Plywood market may not improve in the near future

Plywood market may not improve in the near future

By Hidayat Jati

JAKARTA (JP): Major plywood manufacturers have expressed doubts about a recovery in Indonesia's exports in the near future, citing keener competition from other suppliers, notably Malaysia, and importers' resentment about Indonesia's export rules.

"According to our market analysis, our plywood exports are not likely to pick up in the near future," said Irtamazati Husna, corporate secretary and public relations officer of the publicly listed PT Sumalindo Lestari Jaya yesterday.

"The main reason, besides the keener competition from Malaysia, is the foreign buyers' dissatisfaction with the way Indonesia markets its plywood," Irtamazati told The Jakarta Post.

Under the "sole-exporter" system enforced by the Indonesian Wood Panel Association (Apkindo), plywood producers cannot export their products directly but must sell through trading arms appointed by Apkindo in each of the major importing countries or regions.

Official data shows that Indonesian plywood exports fell by nine percent between January and September last year, from the corresponding period in 1993, to US$2.8 billion..

Indonesia, the world's biggest plywood supplier, produces about 10 million cubic meters annually, most of which is exported to Japan, South Korea and Taiwan.

Apkindo denied that its sole-exporter rules were the main cause of the decline, while conceding that the unpopular system was one factor. The major causes, according to Apkindo, were economic recession in major importing countries, on one hand, and increased supplies from Malaysia, on the other.

In apparent contradiction to that view, K. Mazaki, an executive of Nippindo -- Apkindo's trading arm for Japan -- was quoted by The Japan Lumber Journal in its Sept.30 issue last year as saying that "Exports of Indonesian plywood have been in a great recession and this is not a temporary phenomenon but is caused by structural problems."

Although Mazaki did not explain what he meant by "structural problems", he went on to say: "Some millers (in Indonesia) are cutting their production by between 30 percent and 40 percent and some others have begun changing businesses or closing down their mills."

Irtamazari said that plywood capacity in Malaysia had increased markedly as a number of South Korean and Japanese investors had relocated their plywood mills to that country.

Plywood's future

Chairman of Apkindo, Mohammad (Bob) Hasan, was quoted by Republika yesterday as denying that the plywood industry was dying, as had suggested by one analyst.

"The decline in export earnings last year occurred only in the case of one type of plywood, which is raw plywood," he said.

An industry analyst said early this week that the poorer export performance last year would likely prompt major millers to diversify into other products such as medium-density fiber board.

Interestingly, Bob Hasan himself, who controls plywood company PT Kiani Lestari, was quoted yesterday by Bisnis Indonesia and Media Indonesia as saying that he plans to invest $20 million in a furniture mill and $900 million in a pulp plant, after his firm has gone public.

Hasan stated that the planned public listing of Kiani Lestari is has been postponed for the tome being, because of "the unfavorable condition of the local and international capital markets."

In a related development, an executive of the Japan Plywood Wholesalers' Association was recently quoted by the Japan Lumber Journal as saying that "the markets are full of stocks and users are less interested in purchases. Such substitutive material as MDF (medium density fiber board) has been making debut and a phenomenon of leaving from the plywood is taking place," the journal quotes T. Takada as saying.

Irtamazati confirmed yesterday that Sumalindo was planning to diversify into other wood panel products, namely medium density fiber board.

She said that other plywood makers would also be investing in medium density fiber board or in pulp mills because log supplies from natural forests have been decreasing.

Data compiled by the Investment Planning Board showed, she said, that the government had approved 15 medium density fiber board projects with a total investment commitment of around Rp 2 trillion (almost $1 billion) and a total capacity of around 1.95 million cubic meters.

" As hardwood plywood prices increase due to declining log supplies, consumers will prefer cheaper substitutes such as medium density fiber board, since its quality is not greatly different from ordinary plywood," Irtamazati added.

An executive from another leading plywood firm, who requested anonymity, said yesterday that his company would diversify into wood chips as its core business.

He also voiced concern that Malaysian producers who have flooded the market have sold their heavily discounted plywood under contract lasting up to three years.

"And under Apkindo's export monopoly system, we do not even know who our costumers are," he said.

The executive maintained, however, that there would always be a market for plywood because some consumers would continue to prefer products with a higher content of natural wood.