Wood products sales are rising, bringing some relief to manufacturers. However, skyrocketing prices of raw materials and logistic costs will weigh on profits this year.
VNDIRECT Securities Corporation, an investment advice company based in Vietnam, estimated that the total revenue of listed wood and wood products companies in Q1 2022 rose by 10.2% year-on- year with the recovery of wood product manufacturers in the south.
After the social distancing order was lifted, most wood product manufacturers in the southern region resumed operations at 90% capacity in the Q1 2022. In H2 2021, it was only 60-65%.
The market research and consulting firm Grand View Research forecasted the US wooden furniture market value would grow by around 7.9% over the five years from 2022-2027, driven by growth in single-family houses, while home loans in the US are at the highest level since 2018, with home loan contracts up 8% over last year in April.
Analysts expected that high demand for housing in the US would boost the purchase of wooden furniture products and that Vietnam’s timber industry could benefit from China’s reduction in production capacity.
Despite countries around the world easing COVID measures, China continued to pursue the zero-COVID policy with prolonged lockdowns in many areas such as Jiangsu, Jilin, Guangdong and Shanghai. It has been reported that three of the 10 largest wood manufacturers in China have had to close factories in Shanghai and Jiangsu due to COVID-19.
The securities firm forecasted that the real estate market would witness a recovery in the supply side in 2022 as developers would focus on boosting sales to improve cash flow. This was reflected in the prospects of strong growth in sales of listed real estate companies this year.
VNDIRECT believes that the profit margins of wood and furniture companies in 2022 would be affected as the supply shortage would continue to push up the price of wood materials. This year the gross profit margin of wood and furniture companies would continue to fall 0.4-0.6% points.
Container shipping costs have increased from US$100 per 40-feet container in July 2019 to nearly $8,850 per 40-feet container in March 2022, six times higher over five years.
Although transportation costs have shown signs of cooling in April 2022, down 10% from the previous month, the securities company still expected that logistics costs would remain at a high level.