Indonesia to expand its exports with supply reductions from China and Malaysia

China, a powerhouse on the global stage, has always played a decisive role in the global plywood market along with Asia.

But the slowdown of the economy in 2014 saw a contraction in domestic demand for the Chinese economy, hence, pushing Chinese manufacturers to increase exports. Last year, however, the PRC was unable to avoid the first decline in plywood exports in five years; total exports amounted to 10.8 million cubic metres in real terms (as estimated by market research publisher IndexBox Marketing). The introduction of restrictive tax duties by the major consumer countries, the USA and the EU in particular, was one reason accounting for this decline.

According to Irina Andreeva, a market analyst at Indexbox Marketing, Chinese manufacturers occupy a low-quality niche in global market, with low-grade types of plywood: resins with high formaldehyde emissions are used in the manufacturing process. While the quality of Chinese plywood products can be erratic, their low cost means a high demand. In addition, cost-effective labour and cheap raw materials make it feasible for the Chinese manufacturers to maintain low prices. Additionally, the growing deficit in raw materials is making manufacturers increasingly dependent on raw materials imports; this, combined with rising labour costs is contributing to higher end product prices. As a result, Chinese plywood is starting to lose its competitive edge over other manufacturers.

To further reflect China’s competitive edge, Malaysia, one of China’s main competitors, has specialised in the manufacture of tropical wood-based products for export. Last year, the country appeared to be the most profitable in terms of price, when compared with all the other Asian country-suppliers of plywood, including China, as Chinese products were higher in terms of cost, but lower in quality. But this did not prevent a drop in Malaysian exports last year; over the past several consecutive years, Malaysian exports have been contracting due to the reduced procurement of tropical plywood in Europe, where consumers are increasingly opting for other types of hardwood plywood. The 15% decline in exports, however, has not resulted in reduced levels of output in Malaysia: in fact, domestic demand growth has offset the partial loss from foreign markets.

Another competitor, Indonesia, also saw an increase in exports by 5%, to 2.6 million cubic metres (as estimated by IndexBox). Japan is one of the main consumers of Indonesian plywood but, unlike South Korea and the USA, which last year increased imports by 30% and 29% respectively, Japan has slashed procurement by 18%, due to the falling domestic demand for plywood, according to Andreeva.

It has been predicted that in 2016-2017, Indonesia is most likely to increase its plywood imports due to the relaxation of administrative restriction developed by countries on Indonesian imports. For example, last summer, the European Union recognised the right of the Indonesian government to issue local manufacturers with licences for EU timber exports; these will be effective as of November 15. Increased exports will assist in Jakarta’s official planned alleviation of corporate taxes by 5 percentage points, to 20%. As a result, the rate of growth of Indonesian plywood output is projected to increase in the medium term. 


Source: IndexBox Marketing & consulting