Sarawak is gradually losing its logs and plywood market shares in key India and Japan markets as it could not compete with Indonesia and some other Asean timber producing countries.
According to WTK HOLDINGS BHD, Indonesia and other Asean countries have competitive edge over Sarawak because of favourable policies and strong government support they have received.
Production costs of logs and plywood products have escalated after the Sarawak government raised the premium of hill timber and logs of hill species from agro-conversion areas to RM50 from 80 sen per cu m or by a whopping 6,000% in July, 2017.
Timber companies were dealt a second blow when the state authorities increased rehabilitation and development cess to RM5 from 60sen per cu m last year.
The hike in timber premium, rehabilitation and cess amounted to RM55 per cu m, and has raised the costs of logs and timber products by RM110 per cu m, assuming a recovery rate of 50%, according to Sarawak Timber Association.
Timber companies have complained that their production costs have spiraled further due to increase in minimum wages as logging and plywood manufacturing are labour intensive.
To offset the sharp increase in production costs, most timber companies have raised the prices of their products, thus making them less competitive in the export market.
WTK, one of Sarawak’s top five timber companies, said the selling price and volume of plywood imported into Japan is experiencing downward pressure as a result of price competition by Indonesian and Japanese plywood producers.
“This was coupled with the construction and house building sectors in Japan are slowing down, and with bearish future, the buyers are limiting the purchase volume, ” added the company when releasing its first quarter to March 31,2020 (1Q2020) report last Friday.
In 1Q2020, WTK group’s timber revenue plunged by 52% to RM71.6mil from RM146.3mil in 1Q2019 and the segment suffered pre-tax loss of about RM17.8mil as compared to pre-tax profit of about RM6.2mil previously due to weaker demand of timber products both domestically and in overseas market.
For the log business, WTK said logs sales volume and revenue fell by 85% and 86% respectively over 1Q2019 mainly due to the weaker consumer sentiment.
“Moreover, the lockdown measures implemented to fight Covid-19 pandemic in Malaysia and foreign countries has resulted the further drop in demand for logs, ” WTK said.
India is traditional key importer of Sarawak round logs and lumber products for decades.According to WTK, all woodworking industries in India have stopped operations due to the lockdown measures to manage the pandemic.
On its plywood business, WTK said its revenue had dropped by 11% in 1Q2020 from a year ago as the average selling prices of plywood products had declined about 15% during the same period due to price competition from Indonesian and Japanese plywood producers.
WTK said because of the weak demand for timber products, the group had curtailed log and plywood production since 4Q2019, adding it would continue production curtailment programme if the demand stays weak.