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).