|
Report
from Europe
and the UK
Putin postpones 80% log export duty by 9-12 months
According to the Associated Press, Russian President
Vladimir Putin has agreed to postpone implementation of
the Russian export duty of 80% on roundwood logs. The
announcement, which was made during a meeting with
Finnish Prime Minister Matti Vanhanen, indicated that the
rise in duty would be postponed for a nine to 12 month
period. The heightened duty was expected to jump from
25% to 80% at the start of January 2009, but will remain
set at 25% until further information is released. Japan
Lumber Reports has noted that even though the duty will
be maintained at 25%, it is still high enough to induce a
shift in the Japanese plywood and lumber industry to new
sources of raw materials or shut down since costs are still
too high and prices are not expected to drop in the near
future.
Economic data show deteriorating market conditions
Overall economic conditions in the EU have continued to
deteriorate. According to figures published on 14
November, which showed that the euro-area economy
shrank in the third quarter following a similar decline in
the three months to June, the region is now technically in
recession. This is the first time that GDP growth across the
area has fallen in successive quarters since the euro was
launched in 1999. Overall GDP in the euro-area has grown
by 0.7% this year, with all the growth concentrated in the
third quarter. Germany and Spain have performed slightly
better than the euro-area average; France has done a little
worse. Italy stands out as the worst performer ¨C its GDP is
down 0.9% on a year ago. Meanwhile unemployment has
jumped in Spain and Ireland, the two countries hardest hit
by the property bust and scarcity of mortgage credit. On
this measure Germany has performed reasonably well,
unemployment in the country having actually fallen
slightly this year.
In fact, of all the large European economies, Germany
now seems best placed to weather the storm. Compared to
companies in European countries, those in Germany are
relatively cash rich, less dependent on the banks and under
less pressure to prune budgets. And Germany¡¯s public
finances are in reasonable shape, the national budget was
close to balance last year, so the government has more
scope to boost growth through increased public spending
or tax reductions.
Meanwhile the UK economy is in a slump. A decline of
0.5% in the UK¡¯s GDP in the third quarter compared with
the second was a lot sharper than expected. And business
surveys are indicating that the final quarter of 2008 has got
off to a poor start. Manufacturing conditions in October
2008 stayed close to the previous month¡¯s record low, and
activity in construction and services plumbed new depths,
according to this week¡¯s purchasing managers¡¯ reports.
Together, these findings suggest that the decline in GDP in
the fourth quarter will be at least as steep as in the third. In
an effort to boost demand, on 6 November the UK¡¯s
central bank slashed the base interest rate by one-and-ahalf
percentage points, bringing it down from 4.5% to 3%,
the lowest since early 1955.
Little forward buying in the Benelux countries
The gloomy economic picture has had a profound impact
on the hardwood market. Agents supplying the large
importers in the Benelux countries report that there is very
little forward buying. Some importers are still carrying
excess landed stocks of key joinery species including
sapele and meranti. Only a few forward orders mainly for
higher quality items are trickling in from those buyers
concerned about the very long lead times. In the face of
slow demand, shippers have been winding down their
stocks now for some time, so availability of many items
for prompt shipment is now negligible. A representative of
one trading company dealing in a wide range of tropical
hardwoods noted that ¡®the supply pipeline is empty, we are
not overstocked at all. If you place forward orders for
African products today the lead time is 6 months¡¯.
UK market closes early for Christmas
In the UK, the weakness of sterling combined with
particularly gloomy economic data has meant that forward
buying has been particularly weak. One UK based agent
involved in the trade for 40 years comments ¡®I have seen
four recessions during this period, in the early 70s, 80s,
90s and now this one. But I¡¯ve never known a change as
rapid as this. We were having a good year until the end of
September, but everything stopped in the first week of
October when the banking crises came to a head. The
following week, sales briefly recovered to around 50% of
their earlier levels, but we¡¯ve seen a progressive decline
since then. Now the UK hardwood trade, at least with
respect to forward sales, has essentially shut down for
Christmas, the earliest shutdown I have ever known¡¯.
It will be little consolation to tropical suppliers that this
agent, when asked if any ¡®hardwood¡¯ products were selling
well in the UK at present, replied ¡®yes, Siberian larch!¡¯
While not technically a hardwood, Siberian Larch grows
so slowly in northern Russia that it produces an extremely
durable and hard timber. Siberian larch has become very
popular in the UK public sector, initially for cladding
where it competes directly with Western Red Cedar from
North America. But as architects have become more
familiar with the species, they have begun using it for a
wider range of joinery applications, such as flooring,
where it competes more directly with tropical hardwood.
A key advantage of the species for UK public sector
buyers is that it is readily available FSC certified. This
anecdote highlights both the increasing importance in the
UK of public sector buyers at a time when private sector
construction activity has shrunk and the rising significance
of forest certification to buyers in this sector.
In the UK, importers are still carrying heavy stocks in
standard commercial items. One large importer is reported
to be off-loading sapele and white oak ¨C the two most
popular hardwood species in the UK ¡ª at well below
replacement cost in order to generate cash flow. Other
importers have generally not joined in the fire sale, but
under such circumstances, there is very little interest in
forward buying.
UK market conditions for manufactured tropical hardwood
products seem little better. One contact that formerly sold
large volumes of tropical hardwood garden furniture from
the Far East to large UK high street retailers reports that he
has gone into receivership this month. ¡®Many retailers are
still sitting on large stocks of garden furniture from last
summer, sales having been hit hard by the appalling
summer. So absolutely nobody is buying for next season.
The market has collapsed. Problems have mounted for
shippers who until only three months ago were trying to
push through significant price rises in order to
accommodate rapid increases in costs, including rising
labor rates in China, high raw material and energy costs. I
was in China in the summer and large numbers of garden
furniture factories were on their knees back then. With few
sales coming through in the last three months and no
willingness on the part of buyers to accept price increases,
problems must have intensified since then¡¯.
The UK joinery manufacturing sector, traditionally a
significant user of tropical hardwood products, seems to be
fairing no better. Richard Lambert, the Chief Executive of
the British Woodworking Federation (BWF) suggests in a
recent TTJ article that there may be more joinery sector
redundancies and company closures in coming months
following the closure of the main site of the STP Group,
one of the largest UK door manufacturers. Lambert went
on to say: ¡®we¡¯ve had a steady flow of requests for advice
on redundancies, lay-offs and short time working over the
past couple of months¡¯ and noted that times were
particularly tough for those companies linked to the
residential construction sector.
Cautionary note regarding indicative prices
Due to very low levels of trade over the last few weeks, it
has become increasingly difficult to collect indicative
prices for hardwood products traded in the EU. Shippers
are generally reducing forward prices across the board for
standard items, but since the vast majority of European
customers are currently very unwilling to buy forward at
any price, there is little or no price formation.
¡¡
|
