High costs squeeze wood panel makers

KUCHING: Wood-based panel manufacturers in many tropical countries are facing rising raw material costs and high logistics expenses, putting pressure on their profit margins, according to the Global Timber Index-Wood-based Panel (GTI-WBP) Index for August 2026.

The purchase price index for raw materials stood at 59.3 per cent in August, remaining above the critical value of 50 per cent for several consecutive months.

“Prices for logs and chemical additives stayed elevated, offering producers no meaningful relief,” said the GTI-WBP report, quoting feedback from sampled enterprises in the pilot countries.

The report was prepared by the Global Green Supply Chain Initiatives in collaboration with the International Tropical Timber Organisation (ITTO).

The 10 pilot countries are Indonesia, Malaysia, Thailand, Gabon, the Republic of Congo, Ghana, Brazil, Mexico, Ecuador and China. In 2024, their combined wood-based panel production reached 218 million cubic metres, accounting for 52.3 per cent of global production.

In August, the GTI-WBP Index stood at 40.5 per cent, up 2.9 percentage points from July but remaining below the critical value for the fifth consecutive month. This indicated that the overall business activity of the wood-based panel industry in the pilot countries continued to contract month-on-month, although the pace of contraction eased.

On the demand side, demand for wood-based panels remained generally weak. The new orders index rose 4.5 percentage points from July to 38.6 per cent, while the existing orders index edged down 0.4 percentage point to 43.9 per cent, remaining in contraction territory.

External demand came under further pressure, with the export orders index falling 4.1 percentage points to 34.9 per cent. It remained below the critical value for the 12th consecutive month.

“Persistent global trade frictions and barriers in the wood-based panel industry, combined with still-subdued demand in certain markets, continued to limit near-term relief for export-oriented producers,” the report said.

On the supply side, the production index fell 3.7 percentage points from July to 35.6 per cent, marking the fifth consecutive month of contraction and indicating a further slowdown in manufacturing activity.

“Faced with insufficient new orders and elevated inventory pressures, enterprises deliberately reduced capacity, with some plants operating at persistently low utilisation rates,” the report said.

The finished-product inventory index fell 5.7 percentage points to 47.7 per cent, moving below the 50 per cent threshold. The report said this reflected progress in reducing inventories, although further time would be needed to clear existing stocks.

Manufacturers in the pilot countries continued to face various challenges. In Sarawak, Malaysian manufacturers reported that the market was flooded with large volumes of imported plywood. They also faced tight shipping capacity due to conflicts in the Middle East and weak demand from the global construction market.

In Indonesia, potential anti-dumping and countervailing duties were seen as a burden on manufacturers and contributed to a decline in plywood exports to the United States.

Ecuador faced shortages among timber suppliers, while Thailand reported insufficient raw material reserves. Manufacturers in the Republic of Congo faced diesel shortages, while those in Gabon cited higher fuel prices and export tariffs.

In China and Mexico, manufacturers faced fierce price competition.

To address the challenges, Indonesian manufacturers called for efforts to explore new markets and promote plywood sales, while Brazilian companies urged greater market diversification.

Other recommendations included slowing production in line with market demand in Malaysia, exploring international markets to increase orders in China, supporting the planting of fast-growing tree species in Thailand, lowering diesel prices and product tariffs in Gabon, and introducing trade stimulus policies in Ghana.