WEAKER DEMAND: RHB Research says there should be an increase in log supply after the current seasonal wet weather conditions in Sarawak ends, but it believes log prices will remain firm at current levels due to the strill robust demand from India.
KUCHING: Malaysia’s timber sector enters ‘unknown territory’ as analysts remain cautious that the recovery in Japan housing starts could stall due to a protracted slowdown in the global economy.
This could weigh on timber prices and timber companies earnings over the longer term, said RHB Research Institute Sdn Bhd (RHB Research) in a research report yesterday.
According to the latest statistics from Japan Lumber Importers’ Association (JLIA), arrivals of imported plywood had picked up to about 240,000-260,000 cubic metre (m3) in October and November, although this was still low compared with monthly import volumes of about 280,000-430,000 m3 seen in March-August.
Nevertheless, despite the pick-up in imports, de-stocking of plywood inventory in Japan was actually still on-going, indicated by the increase in outgoing stocks and the decline in inventory level at main ports in Japan.
This again suggested that reconstruction activities of the earthquake-damaged area were starting to gain pace. “At the current pace of de-stocking, we believe plywood inventory in Japan should return to a normalised level in another one to two months,” said RHB Research.
This would mean higher plywood demand, as reconstruction activities could likely be in full swing by February after the current winter period ends.
However, the research firm believed it would be premature to turn bullish on plywood prices at this juncture, as the outlook for plywood demand from other areas in Japan (excluding reconstruction area) remained uncertain.
Japan Lumber report also stated that plywood suppliers tried to increase export prices recently, but these attempts were resisted by buyers as they remained cautious about the outlook of the plywood market in Japan.
RHB Research sensitivity analysis pointed out its current forecast for log (minus eight year-on-year) and plywood (minus four y-o-y) prices in 2012 were quite conservative.
“Having said that, we recognise that timber prices could possibly turn out to be higher that we expect as a result of excess liquidity flows in the market that could spur commodity prices. Hence, this could impact our earnings forecast significantly as timber companies’ earnings are quite sensitive to timber prices,” it said.
Nevertheless, it still favoured Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd as there would be significant boost to both the company’s earnings from the plantation division going forward due to increasing fresh fruit bunch production volume and favourable crude palm oil price.