Sarawak is gradually losing its logs and plywood market shares in key India and Japanese markets as it struggles to compete with Indonesia and some other Asean timber producing countries.

Sarwak is the major timber producing state in Malaysia. Image credit: Wikipedia

Sarwak is the major timber producing state in Malaysia. Image credit: Wikipedia

According to a report by WTK Holdings (one of Malaysia’s largest timber organisations), has shown Indonesia and other Asean countries have a more 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 by 6000% in 2017. Timber companies were then dealt a second blow when state authorities increased rehabilitation and development costs in 2019. The result is the hike in timber premium, rehabilitation and cess (tax) has raised the costs of logs and timber products exponentially according to the Sarawak Timber Association.

Timber companies have complained that their production costs have spiralled 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, ” the company stated when releasing its first quarter to March 31,2020 (1Q2020) report early June 2020.

In 1Q 2020, WTK group’s timber revenue plunged by 52% 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 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 has been a traditional key importer of Sarawak round logs and lumber products for decades. According to the report, 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% Y/Y as the average selling prices of plywood products had declined about 15% during the same period due to price competition from Indonesian and Japanese 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.