KUALA LUMPUR: Timber outfit Ta Ann Holdings Bhd is expecting plywood prices to soften this year, while a economic slowdown would affect demand for plywood in Japan and other markets.
“We are not very bullish on the timber sector this year due to the weak global economic sentiments. A possible second recession would affect housing starts in Japan and other economies and impact the demand for timber products,” said a Ta Ann spokesman
He told The Edge Financial Daily that 2011 had been a good year for the timber market due to rising log and plywood prices. An industry observer noted that the plywood prices increased last year due to the anticipated rise in demand for timber for reconstruction work in Japan.
Plywood prices increased some 12% last year after the Japan earthquake due to speculative buying on reconstruction efforts. However, plywood prices have since eased to around US$620 (RM1,941) per cubic metre due to inventory build-up in the country. Japan is the biggest plywood export market for local timber players.
“Demand from Japan has been flattish due to the build-up in inventory. We expect plywood prices to remain around US$630 per cu m as we do not see any increase in demand from Japan just yet,” said the spokesman. A timber analyst also noted that some Japanese plywood producers had resumed production, which prevents any boost in plywood imports to Japan.
Last week, Malaysian Timber Industry Board director-general Dr Jalaluddin Harun said timber players would also need to compete with soft plywood suppliers from Canada and Russia in the Japanese market.
The Ta Ann spokesman noted that Japan has been importing soft plywood since the 1990s.
“Japan’s market consists of 80% soft plywood and 20% hard plywood (tropical plywood). This has always been the case since the 1990s. As such, I do not foresee the soft wood players to eat into the hard plywood market share as both have different applications and usage,” he said.
He said log prices would also soften in the coming months due to price correction.
“Last year, log prices had increased from US$220 to US$260 per cu m. However, this could not be sustained as the prices are becoming too expensive for markets such as India,” he said.
As such, he noted that Ta Ann would see its oil palm plantations remain the main contributor to the group’s profits due to higher fresh fruit bunch (FFB) production and increasing mature hectarage.
“The oil palm business would contribute about 80% to our earnings. We expect crude palm oil prices to remain strong at the current RM3,000 per tonne levels while our production would increase by 25% to 30% to 600,000 tonnes this year,” he said.
A timber analyst said reconstruction efforts in Japan are expected to start in the first half of 2012 as any further delay would affect the national’s economic productivity. Since the earthquake, Japan has approved up to ¥15.3 trillion (RM623 billion) for reconstruction works.
“We foresee plywood exports to be flattish or increase marginally this year. Note that any global economic slowdown would impact the housing starts in key markets such as India, China and Japan,” he said. For the first 11 months of 2011, Japan imported 3.37 million cu m of plywood, which is a 17.6% increase from the corresponding period in 2010.
In a recent report, RHB Research said Ta Ann and Jaya Tiasa Holdings Bhd are becoming “quasi-plantation stocks” as their plantations contribute over 70% to their earnings.
“Jaya Tiasa and Ta Ann would still enjoy relative robust earnings growth due to significant increase in their FFB production volumes over the next two years as a result of maturing hectarage. This could provide earnings comfort for investors and cushion the more volatile earnings from timber,” it said.
It maintained a “neutral” call on the timber sector. It has a fair value of RM7.80 and RM6.97 for Jaya Tiasa and Ta Ann respectively.
Jaya Tiasa and Ta Ann closed at RM7.09 and RM5.50 respectively last Friday.
This article appeared in The Edge Financial Daily, January 16, 2012.
“We are not very bullish on the timber sector this year due to the weak global economic sentiments. A possible second recession would affect housing starts in Japan and other economies and impact the demand for timber products,” said a Ta Ann spokesman
He told The Edge Financial Daily that 2011 had been a good year for the timber market due to rising log and plywood prices. An industry observer noted that the plywood prices increased last year due to the anticipated rise in demand for timber for reconstruction work in Japan.
Plywood prices increased some 12% last year after the Japan earthquake due to speculative buying on reconstruction efforts. However, plywood prices have since eased to around US$620 (RM1,941) per cubic metre due to inventory build-up in the country. Japan is the biggest plywood export market for local timber players.
“Demand from Japan has been flattish due to the build-up in inventory. We expect plywood prices to remain around US$630 per cu m as we do not see any increase in demand from Japan just yet,” said the spokesman. A timber analyst also noted that some Japanese plywood producers had resumed production, which prevents any boost in plywood imports to Japan.
Last week, Malaysian Timber Industry Board director-general Dr Jalaluddin Harun said timber players would also need to compete with soft plywood suppliers from Canada and Russia in the Japanese market.
The Ta Ann spokesman noted that Japan has been importing soft plywood since the 1990s.
“Japan’s market consists of 80% soft plywood and 20% hard plywood (tropical plywood). This has always been the case since the 1990s. As such, I do not foresee the soft wood players to eat into the hard plywood market share as both have different applications and usage,” he said.
He said log prices would also soften in the coming months due to price correction.
“Last year, log prices had increased from US$220 to US$260 per cu m. However, this could not be sustained as the prices are becoming too expensive for markets such as India,” he said.
As such, he noted that Ta Ann would see its oil palm plantations remain the main contributor to the group’s profits due to higher fresh fruit bunch (FFB) production and increasing mature hectarage.
“The oil palm business would contribute about 80% to our earnings. We expect crude palm oil prices to remain strong at the current RM3,000 per tonne levels while our production would increase by 25% to 30% to 600,000 tonnes this year,” he said.
A timber analyst said reconstruction efforts in Japan are expected to start in the first half of 2012 as any further delay would affect the national’s economic productivity. Since the earthquake, Japan has approved up to ¥15.3 trillion (RM623 billion) for reconstruction works.
“We foresee plywood exports to be flattish or increase marginally this year. Note that any global economic slowdown would impact the housing starts in key markets such as India, China and Japan,” he said. For the first 11 months of 2011, Japan imported 3.37 million cu m of plywood, which is a 17.6% increase from the corresponding period in 2010.
In a recent report, RHB Research said Ta Ann and Jaya Tiasa Holdings Bhd are becoming “quasi-plantation stocks” as their plantations contribute over 70% to their earnings.
“Jaya Tiasa and Ta Ann would still enjoy relative robust earnings growth due to significant increase in their FFB production volumes over the next two years as a result of maturing hectarage. This could provide earnings comfort for investors and cushion the more volatile earnings from timber,” it said.
It maintained a “neutral” call on the timber sector. It has a fair value of RM7.80 and RM6.97 for Jaya Tiasa and Ta Ann respectively.
Jaya Tiasa and Ta Ann closed at RM7.09 and RM5.50 respectively last Friday.
This article appeared in The Edge Financial Daily, January 16, 2012.
