4. THE MAIN DETERMINANTS OF CONSUMPTION AND TRADE

4.1. The effect of economic growth
4.2. The importance of external trade
4.3. The growth in construction activity
4.4. Development of the furniture industry
4.5. Substitution within wood based panel categories

4.1. The effect of economic growth

The primary driving force on the wood based panel market in the Asia Pacific region has been the extraordinary and sustained economic growth rates achieved in most countries of the region over the last ten to fifteen years.

The very close relationship between the growth rate of real GDP and the growth rate of wood based panel consumption in every region of the world, is clearly illustrated in Table A.1 below.

Table A.1 - Real GDP & WB Panel Consumption Growth

Region Or Country	Real GDP 1988-1995 (%/year)	WB Panel Consumption 1990-1995 (%/year)
Japan	2.8%	2.0%
Rest of Asia	15.8%	16.4%
Oceania	2.5%	6.8%
ASIA PACIFIC	8.0%	10.2%
EUROPE	2.5%	3.5%
N & S AMERICA	2.2%	1.6%
AFRICA	2.2%	-1.0%
WORLD	3.0%	3.5%

Source: FAO

The average growth rate of real GDP in the Asia Pacific region between 1988 and 1995 was 8.0% per year, compared to a World average of 3.0% per year and an Industrialised country average of around 2% per year. Excluding Japan, the Asian GDP growth rate of 15.8% was in stark contrast to the rest of the world, which had growth rates somewhere between 2.2% and 2.5% per year.

The relationship between GDP growth and the growth rate in wood based panel consumption is also very clear, and the contrast between Asia (excluding Japan) and the rest of the world is equally stark. The Rest of Asia wood based panel consumption rate grew by 16.4% per year compared to only 2.0% per year for Japan, 1.6% per year for North and South America, 3.5% per year for Europe and a 1% per year decline in Africa.

A more detailed analysis of the growth in wood based panel consumption in the Asia Pacific region is given in Table A.2 below. It illustrates clearly the dominant role played by the rapidly expanding economies of China and the South East Asian countries, where the consumption growth rates were 20% and 21%, per year respectively.

Table A.2 - Wood Based Panel Consumption Growth

Sub-Region Or Country	1990 1,000 m³	1995 1,000 m³	1990-95 %/year
China	6500**	16258	20.0%
Japan	12341	13699	2.0%
Rest of North Asia	4254	6157	7.5%
South East Asia	1820	4851	21.0%
South Asia	646	997	9.0%
ASIA TOTALS	25561	41962	10.4%
Oceania	1721	2397	6.8%
ASIA PACIFIC	27282	44359	10.2%

Source: FAO Outlook Study

Note** The China total panel consumption figure for 1990 has been adjusted to include an estimate for previously non-recorded 'non state sector' production data (see document APFSOS/WP/40(b)).

Table A.2 also shows that wood based panel consumption growth rates in South Asia (the Indian subcontinent), in the rest of North Asia, and in Oceania, at 9.0%, 7.5% and 6.8% per year respectively, were also well above the average growth rates for the rest of the world.

In Asia, Japan was the notable exception to the general growth pattern, with a typical 'industrialised country' consumption growth level of just 2.0% per year. Excluding Japan, the wood based panel consumption in the rest of Asia grew at an average of 16% per year from 1990 to 1995, roughly doubling total consumption levels from 13.2 million m³ to 28.3 million m³.

4.2. The importance of external trade

In general, the major countries engaged in wood based panel trade are either timber deficient (and thus in need of imports), or rich in timber resources (and thus wishing to capitalise on the situation by developing exports). In Tables 57 and, the production, consumption and trade in wood based panels in the six major importing countries and the six major exporting countries in the Asia Pacific region, has been analysed in detail.

The selection of six major importing countries and six major exporting countries from over thirty countries within the region was not an arbitrary decision. The countries selected are the major economies of the region, and are thus the major players in the production, consumption and trade in wood based panels. Table A.3 below is a shortened summary of the detailed data from Tables 57 and 58, and clearly show that the twelve countries selected accounted for 97.3% of the wood based panel consumption in the Asia Pacific region in 1995, and virtually 100% of the import and export trade.

Table A.3 - Major Panel Trade Flows In Asia Pacific In 1995

Country And Group	Production 1,000 m³	Imports 1,000 m³	Exports 1,000 m³	Consumption 1,000 m³
China	13936	2606	237	16305
Japan	7340	6367	0	13707
Republic of Korea	2023	1898	117	3804
Taiwan Province of China	490	1420	0	1910
China, Hong Kong SAR	50	1283	917	416
Singapore	65	601	350	316
IMPORTERS	23904	14175	1621	36458
Indonesia	11438	12	9620	1830
Malaysia	5260	20	4160	1120
Thailand	1297	37	354	980
Philippines	416	112	70	458
New Zealand	1364	11	656	719
Australia	1556	252	205	1603
EXPORTERS	21331	444	15065	6710
TOTALS	45235	14619	16686	43168

Within the above groupings of six Importers and six Exporters, there are countries such as China, Hong Kong SAR, Singapore, Philippines and Australia who could be in either group, as they play roles as both exporters and importers, so the selection is somewhat arbitrary. There are also major variations in relative performance, such as Indonesia and Malaysia who dominate the export league with over 90% of total exports within the region, or Japan, China and Republic of Korea who account for 77% of all imports within the region.

The average level of import dependency in the six importing countries was 39% in 1995, and this ratio will probably increase over the next ten to fifteen years as they are all heavily timber deficient. The average level of export dependency in the six exporting countries was 71% in 1995, and this ratio will probably decrease in future, as the economic growth in the countries concerned will stimulate higher domestic demand for their own wood based panels.

4.3. The growth in construction activity

The enormous level of activity in building up the infrastructure of the countries of Asia is evident throughout the region, with countless projects for new roads, new rapid transit systems and monorails, new airports and harbours and many others. Most of these projects use concrete and steel, with only limited use for wood based panels apart from concrete formwork or shuttering panels.

But there is also a massive parallel drive to build new housing, new shops and commercial properties, new condominiums, new office blocks, new hotels and restaurants, new schools, clinics and hospitals, new stadiums and other sporting and recreational facilities.

Many of these buildings require large amounts of structural and decorative wood based panels, particularly in the joinery work for cupboards and fixtures and fittings, and above all for the movable furniture items.

Residential housing remains the main construction activity requiring significant amounts of wood based panels, either in concrete formwork or, in North Asian countries, in flooring, panelling or sheathing. Data on residential housing is unreliable, but Asia is probably building around 4 million housing units per year, of which more than half are in China and Japan. Indonesia, Malaysia and Thailand are building many new low cost housing projects, with a combined output of over 500,000 housing units per year, and their needs are increasing all the time, as their populations expand.

4.4. Development of the furniture industry

The furniture industry in Asia is the major consumer of wood based panels in the region, and furniture output (in value terms) has been expanding throughout the region at about 10% to 15% per year for the last ten years. Though furniture exports from the region now exceed a value of US$ 3 billion per year, the main driving force has been increased domestic demand, particularly in China, Japan and Republic of Korea.

China's furniture industry is characterised by thousands of local, small scale workshops with very little automation of assembly operations. Standards are very variable and construction techniques often depend on the availability of different types of wood or wood based panels.

Hollow core, lightweight furniture is very common in Japan, but with increasing labour, material and overhead costs, the furniture industry is stagnating and will rely increasingly on imported furniture in future, possibly from satellite branches of Japanese firms, set up in China, Malaysia, Thailand or Vietnam.

Republic of Korea, Taiwan Province of China, China, Hong Kong SAR and Singapore have had well established furniture sectors geared essentially to exports, for the last ten to fifteen years, but their labour intensive industries such as furniture are now in decline, and are being replaced by more capital intensive high-tech industries.

The furniture industries of Indonesia, Malaysia, and Thailand are now in a period of rapid growth, and they will increasingly dominate the furniture export scene in Asia. Much of their high quality furniture is currently made from solid rubberwood, but the use of MDF and particleboard panels is increasing rapidly, particularly in 'case goods' intended for export to Japan, Europe or North America.

4.5. Substitution within wood based panel categories

The driving forces behind the substitution trends that are changing the face of the traditional forest industries in Asia are the increasing shortage of good quality large diameter logs for plywood and sawnwood production, the resulting increase in prices of plywood and sawnwood, and the massively increasing availability of low cost, high quality reconstituted wood based panels such as particleboard and MDF. Typical examples are:-

· substitution by thin MDF of thin plywood and hardboard in cabinet backs and drawer bottoms.

· substitution by thicker MDF and particleboard of solid wood and thicker plywood in table tops and cabinet construction.

· substitution by thin MDF of thin plywood and hardboard in doorskins and panelling applications in house building and internal decoration.

· substitution by thick MDF of solid wood in moulding production.

· substitution by particleboard and OSB of solid wood and thicker plywood in flooring applications.

· substitution by composite panels and OSB of solid wood and thick plywood in concrete formwork.

· substitution by LVL and MDF of solid wood in doors and doorframes.

· Substitution by OSB of solid wood and plywood in packaging and pallets.

It is evident from the above list of examples that particleboard and MDF are going to be the key panel products in the Asia Pacific region in future; that many solidwood, plywood and hardboard applications can be economically substituted by particleboard and MDF, and that OSB and LVL also have a growing potential in several niche applications for which they are particularly well suited.