IHC Venice 2017: Globalisation, branding and building for the future

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IHC 2017 VeniceOn 15 and 16 November 2017 the International Hardwood Conference took place in Venice. Several speakers pointed out recent achievements of the hardwood industry as well as their threats and challenges as there are illegal logging and trade and at least partly a lack of raw material. Here’s the post report of the ETTF:

Outstanding hardwood projects

Italian hardwood furniture maker Riva has formed a marketing relationship with Lamborghini, branding a new range after the supercar marque and backing it with high-octane promotion (www.riva1920.it)

At the same time, sports stadia architects Populous have incorporated 11 American white oak glulam beams as core structural components of a new stand at the Lord’s Cricket Ground in London. At 23m long and four tonnes each, they are thought to be Europe’s largest cantilevered engineered timber beams, not to mention a structural application first for white oak (www.americanhardwood.org).

And in another hardwood twist, the ‘Fair and Precious’ branding initiative has been launched by the International Tropical Timber Technical Association (ATIBT), underlining the economic, environmental and social value of the tropical sector.

Each of these projects formed a speaker topic at the 2017 International Hardwood Conference, appropriately held in Venice, a city, which CNR Ivalsa researcher Nicola Macchioni explained to the 150-strong, 17-nationality IHC audience, was built on an ingenious foundation system of largely hardwood piles. With these and other upbeat presentations, the IHC communicated a confident, international hardwood industry that’s adapting to market needs.

Challenges: Illegal logging, raw material supply and the ‘800 pound gorilla’

But the event, organised by Italian trade federation Fedecomlegno in association with the European Timber Trade Federation and European Organisation of Sawmill Industries (EOS), wasn’t 100% positivity. It acknowledged too that the sector had obstacles to overcome. Illegal logging and trade remained significant issues and verifying the legality and sustainability of the bona fide industry’s products could also prove complex, said speakers. Ensuring raw material supply, given growing worldwide demand, was another challenge.

The consensus was that the hardwood business has exciting opportunities, but operates in an ever faster moving, more competitive market. Key issues highlighted were globalization and seismic geographical shifts in consumption to emerging markets, notably, although not exclusively, China, or as AHEC Executive Director Mike Snow put it, the ‘800 pound gorilla in the room’.

In his welcome address Fedecomlegno chairman and CEO of Legnonord Spa Alessandro Calcateterra summarized the sector’s position. “Average per capita wood consumption is still just 0.5%, so there’s huge growth capacity,” he said. “In fact global roundwood demand is forecast to rise 60% by 2030. This makes it ever more critical to address where timber comes from, how it’s produced (FAO experts forecasts one third will come from plantations by then) and where it should be used.”

Hardwood log exports: A crucial issue for European sawmills

EOS president Sampsa Auvinen also highlighted industry challenges. In Europe, he said, the hardwood sector had to contend with a stubborn lack of growth despite economic recovery. In fact sawmill numbers in France, Germany and Belgium alone were down 30% in the last decade. This was partly due to industry concentration in the downturn, but there was also the crucial issue of increasing log exports to emerging economies. “We have great opportunities to capitalize on hardwood’s performance characteristics,” said Mr Auvinen. “But, while avoiding protectionism, we must insist on a level international timber procurement playing field. Without raw material the European sawmill industry will be forced out of the market.”

Global trade trends: Flat market with strong rise of consumption in Asia

In his international market overview, analyst Rupert Oliver of Forest Industries Intelligence said latest statistics showed global hardwood trade static at around $35 billion, underlining a continuing and ‘disappointing’ lack of market value growth since the 2000s. “Since then global population has increased by 1 billion, with 1.4 billion people taken out of poverty, so you’d expect more growth,” he said. “But bar a surge in rosewood trade in 2014, market value has been flat.” However, underlying this outwardly static picture was a dramatic shift in the balance of hardwood market power, both in terms of log and sawnwood consumption, to Asia.

India had been a hardwood log consumer on the rise, but blocks on teak exports from Myanmar and Malaysian supply issues had seen its transition to more lumber buying. But log imports by China, and to a lesser extent Vietnam and other Asian hardwood product manufacturers, continued their inexorable rise. In fact Chinese imports hit 14.3 million metric tonnes in 2015, with 15.4 million tonnes forecast for 2016.

In sawn hardwood, total global temperate trade was worth around $6 billion in 2016 and tropical $4.5 billion, with the US the single leading exporter and Thailand biggest tropical supplier. China again was the consumer making the headlines with imports this year expected to be nine million tonnes, up from 2016’s eight million and including around 1.5 million tonnes from the US alone.

Mr Oliver concluded that the hardwood sector may struggle near term to grow trade volumes, but had opportunities to increase value. Difficulties to overcome included over reliance on a few species, limitations of current environmental controls to halt illegal trade and industry fragmentation, which limited opportunities for concerted promotion and investment, including in plantation development. But positives were revived interest among specifiers in real wood as opposed to substitutes, development of higher specification engineered and modified hardwood products and emergence of more realistic risk-based assurance of legality and sustainability. “Latest technology can also better evaluate trade data and reduce sustainability certification cost,” he said.

America's hardwood transition: Lower production, higher exports, notably to China

Mike Snow’s topic was a US hardwood sector in dramatic transformation for the past 10-15 years. The economic and construction crisis of the late 2000s and before that US manufacturing’s migration to lower labour cost countries, saw sawn hardwood output slump. It has since recovered, but is still 4.2 billion bd ft below 1999’s 12.6 billion peak.

At the same time, reflecting decline in domestic construction and hardwood manufacturing demand, mills have refocused on industrial lumber for the US market and grade exports. “In 2005 grade lumber accounted for 59.7% of US output, today that’s 48%,” said Mr Snow. “Moreover, 45% of it is now exported and rising, compared to 17% in 2000.”

China’s role in this evolution has been central, accounting for all US sawn hardwood export growth since 1992, and today buying 25% of the boards America produces. US exports to China have grown particularly rapidly since the international economic crisis, thanks to the potent combination of contraction in the American domestic market and the rise of China’s new middle class, firing growth in its domestic consumption. “In 2000 85% of our exports to China were re-exported as finished goods,” said Mr Snow. “Today 80% goes into products for its domestic market.”

Asked which country will be the ‘next China’, Mr Snow’s response is China thanks to accelerating development of its less industrialised western regions. US mills see this as a further lumber market opportunity, however, their growing concern is the accompanying rise in China’s log imports. “So far logs have gone mainly to finished goods makers processing timber for their requirements,” said Mr Snow. “The concern now is emergence of Chinese mills cutting US logs for the general market.”

Europe in focus: shrinking market and raw material issues

The European market described by ETTF and EOS Presidents Andreas von Möller and Nicolae Tucunel is also a blend of challenge and opportunity. Mr von Moller described the EU’s shrinking tropical timber business – with total imports down from 8 million m3 in 2000 to 2 million m3 in 2014 – as  ‘sad’. It was partly due, he said, to the recession, but market misconceptions about its environmental credentials also contributed.

While renewed effort was needed to halt this trend, however there were overall European hardwood market positives, notably broad economic and construction recovery. While the UK’s outlook may look uncertain due to Brexit, most European economies, and importantly their construction industries, were growing. So far this had led only to hardwood market stability since 2013. “But after recession, stability is not a bad thing,” said Mr von Möller.

Mr Tucunel reported forecast 2017 total European hardwood production at 10.8 million m3, imports at 3.4 million, exports 5.7 million and consumption 8.6 million, all roughly on a level with 2016 figures. Turning to his own country Romania, Mr Tucunel said it remained a leading European hardwood producer, with annual sawn output of 1.7 million m3. But its private sector mills were increasingly hindered by raw material availability due to a harvest decrease from 19 million m3 to 17 million m3, caused in part by “excessive” NGO-driven environmental legislation”. “This has led to mills restricting output, even closing,” said Mr Tucunel.

Legality regulation and trade regionalization: Tropical timber imports swing to emerging countries

Raw material availability and distribution also formed a core theme for Davide Pettenella of Padua University.  He addressed whether national and regional timber legality controls were creating a ‘dual market’ for tropical timber.

His study compared trends in primary tropical timber product imports by EU states, the USA and Australia, representing developed countries with strict timber market legality regulation, and China, Vietnam and India representing emerging consumers with lighter controls. This highlighted import swings to the latter. In 2001 of all tropical timber imported by these countries, the developed economies accounted for 63% by volume and 72% by value, the emerging countries for 37% and 28%. Today the respective division is 44% and 47% and 56% and 53%.

While legality controls may be implicated in this trend, Mr Pettenella said it was not the exclusive factor. “Emerging countries’ economic development and increasing south-south trade are also involved,” he said. In fact, his conclusion was that the trade trend influencer to monitor was the latter and other intra-regional trade growth. “It’s a phenomenon which should be of concern to policy makers,” said Mr Pettenella. “In 1990, there were just 20 regional trade agreements. Today there are 283.”

Looking at future forest product supply and flows, consultant Pierre Desclos concluded that rising population could also boost intra regional consumption. “For instance, Africa has 15% of the world’s forests, but it’s forecast to have a third of its population by 2100, so will be consuming most of its own timber.” He agreed that this will increase pressure on the timber industry to both manage the forest resource more sustainably and use wood to its full potential.

New hardwood applications

Head of the European Hardwood Innovation Alliance Andreas Kleinschmit von Lengefeld described the role of his organization in this. “Working closely with the industry, we're evaluating the potential outcomes of research into areas ranging from forest management systems, to development of new cellulose fibres, and hardwood in smart buildings,” he said.

David Venables from AHEC took the topic further, describing US hardwood innovation now gaining market traction. The massive American white oak glulam beams at the Lords Cricket Ground were one example. Perhaps even more significant was development of tulipwood cross laminated timber for structural application. The material first formed the core structure of two global headline grabbing AHEC showcase projects at the London Design Festival; Endless Stair and The Smile. Subsequently the same material was used in a cancer care centre in northern England, the first permanent building constructed in hardwood CLT.

“Architects and engineers are increasingly convinced of hardwood’s structural potential – in fact they’re our best ambassadors for it,” said Mr Venables, “And global CLT production is set to hit 1 million m3 next year. Softwood dominates the sector, but imagine if hardwood took just a small percentage!”

Branding initiatives: Rising awareness for hardwood through market value as well as beauty and performance

Meanwhile Fair & Precious, explained Benoit Jobbé-Duval from ATIBT, was a potentially powerful new tool to raise awareness and increase marketability of sustainably sourced tropical hardwood. The brand, commits users across the supply chain to verified sustainability and corporate social responsibility goals in procurement. “The aim is to advance hardwood sustainability by enhancing its market value,” said Mr Jobbé-Duval.

Hardwood’s other new branding exercise, Riva’s collaboration with Lamborghini, centres on beauty and performance. “It works because we share a passion for quality and design and a commitment to using the finest raw materials,” said Maurizio Riva.

On another upbeat note, Elvio Florian, Chief Executive of Italian hardwood producer and IHC sponsor Florian Legno, described how through an integrated production line approach, timber companies in developed economies can survive and prosper. Started in 1950, his business now comprises 16 companies, employs 900 people and processes 300,000 m3 of timber annually.

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