RI plywood industries suffer under Asian woes

RI plywood industries suffer under Asian woes

By Sylvia Gratia M. Nirang

JAKARTA (JP): The monetary turmoil affecting several Asian
countries has significantly cut demand for plywood in overseas
markets, and might slowly kill Indonesia's plywood industries.

Vice chairman of the Association of Indonesian Wood Panel
Producers (Apkindo), Abbas Adhar, said the falling demand has
forced at least 30 plywood producers out of business.

"The sluggish demand might kill most of Indonesia's plywood
companies," he said, adding that 30 plywood producers, accounting
for almost a third of the country's 112 plywood producers, have
already closed.

Minister of Forestry Djamaludin Suryohadikusumo has predicted
that demand for Indonesia's wood products from main buyers such
as Japan and South Korea would continue to decline until next
year.

"The monetary crisis has hit the property sector and as most
wood products, especially plywood, are used by the property
sector, the demand for plywood has also been hit," he said.

He said that since November, the demand for plywood had
dropped by over 30 percent.

Indonesian wood products should have been more competitive in
overseas markets with the rupiah's sharp depreciation against the
U.S dollar.

But weakening currencies of Indonesia's main plywood
importers, Japan and South Korea, have not only slowed the two
countries' property sectors but also weakened their importers'
ability to buy Indonesian products. Japan is the biggest importer
of Indonesian plywood while South Korea is the third.

Apkindo's executive chairman, A. Tjipto Wignjoprajitno, said
that Indonesia's plywood export volume had decreased since the
beginning of the monetary turmoil in early July last year.

Plywood exports, which reached 728,777 cubic meters in July,
continued to drop in the following months, to 668,659 cubic
meters in August, 621,671 cubic meters in September and 557,812
cubic meters in November .

The price of Indonesian plywood on the world market, which
reached an average US$503 per cubic meter in the first semester
of last year, has showed a decreasing trend since August. In
November, for example, the plywood price dropped to $443 per
cubic meter.

Plywood, a wood panel product, is Indonesia's second largest
non-oil and gas foreign currency earner after textiles and
textile products.

Statistics

According to official statistics, plywood exports reached 7.85
million cubic meters, worth $3.58 billion, last year. The number
is lower than that for 1996, when Indonesia exported 8.51 million
cubic meters, worth $4.01 billion. About 3.1 million cubic meters
were exported to Japan.

Plywood exports peaked in 1993, when export volume reached
9.71 million cubic meters, worth $4.57 billion.

Timber tycoon Mohammad "Bob" Hasan, Apkindo's chairman, said
that plywood exports to South Korea are expected to continue
falling due to the rejection of South Korean letters of credits
(L/Cs) by Indonesian banks.

He said many Indonesian banks were worried that South Korean
banks might be liquidated because that country's economy was
facing a similar crisis.

Bob said about 300,000 cubic meters of plywood remained
untouched in South Korean ports due to the rejection of their
L/Cs while Indonesian exporters still have to pay for storage.

South Korea imported over 950,000 cubic meters of plywood in
1996. Last year, it was only about 500,000 -- 52 percent of
1996's total plywood exports.

But Apkindo seems quite optimistic that it will reach its
export target of 8 million cubic meter this year despite the
sluggish demand.

Bob said if Indonesia reduced its exports, other countries
such as Malaysia, would quickly fill the market.

"We have to keep exporting our plywood to prevent other
countries from taking away our market share," he said.

Malaysia, with an annual production of between 4.2 million and
4.5 million cubic meters, is the second-largest supplier of
plywood in the world, after Indonesia. Both countries compete in
almost similar markets overseas.

Tjipto said that apart from the sluggish demand, Indonesian
plywood industries also face higher production costs. The
rupiah's fall against the greenback has caused a sharp increase
not only in shipment costs but also a surge in the price of
supporting materials, such as glue.

The government's recent decision to reduce the export tax on
logs to a maximum 10 percent is also expected to give another
blow to Indonesia's plywood industry due to scarcity of a log
supply in the country.

Many analysts said the decision would encourage timber
companies to export logs rather than to supply local wood-
processing industries.

Djamaludin said local wood-based companies should be more
innovative to overcome the crisis, such as by expanding their
markets outside Japan and Korea.

"It's dangerous if businesspeople rely on just one or two
countries to export to. We should not depend on our traditional
plywood markets, Japan and Korea, especially while the two
countries are suffering from currency turmoil," he said.

Tjipto said he was optimistic that Indonesia's plywood exports
to other markets, such as European countries, the United States
and Middle East, would grow rapidly this year due to the strong
demand caused by growing property sectors in those countries.

"Indonesia's plywood exports to those areas reached over 2.5
million cubic meters last year, and it is estimated to increase
this year," Tjipto said.

He said that plywood exports this year are expected to reach
over 8 million cubic meters.

Despite the unfavorable market situation, most plywood
producers said marketing their wood products overseas this year
would be much easier than before as the result of the
government's recent decision to remove Apkindo's cartel-like
activities.

Indonesian plywood would never be separated from Apkindo's
role. Since the early 1990s, Apkindo, with the consent of the
government, has obliged all plywood companies (currently 112) to
export only through its trading arms, set up in various regions.

The association was initially praised for stopping a price war
between exporters in the second half of the 1980s and protecting
them from the unfair practices of capitally strong buyers
overseas.

However, many plywood producers have long complained about
rent-seeking practices by the association and its trading arms,
which have virtually monopolized plywood trading.

But starting Feb. 2, wood-panel exporters have been able to
deal directly with buyers overseas because the government issued
new rules following a 50-point agreement with the International
Monetary Fund (IMF), a condition for a US$43 billion bailout
package arranged by the IMF.

The memorandum stipulates that formal and informal restrictive
marketing arrangements -- including those for cement, paper and
plywood -- will be dissolved as of Feb.1.

Bob and Tjipto strongly denied that the marketing systems
built by Apkindo was a cartel, saying that Apkindo only monitored
prices in the international market and provided them to
exporters.

Table: Indonesia's plywood exports, 1992 to 1997

(Year; Volume (million cubic meter); Value (billion US$):
(1992; 9.83; 3.54),
(1993; 9.71; 4.57),
(1994; 8.91; 3.73),
(1995; 8.75; 3.88),
(1996; 8.51; 4.01),
(1997; 7.85; 3.58).