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Wood Products Prices in The UK & Holland

01-15th May 2009

Report from Europe, the UK and Russia

Europe signs of economic improvement in Europe may be temporary
Indicators of economic conditions in the EU for the first
quarter of 2009 - just published - were dire. However
various &softer* survey-based indices of business
confidence suggest that the pace of contraction may have
slowed in the second quarter. Two of the most closely
watched, Germany's Ifo business confidence and the
eurozone purchasing managers' indices, suggest a marked
deceleration in the pace of economic contraction in
coming months.

But there is great uncertainty as to whether the European
economy really has hit bottom or whether the recent
slightly more positive surveys are just a temporary blip as
de-stocking has been extensive recently, allowing
industrial production to rebound briefly without
necessarily leading to a sustained recovery.

Industrial production in the 16 countries sharing the euro
was 20.2 % lower in March than the same month in 2008 -
the steepest year-on-year drop since records began in
1991, according to Eurostat, the European Union's
statistical office. The level of production in March was the
lowest since November 1997.

While March eurozone production data suggests very poor
conditions throughout the euro-zone, some areas were
much more badly afflicted than others. The figures were
dragged particularly low by weak Italian, French and
Spanish performances. Gloomy conditions have also set in
throughout much of Eastern Europe with the Baltics taking
a particular pounding. The collapse of the Spain*s
construction sector with the bursting of a large property
bubble has also left that country particularly exposed.
Spanish unemployment has soared to more than 17% of its
labor force - the highest for more than a decade.

On the other hand, German industry appears closer to
returning to growth - helped by a pickup in demand for its
exports. Indeed, a contraction of just 0.4% in German
industrial production in March compared with February
meant the eurozone fall of 2% over the same period was
the smallest since August last year.

In line with the production data, Eurozone first quarter
gross domestic product figures due to be released on 15
May are expected to show a significantly faster pace of
contraction than the already steep 1.6% fall reported in the
final three months of 2008. Economists predict a fall in
excess of 2%- significantly larger than in the US. Outside
the euro-zone, on 14 May the Bank of England cut its
growth forecasts for the UK on the back of the weakerthan-
expected first quarter. The consensus view among
institutions such as the International Monetary Fund and
European Commission is that Europe will not see recovery
until 2010 - and even then it will be only gradual.

Short term rebound in hardwood orders during fortnight
Mirroring the economic conditions, the vast majority of
European hardwood traders contacted for this report 每
many of which were visiting the Interzum show in
Cologne for suppliers to the furniture industry 每 reported
very bleak market conditions. There are reports of large
scale closures of furniture and joinery companies, with
those still operating now only working short shifts. Lack
of credit due to the restricted lending policies of the banks
has added to the difficulties created by declining

Another pernicious problem is the severe difficulties now
experienced by many European wood-based companies to
obtain credit insurance. The absence of such insurance,
designed to protect businesses from the risk of customers
defaulting on payments, effectively makes it too risky for
companies to provide goods on credit. The result is that
more companies are insisting on trading on a cash-only
basis or introducing much more restrictive payment terms,
further discouraging consumption.

There are a few reports of a brief flurry of forward orders
for hardwood sawn lumber during late April and early
May as some importers, concerned about reports of
extremely low logging levels and mill closures in key
supply regions and having bought very little over the last
six months, took the opportunity to restock. However, the
volumes involved are relatively small with few operators
willing to make speculative purchases and most focused
merely on riding out the storm by reducing stocks and
operating costs.

Credit crunch may encourage switch from real wood
One Italian importer interviewed at the Interzum show in
Cologne suggested that one disturbing impact of the credit
crunch is that it seems to be encouraging some European
furniture and joinery manufacturers to switch away from
real wood products in favor of alternatives. The long lead
times between ordering of some wood products
(particularly from the tropics) combined with the current
difficulties of assessing future consumption levels, means
that ordering these products is seen as particularly risky
under current market conditions. So manufacturers are
being encouraged to switch to materials which can be
more easily supplied on a little-and-often basis and more
easily adapted at short notice to changing consumption
patterns. So for example, Italian kitchen furniture
manufacturers are being encouraged to switch away from
solid hardwood surfaces in favor of laminates.

However, this trend is not necessarily universal. For
example in North-western Europe, where the hardwood
importing sector is more consolidated, the presence of
companies operating very large concentration yards,
particularly in the Benelux region, has helped to mitigate
the problem of long lead times for manufacturers. And in
Italy itself, one message from the recent Milan Salone de
Mobile show was that the European furniture sector is, if
anything, increasing its emphasis on high quality, high
value design-led production as a means of countering the
emerging threat from Chinese and other non-European
manufacturers. The continuing use of high quality solid
hardwood lumber and real wood veneer seems to be very
much part of this high end strategy for many
manufacturers, given the strong fashion now for &natural
materials* and for products that are more &timeless* and
durable. In Milan, if something looked like wood, it really
was wood. There was little or no use of wood look-a-like

Interzum show in Germany provides snapshot of trends
The Interzum show in Cologne Germany also provided a
useful snapshot of current trends affecting the European
hardwood market. Interzum press releases suggest that the
show this year is at least as large as the previous show in
2007 and the organizers were also optimistic numbers
would hold up well. However there was a strong feeling
amongst exhibitors interviewed on the first couple of days
of the show that visitor numbers this year were down and
that new business opportunities were much more limited
than usual. There were 7 Halls at the show, the hardwood
sector, particularly sliced veneers, dominating Hall 5
devoted to &Natural Materials*.

Interviews with veneer manufacturers at Interzum
suggested that oak is still hugely dominant in the European
sliced market, accounting for over 50% of sales. Tropical
hardwoods, which were widely displayed in Hall 5, are
believed to account for perhaps 10-15% of the market.
Among tropical hardwoods, various species of Rosewood
are currently particularly popular for surfacing high end
furniture products. These species are valued for providing
a richly colored and strong and interesting grain. It was
noted that veneer manufacturers tend to respond to client
requirements 每 so the key to increasing demand for
tropical hardwood sliced veneers is to engage directly with

The design oriented approach to marketing was
particularly well illustrated by the American Hardwood
Export Council (AHEC) at Interzum. AHEC had a large
stand at the show, a key focus of which was to illustrate a
wide range of architectural and furniture projects where
world-renowned designers had made copious use of
American hardwoods, showing off their strengths and
influencing design and fashion trends. An example is
Sclera Pavillion designed by David Adjaye in American
tulipwood for the London Design Festival.

Unlike in Milan, there was very heavy promotion of FSC
and PEFC certification at Interzum. Most of the leading
veneer manufacturers and lumber suppliers at the show
made a point of prominently displaying one or other logo
on their stands. A well attended press conference
organized by FSC-Germany and Inter-African Forest
Industries Association highlighted the recent significant
progress to expand FSC certification in the Congo Basin.

One particularly interesting anecdote from the Interzum
show 每 which might be an indication of where the
international veneer sector is headed in the furniture 每 is
that Turakhia Overseas Pvt. Ltd, one of India*s largest
decorative veneer manufacturers participating at the show
for the first time, won an Interzum Award for High
Product Quality. It seems that European manufacturers 每
that have traditionally dominated the world*s decorative
veneer sector 每 face mounting competition from new
emerging supply sources.

European Parliament begins vetting proposals for illegal timber law
On 23 April 2009, the European Parliament voted in favor
of proposals to introduce a law designed to reduce risk of
illegal wood entering EU supply chains. There are still
several hurdles before the proposal eventually becomes
law. The legislation still faces the more challenging
prospect of having to be endorsed by the European
Council of Ministers. Should this process eventually come
to fruition, the law could have a profound impact on the
European wood supply chain and to alter the relative
competitiveness of different supply regions.

The European Parliamentary vote followed on from
European Commission proposals released in October 2008
for a law that would require individual European operators
engaged in the trade and production of wood products to
implement a &due diligence* management system to
minimize the risk of any illegal wood entering their supply

Prior to voting on the law, the European Parliament*s
Environment Committee made very far-reaching
alterations to the text which, taken together, completely
alter the proposed scope and nature of the controls that
would be imposed on the European wood trade.

The original proposal issued by the European Commission
would require European companies to first implement a
risk assessment system and then to introduce extra
measures to verify the legality of products only from those
suppliers considered high risk from the perspective of
illegal logging. The risk assessment procedures were seen
as proportionate to a situation in which only around 5% of
wood consumed in the EU is at potential risk of being
derived from an illegal source. The aim was to focus
limited time and resources only on those supply regions
where illegal logging is deemed to be a problem, to give a
market incentive for adoption of FLEGT Voluntary
Partnership Agreements in these regions, and to avoid
imposing extra costs and bureaucracy on suppliers in areas
that are low risk with respect to illegal logging.

The risk assessment procedures were also intended to
avoid the profound difficulties associated with &proving
legality* in the wood supply chain which often involves
considerable mixing and recombining of wood raw
material from numerous supply sources during grading,
processing and manufacturing. These difficulties are
particularly pronounced when raw material derives from
small non-industrial forest owners.

In contrast, the legislative text agreed by the European
Parliament introduces a new requirement that &operators
shall ensure that only legally harvested timber and timber
products are made available on the market*. This amounts
to a reversal of the burden of proof, implying that
prosecutions could be brought against European wood
trading companies because they are unable to prove the
legality of a timber product. Furthermore, the
Parliamentary text proposes that, in order to prove legality,
operators would have to employ a full traceability system
and third party verification. This requirement would be
imposed irrespective of the level of risk of illegal wood

The Parliament*s text also proposes that if an operator is
&presumed to have infringed these requirements*,
government authorities should have powers to seize timber
products and to order the operator to immediately cease
commercial activities pending a full investigation.
Therefore, according to this text, an operator may be
closed down on the basis of a suspected failure to meet its
obligation to demonstrate the legality of all wood supplies.

Unlike the European Commission*s text, the Parliament*s
text proposes that the requirements be imposed
immediately. A two-year bedding-in period proposed by
the Commission is dropped, with no time to be allowed to
develop the necessary competence, capacity or procedures.

The legislative proposal, including both the EC*s original
text and the Parliament*s amendments is due to be put
before the European Council of Ministers in the next few
weeks. The Swedish government which holds the
European Presidency during the second half of 2009 is
likely to be primarily responsible for navigating the
legislation through the Council. Quoted in a recent article, Swedish government officials say
they are hoping to finalize the new timber legislation
during their EU presidency but that the negotiating
difficulties are considerable.

Another member-state source told that the
Council are taking a very different line compared to the
Parliament, being more concerned with the technical
issues in the draft text, such as how to make the
monitoring and compliance systems work. This source
also noted that &the Parliament's approach is more
ideological* and also acknowledged that the obligation for
all operators to check the origin of their timber would
place a heavy burden on the industry.


LM       Loyale Merchant, a grade of log parcel  Cu.m         Cubic Metre
QS        Qualite Superieure    Koku         0.278 Cu.m or 120BF
CI          Choix Industriel                                                       FFR           French Franc
CE         Choix Economique                                                        SQ              Sawmill Quality
CS         Choix Supplimentaire      SSQ            Select Sawmill Quality
FOB      Free-on-Board     FAS            Sawnwood Grade First and
KD        Kiln Dry                               Second 
AD        Air Dry        WBP           Water and Boil Proof
Boule    A Log Sawn Through and Through MR              Moisture Resistant
              the boards from one log are bundled                      pc         per piece      
              together                      ea                each      
BB/CC  Grade B faced and Grade C backed MBF           1000 Board Feet          
              Plywood   MDF           Medium Density Fibreboard
BF        Board Foot F.CFA         CFA Franc        
Sq.Ft     Square Foot              Price has moved up or down

Source: ITTO'  Tropical Timber Market Report

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