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Wood Products Prices in UK and Netherlands 

01-15th September 2008

Report from Europe and the UK

EU hardwood trade outlook gloomy
Reports from the EU sawn hardwood market are generally
gloomy. Signs are that importers have returned from their
summer vacations in a very cautious frame of mind, no
doubt influenced by the release of yet more data to
indicate that economic growth is slowing. Generally
European agents report that both sales volumes and profit
margins are down. Importers are focusing heavily on
getting the best deal possible, closely scrutinizing
specifications and bargaining down prices. This is despite
the fact that on-ground stocks of many hardwood
specifications are no longer particularly high while
available supply in the major producing regions is not
great. Agents suggest that even a minor upswing in
demand in the EU could soon lead to shortages, as
overseas producers would be unable to respond quickly
enough. Agents are concerned that the European
hardwood trade, having bought too much forward last
year, may now respond by buying too little too late this

But for now, European importers seem unimpressed by
these arguments. Reports continue to circulate of
importers selling their existing landed stocks at below
replacement cost. They can hardly be blamed for their
caution. While landed stocks have declined overall in
recent months, some reports continue to suggest high
landed stocks of certain items in some areas. For example,
a report in the German trade journal EUWID in early
September notes with regard to African sawn hardwood
that ¡®several importers note that hardly any new orders
will be booked in the near future as merchants are still
generally furnished with high stocks and as onward sales
of goods remain slow¡­some merchants have announced
that they will discontinue any further purchasing at least
until the end of the year¡¯. EUWID also suggest that stocks
of African lumber of some German importers have
actually increased in recent weeks as, contrary to
expectations, some older contracts booked between six to
12 months ago were shipped over the summer period.

Meanwhile the economic news is far from encouraging.
Figures released on 3 September confirmed that the euro
area economy shrank in the three months to June 2008.
Germany has been the strongest of the area¡¯s large
economies. But even here economic growth is forecast by
The Economist to slow from 2.5% in 2007 to 1.9% in 2008
and 1.6% in 2009. And against a background of large
global imbalances and the strong euro, there are significant
downside risks to Germany¡¯s exports, which have been a
major driver of growth in recent years.

After a reasonable start to the year, the French economy is
clearly now struggling. Deteriorating consumer
confidence, a slowdown in investment and a weaker
outlook for external demand recently prompted the
Economist Intelligence Unit to lower its growth forecasts
to 1.6% and 1.5% in 2008 and 2009, respectively.
Economic indicators suggest that the slowdown is
beginning to spread from the consumer sector to industry.
Business confidence has softened. Industrial production
contracted in all sectors in May.

The Italian economy remains firmly in the doldrums. GDP
growth is forecast to slow from 1.4% in 2007 to as little as
0.4% in 2008, before picking up modestly in 2009.
Meanwhile Spain faces rising unemployment and a
contracting house building sector with national GDP
growth forecasts for the year in the region of only 0.6%-

The UK economy also stagnated during the second quarter
of 2008. Households are heavily indebted and feeling the
pinch following bursting of the housing bubble. Banks
bitten by the international credit crunch are no longer
lending. Since financial services account for a bigger share
of the UK economy than other European countries, the
crises in the banking sector is having a particularly
profound effect on UK growth. And because the UK
government spent with both hands during long years of
unremitting economic growth, this has left little scope for
fiscal fine-tuning now. The governor of the Bank of
England says that UK growth will be flat for a year.
Sterling has lost 15% of its trade-weighted value over the
past year and 5% over the past month making imports that
much more expensive.

With regard to individual species, FOB prices for sapele
and sipo sawn lumber on offer to European buyers quoted
in euros have generally been flat at a fairly low level.
However it has to be said that prices quoted by importers
for sapele are currently over a wide range and it is still
difficult to determine where the market is headed so soon
after the summer vacation period. There are still reports of
high landed stocks of sapele in some European countries.
Nevertheless European agents are now fairly confident
that the next movement in forward prices will be upwards
as EU stocks are being gradually whittled down and as
African exporters have severely curtailed production.

Iroko is one African species that has been performing
reasonably well in the European market in recent weeks.
One leading trader went so far as to refer to it as a ¡®hot
item¡¯. With good quality teak no longer available from
Myanmar, demand for iroko ¨C one of the very few species
able to replace teak in certain applications ¨C has responded

The European market for meranti sawn lumber remains
very quiet. Demand has been undermined this year by the
ready availability of on-ground sapele stocks at
competitive prices. Strengthening of the dollar-euro
exchange rate in recent weeks has only served to erode
competitiveness of the Malaysian species (which is
invoiced in dollars) even further. However reports suggest
that there is better demand for higher value specialist
meranti items, for example in fixed widths, longer lengths
and wider boards. Furthermore production cutbacks mean
that availability of meranti products for prompt shipment
is generally low despite slow buying.

Meanwhile mixed reports are emerging of demand in the
market for certified sustainable hardwoods in the
European market. In early September, the German trade
journal EUWID suggests that ¡®European demand for
African lumber with an FSC certificate reflects a special
situation: in view of continually poor availability,
suppliers report growth rates in respect of all FSC lumber
available in spite of higher sales prices¡¯.

This analysis of the certified wood market in Germany
contrasts with a more cautious appraisal coming from the
UK. A representative of one leading UK-based trading
company noted that in the current depressed market
conditions, price is now such a pressing issue that there is
very little willingness on the part of UK importers to pay
the around 15% premium charged on the very small
volumes of FSC certified African hardwood. Larger UK
importers are however buying legally verified wood
(through systems like SGS TLTV and Eurocertifor OLB)
as a matter of course, partly because they are encouraged
by wide availability at little or no premium and partly to
hedge against ENGO campaigns and protect their brand
image. However smaller importing companies in the UK
are generally not requesting either verified legal or
certified wood products, particularly in the current market

Another UK agent noted that while they are committed to
buying all their Malaysian wood as MTCC certified at a
small premium, the actual level of interest from the trade
further down the supply chain is negligible. This agent
suggested that while importers tend to pay lip service to
green issues and to stock a token amount of certified
lumber, the wider market is still largely indifferent and
strongly price driven.

Plywood market in UK quiet
In early September, the UK trade journal TTJ sums up the
UK plywood market as ¡®worryingly quiet¡¯ but also notes
that ¡®while stocks appear sufficient to cope with existing
low demand, there is also concern that a post-summer
improvement in order levels could quickly accentuate
shortages¡¯. In support of this analysis, TTJ notes that while
world demand may have been hit by a downturn ¡®the
plywood sector is grappling with a lack of capacity and a
global shortage of raw materials, notably in Brazil and
parts of the Far East. Sellers in the UK have been offering
deals on plywood in a bid to move material and yet there
is no weakness in forward prices¡¯. TTJ also notes that
Europe as a whole is under-bought in tropical hardwood
plywood and stocks are low.

Meanwhile, according to TTJ, long term continuity of
supply to the UK market is under threat. China¡¯s plywood
manufacturing sector has contracted rapidly this year as a
result of a spiking in the cost of labor, energy and raw
materials and with the removal of export subsidies. And
problems of long term supply to the UK market are likely
to be accentuated by the fact that many mills in the Far
East that now have more restricted log supply have little or
no interest in supplying UK specifications, favoring
Japanese and South Korean buyers that provide a better
return. Availability of Brazilian hardwood plywood to UK
buyers also remains very restricted due to a shortage of
logs while the relative strength of the Brazilian currency
and rising freight costs are undermining export

TTJ notes that while prices of Chinese hardwood plywood
on offer to UK buyers have increased, they remain
competitive in the UK market against Malaysian, Brazilian
and Indonesian rivals.

In early September, EUWID notes that prices for
Indonesian raw plywood on offer to German buyers have
risen with market players currently quoting prices of
Indo96 +35%-37% for 4ft by 8ft BB/CC grade. Malaysian
shippers are picking up more business in Germany
because prices for equivalent Malaysian grades are below
those of Indonesian manufacturers. EUWID notes that
prices for Chinese poplar/bintangor on offer to German
buyers have remained relatively stable in recent weeks.
Demand for this grade of plywood in Germany has been
steady over the summer months, picking up a little with
the end of the vacation period.

EU changes targets for biofuels
The BBC reported on EU lawmakers¡¯ action to limit
targets set on the use of biofuels for road transport.
Initially, the EU had set a target to generate 10% of road
transport fuel from renewable sources by 2020, which did
not include crop biofuels. However, the European
Parliament has now reduced this target to 6%, with the
other 4% to be generated from hydrogen from renewable
sources, biofuels from waste or non-food crops. The EU
reexamined this target after taking into consideration the
long-term impact on food prices and deforestation,
particularly in developing countries.



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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