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Report
from
Europe
Economy improves but no signs yet of rising tropical
hardwood demand
Across the EU, signs are emerging of a gradual
improvement in economic conditions and confidence.
Fears of a euro currency collapse have receded into the
background and the political situation seems more stable
in Southern Europe.
GDP growth resumed from the second quarter of 2013 in
several European countries, notably the UK and Germany.
Construction sector activity has also improved
significantly in the UK and Germany from the start of the
summer onwards.
However, there is little sign yet of these positive
developments filtering through into the European market
for tropical hardwood. After a slow start to the year and
subdued buying in summer, the EU market for tropical
sawn hardwood has continued weak into the autumn
months.
There was a brief increase in orders from European
importers during September immediately after the summer
lull to replenish depleted stocks. However, general lack of
confidence and limited availability of credit meant that
very few importers have been willing to speculate and to
build stock holdings in anticipation of stronger future
demand.
The slow pace of tropical hardwood imports into Europe
has been almost universal this year with nearly every EU
Member State recording a significant downturn in imports.
With consumption so limited for so long, the number of
tropical suppliers engaged in the European market has
declined. This means that even when demand improves ¨C
as it has recently in the case of sawn sapele ¨C supply soon
becomes a problem.
In addition to slow consumption and limited supply,
imports this year have been hampered by legality concerns
following introduction of the EU Timber Regulation
(EUTR) in March 2013 and by mounting competition
from a range of wood and non-wood substitutes.
EU imports of tropical hardwood logs down 21%
In the first 8 months of 2013, EU imports of tropical
hardwood logs were 114,000 m3, down 21% compared to
the same period in 2012.
Imports of this commodity into France, the main
destination, were down 11% at 62,000 m3. Imports from
all the leading supply countries declined, including Congo
(Kinshasa), Congo (Brazzaville), Cameroon, Central
African Republic, and Liberia (Chart 1).
The decline is due to the combined effects of weak
European demand, supply constraints and regulatory
uncertainty. Political unrest has restricted log availability
from Central African Republic in 2013.
The Liberian government placed a freeze on all logging
activities in January this year, including on the exportation
of logs from the country.
In May this year, the Forest Stewardship Council (FSC)
terminated its relationship with decorative veneer and
hardwood timber producer Danzer Group following a
complaint from an environmental group. This has further
undermined European demand for products manufactured
from Congolese logs.
Meanwhile, encouraged by the EUTR, environmental
groups have focused heavily on finding discrepancies in
the legal documentation for log exports from the Congo
basin.
A shipment of Congolese wenge logs is currently being
held in custody by the German authorities as they
deliberate over alleged irregularities in the certificates of
origin filed for the shipment.
The competent Congolese Ministry has intervened to state
that the legal documentation is correct. A final decision is
now awaited from the German authorities over whether
the shipment will be confiscated and a fine imposed.
Irrespective of the outcome, the dispute has added to the
already high level of uncertainty in the EU tropical
hardwood log trade.
Tropical sawn hardwood imports unlikely to exceed
900,000 m3 in 2013
EU imports of tropical sawn hardwood in the first 8
months of 2013 were 597,000 m3, 14% down on the same
period in 2012 (Chart 2).
After falling below 1 million m3 for the first time since
records began in 2012, it is unlikely that EU imports of
sawn tropical hardwood will exceed 900,000 m3 in 2013
and they may be as low 850,000 m3.
EU imports of tropical sawn hardwood during the first
eight months of this year fell particularly heavily from
Cameroon, at 209,800 m3 down 18% compared to the
same period in 2012. Imports also fell sharply from Brazil
(down 32% at 60,000 m3) and Ivory Coast (down 19% at
47,000 m3).
After a rapid fall between 2011 and 2012, the pace of
decline in imports from Malaysia has slowed slightly this
year. Imports of Malaysian sawn hardwood were down 7%
at 109,900 m3 during the first 8 months of 2013.
In contrast, both Gabon and the Congo (Brazzaville)
recorded rising sales of sawn hardwood in the EU during
the first 8 months of this year. EU imports from Gabon
increased 3% year-on-year to 60,200 m3, while imports
from Congo (Brazzaville) were up 44% year-on-year at
25,700 m3.
Imports of sawn tropical hardwood declined into all the
major EU markets during the first 8 months of 2013 (Chart
3).
Imports fell particularly heavily into Belgium (down 20%
compared to the same period in 2013), the Netherlands (-
16%), and the UK (-16%).
Imports into France and Italy declined sharply in 2012 and
have continued to slide in 2013, but at a slower pace. In
the first 8 months of 2013, imports were 81,100 m3 into
France and 77,800 m3 into Italy, respectively 9% and 10%
down on the same period the previous year.
Germany is the only large market where imports have
remained relatively stable this year, reaching 51,600 m3 in
the first 8 months, only 2% down on the same period in
2012.
Limited supply of sawn sapele
Falling EU imports during 2013 are only partly due to
weak demand. Limited supply of sawn sapele is now
beginning to have a significant impact on the level of
imports.
Lead times for sapele are becoming very lengthy with
orders placed now not being offered for delivery until
April next year at the earliest. This is resulting in sharply
rising prices both on an FOB basis and for landed stock in
the EU.
A number of factors are being blamed for lack of supply,
including increased diversion of trade to China and the US
and the fact that African mills have not returned to precrises
capacity.
In addition, a representative of one large EU distributor
with operations in Africa suggests that less sapele is
available in the new concession areas now being allocated
for harvesting. The reasons for this are unclear.
Supply is less of an issue and prices have been more stable
for most other major African commercial species.
Iroko prices on offer to European buyers have changed
little in recent months, although there is speculation that
this might change with rising demand, particularly in the
US and Ireland.
Expectations that Ivory Coast framire would be subject to
widespread boycott in the UK market as a result of EUTR
compliance concerns have not materialised. Although a
few former buyers are no longer engaged in the trade,
others have approved some Ivory Coast suppliers in line
with their due diligence requirements.
Those suppliers are now reaping the rewards of rising
European demand for their products, particularly in the
UK.
The low prices for framire offered by some Ivory Coast
exporters during the spring and summer months to
stimulate demand are no longer available.
Less direct competition between sapele and meranti
In the past, there was strong direct competition in the
European market between African sapele and South East
Asian meranti, so much so that prices changes in one
species would quickly impact on demand and prices in the
other.
However this relationship seems to have broken down
during the recession. The European market has become
increasingly accustomed to and oriented towards African
sapele.
In the formerly large Dutch window sector, Malaysian
meranti used to have a strong edge over African sapele
due to quicker turnaround times and tight adherence to
Dutch quality and size specifications.
However this market has been devastated in recent years
due to the recession and zealous adherence to FSC
certification standards by public authorities.
The result is that prices for meranti lumber on offer to
European buyers have remained weak and unresponsive to
the rise in prices for African sapele.
Another change is that Malaysian meranti is no longer
readily available at short notice to European buyers.
As the world‟s demand for tropical hardwood has shifted
away from Europe towards other markets, notably in Asia
and the Middle East, very few Malaysian sawmills now
maintain stocks of meranti lumber in European
specifications. Instead of waiting a few weeks for products
to arrive after ordering, turnaround times now extend to
several months.
Weak demand for hardwood for marine defence and
decking
European demand for heavy-duty species such as South
American greenheart and African ekki has been very weak
this year.
This is due both to the long-term decline in local
government funding during the recession and continuing
efforts by government authorities to substitute tropical
hardwood for other species and products with lower costs
upfront and which are perceived to have a smaller
environmental footprint.
The market for tropical decking timbers in Europe during
the 2013 summer season proved to be very slow, with
some reports suggesting demand down 20% or more
compared to the previous year.
Weather conditions in Europe were quite good this year
and there was a reasonable level of activity in the decking
sector as a whole. The decking market in the UK was
particularly good, boosted by rising business confidence
and better weather over the summer months.
However tropical hardwood has suffered a further loss of
share in the decking sector this year both to other wood
species and to Wood Plastic Composites.
Amongst tropical hardwoods, Asian bangkirai has suffered
more from substitution than South American alternatives
such as a cumaru and ipe. Orders of bangkirai for the next
spring season, usually placed in the autumn of the
preceding year, are expected to be delayed and low again
this year.
EU imports of hardwood mouldings decline 24%
In previous years, some of the decline in EU imports of
sawn tropical hardwood has been offset by rising imports
of hardwood mouldings and engineered wood products
from tropical countries. However this year, imports of
these products have also fallen sharply (Chart 4).
EU imports of hardwood mouldings, most of which derive
from developing countries, were 175,400 m3 in the first 8
months of 2013. That is 24% less than the same period in
2012.
Imports from Brazil fell particularly heavily, down 38% at
47,900 m3. Imports also fell from Indonesia (-22% at
52,100 m3), China (-11% at 23,700 m3) and Malaysia (-
34% at 8,200 m3).
Some of the decline in EU imports of hardwood
mouldings may be due to declining competitiveness
relative to EU domestic production.
For example, Brazil‟s hardwood industry continues to
suffer from high and rising labour and other business
costs, while China‟s labour costs have risen rapidly in
recent years. Hardwoods are also coming under intense
competitive pressure in the mouldings sector from pine
and MDF.
However, there are isolated reports of some tropical
hardwood products regaining market share in the
moulding sector at the expense of temperate hardwoods.
For example, in recent years American tulipwood made
significant inroads into the European market for painted
mouldings.
However this year there are reports of Ghanaian wawa
retaking share as the price of American tulipwood is
rising.
During 2013, lack of log supply and rising US and
international demand has led to a significant increase in
prices across the full range of American hardwood species.
14% fall in EU imports of window scantlings
Weak construction sector activity during 2013 has led to
further declines in EU glulam imports (Chart 5). EU
imports of this product, which consist primarily of
scantlings for the window sector, were 75,800 m3 in the
first 8 months of 2013, 14% less than the same period the
previous year.
EU imports of scantlings from Malaysia were 12,300 m3
during this period, down 36% year-on-year. Imports from
Indonesia were 14,800 m3 between January and August
2013, a 15% decline.
Short-term prospects for meranti window scantling in the
EU market seem poor. Despite limited buying this year,
importers‟ inventories have run ahead of demand in recent
weeks.
Prices in Europe have been falling and exporters in Asia
are also coming under intense pressure to reduce FOB
prices.
However, longer term prospects appear more promising.
More building permits are now being issued in Germany,
the leading European market, and there is rising
confidence in the German construction sector.
The UK construction sector is also rebounding more
strongly than expected this year. The UK has not been a
significant market for tropical hardwood glulam in the
past, but interest in engineered scantlings is now rising
with introduction of tougher quality and energy-efficiency
standards for wood windows.
These factors, together with limited supply of sapele, the
leading African wood used in European joinery, might
lead to improving European demand for meranti window
scantlings during 2014.
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