EU tropical wood import value at highest level for a decade

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In the first three months of this year, the value of EU imports of tropical wood and wooden furniture was at a level not seen for over a decade.

Import value was US$1.05 billion in the first quarter, a gain of 22% compared to the same period last year. It was also 16% up on the last quarter in 2021 when trade was already at a decadal high for that period of the year.

A large part of the gain in tropical wood import value in the first quarter this year reflected a rise in CIF prices, driven both by continuing high freight rates and severe shortages of wood and other materials due to logistical challenges during the global pandemic. In quantity terms, EU imports of tropical wood and wooden furniture products in the first quarter this year were, at 459,000 tonnes, up only 10% compared to the same period in 2021 and slightly below the pre-pandemic level of 479,000 tonnes in the first quarter of 2020.

The Drewry World Container Index shows that global rates for a 40 foot container, after peaking at US$10400 in the middle of September 2021 compared to US$2000 in the same month in 2020, were still in excess of US$9000 for most of the first quarter this year.

The index began to fall from mid-March this year but remains at an historically high level of US$7600 in May. Nevertheless, a robust rebound in EU economic activity following the COVID downturn did play a role to underpin stronger trade in tropical wood products during the first quarter this year. Rising activity in key sectors such as furniture and construction, particularly in private sector renovation, maintenance, and improvement (RMI), coincided with severe shortfalls in the supply of tropical wood alternatives.

These shortfalls have become even more pronounced since Russia's invasion of Ukraine on 24 February greatly curtailed availability from Russia, Belarus and Ukraine. Together these three countries accounted for over 50% of all wood fibre imported into the EU for outside the bloc last year.

The curtailment of supplies from these countries is opening up new opportunities in the EU market for some tropical wood products, notably plywood and decking for which Russian birch and larch products have been important substitutes.

The first quarter import data doesn't reveal any increase in share for tropical wood in the EU market, unsurprising as the full impact of the war in Ukraine on wood supply in the EU had yet to be felt in that period. However, EU imports from Russia and Belarus did begin to decline during this period and early beneficiaries of the opening supply gap appear to have been Norway, China and, most notably, Brazil (non-tropical products only).

Meanwhile the war in Ukraine is having a severely detrimental effect on the wider European economy. Before the invasion, the EU economy was well positioned for robust recovery as COVID restrictions have been eased and as funds from the €723.8 billion Recovery and Resilience Facility are now being rolled out across the EU Member States.

But now growth projections are being severely cut back in the face of rapidly rising energy costs as EU countries are under considerable pressure to reduce dependence on Russian gas and oil. Rising energy costs, combined with the direct impact of the war and trade sanctions on availability of agricultural and other essential commodities, is driving inflation in the EU to historically high levels.

The inflation shock has been made worse by the impact on supply chains from Covid lockdowns in China.

To dampen inflation, European central banks are now under pressure to raise interest rates. But this would bring borrowing costs to levels unseen since the recession caused by the 2008 financial crisis and would likely undermine fragile consumer confidence and reduce business investment. So while EU demand for wood products was high at the start of this year, it may tail off later in the year.

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