Strong Timber Demand

Malaysia

Economic News

22 Jul 2010
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Surging demand for Malaysian timber in construction and property projects abroad is fuelling higher export earnings in the sector. According to market research released this week by OSK Research, strong demand and tight supply have driven the rise in Malaysian timber prices over the last two years.



Timber stock analyst Loong Kok Wen said average log and plywood prices rose by about 21% and 12% respectively last year. In terms of Malaysia's economy, the wood-based industry is a major contributor, totalling $6.8bn in export earnings in 2006, a 9.3% increase over 2005.



With about 400 commercially used types of wood in Malaysia, timber and timber-based products are ranked as the fourth largest export earner in the country. As such, the sector has played a vital role in the country's industrialisation programme and contributes significantly to Malaysian industry in general. In a move to meet export demands and improve local timber provision and distribution, the government has decided target the sector for priority development. This includes efforts to maximise value-added products from forest plantations and working to establish Malaysia as a centre for top-quality wood products.



According to the Malaysian-German Chamber of Commerce, plywood is Malaysia's leading timber export, accounting for 26% of total timber export earnings. Japan is the largest importer of Malaysian timber followed by the US, the EU, China and Asean countries. Plantation Industries and Commodities Minister Peter Chin said he would like to see Malaysia not only meet export demands but reduce timber imports. The government is now looking to encourage local companies to source timber from Malaysia. In a bid to support Malaysian timber, the government has identified 16,000ha in the states of Sarawak, Pahang, Selangor and Kelantan for sustainable forest plantation programmes.



Furthermore, the Malaysian Timber Industry Board (MTIB) has been developing a comprehensive national policy to enhance the presence of Malaysian timber products in the global market. The policy will tackle the challenges and environmental issues facing the sector, including methods to provide a steady supply of timber and ensure that it is produced from sustainable forest plantations.



This policy will outline how the timber sector can benefit from extensive market research activities in Malaysia and abroad. These market studies are expected to help establish which technologies should be introduced to reduce the need for manpower while maximising production. The policy will also present possible incentives for those working in the sector; the specific incentives will be released when the policy is submitted to the Cabinet later this year.



Malaysia also announced plans at the beginning of the year to enter into a partnership with the EU to facilitate timber exports further afield. According to the MTIB's statistics, Malaysia exported more than $800m of timber products to Europe last year.
The EU accounts for about 30% of Malaysia's annual timber product exports.



Key to those exports is the outcome of negotiations next month in Brussels between Malaysia and the EU during a second round of discussions regarding the Forest Law Enforcement, Governance and Trade voluntary partnership agreement. If an agreement is reached, it would guarantee the legal export of Malaysian timber to EU countries whilst meeting the demands of the international market and changes in EU legislation. This requires timber exports to be sourced from certified sustainable and legal plantations.



A voluntary partnership agreement (VPA) between the two sides is taking longer than expected due to conflicting definitions of the term 'legality' which varies between the EU and Malaysia. For a VPA to go ahead, legally sourced timber from Malaysia must comply with the EU's forest law enforcement, governance and trade action plan, which is aimed at combating illegal logging.



Chin said the VPA will provide Malaysia a competitive edge over rivals, such as Indonesia, China and Vietnam but he expressed concern that Malaysia is subjected to different sets of standards and criteria depending on where the timber enters the EU. He said for a VPA to go ahead, an agreement on the definition of legality must be reached as well as some harmonisation of timber procurement policy within the EU.

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