wood to the European furniture and interiors
sector was celebrated in Interzum’s prepublicity which highlighted that
wood materials play a “special role in current interior design trends
because of their natural appearance.
The structures, shapes and colours found in natural wood define many new
collections of decorative finishes and surfaces”.
It went on to observe that “this natural building material can also
address issues such as CO2 emissions in the residential sector, the lack
of living space and the desire for individual and healthy furnishings.
As a renewable, carbon-neutral material, wood plays a major role
especially in lightweight design and furniture construction.”
While the wider wood sector was a dominant presence at the show,
tropical hardwoods were not prominent. This is partly a reflection of
the relative lack of resources devoted to communication and R&D in the
tropical wood sector, and partly to the existing position of tropical
wood in the European market, where it is essentially seen as a niche
material for a narrow range of applications.
However, there was a presence in the shape of tropical plywood producers
such as Rougier and Joubert and several larger European importers of
sawn hardwood and veneer manufacturers that offered tropical wood in
their product ranges.
Indonesia hosted a stand to promote the SVLK certification system and
featuring a range of lightweight timber products for the wood flooring
and furniture sector.
The Ambassador of Indonesia to Germany, H.E. Arif Havas Oegroseno,
delivered a presentation explaining the role of SVLK at the Indonesia
stand on 10 May.
Indonesia’s presence at Interzum was arranged through a collaboration
between Indonesia’s Directorate General for National Export Development,
the Indonesia Trade Attache in Berlin, the Indonesia Trade Promotion
Center (ITPC) in Hamburg, and LPEI Indonesia Eximbank. It was supported
by Germany’s Import Promotion Desk (IPD) and the Swiss Import Promotion
Programme (SIPPO).
Another positive outcome of Interzum 2023 for the tropical wood sector
was the powerful case made for the social and environmental benefits of
using tropical hardwood in high value applications in Europe and the
wider global market at a well-attended event on the “Trend Stage” by
Axel Groh of Schorn & Groh, a high-end German veneer manufacturer.
Mr. Groh emphasized the benefits of selection harvesting of high value
timber in the tropics to maximize value and reduce incentives for forest
conversion.
He said that certification programs like FSC and PEFC combined with
legal frameworks such as EUTR and the forthcoming EU Deforestation
Regulation provide robust assurances that tropical wood sold into the
European market is legal and sustainable.
Referencing increasingly widespread problems of pest and drought damage
afflicting monocultural plantations in Germany and other European
countries, Mr Groh also argued convincingly in favor of a shift towards
low intensity forest operations favoring high value hardwood products
from more diverse forests.
The strong environmental focus of Mr Groh’s presentation and Indonesia’s
presence at Interzum aligned with the wider theme of Interzum this year.
According to the organisers “with its new global lead theme
‘neo-ecology’ Interzum 2023 is promoting dialogue aimed at increasing
more resource conservation and climate protection”. Aspects such as
resource efficiency, smart materials, renewable energies and recycling
and upcycling were key to many of the exhibitors’ innovations.
Since tropical wood products already exhibit many of these strong
environmental features, for tropical suppliers the key challenge at
Interzum 2023, and in the wider European market, is to more effectively
communicate high levels of technical end environmental performance.
The approach adopted by Rougier, for example, was to feature three
innovative branded plywood products at Interzum, okougreen, ozigreen,
and andougreen respectively manufactured from 100% okoume, 100% ozigo,
and 100% andoung each supported by a technical sheet detailing
performance and conformance to relevant quality and environmental
standards.
For other sectors the show highlighted the strong focus on development
of new materials and processes that will contribute to the development
of a functioning circular economy.
Interzum’s “Sustainability Matters” exhibit featured a wide range of
innovations designed to deliver against this objective, some involving
new ways to use wood fibre, but many others involving novel use of
faster growing plants and upcycling of agricultural and post-consumer
waste products.
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