Japan Wood Products Prices

1-15th August  2005

Dollar Exchange Rates of  5th August 2005

Japan Yen 111.99

Report From Japan  

Sluggish plywood market resists higher prices

The movement of imported board and plywood continues dull. Wholesalers expressed that there has not been active demand except for hunting of low‑priced scarce items. Arrivals of tropical hardwood plywood have been declining month after month because of declining production in Indonesian plywood mills. There have been very little offers of products such as concrete forming panel and structural 12mm panel from Indonesian mills. However, the declining inventories have had a negligible impact on the sluggish Japanese domestic market. As a result, the gap between bullish Indonesian suppliers and bearish Japanese buyers is widening. The only item in short supply is concrete forming for coating and buyers look for low priced offers on this item. 

Indonesian mills curtailed plywood production

Many Indonesian plywood mills have been forced to curtail plywood production due to continued log shortages. One of the three Korindo group mills is reducing production. Purawan Lumber Industry’s mill has virtually stop production since last April. There is no plywood offer for the Japanese market from those mills. Since the above mills are major suppliers of coated plywood, the inventories of coated plywood are tightening in Japan. Log shortages obey stricter control of illegal harvest by the Indonesian government and seasonal floods in Kalimantan which hampers transportation of logs. 

Late June log prices for meranti regular were ranging from $145 to $160 per cu.m. at Samarinda mills, which are $20‑25 higher compared to a year ago. Higher log prices are another reason for plywood production curtailment since passing high prices to the dull Japanese market is difficult. As a result, total supply of plywood in the Japanese market has decreased while plywood imports from Indonesia while those from Malaysia’s have been filling the gap in the first half of 2005. The export prices of Malaysian 3x6” concrete forming panel were $350-355 per cu.m C&F in late June, which have been pushed down gradually by weak Japanese purchase. 

In July, the movement of imported plywood and board improved slightly after a long slump until June. A building materials trading company reported that inquiries increased in July. Movement of OSB and MDF for building was also improving gradually since early July.  

The cost of imported plywood has gone up due to the weakening of the yen while the supplies continue bullish due to critical log shortages. The importers reported that the cost is way higher than current domestic market prices so few deals have concluded. There are no offers for commodity items like Indonesian 12mm panel but there are offers for thin plywood and floor base. In the Tokyo regional market, concrete forming panel for coating is in short supply and inquiries are increasing but the prices remain flat at about 970-980 yen. The inventories of JAS concrete forming panel are declining gradually but demand continues depressed. July export prices of 2.3mm F 3star (category 2) were $500-505 per cu.m C&F, of 3.7mm F 3star (category 1) were about $430 and of 5.2mm F 3star (category 1) were $400-410. They are all unchanged from June. Domestic sales prices of 2.3mm F 3star (category 2) were unchanged at 260-270 yen per sheet delivered. 

Malaysia overtakes Indonesia as largest ply supplier

Malaysian plywood supply to Japan has surpassed Indonesian for five straight months now. Indonesian mills suffer insufficient log supply and higher log prices so there are limited offers for Japan. Japanese buyers are progressively shifting to Malaysian suppliers. However, as Malaysian import costs keep rising, imports are gradually declining. 

Plywood imports and supply in Japan (2005)

The most recent data for June reported imports of 191,000 cu.m. from Malaysia, 158,000 cu.m from Indonesia and 400,000 cu.m from other countries. This consolidates Malaysia as Japan’s largest plywood supplier. 

Revised JAS law passed and approved

The revised Japan Agricultural Standards (JAS) law submitted to the Diet by the Ministry of Agriculture, Forestry and Fisheries has been passed and approved and will come into force in March 2006. 2006-2009 will be a transition period but after March 2010 current JAS approved plants will need to conform to the new law.  

The main change to the law is a minimization of the government’s involvement in the registration of organizations that can issue approval to JAS applicants. Any organization that fully meets the standard (ISO guide 65) will be able to qualify, including foreign organizations. It is expected that there will be more applications from qualified foreign organizations (besides those from the five countries in North America and South East Asia currently about to issue approvals). Furthermore, with the revised JAS law, not only manufacturers but also distributors, such as importers, can qualify if they can prove they manage manufacturing processes. As a result, plywood importers and large wholesalers will be able to apply for JAS approval on behalf of manufacturers. 

Outlook for the second half of 2005

The Japanese Forestry Agency disclosed its forecast of major wood products for the second half of the year. New housing starts are expected to drop slightly because of shrinkage of the tax break on housing loan interest. As a result, imports of wood products for the third quarter are expected to be down compared to the corresponding period last year. The major concern in the second half is higher cost of products and transportation as a result of worldwide rising oil prices. 

North American logs will be constrained by high ocean freight. North American lumber imports are predicted to amount to 1m cu.m for the each of the third and fourth quarters. European lumber is proving popular, supported by busy demand for lamina for laminated lumber. The demand for Russian logs for lumber is shifting to genban. The total demand for plywood is predicted to be about 1.98m cu.m. in the third quarter and 1.94m cu.m in the fourth quarter. Indonesian supply is expected to continue to decline due to a shortage of logs, while Malaysian supply will increase to fill this gap. Overall, imports of tropical plywood are expected to decline 3.6% to 4.76m cu.m in 2005. 

Structural laminated lumber is in strong demand for pre-cutting plants for use in beam and post. The price structures of some major import products – South Sea logs, plywood and laminated posts – have been undergoing changes. The cost of tropical logs continues to rise due to higher FOB prices and a weaker yen. Plywood makers have tried to find substitute materials such as smaller logs or logs from other sources but their costs have been also rising. Meranti regular FOB prices were about $168-170 in late July, which was $3-4 up from June and new proposals were at $172‑173 despite the weak plywood market in Japan. 

Japan’s structural softwood plywood market remains stagnant. July prices for 12mm 3x6 F 4star (category 1) were about 670 yen per sheet delivered, 30-40 yen lower than June despite manufacturers’ proposed price of 700 yen. Manufacturers’ sale price of 3-metre, 105mm square laminated posts was 1,800 yen per piece delivered for July shipments. Despite increasing orders, manufacturers were very cautious about increasing production because of the lamina supply shortage. Pre-cutting plants, which are the main users of laminated post, argue that they cannot pass on higher prices, so there is strong resistance to higher prices.  

June new housing starts

Total starts were 109,184 units in June, up 7% from May (101,862 units) and 2.4% higher than in June 2004. This is the third expansion in a row and the second time in over eight months that starts exceeded 100,000 units. The main reason for this increase is attributed to an increase of houses for sale and for rent. 

Housing starts forecast

The Japanese Research Institute of Construction and Economy has made its mid‑year forecast on new housing starts for 2005. New housing starts have been forecast at 1.19m units for 2005, 0.3% less than 2004. Owner’s units are estimated at 362,000 units, 1.5% less than 2004, despite favorable factors such as strong desire for ownership by the younger generation and low mortgage interest rates. 

The number of rental unit starts has increased for three straight years but a high rate of vacancies is expected to hold new starts down at 462,000 units, 1.1% less than in 2004. Units built for sale are estimated at 358,000, 2.5% more than the previous year. 

For 2006, the forecast is for 1.197m housing starts, up 0.6% from 2005. Negative factors such as a possible interest rate rise and the shrinkage of a tax break on mortgage loan interest will be offset by expected improvements in employment and wages helped by a steady recovery of the economy in general. The desire of baby-boomers to own their own houses is still seen as strong, which would help to increase owner’s units by 3.5% to 374,000. 

CIF price of tropical logs rising in Japan

Climbing log import prices, inflated ocean freight and a weakening yen are sending import log costs rapidly upward. This has been compounded by a

depressed plywood market in Japan so that importers struggle in their negotiating with mills. The mills, in turn, are confronted by higher log cost and poor profitability. Mid-July FOB log prices in Sarawak were $168‑170 per cu.m (SQ up) for meranti regular. The suppliers have been bullish with limited log inventories and there has been active buying by other countries like China, India and Vietnam. 

The $170 for meranti regular can jump up to about 7,000 yen per koku CIF (around $227 per cu.m) in the Japanese market. Small meranti, which is about $140 per cu.m FOB, can reach more than 5,900 yen per koku CIF (over $190 per cu.m). Therefore, plywood mills have no choice but to raise their sales prices, which is problematic in a still sluggish market. Meantime, log importers have not been able to keep passing higher costs onto their buyers and it is reported that importers are taking financial losses. Some Japanese importers expect that log supply will improve soon as China’s buyers seem to be shying away from high value logs, and FOB prices will consequently decline.  

Koku=0.278 Cu.m

June and July Wholesale Prices

Abbreviations

LM        Loyale Merchant, a grade of log parcel	Cu.m         Cubic Metre
QS         Qualite Superieure	Koku         0.278 Cu.m or 120BF
CI          Choix Industriel	FFR            French Franc
CE         Choix Economique	SQ              Sawmill Quality
CS         Choix Supplimentaire	SSQ            Select Sawmill Quality
FOB      Free-on-Board	FAS            Sawnwood Grade First and
KD        Kiln Dry	Second
AD        Air Dry	WBP           Water and Boil Proof
Boule    A Log Sawn Through and Through	MR              Moisture Resistant
the boards from one log are bundled	pc         per piece
together	ea                each
BB/CC  Grade B faced and Grade C backed	MBF           1000 Board Feet
Plywood	MDF           Medium Density Fibreboard
BF         Board Foot	F.CFA         CFA Franc
Sq.Ft     Square Foot	Price has moved up or down

Source:ITTO