Prices of Malaysian timber products have been rising steadily as the raw materials shortage became critical as a result of tropical thunderstorms.

CIMB Research said in a recent report the heavy rain in the country since February had affected timber-harvesting activities and could dent log and plywood supply over the next few months.

“This could lead to a log shortage over the next few months, which is likely to translate into much higher timber prices if demand from Japan picks up quickly during the same period,” it said.

CIMB said China could be one of the key factors in a major turnaround for plywood prices. It said China’s plywood production had declined since the government reduced the export rebate from 20% to 5% at end-2007. If the output continued to fall, a further recovery of plywood prices in the coming months could be expected, it said.

“Although we believe the worst is over for the timber sector, we take a neutral stance until we see strong signs of a catalyst for the sector,” the research house said.

Meanwhile, analysts said timber products prices were not soaring but gradually improving. They said the prices had risen partly because of the constraints on supply and high transportation costs due to rising oil prices.

“While the construction industry in Japan is recovering, plywood manufacturers were not prepared to ease prices further.

“Rising fuel costs had caused many manufacturers to resist cutting prices. Moreover, some manufacturers were expecting demand to pick up as several reconstruction projects will be launched in China to fix damage caused by recent winter storms,” an analyst said.

Analysts continued to be optimistic about price stabilisation in the near future. However, they expressed concern over the volatility of oil prices as well as a possible recession in the US.

According to Malaysian Timber Association president Datuk Sheikh Othman Rahman, industry players could expect to see better times ahead now that the worst is over for the local timber industry.

He viewed the timber industry as a vibrant industry, contrary to market perception of it being a sunset industry.

“Malaysia’s timber exports have risen to RM23.3bil in 2006 from only RM14bil in 1996, with the largest export markets being Japan, the US and China,” Othman said, adding that timber exports were forecast to reach RM50bil by 2020.

Going forward, Othman expected timber companies to move towards more downstream production. He added that the Government had set up a special purpose vehicle to disburse RM1bil under a 15-year programme to plant 375,000ha of high-value timber trees by 2020.

Meanwhile, two foreign brokerages, Merrill Lynch and Credit Suisse also issued calls to upgrade the timber sector last month.

Credit Suisse issued a note to upgrade the Asian timber sector from neutral to overweight. Merrill Lynch's March 4 report said plywood prices had reached a bottom and had started to pick up.

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