HARRY BOOTH IS an Australian private consultant for forest industries. Formerly he was a Forest Industries Officer with the FAO.
What is happening and what should be done in view of raw material constraints' costlier energy and shipping and the implications of new technologies.
Dramatic changes in raw material prices, energy availability and in technologies have occurred since 1977. These changes are beginning to have profound effects on the world wood-based panels industry, effects which are already manifest in the Pacific basin, particularly in the area of Southeast Asia. The three main determinants of change in the wood-based panels industry today are availability of raw materials, technology, and cost and availability of energy. Of course, these three factors have not suddenly emerged from the undergrowth, as it were. They have been around for many years and have always exerted their influence on development. The characteristics of the present situation are that these factors have now assumed a dominant influence on the development of the industry, especially in Southeast Asia.
There are three main categories of wood-based panels: plywood, particle board and fibreboard. The three key factors mentioned above exert their influence on these products in different ways, become of products' different intrinsic properties and the special role each one plays in international trade.
Plywood is the most important export product for two reasons. It has a higher unit price and can therefore tolerate freight charges better than the other two; and it is more demanding in its raw material, which means that if this is not available in a country any plywood needed must be imported.
Over the decade to 1973 the wood-based panels industry showed a picture of steady growth in production and trade. In 1973, however, the dramatic rise in oil prices ushered in a period of great uncertainty. Despite this, world production of all products has increased, though plywood production probably reached a peak in 1973 that will not easily be surpassed.
To better understand the changes likely to take place in the industry in Southeast Asia we should take a look at the history of its growth.
The raw material base for the growth of plywood production was the Dipterocarp forests located principally in Indonesia, Malaysia and the Philippines. The species group is broadly known as Meranti or Lauan and mainly comprises the genus Shorea and genus Parashorea.
Until the early fifties the industry was of little significance. Logs for sawmilling and plywood were exported in small quantities mainly to Australia and there was some production of plywood and veneer in the Philippines. In this period the Meranti timbers established themselves as ideal for the manufacture of utility plywood. It was not until the postwar economic recovery began to gather pace that the export of logs on a large scale to Australia got under way. Malaysia and the Philippines were initially the major log suppliers, little being available from Indonesia until the change of government policy in the late sixties. After that, Indonesian log production climbed rapidly to become the most important of the group. Log export market shares in 1978 were: Indonesia 57 percent, Malaysia (Sabah and Sarawak only as log shippers) 33 percent, Philippines 8 percent and Papua New Guinea 2 percent. The total volume shipped was slightly less than 40 million m³. Not all was used for plywood; about 40 percent was sawn.
Japan took 49.5 percent of shipments and, together with the Republic of Korea, Taiwan Province of China, and Singapore, took 98.4 percent of all shipments from Indonesia. The picture for other log exporters is much the same.
This business of importing logs and exporting finished plywood known as "transit" processing is highly dependent on good manufacturing technology and very subject to freight rates.
An idea of the quality of the peeler logs and the processing technology can be gained from the figure for finished plywood recovery for the Korean industry in 1979. According to the Japanese Lumber Journal (21 March 1979) recovery from 1 m³ of logs was 93 sheets of 4 mm, 2 × 1 m or 61 percent on a volume basis. As a general yardstick of costs and profits, it was reckoned in the Republic of Korea in 1979 that, when the CIF price of logs is US$120 per m³, the FOB export price of plywood should be about US$360 per m³, giving an added value of around US$100 per m³ of logs.
By the beginning of 1978 the whole of Asia accounted for 31.6 percent of world plywood production but only 4.2 percent of particle board production, and 5.8 percent of fibreboard production. Its exports were as follows (in percentages of world exports): ply wood 61.8 percent, particle board a mere 1.1 percent and fibreboard only 1.0 percent.
Most of the plywood which was exported was produced in the Republic of Korea, Taiwan Province of China, Singapore, Malaysia and the Philippines. The raw material was overwhelmingly Meranti from Indonesia, Malaysia and the Philippines.
The log supplies came from climax tropical forests carrying a mixture of species but practically only the Meranti group was extracted. The level of control over extraction and management of regeneration over the years has been, in nearly all cases, minimal. Consequently, after more than 30 years of logging on a steadily increasing scale, it was not surprising that questions arose about the forests' capacity to sustain this level of log extraction for much longer.
A PLYWOOD MILL IN THE PHILIPPINES an industry that is not about to disappear but is ready for far-reaching changes
No doubt inspired by the situation and the example of the log producers by 1977 had succeeded in forming an organization to regulate the exports from Indonesia, Malaysia, the Philippines and Papua New Guinea known as the Southeast Asia Lumber Producers Association (SEALPA).
In 1978 log exports of members of SEALPA amounted to 39.3 million m³. Export quotas were set at 15 per cent less than this figure for 1979. Thus it was not surprising that log export prices began to climb at the start of 1979, as consuming countries set about securing the quantities of logs they believed they would require. Prices rose steadily through 1979, eventually peaking at a level in September above that which could support plywood production for export to the United States at a profitable level. Because of the depressed state of the US market, buyers could not pay the high prices being quoted. As a result :log demand dried up and prices fell back somewhat.
The going price of logs at present is sustained by two principal factors: the underlying firmess brought about by the SEALPA export quotas, which make it more difficult to play one supplier off against another, as was the pattern previously. and the very real problems of maintaining supply from a declining resource, against a background of ever-rising logging and transport costs.
FOB prices from the Indonesian port of' Balikpapan in West Kalimantan are shown in the Japan Lumber Journal and are the lower end of the rounded price range given by the Journal.
Over the same period ocean-freight rates for dogs were also driven up by the: rising price of bunker fuel. From Balikpapan to Japan freight opened the year at about US$16 and by September had reached about US$27 per m³. Freight to the Republic of Korea is about the same, but to Taiwan Province it is slightly lower.
There is a variation in the quality of dogs which each country is able to use. The Republic of Korea requires the highest quality since it is mainly producing high appearance-grade panels for the US and EEC' markets. Japan takes a lower oversell quality since a significant proportion of its production :is concrete shuttering and utility plywood. Taiwan Province also takes a lower quality log mix and can also accept a certain volume of other species since it produces mainly doorskins for export and large quantities of furniture for the United States market.
There is undoubtedly some scope for increasing the log supply and reducing log costs by increased use of other species but, in practice, it is very difficult to achieve much. Japan and Taiwan Province are in the best position to accept some other species. But usually there are good technical reasons for not wanting the other species. Often they are less durable and do not travel well; they may have higher or more uneven shrinkage; they may be too dense or carry silica which abrades cutting tools; appearance may be inferior or occurrence may be sporadic leading to marketing difficulties. From the logger's point of view, other species at a lower price are the last alternative for him, for the result is merely a lower cash flow and profit and greater marketing difficulties. Extracting other species from a forest which has already been creamed over for the high value export species can be a costly operation. It can play a part in eking out supplies but is not likely to provide a solution to the problems of industry as it is at present structured; in other words, without an injection of technology, the raw material crisis cannot be solved.
A trend in price development, similar to that of hardwoods, although with a slight time lag, has been noted for shipments to Japan of softwood logs from the USSR.
Production of plywood is not about to disappear from the region. But it seems that a series of far-reaching changes in the industry will soon lead to emergence of new products, relocation of plywood plants closer to remaining raw material resources, and to a switch by existing plants, particularly in Japan, to softwood logs both locally grown and imported. The realignment of the industry in this area will see new solutions emerge, conditioned by raw :materials, energy and technology.
There are certain key questions which producers must now answer if they are to preserve the industry in anything resembling its present form. For Japanese producers it would be the following:
"On what raw material base can production of plywood or wood-based based panels in general of the kinds needed by the Japanese internal market be continued in the immediate and long-term future?"
For producers in such countries as the Republic of Korea and Taiwan Province of China it would be:
"Given that raw materials for our present type of export plywood are declining, what alternative raw materials and what type of products can we economically produce and sell to replace the thin, high quality plywood no longer available?"
For producers of Meranti-type logs, he question is:
"What is the best strategy to follow, as producers of a! declining volume of logs, to maintain and perhaps increase our overall foreign exchange earnings and employment levels for our people?"
In October 1979 the Asian Plywood Manufacturers' Conference (APMC) held their sixth meeting in Djakarta under the significant slogan "Perpetuation of the Asian Plywood Industry through Effective Resource Management and Market Development". The documents of this conference and the statements of its participants tell their own story. Two fables presented at the Conference by SEALPA show the way the wind is blowing. They spell out the steady decline in resource availability for the coming years. The demand estimates make sober reading when compared with the meteoric expansion of the industry from almost nothing in the early fifties to its peak in the mid-seventies. Any dynamic industry must show continuous growth. The traditional log supply situation in the area no longer corresponds with the needs of a dynamic industry. Hence the inevitability of profound change.
A study of the documents of the APMC meeting suggests the following conclusions:
· The log supply is declining due to serious overcutting in earlier years.
· Those countries which still possess significant log resources are determined to restrict log output to the sustained yield possibilities of their remaining resource.
· Destruction of forests by slash and burn agriculture, driven by population growth, will further reduce log yields and cause output to fall at an even faster rate than expected.
· Log producers are determined to set their log prices at levels which match the pre-1973 ratio ruling between imported manufactured goods and machinery from the developed world and FOB log prices. In other words, they aim to stop the sale of their log raw material at below par prices in line with the objectives of the "Group of 77" nations.
· Parallel with raising log prices and restricting log export volumes, the log producing countries aim to expand processing in their own countries. Initial sawnmilling and plywood production are to be encouraged. This activity will probably lead to an increase of the local per caput consumption levels of plywood; this will further reduce exports of plywood from the region as a whole.
Each group of countries sees the problems of the industry from its own viewpoint, reflecting the contradictions of the overall situation. To get a better idea of where the resolution of these contradictions lies, we must analyse the situation and options of all the groups.
The best strategy for this group to follow is almost certainly to increase local processing of their raw materials. Such processing should be based on sustained yield management of the remaining forest resource. The strong market position of Meranti logs is based mainly on their high suitability for the economical production of semi-decorative thin plywood. This market has already been developed in the United States, Japan and to some extent in the European Economic Community. The logical move is then to make this product together with sawn-wood from the non-peeler grade logs and to export the production to existing markets.
These countries stand to gain the freight advantage on logs and should be able to utilize more lower-grade logs and some at present unused species which are low in durability and do not travel well in log form. The technology for processing is readily available and is not complex. They should also be able to involve as investment partners in joint ventures the producers in "transit" processing countries. Such investors would have plant and expertise available for transfer, having been the first to read the writing on the wall and take appropriate evasive action. In actual fact, this process has already started, according to the data supplied by log producing countries to the APMC meeting in Djakarta. In its country statement, Indonesia reported that its present annual plywood production stood at 525 000 m³ with 18 mills operating. Eleven further mills are either under construction or licensed to start construction and it is expected that plywood production capacity on a two-shift basis will be 1.5 million m³ per year by the end of 1983. This may be compared with production in the Republic of Korea in 1977 of 2 289 million m³.
The way to increase the raw material base for panels industries in the tropics is through plantations that are high yielding on lands unsuitable or unnecessary for food production.
If sustained yield management of the Dipterocarp forests proves feasible, then the probable raw-material base of the region will be adequate to maintain an industry of about the same magnitude as at present. Much will depend on the direction taken by the Japanese industry, which is different from the others in that it is based on producing for the internal market. Japan has somewhat different options from the "transit" processors. If the logs at present absorbed in Japanese production are taken into account, there is considerable scope for the industry based in the log producing countries to expand export markets of thin semi-decorative plywood to the United States, the EEC countries, and others.
A powerful factor in limiting export growth will be the growth of the internal market in the new producing countries. This is hard to predict in places where the product is being manufactured on a large scale for the first time. However, if production expands to use up most of the logs now exported, domestic needs will be easily satisfied without cutting much into export availability. Increased production of particle board and fibreboard also provides a logical way of supplying much of domestic panel requirements.
Japan faces a more complex set of problems. The internal market for plywood of all types is large and is at present almost entirely satisfied by domestic production based on imported so-called South Sea logs, mainly Meranti type. The precarius situation with regard to South Sea logs is well recognized.
Although it is difficult to find a complete replacement for the Merantitype logs, especially for thin decorative plywood, the industry will shift to softwood logs both domestic and imported, and a large growth in particle board and fibreboard production is expected. About 50 percent of Japan's plywood needs are for thick structural plywood for concrete form' work and other uses. Softwood logs are quite suited for this product. Sup plies could be available from USSR, New Zealand, and Chile, but one must reckon with the desire of these countries to supply plywood rather than merely logs.
The technology for making structural plywood from small-diameter softwood is now well established as shown by the southern yellow pine plywood industry in the United States. Thus, domestic logs from the afforestation programme could provide an ex pending base for the structural ply wood industry.
Energy: Energy should not limit wood-based panels any more than it would limit the whole fabric of civilization. In fact, compared to other materials' such as aluminium and glass. panels are still a low-energy solution
Parallel with these changes there could be a large expansion in particle and fibreboard plants based on the increasing volumes of thinning from the Japanese afforestation programme. This is a significant change for Japan, which has produced only relatively small quantities of particle board in the past. Growth may also occur in medium-density fibreboard as a partial replacement of plywood panels. Oriented particle board may also take a share of the structural plywood market.
The procurement of an adequate and continuing supply of decorative and semi-decorative veneers for over. lays will be an expanding, need as South Sea log supplies decline. Most of this need could be supplied by slicing the wide range of woods available from the Amazon basin forests in South America. Most probably there will also be an expanded use of printed paper and other overlays.
The problems facing "transit" processor countries are more difficult to solve without extensive industry restructuring. The difficulty arises from their heavy dependence on export markets and their relatively small internal market for plywood. Declining log supplies, rising ocean-freight rates together with a sustained upward push in FOB log prices will cause a severe contraction in the industry, and closure of plants.
There seems little possibility of switching to production of thick structural plywood by importing alternative raw materials for two main reasons: the raw material does not seem to be available in quantity, and the price of structural plywood is not high enough to stand the freight costs implied in "transit" processing. The Republic of Korea seems potentially more vulnerable than Taiwan Province since it is more oriented to thin panel-grade material and has not developed other sectors such as knock-down furniture and the like, which call for a wider range of species and qualities of logs.
The declining availability of raw material suitable for the production of export wood commodities will undoubtedly constitute a serious problem. However, the "transit" processors have two advantages which processors in log producing countries will need time to match. The first asset is their highly skilled and efficient work force. The second is the advantage in higher log utilization that they have developed, which means that they are more easily able to carry the high FOB cost. It is the saving in ocean-freight cost which the processor in a log producing country is looking for to give him an advantage over the "transit" producer. But since he is unable to use the peeler-log waste he is the loser in this situation. These advantages could help to slow the :rate of decline of the "transit" processing industry.
For these and other reasons, there will remain for some time a strong incentive for continuing the export of high grade peeler-logs and to confine local processing to lower-grade logs and those of "other" species. As a result, a certain segment of the "transit" processing industry will be able to survive for an indefinite period.
Rising energy costs are a serious and growing problem to the "transit" processing industry, since they impinge specially on freight costs at all stages. Furthermore, they have an even heavier effect on particle board and fibreboard which perhaps could be manufactured from alternative raw materials, as both these products are more energy-intensive in their manufacture than plywood.
Raw material: It is the key restraint, perhaps limiting the wood-based panels industry to a level where it can rarely provide even the most modest world-wide -per caput use of its products.
Therefore, the road to survive I of .he "transit" processors seems to lie in the direction of even greater reliance on more added value to products, capitalizing on the abundant and skilled labour force available. That this market has its limits is obvious, and a sober assessment of the possibilities suggests that even if the internal market of these countries expanded at a very rapid rate, their existing wood-based panels industries would lace a somewhat gloomy outlook.
Reduction in the overall volume of Meranti-type plywood in the Pacific basin will also have its effect on the consuming countries. We have already discussed Japan. The United States and the EEC will face shortfalls in availability and a rise in price of this commodity. In the United States consumption is mainly in the form of thin panel grade plywood and doorskins, while the EEC takes a greater proportion of thicker plywood.
This plywood will be increasingly replaced at the bottom end of the market by thin particle board and fibreboard. Oriented particle board may replace some of the thick plywood and there will be an increase in use of thick plywood from other raw materials, as in Japan. The available Meranti plywood will continue to be used at the top end of the market, provided regular and continuing supplies are available. In the period of adjustment, this aspect of supply needs to be given close attention. Failing that, a serious erosion of the market by alternative panel products and construction systems is likely to occur, to the ultimate detriment of the industry emerging in the log producing countries of the developing world.
The future of the wood-based panels industry of the West Pacific area may develop along these lines:
· a lower overall production of plywood in the region, with a strong growth of production in the log producing countries and a gradual decline of production in the present "transit" producing countries and Japan;
· increased production of particle board and fibreboard in the region, replacing shortfalls in plywood;
· a levelling-off of Meranti-based plywood at around two thirds of present production levels, based on the probable sustained yield of those Dipterocarp forests which can be brought under proper management;
· continuing destruction and consequent decline in output from Dipterocarp forests of the region due to the growth of shifting agriculture. This remains an imponderable threat calling for sustained efforts from governments of the region and international agencies. If these efforts do not succeed then the rate of decline in output could easily more than double.
It is tempting to draw some general conclusions about the future of the wood-based panels industry, summarizing the situation under the three key restraining factors, but taken now in the reverse order first: energy, then technology and, lastly, raw materials.
Technology: Plywood processes should be based on small-diameter logs. Mixed tropical hardwoods should go into wet-process fibreboard. There is much scope for small-scale plants. Decorative finishing requires further development.
Energy. The energy situation affects the industry at all stages. In harvesting and transport of raw material, its reduction, drying and reconstitution into sheet form, application and cost of binding resins and transport to the point of use, energy plays a key role.
The minimum-energy case seems to call for the production of wood raw material close to the point of processing and use of the finished panels, and grown in the most intensive way in high-yield plantations. Choice of processes should favour those requiring minimum energy input and stressing maximum tree utilization.
Energy should not limit wood-based panels any more than it will limit the whole fabric of civilized existence. In fact, compared to a number of commonly used building materials such as aluminium and glass, wood-based panels are still a low-energy solution.
Technology. There will be need for improving plywood processes based on small-diameter plantation logs and intensifying processes for the use of mixed tropical hardwoods for wet-process fibreboard with acceptable pollution levels. There is more scope in this area than probably any other for the introduction of small-scale plants as detailed in the FAO "Portfolio of small-scale forest industries." Although fibreboard is hardly a low-energy user when measured on a unit of finished product basis, the energy required can be cheaply supplied by burning bark, sawdust and logging waste. Since no binding resin is needed, the imported inputs are minimal. The product is also highly appropriate to the low-cost tropical housing market.
Decorative finishing processes require further development to find methods which adequately simulate natural wood at low cost and provide a durable finish capable of being used on all types of fibre and particleboard.
Raw materials. This item remains the key restraint on the development of the world wood-based panels industry, perhaps limiting it to a level where it can barely provide even the most modest world-wide per caput use of panel products. Truly decorative natural wood-faced panels are not needed for utility purposes. Technology has provided the processes for particle board and fibreboard production which can satisfy all utility requirements.
The most promising way of establishing, and even increasing, the raw material base is through high-yielding plantations. The main problem is how to establish and manage, with minimum fertilizer and other high energy inputs, these plantations on tropical and subtropical lands which cannot be used or are not required for food production.