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Report
from
Europe, the UK
and
Russia
EU forward buying languishes amid continuing uncertainty
Forward demand for tropical hardwood sawn lumber in
the EU remains very subdued across the board, both in
terms of products and EU countries. Anecdotal reports
suggest that European door, furniture and joinery
manufacturers have continued to buy only slowly against
the background of uncertainty created by deteriorating
conditions in the housing, banking and credit markets.
Exchange rate volatility is adding to the uncertainty. Since
August last year, the dollar has risen nearly 20% against
the euro and nearly 40% against the British pound. This
means that European wood importers have seen a dramatic
escalation in forward prices for dollar-denominated Asian
stock just when the banking sector crises has come to a
head and severely dented market confidence. Another
problem is that jittery insurance companies in the EU are
increasingly removing credit cover from timber trading
companies. This means that if a customer reaches their
credit limit, they cannot be sold anything more until they
make a payment.
Nobody is willing to gamble on prospective purchases in
the current climate, with most contacts suggesting that the
focus remains on stock reduction with many purchasing
only to cover for existing orders. There continue to be
reports of a few large importers off-loading excess stocks
of key commodity species such as sapele and meranti at
below replacement price. As one hardwood agent
specializing in supply of Asian and American hardwoods
comments, ¡®our customers have become our main
competitors¡¯.
Despite concerted efforts by shippers in all supply regions
to curtail production, the perception in Europe is that there
is good availability of most products for prompt shipment.
Numerous offers continue to come in with buyers in a very
strong position to negotiate prices downward. When
importers do take a look at the forward market, they are
always looking to buy cheaper. Many are holding off until
they see some settling in the market.
There is, however, growing awareness in the EU that the
scope for overseas suppliers to cut prices any further for
key standard items such as sapele and meranti sawn
lumber is extremely limited. News of mass closures in
some supply regions is beginning to filter through to the
European trade, and some importers are willing to
acknowledge that it is in no one¡¯s interests to push prices
so low that even more suppliers are forced out of business.
Once the large European importers have sold off their
existing landed stock, prices must surely rise again.
Expectations are that this is unlikely to happen until at
least the middle of the year. But given that in some supply
regions capacity lost now will not come back, the price
gains could be dramatic when the market does eventually
turn.
Generally there is a feeling that in many parts of Europe
hardwood sales are holding up better than softwood sales,
the latter having been hit much harder by the dramatic
decline in residential construction in parts of Western
Europe. While underlying consumption of hardwoods at
the level of the end-user is well down on last year, the
market is not entirely inactive. As one UK-based
hardwood importer notes: ¡®we are selling hardwood every
day in every week¡¯. Another comments that his company
had met its sales targets for hardwood lumber in every
week of this year with the exception of the two weeks in
the second half of January. However, this importer also
notes that while sales volumes have been reasonable, the
margins to be made on each sale are now well down as
price expectations in the market have fallen.
Some tropical species are holding up better than others.
One UK-based trader notes that his sales of iroko and
framire have remained reasonably good in recent weeks.
Lumber in thicker sizes is performing better than thinner
stock ¨C although this creates difficulties as shippers will
generally only sell the thicker stock to importers on
condition that the importers also take some of the thinner
stock.
Weak forward purchasing affects European plywood market
Reports from across the European plywood sector indicate
very weak forward purchasing. The reasons are spelled out
in a recent issue of the German-based trade journal
EUWID: ¡®the financial situation facing European plywood
importers has deteriorated significantly over recent weeks.
Lower base prices for almost all grades and plummeting
freight rates for shipments from Asia and South America
have resulted in a sharp fall in replacement prices and thus
a devaluation of importers relatively plentiful inventories¡¯.
EUWID notes that many plywood importers are facing
liquidity problems and are therefore being forced to
attempt to offload these devalued inventories despite very
slow consumption in most sales sectors. As a result, they
are taking heavy financial losses and very few are
interested in buying in new stock. EUWID also notes that
plywood imports from Asia now face increasing
competition from Russia as that country¡¯s birch plywood
processing capacity is on the rise.
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