News from the UK 

The Bank of England did not raise interest rate, currently at 4.75%, but there continues to be speculation that a rise is inevitable before mid year, irrespective of who wins the up-coming general election. 

Confidence in the business sector is generally good but the timber industries are not so confident about the immediate future say analysts.  Manufacturing output was up in January for the third month in a row but is only 1.15% up on a year ago. 

The UK housing market is said to have stabilised according to the Nationwide Building Society. With house price inflation now running at 10.25% the average house price is said to be Sterling 152,879.  

On March 15th the 2005 government budget will be announced and as this is a pre-election budget few surprises are expected.  

The house builder Bovis is the latest company to report record profits and they have announced plans to design and build a new range of houses for first time buyers.  

The Office of National Statistics is reporting that manufacturers are now suffering the fastest rise in input costs since April 1995 and costs are now 10% higher than a year ago.  Factory gate prices for goods, however, are just 2.8% higher and the UK Timber Trades Journal has reportedly said that wood and wood  and wood product prices have risen 4.1% in the past 12 months.  

Log Prices in the UK 

 

UK Sawnwood Prices  

  

Plywood and MDF in the UK  

  

Report from Holland  

Weather dampens trade 

With flowers such as crocuses almost in bloom and with relatively mild weather during January and February Dutch traders had notion that winter would soon be only a memory but this was corrected with a bout of real winter weather since the beginning of March. Infact, in the northern parts of the country, there was heavy snowfall, the first time since January 1959! 

The impact of this sudden reappearance of winter weather was dramatic and all transportation was disrupted and it forced construction and building activity to an almost standstill and this was clearly felt in timber demand. 

Demand in Holland remains flat but with this bad weather the market got even slower. However, with spring coming nearer consumer sentiment always turns gradually more optimistic.  

Of devaluation and revaluation 

Meanwhile though, in current the stagnant market, trade in the most important size of Malaysian hardwood (3x5" in Dark red Meranti) is very tough. Sales prices are still spiraling downward thanks to two reasons; traders wanting to sell so as to reduce stock levels and the ever-weakening US currency.  

Traders have seen the US dollar sliding down again against the Euro over the past fortnight. There are worries that the value of the dollar may lose further ground because of growing concerns over the enormous deficit in the U.S. and the fact that the Euro has now become the world's second most popular reserve currency.  

Not long ago China converted much of the dollars in their reserve into Euro and other central banks are likely to follow suit.  Japan and Russia have signaled that diversification of reserves is under consideration. In Malaysia several government officials have hinted at a possible stronger relation between Euro and Ringgit.  

Should China re-adjust the pegging of the Yuan, which appears likely at some point, the US dollar may drop even further. 

Sell stocks quickly  

Since landed Meranti stock in Holland, in sizes other than 3x5 PHND DRM, is not so big and because it can be traded at reasonable prices, the trader's main worry is that any further drop in the value of the dollar will lower the value of landed stock.   

Under these conditions the quicker the stock is sold the better and so the price discount war rages on and traders report that they hear of prices in the market for Bukit 3x5 PHND that hardly reflect the current replacement value. 

To make matters worse, the economy in Germany, Holland's very important 'hinterland market' is ailing with an alarming number of unemployed and disappointing growth figures creating the dilemma 'no growth no jobs - no jobs no growth'.  

The European Central bank (ECB) recently decided to maintain the current very low interest rate level for a while a sign that the EU economy is still not on the right track. In Holland consumers are not willing to spend or invest. As an indicator car sales are at the lowest point in years.  

Housing sales also, have not improved despite very attractive (house loan) mortgage rates.  Currently, the low rates are being used by homeowners to remortgage at more attractive interest rates rather than to invest in a new house.  

Sales in household consumer goods such as washing machines, dishwashers, dryers, kitchen-appliances, and televisions have all fallen recently and the sales level in the stores is reported as if winter is permanent.

Nevertheless with spring in the air there is a good chance that the negative undertone may disappear say traders and that, as in the previous two years, the Dutch timber trade will pick up some momentum. Also, because the Dutch authorities seem to be working hard to revive the house building sector, the idea that things could be better appears to be accepted.  

Now a complex market 

But the market is now a complex mix of drivers.  On the one hand traders are in a fierce battle to get something sold, if need be at below cost prices (e.g.  3x5 Bukit PHND at EUR 565 per cubic metre free delivered) which has left the market for African Sapelli totally in the doldrums.  

On the other hand, Dutch traders realise more and more that the supply situation in Peninsular Malaysia is not rosy either.  Illustrative of that is that, despite the fact that Dutch importers had been out of the market for quite some time the CNF prices for Seraya 3x5 and Bukit 3x5 remained extremely firm.  

Although CNF Rotterdam levels for various Dark Red Meranti items give no reason what so ever to justify price reductions on the local market, it is still difficult for traders to firmly refuse counter offers from a prospective buyer.  

The eagerness to sell still wins but Dutch importers also notice that, despite the fact that the monsoon is over, that Chinese New Year-leave is long over, the supply situation does not seem to improve in Malaysia.  

Some items especially seem to be in short supply (several complaints were heard from Dutch importers on the execution of orders in both Obar Suluk and Heavy Majau from Sabah) whereas in Peninsular the offers in Bukit are quite rare and Nemesu is equally difficult to get 

Importers realise that the supply situation will not improve spectacularly with the end of Indonesian log flows into Port Kelang. Such a situation of shortage from the supply side may eventually lead to importers picking up items that are being presented by exporters.  

Buyers visit Suppliers 

Despite slow sales in Holland analysts see that several importers are now suddenly shifting to possible fresh purchases and are making business trips to Malaysia.   

Merbau still enjoys fair demand in Holland (and Belgium) and are still on the rise. Analysts foresee that, because supplies of Merbau of Indonesian origin (West Irian) have stopped, more buyers will have to concentrate on supplies for Merbau from Peninsular  Malaysia, with all consequences of that.

Traders say that while overall the market is dull the trading situation is not at all boring as attention has to be given to many things especially to the currency situation and the  rumour of a change in the pegging of the Malaysian Ringgit.