Predicting the Future: Our Comprehensive 5-Year Forecast for Supply and Demand
Recently, someone asked us about our 5-year forecast of the world’s wood industry, and the initial reaction was, “We would be very rich if we could forecast this accurately.” However, such forecasting is exactly what we have been doing for the last 25 years allowing APP Timber to grow to a U$ 25 million turnover company.
So, let’s give it a try and provide our Asian perspective related to the supply and demand of raw materials, such as logs, sawn timber, veneer, and panels, based on some current scenarios.
Supply & Demand
The Covid pandemic has upset the supply & demand situation worldwide during the last three years. The enormous shortage in late 2020, 2021, and early 2022 has turned into an equal oversupply of raw materials, and now suppliers are begging for orders.
Prices & Closures
Most sawn timber prices have dropped significantly since mid-last year, but log prices have not. Consequently, many suppliers struggle to break even, reducing their production capacities. It is only a matter of time before some sawmills will close for good, which, in the long run, might be the answer to an improved supply & demand balance.
In- and outbound sea freight rates came down from all high Covid rates. We predict this trend will continue, and rates might slide to 60-70% of pre-Covid rates, which would be good news, at least!
Politics & Economics
The global political situation is not in good shape, with many “leaders” leaning towards nationalism and protectionism, imposing trade restrictions. This has led to a weakened world economy resulting in less consumption, high inflation and interest rates, and potential bankruptcies of financial institutions. Russia’s invasion of Ukraine has added extra strains on internal relations. Today, from my point of view, the economic situation is not as bad as the downturn in 2007-2009, but it potentially could become pretty similar.
Regulations & Certifications
There is growing awareness about the need to reduce commercial logging of tropical forests. The EU just recently approved the EUDR, and one can expect other countries like the USA, Japan, and Australia to implement similar measures to tackle climate change (and for the sake of some protectionism, as mentioned above). The demand for FSC and PEFC-certified resources will grow exponentially, especially if sourced from plantation forests.
Most plantation-grown timbers are softwoods; the increased demand for this certified raw material will lead to increased demand for either impregnation or thermo-treatment. We expect this to become one of the fastest-growing segments in the construction industry.
Down Markets – the Losers
About 50% of China’s woodworking factories have closed for good. Some of this production capacity has shifted to SE Asia and Mexico. This trend will continue, and China’s future wooden product manufacturing will target domestic buyers more. China’s housing construction industry is in bad shape; many larger developers have huge debts and are insolvent. A big part of this industry is financed by “underground banks” in equally bad shape. The Chinese government is trying to limit the financial outfall from this, but it remains to be seen if their policies work.
Up Markets – the Winners
Vietnam has been the fastest-growing producer and exporter of wooden furniture during the last 15 years. This trend will continue despite today’s dire situation with more than 60% fewer exports. This temporary situation will reverse; Vietnam’s furniture production will rise again.
Indonesia is one of the fastest growing economies in the world and continues to be a leading producer not just of wooden furniture but value-added wooden construction items.
India is the “new kid on the block” and will initially become a major producer of mostly panel furniture for domestic use. It might take over five years, but India is poised to become one of the leading exporters of wood products.
Malaysia is also affected by the current lack of orders but not as bad as Vietnam, probably because of Malaysia’s wider product manufacturing range. The country will face serious challenges with the shortage of foreign labor forces the moment export demand improves. For Malaysian manufacturers, the only way forward is automation.
The Philippines and Thailand are relatively small markets, predominantly focused on domestic demand with only a few exporters. Both countries will remain relatively small yet stead players in the South East Asian woodworking industry.
The next 12 months will be challenging, and many players (suppliers & buyers) will only survive for a while. We expect the world’s economy to stabilize late next year, resulting in a demand uptrend from 2025 onwards.