Japan: «The plywood market is undergoing major changes»

There are major changes taking place in Japan’s plywood importing sector brought on by falling production in Sarawak and to log supply issues in Indonesia, ITTO reports. The volume of May plywood imports dropped a massive 37% year on year, imports were also down 27% from April. The Biggest losses were recorded in shipments from Malaysia which were down 34% year on year and also -34% month on month.

Shipments from Indonesia dropped 40% year on year in May and were down 26% compared to the volume of April imports. China ships some plywood to Japan but is not a major supplier. The volume of May shipments from China dropped 20% year on year but rose 10% month on month.

As in previous months, imports were dominated by HS 441231 accounting for 88% of all May imports. HS441233 and 34 contributed 5% each with another 2% being HS441239.

Plywood import by HS 441210-39, thousand m³

Source: Ministry of Finance of Japan

The main importing countries. The import volume of plywood in Japan for the period Jan. 2016 – May 2019, thousand m3

Source: Ministry of Finance of Japan

Performance of building material trading firms

Sales of four building materials trading firms, Itochu Kenzai Corporation, SMB Kenzai Co., Ltd, Sojitz Building materials Co., Ltd. and Tomen Materia Corporation and Sumitomo Forestry for the term ended March 2019 are almost unchanged from the last term but the profit declined.

The largest reason is soaring cost of imported hardwood plywood in the second half of the year and they failed to pass higher cost onto sales prices by weak market. Also new housing starts decreased by 2.3% so sales of building materials were slow.

Total sales by five companies are 1,220.5 billion yen, 2.3% more than the last term. Ordinary profit increased by three billion yen is by large increase of Sumitomo Forestry and that of remaining four companies is 11.2% less than last term.

Sales increased by 27.7 billion yen out of which plywood business was 16.3 billion yen (2.4 billion yen of domestic and 13.9 billion yen of imported plywood). Non-wood  materials were 9.9 billion yen. Construction and materials were 3.2 billion yen. Wood products were 2.6 billion yen and house appliances were 300 million yen. Almost half of increased sales were imported plywood.

First half was booming then the cost of thin plywood and floor base soared in the second half and they failed to pass the high cost onto sales prices so they suffered large loss  to wipe out profit in the first half.

Construction and related materials were good. Renovation business did not grow. Home appliance business is flat.

In sales, Sumitomo Forestry is the top with 378 billion yen and SMB Kenzai is the second with 338 billion yen. Itochu Kenzai was the third with 308 billion yen.

Sumitomo Forestry shifted overseas manufacturing  business to the building materials division and New Zealand manufacturing business transferred tree plantation  business to subsidiary company and 8.4 billion yen of profit by transfer is listed as ordinary profit, which pushed the profit up.

Itochu Kenzai made profit in all the business but plywood so total profit decreased but three subsidiary companies registered sales of 28.6 billion yen with ordinary profit of one billion yen so consolidated sales are 330 billion yen with current income of 2.9 billion yen, which are the record high.

A comparison of the market of plywood in Japan with the markets of other countries

In the first 5 months of this year woodbased panel output in Guangdong Province declined. Output of plywood in the first 5 months fell 5% to 1.08 million cubic metres, MDF output dropped 5% to 1.24 million cubic metres and output of particleboard dropped 27% to 760 000 cubic metres.

US imports of hardwood plywood rose by 7% in May, but the volume, at 191,701 cubic metres, remains more than 25% less than that of last May. Import volumes are down 9% year to date, with imports from China, Indonesia and Cambodia all down more than one third for the year.

May imports from Vietnam were their strongest of the year and are now more than doubling 2018 in volume year to date. Imports from Russia rose by 29% in May, but still were weaker than those of May 2018.

The media in Sarawak recently highlighted the impact declining log production and rising production costs are having on the plywood industry in Sarawak.

Hashim Bojet, General Manager of the Sarawak Timber Industry Development Corporation, (STIDC) said he is concerned that, because of the log shortage and rising production costs, some plywood mills, including the major producers in Sarawak, have had to cut production and that some are considering closing operations entirely.

Industry analysts point out that increased charges by the State such as the ‘cess’ and ‘premium’ are the main causes for the higher production costs. Since July 2017 the Sarawak government has raised the ‘premium’ to RM50 per cubic metre for all species from hill forests as well as logs of hill species from agro-conversion areas. Previously the ‘premium was RM0.8 per cubic metre.

The increase in hill timber ‘premium’ and the rehabilitation and development ‘cess’, which amounts to RM55 per cubic metre has raised the cost of logs and timber products by around RM110 per cubic metre (assuming a recovery rate of 50%). (Note: Premium and Cess are financial mechanisms which allow States in Malaysia to capture payments from concessionaires).

According to Hashim, the Sarawak government has allowed plywood mills to import logs adding this is exactly what other countries such as India, Vietnam and Japan doing in order to maintain production.