Surge in timber demand seen post-Japan quake

But quantum of demand hard to determine

PETALING JAYA: Timber companies will benefit from the surge in demand from Japan as post-construction activities in the country take place following the devastating earthquake and tsunami that occurred there.

However, the quantum of demand from the surge for timber products is hard to quantify at the moment.

Malaysia is already the largest exporter of timber to Japan and imported timber products like plywood easily make up more than half of timber consumption in the country, according to analysts.

In a timber sector update yesterday, RHB Research said Malaysian companies were likely to benefit; specifically WTK Holdings Bhd and Ta Ann Holdings Bhd given their focus on the Japan market which constituted 80% to 90% of their timber product sales.

WTK and Ta Ann stocks yesterday ended the day's trading at RM1.33 and RM4.84 respectively, up 7 sen and 8 sen each. Earlier in the day, WTK had reached RM1.37 while WTK was up to RM4.96.

“The disaster in Japan has pushed the timber sector into the spotlight and put it on the radar of investors,” RHB said.

This could lead to a potential re-rating of the sector, the research house which has an overweight stance on the sector said yesterday.

Although it is still too preliminary to assess the impact of Japan's earthquake and tsunami on the timber sector, as an estimate, RHB said that for every US$10 per cu m increase in its timber product selling price assumptions, the earnings forecast for companies under its coverage would increase by 5% to 12%.

Meanwhile, AmResearch, in its update on the sector, said after contacting local timber players, they indicated that they did not expect a sudden and significant jump in timber exports towards the reconstruction process.

One timber player ruled out a “30%-40% jump in exports” to Japan, AmResearch wrote, but said the company expected a probable steady rise in demand from Japan to help in the reconstruction process.

The research house, quoting reports, said Japan imported nearly 1.15 million cu m of panel products worth RM1.7bil, representing almost half of Sarawak's total exports of 2.5 million cu m (RM3.43bil) for the 11 months until November last year.

That translated to an average selling price of RM442 per cu m.

In its report on the impact of Japan's earthquake, Credit Suisse said yesterday investors might benefit from selecting sectors such as construction materials where reconstruction demand can be expected over the near term.

In its note to clients on the impact of Japan's calamities, OSK Research said the timber and steel sectors could be winners.

Timber in particular could see heightened demand given that many Japanese houses are constructed with the use of significant hardwood timber and Malaysia is still the world's largest exporter of hardwood timber, according to OSK.

Analysts said risks to the demand would be price discounting from neighbouring countries with lower costs of production which would then result in lower exports from Malaysia.

source: thestar