Green Shots in Timber

I am seeing a reasonably strong turnaround in timber business in 2010. Japan housing starts plunged 28% in 2009 to its lowest level since 1964. A pick up in Japan housing starts has been a traditional catalyst for tropical plywood prices, as Japan is the single largest buyer of tropical plywood in the world.

I expect Japan housing starts to accelerate by early 2011 driven by stimulus measures including the largest ever home mortgage tax break, tax-free capital gains of up to 10mn yen and a 6.1mn yen and taxable limit on monetary gifts for buying a home.

Currently, inventories are very low and would have to be replenished in the event of an uptick in housing starts.

While we saw the low in plywood prices in May 2009, prices remained below the break-even points for the rest of the year and continue to be weak in January/February 2010. Our industry sources, however, reported that these are early indications of higher pricing for March contracts, possibly at about US$20/cu m higher versus end-2009. Notably also is that the US is also experiencing a surge in timber product prices on pent-up demand and supply chain destruction.