Quarterly Market Report Mediterranean Region

Madrid Office

April - June 2003

Summary

Part One – Trade Issues

Spanish Wood Industry

Sawn Lumber Imports in Spain: 1st Quarter

Italian Softwood Imports: January-April 2003

Market News

Part Two – Activities

Seminars

Trade Servicing

Advertising and PR Campaign

Calendar of Activities

SUMMARY

Despite forecasts for a crude decline in Spain’s construction industry during 2003, the facts show that it continues to serve as the most significant catalyst in the region’s economy. Current projections for housing starts in 2003 indicate a record level of nearly 600,000 units. If these projections are confirmed, the results for the wood industry could be very promising in the months ahead.

In fact, the continued Southern Pine market share slump in Spain could be reversed. Current Euro currency strength, coupled with strong construction and ongoing promotional campaigns among wood industry professionals and construction professionals, may help reverse the recent trend by the end of this year. Positive news from different regions suggest that a recovery is near.

Several activities were executed during the second quarter of this year. An ongoing advertising campaign on Southern Pine lumber is gaining momentum and is expected to reach a large number wood industry and construction professionals. A number of press releases have been prepared and made available to the media with positive results to date. The seminar activity was completed with a presentation in the island of Ibiza, known as a key area for Southern Pine usage. This activity was used for gathering market information on moldings and photographs for future press releases about the use of Southern Pine in exterior carpentry and furniture making.

SPANISH WOOD INDUSTRY

The Spanish wood sector is formed by nearly 41,000 firms with 240,000 employees. The furniture industry represents a 56% (13,400 companies) margin, compared to all the other wood industries, which represent 44%. Of the total, 94% of them have less than 20 employees and 65% of the industries are formed by two people or fewer. The carpentry sector encompasses both structural and non-structural applications. This subsector is formed by approximately 12,500 industries and nearly 55,000 employees. Its regional distribution shows there are higher concentrations in the regions of Valencia, Cataluña and Galicia, but also in Madrid and Andalucia.

Exports in 2002 have been reduced by -1.3% overall compared with positive growths in 2000-2001 (+4.94%), and an excellent 14% in the period 1999-2000. The main export destination (65%) has been the EU. Imports show a declining direction, too, following the weakening of the economic environment domestically and abroad. In 2002 imports grew by a modest 1.34% compared to 5.59% in 2000-2001 and an astonishing 19% in 1999-2000. With the stagnation of the economy, imports have stopped their brisk growth, and importers have chosen stock reduction and a very selective purchase approach.

The primary semi-processed wood products during 2002 were: (million Euro)

Sawn Oak (440791909)*118

Sawn European redwood (44071093)113

Sawn tropical hardwoods (44072969)113

Sawn conifers (other) (44071098)112

Veneers (44089095)100

Eucalyptus wood (44039930) 84

Sawn spruce (44071091) 67

Fiberboard (44112110) 66

Other sawn wood species (44079997) 49

Multilayer flooring (44183091) 46

* Represents the harmonized tariff code position

Raw wood fibers in different forms represent more than 50% of the total imports, therefore the Spanish wood industry is a strong manufacturer of wood products. The origin of the main supplies are France, Germany, Portugal, Chile, USA, Finland, Sweden, Ivory Coast, Cameroon, and Brazil (Source: Confemadera).

SAWN LUMBER IMPORTS IN SPAIN (January-March 2003)

The first quarter of 2003 has shown slower import activity overall, although softwood imports grew by 5.3% overall. The most important supplier, Sweden, has seen a decline of 8.7% compared to the previous year, Other traditional suppliers losing market share have been Russia -31%, Portugal –7.3% and USA -3%.

country	Volume m3		%
	2002	2003
Sweden	140500	128200	-8,7
France	89400	100000	11,8
Portugal	77600	72000	-7,3
Finland	56900	66000	15,9
USA	29600	28700	-3,0
Russia	18600	12800	-31,0
Germany	19300	26200	35,7
Brazil	18400	25100	36,4
Chile	14100	22200	57,3
Poland	12800	14600	14,3
Other	29900	38100	27,4
total	507600	534400	5,3

The market share lost by Swedish lumber is probably caused by the weaker competitiveness induced by a strong krona, although it also reflects superior productivity from other suppliers and perhaps difficult access to saw logs caused by an oversupply in the world’s paper markets. Cuts therefore are reduced and the saw logs have become more scarce.

Net winners were France (+11.8%), Finland (+ 15.9%), Germany (+ 35.7%) and significantly Chile (+57.3%) and Brazil (+36.4%). With respect to US supplies, it seems that the large losses have been restrained. Trade sources confirm more active demand and a possible recovery during the rest of 2003 and during 2004, if the Euro retains its strength against the dollar. As the current high dollar inventories are depleted more ambitious orders should be expected.

To better understand the relative competitiveness of the softwoods from several countries, the average price per cubic meter during the first quarter is shown next. As noted, American lumber nearly doubles the running prices for Swedish material, which is mostly consumed by the wood industry in Spain. The relative high prices achieved by Radiata pine lumber from Chile, probably destined to the furniture industry, is also significant. On the low end, fiber from Portugal and France is likely to be converted primarily into packaging materials.

Note the shaky situation in the demand for hardwoods. Despite positive construction activity, first-quarter imports of oak from the U.S. dropped 20.3%, but this market segment has seen a 9.6% decrease in global imports of oak.

The Scandinavian Supply

During the past weeks, no major changes were detected, implying price stability. Public perceptions pointing to greater scarcity of saw logs for European redwood and whitewood (spruce) are not confirmed. Therefore, prices remain stable with no increases expected for the second half of the year.

Price References (Source: AEIM)

Basic Price References (EUROS / M3). C.I.F
	Mediterranean Ports
REDWOOD		WHITEWOOD

U/S	275/280~~270~~	U/S	235

		SF	215~~-220~~

V	205 ~~- 210~~	V	200

VI	175 ~~- 180~~	VI	1705

U.S. Lumber Exchange rate at the time of this report: 1 EURO = 1.149 U.S. Dollar. Although the dollar has recovered slightly, the Euro remains very strong. Southern Pine No price changes have been observed during the period and prices show no trend. (Source: AEIM)

PRICE REFERENCES ON SOUTHERN PINE. MAIN SPECIFICATIONS
			Dollars/M. CIF Valencia.
SAPS	4/4 X 6	4/4 X8	4/4 X 10	4/4 X 12	5/4 X 8	1-5/8 x 6 y 8	1-5/8 x 10y12	8/4
	980	980	1.090	1.160	1.175	975	1.100	1.025

PRIME &Bttr				5/4x4	5/4x8 y10	12/4x6 y +
				790	990	1.200

FLITCHES N º 1					8/4 X 10y+	12/4x10y+
					900	1.150

ITALIAN SOFTWOOD IMPORTS

Import activity in Italy has been weak but steady during the first four months in 2003. The main partner, Austria, has increased its exports by a healthy 13.7%, while other traditional suppliers have seen a decline in purchases. The position of the U.S. has been mostly stable. In the figure and table below, notice the relative position of selected exporting countries.

Italian Sawn Softwood Imports
January-April 2003 X1000 cubic mts
Country	2002	2003
Germany	278,3	279,6
Sweden	89,2	79,0
Finland	79,2	79,9
Austria	990,5	1.116,2
Poland	12,4	14,3
Czech Rep	55,4	43,9
Russia	139,0	122,0
USA	12,6	11,8
Canada	18,6	26,0
Brazil	6,6	6,6
Total	1.864,1	1.991,6

Sourece:Instat

MARKET NEWS

Low Demand for Hardwood Lumber

American hardwood stocks are low and demand because there is a -33% decrease in oak imports on oak and -16% in temperate hardwoods. Weaker markets are home and office furniture and equipment for public construction projects. Demand for carpentry wood is sustained with high level of activity for finishing before summer.

Pressure on Tropical Hardwoods

The “green” groups are causing a big media stir, spotlighting non-certified/sustained lumber, which is severely affecting the African lumber market. On the other hand, supplies for iroko are becoming very difficult because of a price escalation. Other alternative wood like niangon cannot be found easily. The outlook for the upcoming months is not positive and price pressures will likely continue on these species and others like sapelli. The decline of African imports are due to a number of reasons:

1. Economy and less consumption

2. More control of log export and policies to increase exports of value-added wood products instead of logs.

3. Short supply of okume from Gabon

4. Tough competition by Chinese products, especially veneers and boards

5. Illegal harvest better controlled

Softwoods Stable but Under Scrutiny

Prices on softwoods are considered stable, especially spruce. American species are seeing a slight upward pressure in prices, mainly due to the dollar’s depreciation against the Euro. However, many importers with relatively large inventories have been told to purchas when the dollar is high. The options are to reduce those old costs with new purchases at the current lower prices, or sell only the new stock awaiting prices to return to past levels. Since it is uncertain when this may happen, the trend may be to operate very carefully and to end the season with the minimum exposure.

Economical Indicators Show Mixed Trends

While GDP increased 2% in 2002 and inflation rate reached 3.7% (+0.9% during 2002), unemployment dropped 12.5% in the first quarter of 2003, despite a 14.3% jump in housing starts. Weakness in the furniture industry is due to the slump in export markets, namely Germany and the U.S.. Growing concerns by the competition and design copy of Chinese production. The flooring sector shows a solid growth, especially floating parquet, which is taking over solid flooring. Both imports and production are growing. Finally, the carpentry sector is enjoying a steady momentum with increases in domestic and export markets. Activity remains solid, noticeably with door manufactures, thanks to increased construction activity.

PART TWO – ACTIVITIES

SEMINARS

To complete the series of seminars targeting the Balearic Islands, a fourth presentation was arranged in Ibiza on June 4th. As in previous events, the target audience consisted of carpenters although other professionals were invited. The seminar focused on the possibility of using Southern Pine in exterior carpentry if proper finishing is provided. The causes and process of deterioration was examined thoroughly and the conclusions of the INIA testing report were discussed also. A preliminary review of the completed questionnaires suggests that the facts presented were well accepted and possibly may help to reverse adverse opinions regarding Southern Pine. Future sessions with specifiers and promoters are under consideration.

TRADE SERVICING

Visits were made to timber importers in the Madrid and Valencia regions. Results show more- than-anticipated amounts of Western Red Cedar and Douglas Fir, but an overwhelming predominance of Southern Pine inventories at lumber yards.

Volumes of Scandinavian Redwood and particularly whitewood seem to be growing.

Visits were also made to four] flooring manufacturers and distributors. Currently, there is little use of any softwood in the flooring market.

ADVERTISING AND PR CAMPAIGN

Eight insertions have been placed during this period in five different titles. In addition, a banner has been visible since April in a wood and wood products specialized website.

In addition, five press releases have been distributed since April with a high publication rate, appearing four times thus far up to date in several Spanish wood trade and construction magazines.

PUBLICATIONS

The technical note based on the blue stain testing has been prepared and released for printing.

Review of home pages in Spanish of the Softwood Export Council website [www.softwood.org].

CALENDAR OF INDUSTRY ACTIVITIES