KUCHING: Indonesia has reported lower log production volumes from both its natural forest concessions and plantation forest concessions last month as compared to a year ago due to the weak timber prices and sluggish market.
In February 2024, Indonesia’s log production from natural forests fell by 22 per cent from that of February 2023 while production from plantation forests plunged by 39 per cent during the same period of comparison.
“The price of logs from natural forests remain low (some below the cost of production) as a result of low demand from industry and sluggish markets (domestic and export).
This condition has a significant impact on the performance of concession companies that produce logs, and the wood processing industry.
“In addition, logs that are still preferred by buyers are Keruing, Bangkirai and Kapur (in the sinker category),” said Global Timber Index (GTI) — Indonesia Report for February 2024.
On the other hand, Meranti logs in the floater category are more difficult to sell.
However, as compared to January 2024, the logs harvested from natural forests last month soared by 266 per cent and from plantation forests surged by 41 per cent.
The GTI-Indonesia report attributed the sharp increase in month-on-month production to some concession companies having started working on the 2024 work plan that had been approved by the government while in January, there was still a transition from the 2023 logging plan to the 2024 logging plan where much of the 2023 log production had not been absorbed by the market/wood processing industry, especially natural forest logs.
So, the companies tried to spend the 2023 production stock first.
The report pointed out that the rainy weather conditions in the concession areas had hampered operational activities in the field, including transportation of logs from felling plots to log yards.
The weather conditions prevented the delivery of logs to buyers using pontoons. In addition, poor road infrastructure hampered the delivery of logs from the logging site to the wood collection point before being loaded onto the pontoon.
“In February 2024, exporters of wood products from Indonesia still felt the impact of the increase in the cost of transporting ships for export (freight) although the increase was not as high as the previous three-fold increase.
The export freight costs increased, especially for those destined for the European Union.
“The production and export of processed wood products (including plywood and furniture) did not experience much change, which had previously experienced a downward trend.
As for pulps and paper products, conditions are relatively more stable. Besides, a potential challenge is the implementation of the European Union’s Deforestation Regulation (EUDR) policy, particularly for exports to EU member states,” added the report.
A key challenge reported by GTIIndonesia enterprises was that the processed wood market, especially in Japan, was still unstable and tended to be sluggish with declining demand in several major export destinations, especially for plywood products.
As some local regulations at the provincial level prohibited the sale of logs outside the province, this has made it difficult for enterprises whose wood processing factories are located in different provinces.
To address this issue, GITIndonesia enterprises call for removal of obstacles from local regulations that hinder the circulation of timber between islands/provinces so that industries can more easily meet their raw material needs.
“To overcome the low price of natural logs and the inability of the domestic wood processing industry to fully absorb them, it is necessary to make a breakthrough by relaxing the marketing policy of wood products by strengthening the market for wood products in the domestic market and improving the supply chain of wood products,” they suggested.
As the global market for plywood products is expected to soon recover and stablise, and before that, the enterprises said it might be advisable to encourage and promote or incentivise industry players to obtain legality certification for wood products.
In February 2024, GTI-Indonesia index registered 44.0 per cent, a decrease of 1.7 percentage points from January, was below the critical value (50 per cent) for seven consecutive months.
This indicated that the business prosperity of the superior timber enterprises represented by GTI-Indonesia index shrank from January.
In February, the harvesting volume in Indonesia increased significantly. However, the number of orders was insufficient and the domestic market remained sluggish.
As for the 11 sub-indexes, the harvesting index and the inventory index of finished products were above the critical value, the production index was equal to the critical value while the remaining eight indexes were all below the critical value.
Compared to January, the indexes for harvesting, export orders, existing orders, inventory of finished products, purchase quantity and inventory of main raw materials increased by 6.5 to 43.9 percentage points.
And the indexes for new orders, purchase price, employees and delivery time declined by 1.7 to 4.7 percentage points.
