By Michael Hermens
Another year has passed; it was both exciting and challenging. 2016 started out rather slow but business in general improved mid-year and continued strong towards the end. Of course, it will be easy looking back and commenting how last year was but the real challenge is predicting what this year will bring.
Surely it will be a challenging year yet again, the recent political change in the USA spearheaded by President Trump will certainly affect trade worldwide. Take note—President Trump is not wrong in trying to bring back jobs to the USA but it is not wise to aggressively turn USA’s back on various existing and on-the-table trade agreements negotiated by his predecessor(s). This will only result in a stronger relationship between China and those affected by Mr Trump’s hasty decisions.
In any case trade patterns are changing not in the least due to China’s drastically slowing economy. This has resulted in other Asian countries such as Vietnam, Indonesia and India experiencing strong domestic growth. Vietnam’s wood manufacturing industry is growing very fast and I believe that both Vietnam and Indonesia will dominate the export of Asian-made timber products.
The increased production in Vietnam and Indonesia means that more suppliers of imported resources will focus on South East Asia instead of China, and this increased competition will certainly put pressure on raw material prices. This may be good for South East Asian buyers but in general we see that lower selling prices result in less stable quality and increase claims between buyers and suppliers.
On the supply side of hardwoods, there has been a continued shortage of European oak logs and sawn timber for export in 2016, driving prices up. This will continue to put pressure on the prices of North American white oak. Some people are wondering if the high demand for oak furniture and flooring will sustain or some manufacturers might start using alternative species such as ash but I am not too optimistic about this. Oak seems to remain the “flavour” for many end-users.
Softwood prices have been rather stable in 2016 and we forecast the same this year or, worse, prices might weaken. There are many new sawmills opening in Europe and South America and this additional volume will affect any desire by suppliers increasing prices.
Another important matter is certification; Europe’s EUTR and stricter control on incoming goods are starting to pay off and many Asian countries now understand that legality is “a must” if they want to export to Europe. It will only be a matter of time when countries such as Vietnam, Myanmar, China, Laos and India realise that trading illegal products does not pay off if they want to grow their export sales.
The biggest problem remains that countries such as China and India require so much lumber domestically. Unfortunately, the legality control on the import of illegal timber for local consumption does not seem to be on their agenda. For us it is very simple; any reputable company MUST be either PEFC or FSC-certified.
Michael Hermens pens opinion for Global Wood Resources in Panels & Furniture Asia. Based in Kuala Lumpur, he is the managing director of APP Timber.