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Occasional Paper No. 64

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(-1 Bureau of A g r i ~ u l t u r a l E c o n o m 1 ~ s , Canberra

Occasional Paper No.64

Assistance to the Australian Plywood and Veneer Manufacturing Industries

A review of economic ,jssues Project 1613

Stephen Parsons, Mandy Wallace and Ian Bruce

A u s t r a l i a n Government P u b l i s h i n g S e r v i c e Canberra 1982

FORE,iORD

Ana lys i s o f t h e f a c t o r s a f f e c t i n g t h e long-term compe t i t iveness Of

t h e A u s t r a l i a n plywood and veneer manufactur ing i n d u s t r y is p a r t i c u l a r l y d p p r o p r i a t e a t a time when t h e i n d u s t r y is undergoing s t r u c t u r a l change bu t , a s y e t , r e l a t i v e l y few r e s o u r c e s have been committed t o t h e manufacture o f plywood from sof twocd p l a n t a t i o n s .

Ass i s t ance f o r A u s t r a l i a n p roduc t ion o f wood products w a s t h e s u b j e c t o f an i n q u i r y by t h e I n d u s t r i e s A s s i s t a n c e Commission. The d r a f t r e p o r t , e n t i t l e d 'Wood and A r t i c l e s o f W d ' , was r e l e a s e d o n 12 June 1981. The Bureau p resen ted its submiss ion t o t h e i n q u i r y on 8 December 1980. This monograph has been prepared from t h a t submission.

The r e sea rch f o r t h e su tmiss ion drew on t h e b e s t informat ion a v a i l a b l e to t h e Bureau. However, t h e r e is a d e a r t h o f a v a i l a b l e in fo rmat ion , p a r t i c u l a r l y on Asian f o r e s t r e s o u r c e s and developnent p o l i c i e s .

The work f o r t h i s p r o j e c t was c a r r i e d o u t i n t h e F o r e s t r y Economics Research Sec t ion o f t h e Bureau.

ANDY STOECKEL Acting D i r e c t o r

Bureau o f A g r i c u l t u r a l Economics Canberra A.C.T.

March 1982

iii

ACKNOWLEDGMENTS

The h e l p f u l c o m e n t s by Mr A. Sebire of the Forestry Branch o f the Department o f Primary Industry and t h e co-operation of members of industry i n providing data are g r e a t l y appreciated. The ass i s tance o f other o f f i c e r s o f the Forestry Economics Sec t ion , par t i cu lar ly Leng Sar , i s a l s o acknowledged.

CONTENTS

Foreword

Page

iii

Summary

1. Introduct ion

2. Plywood Produc t im and Industry S t ruc tu r e

2.1 ply& production 2.2 Industry s t r uc tu r e

3. U t i l i s a t i o n of Plymod i n Aus t ra l ia

3.1 Recent t rends 3.2 Future t rends

4. Implicat ions of Recent Developnents Affec t ing Plywood and Veneer Imports t o Aus t ra l ia

4 . 1 Recent developnents a f f ec t ing imports 4.2 Implicat ions for Aus t ra l ia

5. Competitiveness o f Imports

5.1 The present competitiveness of imported plywood 5.2 Factors a f f e c t i n g the fu ture competi t iveness of

imported plywood

6. Implicat ions of Continued Assistance to t h e Plywood Industry

6.1 Ta r i f f measures 6.2 Other forms of a s s i s t ance 6.3 Summary of recommended forms of a s s i s t ance

Appendix: Trends i n t he East Asian Plywood Indus t ry

References

Other Reading

Figures

Figure

1 Plywood and par t i c leboard u t i l i s a t i o n as a proport ion of the apparent u t i l i s a t i o n of wood-based pane ls i n Aus t ra l ia

2 Indexes of Austral ian p r i c e s and o f f e r p r i c e s from Papua New Guinea and South-East Asia f o r 4 m plywood

3 Indexes of world and Austral ian p r i c e s fo r 2.5 mm plywood 4 Indexes of world and Austral ian p r i c e s f o r 4 mm plywood 5 Indexes of world and Austral ian p r i c e s fo r 5.5 - 6.0 mm

plywood 6 Indexes of world and Austral ian p r i c e s fo r 12 mm plywood

Text T a b l e s

Table Page

Plywood product ion by type: A u s t r a l i a : 1968-69 to 1979-80 Est imated removals o f veneer l o g s from t h e f o r e s t : by

spec ies : A u s t r a l i a Veneer l o g imports: A u s t r a l i a Apparent u t i l i s a t i o n of plywood: A u s t r a l i a New South Wales f l o o r i n g costs Est imated market s u p p l i e s : plywood Thin plywood imports t o A u s t r a l i a : by type and coun t ry o f

o r i g i n Thick plywood imports to A u s t r a l i a : by type and coun t ry of

o r i g i n Impor ts o f plywocd to A u s t r a l i a : by p r i n c i p a l coun t ry o f o r i g i n

Impor ts of veneer to A u s t r a l i a : by p r i n c i p a l coun t ry o f o r i g i n

A u s t r a l i a n imports o f New Zealand plywoods Est imated s u p p l i e s o f l o g s from South-East Asian c o u n t r i e s F.0.b. p r i c e s o f Lauan-Seraya-Veranti l o g s a t Balikpapan

( Indones ia ) and Sandakan (Malaysia) Plywood product ion i n New Zealand New Zealand pee le r l o g s f o r veneer product ion Ac tua l and p ro jec ted domestic consumption o f plywood Conta iner f r e i g h t r a t e s of plywood i n t o A u s t r a l i a :

October 1980 F r e i g h t r a t e s of plywood w i t h i n A u s t r a l i a : October 1980 Average annual wage r a t e s i n t h e plywocd or manufacturing

s e c t o r s o f A u s t r a l i a and f i v e South-East Asian c o u n t r i e s

Appendix Tab les

Trends i n t h e plywood indus t ry : Indones ia Trends i n t h e plywood i n d u s t r y : Pen insu la r Malaysia Trends i n the plywood and veneer i n d u s t r y : Sabah Sarawak, B i n t u l u Hin te r l ands : p r o j e c t e d a d d i t i o n a l

f o r e s t product ion i n 1985 Trends i n t h e plywood i n d u s t r y : Sarawak Trends i n t h e plywood indus t ry : Malaysia Trends i n t h e plywood indus t ry : The P h i l i p p i n e s Trends i n t h e plywood indus t ry : Japan Trends i n t h e plywood i n d u s t r y : The Republ ic o f Korea Trends i n t h e plywood indus t ry : Singapore Trends i n t h e plywood indus t ry : Taiwan

ASSISTANCE TO THE AUSTRALIAN PLYWOOD AND VENEER MANUFACTURING INDUSTRIES: A REVIEW OF ECONOMIC ISSUES

. The Bureau 's submis s ion t o t h e i n q u i r y by t h e I n d u s t r i e s A s s i s t a n c e C o m i s s i o n (IACI into t h e q u e s t i o n o f long- term a s s i s t a n c e t o wood and a r t i c l e s o f wood examined i n some d e t a i l the economic levels o f p r o t e c t i o n to be accorded p l y m o d and veneer manu fac tu re r s b y t a r i f f s on impor t s o f plywood and veneer p roduc t s .

Trends i n Product ion and I n d u s t r y S t r u c t u r e

. C o n s i d e r a t i o n o f t h e f a c t o r s a f f e c t i n g the long- term c o m p e t i t i v e p o s i t i o n o f A u s t r a l i a n manufac tured plywood i s p a r t i c u l a r l y a p p r o p r i a t e a t t h e p r e s e n t t i m e when the i n d u s t r y i s undergoing s t r u c t u r a l change b u t r e l a t i v e l y few r e s o u r c e s have been committed t o development o f plywood manu fac tu r ing p r o c e s s e s u t i l i s i n g so f twood from p l a n t a t i o n s .

. Product ion o f p l y m o d i n A u s t r a l i a reached a peak o f 116 062 m3 i n 1972-73 b e f o r e f a l l i n g s h a r p l y t o 78 191 m3 i n 1975-76. From 1975-76 t o 1978-79 it rose g r a d u a l l y and was e s t i m a t e d a t 86 862 m3 i n 1979-80.

. I n i t s r e p o r t on t i m b e r and t imber p r o d u c t s and plywood and v e n e e r , the IAC no ted t h a t plywood and veneer manu fac tu re was i n a per iod o f t r a n s i t i o n from dependence on n a t i v e hardwood t o dependence predominant ly m sof twood p l a n t a t i o n s (IAC 1978) . A t t h a t t i m e , f a c t o r s expec t ed to l e a d to a g r e a t l y d i m i n i s h e d l e v e l o f a c t i v i t y i n plywood and veneer m i l l i n g u s i n g hardwood r e s o u r c e s i n c l u d e d the low u s a b l e volume o f p e e l e r q u a l i t y l o g s from hardwood f o r e s t s and the c o s t d i sadvan tages i n c u r r e d because o f the d i s p e r s i o n o f t h e hardwood re source r e l a t i v e to t h e optimum s i z e o f m i l l .

. The p r o g r e s s i v e e s t a b l i s h m e n t o f plywood m i l l s , e i t h e r s e p a r a t e l y o r a s par t o f an i n t e g r a t e d m i l l p r o c e s s i n g so f twood from p l a n t a t i o n s , i s seen a s p r o v i d i n g v e r y much b e t t e r p r o s p e c t s t h a n con t inued m i l l i n g from hardwood f o r e s t s . I t i s a l s o c o n s i s t e n t w i t h the foreshadowed g r e a t e r r e l i a n c e o f the t imber p r o c e s s i n g i n d u s t r y i n genera l on the so f twood p l a n t a t i o n r e s o u r c e b a s e o v e r t h e n e x t t h r e e decades . However, p a r t i c u l a r end u s e s should mt b e viewed a s the n e c e s s a r y end r e s u l t o f growing s u i t a b l e t i m b e r .

U t i l i s a t i o n o f P l y m o d i n A u s t r a l i a

. Plywood produc t s a r e d i s t i n g u i s h e d by d i f f e r e n c e s i n such a t t r i b u t e s a s s p e c i e s o f wood u s e d , t h i c k n e s s and o t h e r p r o p e r t i e s o f t h e o u t s i d e veneer s and t h e t y p e o f a d h e s i v e u sed . The broad spec t rum o f end u s e s r e s u l t s i n plywood p r o d u c t s f a c i n g c o m p e t i t i o n , o f v a r y i n g i n t e n s i t y , from d i f f e r e n t p roduc t s i n d i f f e r e n t end u s e s .

. Es t ima ted u t i l i s a t i o n o f plywood i n A u s t r a l i a i n 1979-80 was 136 868 n?. The share o f t h e t o t a l wood-based panel marke t r e p r e s e n t e d by s a l e s o f plywood f e l l from 27 per c e n t by volume i n 1971-72 t o 1 9 per c e n t i n 1978-79. The r e d u c t i o n i n t h e r e l a t i v e impor tance o f plywood o v e r th is per iod c a n b e a t t r i b u t e d l a r g e l y t o t h e growth i n u t i l i s a t i o n o f p a r t i c l e b o a r d .

. The a b i l i t y o f impor ted plywood t o compete f o r s a l e s w i t h plywood manufac tured i n A u s t r a l i a h a s been most marked i n t h e t h i ~ e r grades - a r e f l e c t i o n o f t h e s h i p p i n g c o s t advan tages o f the h i g h e r value-to-volume r a t . i o o f t h i n n e r plywood and t h e s u i t a b i l i t y o f As ian hardwoods f o r t h e p e e l i n g o r s l i c i n g o f thin veneers w i t h t h e r e q u i s i t e s t r e n g t h f o r m a n u f a c t u r i n g t h i n plywood. In 1978-80, an e s t i m a t e d 84 p e r c e n t o f l o c a l s a l e s o f t h i n plywood, d e f i n e d b r o a d l y a s plywood o f up t o 5.5 mm i n t h i c k n e s s , was impor t ed .

. I n c o n t r a s t , about 83 per cent o f e s t i m a t e d t o t a l s a l e s o f t h i c k p lywood, d e f i n e d b road ly a s plywood e x c e e d i n g 5.5 mm i n t h i c k n e s s , was o f plywood manufac tured i n A u s t r a l i a . The 28 per cent i n c r e a s e i n i m p o r t s o f t h i c k plywood i n 1979-80 over the p r e v i o u s year r e f l e c t s t h e s u b s t a n t i a l i n c r e a s e i n i m p o r t s o f e x t e r i o r s t r u c t u r a l wa te rproo f plywood from New Zealand r a t h e r t h a n i n c r e a s e d p e n e t r a t i o n b y As ian e x p o r t e r s .

I m p l i c a t i o n s o f Recent Developments A f f e c t i n g Plywood and Veneer Impor ts t o A u s t r a l i a

. W i t h some minor e x c e p t i o n s , i m p o r t s o f plywood and veneer from New Zea land , Papua New Guinea and F i j i a r e accorded d u t y - f r e e e n t r y . D u t y - f r e e a c c e s s f o r i m p o r t s o f plywood from the l a t t e r two c o u n t r i e s i s s u b j e c t t o volume q u o t a s . I m p o r t s o f plywood from o t h e r c o u n t r i e s a r e s u b j e c t t o a 40 per cent t a r i f f and, i n the c a s e o f t h i c k plywood, a t a r i f f q u o t a . Impor t s o f veneer from o t h e r c o u n t r i e s a r e e i t h e r f r e e o f d u t y or a t t r a c t r a t e s o f 15 per c e n t o r , i n the c a s e o f Canada, 7.5 per c e n t .

. The n e t upward movement i n p r i c e s f o r As ian plywood on world m a r k e t s i n 1979 and 1980 , t o g e t h e r w i t h c o n t i n u e d a s s i s t a n c e i n t h e form o f t a r i f f s , p rov ided A u s t r a l i a n manu fac tu re r s o f plywood w i t h some r e s p i t e from t h e c o m p e t i t i o n from A s i a n plywood manu fac tu re r s . Recent i n c r e a s e s i n p r i c e s f o r plywood manufac tured i n A u s t r a l i a and f a l l s i n world p r i c e s have b rough t the A u s t r a l i a n p r i c e s rough ly into l i n e w i t h du t y -pa id impor t p a r i t y .

. I n t h e f u t u r e , and i n t h e absence o f t h e i n t r o d u c t i o n o f i n c r e a s i n g l y s e v e r e i m p o r t r e s t r i c t i o n s , the plywood i n d u s t r y i n A u s t r a l i a i s l i k e l y t o face con t inued c o m p e t i t i o n b o t h from e x i s t i n g s u p p l i e r s and from plywood m a n u f a c t u r e r s l o c a t e d i n t h e t r a d i t i o n a l l o g s u p p l y i n g c o u n t r i e s o f South-Eas t A s i a , i n p a r t i c u l a r I n d o n e s i a and t h e Malays ian S t a t e s o f Sabah and Sarawak. Cons idered by i t s e l f , t h e r e l o c a t i o n o f a s i g n i f i c a n t p r o p o r t i o n o f t h e As ian plywood i n d u s t r y t o t r a d i t i o n a l l o g s u p p l y i n g c o u n t r i e s may have l i t t l e e f f e c t on t h e i n t e n s i t y o f the c o m p e t i t i o n . However, it can b e r easonab ly expec t ed t h a t the Governments o f I n d o n e s i a , Sabah and Sarawak w i l l i n t r o d u c e

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t h e s e c i r c u m s t a n c e s , t a r i f f q u o t a s kau ld b e the more e f f e c t i v e p r o t e c t i v e measure b u t , l i k e t a r i f f s , would l e a d to d i s t o r t i o n s i n i n v e s t m e n t d e c i s i o n s .

C o n c l u s i o n s

. The p r i n c i p a l c o n c l u s i o n s o f the s t u d y a r e t h a t t h e t a r i f f quota f o r t h i c k plywood shou ld b e removed and t h e level o f t a r i f f s reduced . However, g i v e n t h e r e g i o n a l s i g n i f i c a n c e o f t h e plywood i n d u s t r y i n A u s t r a l i a , r e d u c t i o n s i n t h e level o f plywood t a r i f f s a r e l i k e l y t o l e a d t o an i n e q u i t a b l e d i s t r i b u t i o n o f t h e subsequen t costs o f ad ju s tmen t .

. The means by which the p o s s i b l e s h o r t - t e r m i n e q u i t a b l e d i s t r i b u t i o n o f the c o s t s o f ad ju s tmen t c o u l d be modera t ed , w h i l e st i l l e n s u r i n g t h e ad jus tmen t o f t h e i n d u s t r y to a c o m p e t i t i v e p o s i t i o n i n t h e l o n g e r t e r m , would be to g r a d u a l l y r educe the plywood t a r i f f s o v e r a known c e r t a i n p e r i o d to the average nominal level f o r o t h e r wood p r o d u c t s , a s de termined b y t h e IAC i n q u i r y .

. E q u a l i s a t i o n o f average nominal r a t e s o f a s s i s t a n c e would a l s o r educe the d i s t o r t i o n o f consumpt ion choices and would p r o v i d e a more c e r t a i n p lann ing b a s i s f o r i n v e s t m e n t i n the wood produc t s i n d u s t r y , a l t h o u g h e f f e c t i v e r a t e s o f a s s i s t a n c e would b e s u b j e c t t o some v a r i a t i o n among t h e s e i n d u s t r i e s .

. An a d d i t i o n a l mechanism f o r p r o v i d i n g a more c e r t a i n p roduc t ion and i n v e s t m e n t env ironment f o r plywood producer s would b e the i n t r o d u c t i o n o f a s y s t e m o f u n i t f l o o r p r i c e s on i m p o r t s . T h i s mechanism was s u g g e s t e d a s a p o s s i b l e means b y which t h e A u s t r a l i a n plywood i n d u s t r y would b e p ro t ec t ed from the e f f e c t s o f unexpec ted c o l l a p s e s i n world p r i c e s on t h e A u s t r a l i a n marke t .

Recornenda t ions

. The l e v e l o f plywood t a r r i f f s s h o u l d be g r a d u a l l y reduced t o the average m m i n a l level for other wood p r o d u c t s de termined by the IAC i n q u i r y , and the t a r i f f q u o t a s f o r thick plywood should b e removed.

1. Introduction

The aim of the submission was t o cont r ibute to the ove ra l l inquiry by the Indus t r ies Assistance Commission ( I A C ) i n t o the l eve l Of assis tance accorded Australian fo re s t products indus t r ies by examining in some d e t a i l the economic arguments re la t ing to the leve ls of Protection accorded plywood and veneer manufacturers by t a r i f f and t a r i f f quotas on plywood and veneer products. (1)

The se lec t ion of plywood and veneer products for analysis was based on:

. the r e l a t i v e l y high l e v e l s of t a r i f f ass i s tance given t o manufacturers of plywood;

. the recognition tha t thick plywmd, the dominant product, is the only a r t i c l e of wood which is accorded ass is tance in the form of a t a r i f f quota in addition to t a r i f f s ; and

. research within the Bureau in to developnents i n f o r e s t prcducts trade in newly indus t r i a l i s ing A s i a (Byron 198Oa). This research indicated tha t the prospects fo r the in terna t ional ly competitive posi t ion of Aust ra l ia ' s plywood and veneer manufacturing industry over the longer term had a l t e r ed s ign i f i can t ly s ince the issue of the IAC report on Timber and Timber Products and Plywood and Veneer on U May 1978.

The submission, from which t h i s paper has been prepared was divided in to s ix sect ions. In the second sec t ion , the recent trends i n production and industry s t ruc ture were reviewed and the economic implications of the changing raw mater ia l base for the fu ture s t ruc tu re of the plywood and veneer industry were emphasised. This analysis was followed i n sect ion 3 by an examination of trends i n the u t i l i s a t i o n of plywood and veneer products, including an analysis of the recent e f f e c t s of ex is t ing t a r i f f and quota r e s t r i c t i o n s on the r e l a t ive proportion, sources and composition of imports. Also included i n sect ion 3 was an examination of the fu ture prospects of demand for plywood and veneer products i n Austral ia .

In the fourth sect ion, the implicat ions of recent developnents a f fec t ing Australian imports were explored. The p r inc ipa l developnents considered were:

. recent changes i n resource and trade po l i c i e s by Governments and log exporters i n t r ad i t i ona l log supplying countr ies of South-East Asia and the response t o these changes by major plywood manufacturing countr ies of North-East Asia and i n world markets for plywood; and

(1) Plywood and veneer products a re defined a s products of a kind f a l l i n g within s u b i t e m 44.14 or 44.15 i n Schedule 1 t o the Customs Tariff Act 1966. Tariff quotas allow imports up t o a spec i f ied amount a t a given r a t e of duty, while over-quota imports a r e dut iab le a t a separate ra te . For most thick plywood, the imports are sub e c t t o a t a r i f f of 40 per cent t o the quota l i m i t of 1 10 000 m . Above t h i s leve l , imports are dut iab le a t $0.35/m2 per mil l imetre of thickness over 5.5 m. L ~ 9 0

short-term and medium-term developnents i n the resource base and i ndus t ry s t r u c t u r e of New Zealand and Papua New Guinea.

I n sec t ion 5, t he f a c t o r s a f f e c t i n g the presen t and f u t u r e p r i c e competi t iveness of p lywcd manufactured i n Aus t ra l ia were examined i n g r e a t e r d e t a i l . Included i n t h i s s ec t i on were comparisons of movements i n world p r i c e s , o f f e r p r i c e s t o Aus t ra l ian importers, un i t f.0.b. va lues of P a p a New Guinea plywood and in-s tore p r i c e s a t t he wnolesa le /d i s t r iku tor l e v e l fo r plywood manufactured i n Aus t ra l ia . I n exp lor ing the f a c t o r s l i k e l y t o a f f e c t t he fu ture i n t e rna t i ona l compet i t iveness of t he plywocd and veneer industry i n Aus t r a l i a , cons iderab le importance was placed on the expected movements i n r e a l exchange r a t e s and other t rade- re la ted var iab les i n cur ren t and p o t e n t i a l Asian plywood export ing coun t r i e s a s wel l a s the expected impact of movements i n f r e i g h t r a t e s from a l t e r n a t i v e sources t o major Aus t ra l ian markets.

The implicat ions of providing continued a s s i s t ance t o the plywood and veneer indus t ry were discussed i n t h e s i x t h sec t ion . h lphas i s was placed on the poss ib le longer term impl ica t ions for resource a l l o c a t i o n wi th in t he f o r e s t products industry.

2. Plywood Production and Indus t ry S t ruc tu r e

2.1 Plywood Production

Production of plywocd i n Aus t ra l ia reached a peak of 116 062 m3 i n 1972-73 before f a l l i n g sharply t o 78 1 9 1 m3 i n 1975-76 (Department o f Primary Indus t ry 1980a). From 1975-76 t o 1978-79 it rose gradual ly t o 87 249 m3 and f e l l to 86 862 m3 i n 1979-80 (see Table 1).

Table 1: PLYWOOD PRODUCTION : BY TYPE : AUSTRALIA : 1968-69 t o 1979-80

Year S l iced fancy Case Waterproof Commercial Total

m3 m3 m3 m3 m3 1968-69 9 484 1 214 35 653 54 786 97 021 1969-70 9 852 3 017 42 726 59 317 114 909 1970-71 9 416 2 092 38 706 54 398 104 612 1971-72 8 436 1 931 39 539 53 225 103 131 1972-73 8 820 1 529 44 625 61 088 116 062 1973-74 8 915 1 514 42 344 59 058 111 431 1974-75 4 855 2 253 35 716 39 160 81 984 1975-76 5 106 2 149 35 715 35 221 78 191 1976-77 3 608 5 208 41 219 35 298 85 333 1977-78 2 725 4 584 38 424 38 948 84 681 1978-79 2 808 4 724 39 590 40 127 87 249 1979-80 M M na na 86 862

Conversion fac tor : 1 m3 = 1000 sq. f t 3/16" bas i s x 0.000442451. na. Not ava i l ab l e . Sources: Fores t ry and Timber Bureau (1975): Department of Primary

Industry (1980a, b) .

Production of so-called 'commercial' plywood, t he major category, represented only 46 per cent of production i n 1978-79. compared with 53 per cent i n 1972-73. The decl ine i n production of the other major Product type, waterproof plywood, i n t h i s period was l e s s pronounced. Production of case plywood showed a s l i g h t increase s ince the ea r ly 19709, while production of the other minor type, s l i ced fancy plywOod, declined a f t e r 1973-74.

2.2 Industry Structure

Manufacturing establishments producing plywood and veneers a re included i n the Austral ian Standard Indus t r i a l Class i f ica t ion , Class 2533, Veneers and Manufactured Boards of Wood, which a l so includes establishments mainly engaged i n production of part icleboard and chipboard or other manufactured boards of wood and in manufacturing laminations of timber and non-timber materials . Establishments i n t h i s industry c l a s s numbered 82 i n 1978-79 and represented abut 2 per cent of the t o t a l number of wood manufacturing establishments i n Austral ia (Treadwell 1981). However, over 8 per cent of employment and value added of the wood manufacturing indus t r i e s was accounted for by t h i s c lass . These percentages have been s t a b l e s ince the ea r ly 1960s.

Board manufacturing establishments a re concentrated i n New South Wales and Queensland which touether account for about 71 Per cent of the number of ;stablishments and 68 per cent of employment with the value of production i n New South Wales and Queensland being 67 per cent of the Australian to t a l .

Published information on m i l l s producing plywood is limited. The main cha rac t e r i s t i c s of the industry a r e given in the IAC report i n t o timber and timber products and plywwd and veneer (IAC 1978, pp.19-21). I t was noted tha t the number of plywood m i l l s had declined from 33 i n 1970 t o 24 i n 1976-77, of which 11 were located in New South Wales and 7 in Queensland. Three Queensland m i l l s have reportedly closed since then.

I n the report , the IAC a l s o noted t h a t Austral ian plyWood and veneer . - manufacture was i n a period of t r ans i t i on from dependence on native hardwoods to dependence predominantly on softwood plantat ions (IAC 1978, p.21). actor; expected to lead -to a g rea t ly - diminished l eve l of a c t i v i t y i n plywood and veneer mil l ing using hardwood resources included the lar usable volume o f peeler q u a l i t y logs from hardwood fo re s t s and the cos t disadvantages incurred by reason of the dispersed nature of t he hardwood resource r e l a t ive to the optimum s i z e of m i l l (IAC 1978, p. 22).

Information on the r a t e of t r a n s i t i o n t o the use of softwood from hardwoo3 veneer logs is d i f f i c u l t to obta in . The est imates presented i n Table 2 r e ly on the break-down of estimated removals of veneer logs from Australian f o r e s t s i n to broadleaved and coniferous species. The est imates are subject t o e r ror because of the u t i l i s a t i o n of veneer logs other than i n the production of plywood and the use of some veneers t o produce veneered particleboard. With these qual i f ica t ions , it is evident t ha t the upward trend i n the usage of coniferous veneer logs (see Table 2) was pronounced only i n 1977-78 and 1978-79.

Table 2: ESTIMATED RPlOVRGS OF VENEER LOGS FROM THE FOREST : BY SPECIES: AUSTRAGIA : (m3 round measure, t r u e volume under bark)

Proportion of Veneer l o g removals veneer log removals

Year Broadleaved Coniferous Total Broadleaved Coniferous

Sources:

164 166 144 149 156 110 137 162 146 156

Forestry Industry

and Timber (1980a).

230 71 235 71 210 69 216 69 215 73 144 76 175 78 201 81 222 66 24 8 63

Bureau (1975) ; Department

29 29 31 31 2 7 24 22 19 34 3 7

of Primary

Available informaticn on the number of cur rent ly operating and proposed p lants using radia ta pine (Pinus r ad ia t a ) suggests t h a t there w i l l be 6 p lants , with a t o t a l designed annual capacity of about 45 000 m3, using t h i s material by the end of 1981 (Australian Forest Indus t r i e s Journal 1978). Other p l an t s may use other domestically grown softwood species.

A more marked change has been the estimated reduction in the dependence of the plywood indus t ry on imported logs, from about 50 per cen t prior to 1972 t o about 20 per cent i n 1975 (IAC 1978, p.22) and t o 5 per cent i n 1979 (Plywood Association o f Austral ia 1979, p.2138). This evidence is su ported by the decl ine in imports of veneer logs from a peak of 60 452 m5 t o neg l ig ib l e l e v e l s i n 1977-78 and 1978-79 (see Table 3 ) .

The progressive establishment of plywood m i l l s processing softwood from planta t ions , e i t h e r separa te ly or a s pa r t of an integrated m i l l , is seen a s having fea tures providing very much be t te r prospects than continued mil l ing from hardwocd fo re s t s . Advantages of p lanta t ions include the concentration of suppl ies of consistent qua l i t y logs conducive to the establishment of large-scale integrated p lants able t o use modern technology and to achieve economies of s ize .

F a c i l i t a t i o n of t he t r ans i t i on from dependence by plywood and veneer manufacturers on hardwood t o dependence on softwood resources is a recognised element of the planning by the fo re s t ry au tho r i t i e s of New South Wales and Queensland and is cons is ten t with the foreshadowed g rea t e r rel iance of the timber processing industry in general on the

Table 3: VENEER LOG IMPORTS : AUSTRALIA (m3 round measure)

Year ~ m p o r t s

Sources: Forestry and Timber Bureau (1975): Department of Primary Industry (1980a).

softwood plantat ion resource base over the next three decades. For example, the Forestry Commission of New South Wales plans t h a t t he sawmill and veneer plant which draws hardwood from the Border Ranges area w i l l eventually be supplied mainly from conifer plantat ions being established i n the d i s t r i c t . Such t r a n s i t i o n s i n the industry may require considerable s t ruc tu ra l adjustment, including the undertaking of new investment.

I n Queensland, an important fea ture of the plant ing program of the Deparbnent of Forestry has been its policy of maximising production of high-quality clearwood for joinery, mouldings, veneers, plywood and comparable end uses. This policy was introduced many years ago following the ident i f ica t ion of a subs t an t i a l pr ice premium for s i z e and qual i ty logs of nat ive hoop pine (Araucaria cunninghamill and bunya pine (A . b idwi l l i i ) .

While the present plans of the S t a t e fo re s t services would f a c i l i t a t e the extended use of plantat ion softwoods for manufacture of plywood, t h i s use cannot be viewed a s the only end r e s u l t of growing su i t ab l e timber. Select ion of j o in t output p o s s i b i l i t i e s a re s ens i t i ve t o r e l a t ive pr ices for end products. Relat ive prices', i n turn, r e f l e c t such fac tors a s technological change i n manufacturing and a t the point of end use, changes in consumers' t a s t e s and incomes, and p r i ce competitiveness o f subs t i t u t e s for d i f f e r e n t timber products. Available s tudies of integrated wood processing suggest t ha t the jo in t production of lumber and chips can, under ce r t a in pr ice regimes, yield a grea ter t o t a l return to timber growing and processing than the production of plywocd and chips (Mason 1974).

Consideration of the fac tors a f fec t ing the long-term competitive posi t ion of Australian manufactured plywood is, therefore, pa r t i cu l a r ly

amropr i a t e a t the present time when r e l a t i v e l y few resources have been committed to developnent o f plywood manuEacturing processes u t i l i s i n g coniferous material from plantat ions.

3. U t i l i s a t ion Of Plywood i n Aust ra l ia

3.1 Recent Trends

Ut i l i s a t ion of plywood in Aust ra l ia i n recent years has varied between 175 631 m3 and 134 861 m3 (see Table 4 ) . U t i l i s a t ion i n 1979-80 was 136 868 m3 (Department of Primary Industry 1980b).

Table 4: APPAREW UTILISATION OF PLYWOOD AUSTRALIA

Year Total u t i l i s a t i o n

Sources: Forestry and Timber Bureau (1975) ; Department o f Primary Industry (1980a. Table 24; 1980b. Table 3.5).

The share of the t o t a l wood-based panel market represented by s a l e s Of p l w d f e l l from 27 per cent by volume in 1971-72 t o 19 per cent i n 1978-79 (Department of Primary Industry 1980a). (2) The reduction i n r e l a t i v e importance of plywood over t h i s period can be a t t r i bu ted l a rge ly t o the growth i n u t i l i s a t i o n of particleboard which comprised 63 Per cent of the t o t a l wood-based panel market i n 1978-79 compared with about 47 per cent i n 1971-72 (see Figure 1). Relative t o the

(2) For consistency, est imates of volume used i n t h i s sec t ion are i n cubic metres. However, it should be noted t h a t these estimates can be misleading t o the extent t h a t s t rengths of d i f f e ren t wood-based panels bear d i f f e ren t re la t ionships with volume or t o the extent t h a t the a t t r i b u t e sought is area.

Figure 1: PLYWOOD AND PARTICLEBOARD UTILISATION AS A PROPORTION OF THE APPARENT UTILISATION OF WOOD-BASED PANELS IN AUSTRALIA

% I I I I I I I I I I I

1968-69 1970-71 1972-73 1974-75 1976-77 1978-79

Sources: Forestry and Timber Bureau (1975); Department of Primary Industry (1980b).

growth i n u t i l i s a t i o n of part icleboard, u t i l i s a t i o n of plywood remained s t ab le over t h i s period.

plymod products a re dist inguished by di f ferences in such a t t r i b u t e s a s species of wood used, thickness and other propert ies of the outs ide veneers and the type of adhesive used. The broad spectrum of end uses r e s u l t s i n plywood products facing competition, of varying in t ens i ty , from d i f f e r e n t products i n d i f f e r e n t end uses. Subs t i tu tes and p o t e n t i a l subs t i t u t e s for plywood include sawntimber, part icleboard ( including veneered par t ic leboard) , hardboard, medium-density fibreboard (MDF) , oriented s t r u c t u r a l board (OSB) , flakeboard, f ibreglass , s t e e l , aluminium, concrete and ferrocement.

A marked cont ras t ex i s t s between the almost negligible opportunit ies for subs t i t u t ion of hardboard a d th in part icleboard for t h i n plywood i n . . i n t e r n a l panels i n caravans, where s t ruc tu ra l cha rac t e r i s t i c s a re very i m ~ o r t a n t , and i n the use of thick plywocd in floorinq. Thick ~lywood - . - - competes d i r ec t ly , i f weakly, with thick particleboard. l m b e r s t r i p f looring and concrete a s a mater ia l su i t ab l e for flooring. The r e l a t i v e cost disadvantage of plywood f looring i l l u s t r a t e d i n Table 5, is an important element i n explaining the preferences for other f looring materials . In addition, there is an apparent continued preference by most builders for building methods which ' incorporate the construction o f f i t t e d rather than platform flooring.

The a b i l i t y of imported ply*ood t o compete aga ins t plywood manufactured i n Austral ia has been most marked i n the thinner grades. This r e f l e c t s the shipping cos t advantages of the higher V a l ~ e - t ~ - ~ ~ l W n e r a t i o of thinner plywood and the s u i t a b i l i t y of Asian hardwoods for the peeling or s l i c i n g of t h i n veneers with the r equ i s i t e s trength for manufacturing th in plywood. In 1979-80, an estimated 84 per cent of l oca l s a l e s of t h in plywood, defined broadly a s plywood l e s s than or equal t o 5.5 mn i n thickness, was imported (see Tables 6 and 7 ) .

In cont ras t , about 82 per cent of estimated t o t a l s a l e s of thick plywood, defined broadly as plywocd exceeding 5.5 mn i n thickness, was manufactured in Austral ia . The 28 per cent increase in imports of thick plywood i n 1979-80 over the previous year r e f l e c t s the subs t an t i a l increase i n imports of ex ter ior s t r u c t u r a l waterproof plywood from New Zealand (see Table 8) .

The swing away from imports, other than from Papua New Guinea and th i ck plywocd imports from New Zealand, following the marked increases i n world p r i ces i n 1979-80, can be a t t r i bu ted t o the f a c t t ha t Australian manufacturers remained v i r t u a l l y unaffected by the changes i n log pr ic ing policy i n South-East Asia. h e pr inc ipa l e f f e c t s of the movement i n world p r i ces , i n addit ion t o the expansion of imports of th ick plywood from New Zealand, appear t o have been a reduction i n the volume of imports of t h i n plywood.

3.2 Future Trends

A t the present time, the major competitors with thinner grades of plywood are hardboard and th in part icleboard including veneered par t ic lebcard . These products, together with newly developed products

Table 5: NEW SOUTH WALES FLOORING COSTS (a)

F i t t e d f loor inq Platform f loor ing - Year/ month Sawnwood Part ic leboard Plvwood Part ic leboard Plywood

1976 February May August November

1977 February May August November

1978 February &Y August November

1979 February WY August November

1980 February May August November

(a) Average t rade r a t e s t h a t a builder could reasonably expect t o ob t a in from subcontractors. Tongue and grooved IT and G ) f loor ing is general ly l a i d on a subcontract ba s i s by s p e c i a l i s t f loor layers ; these r a t e s include waste, l o s s of coverage and n a i l s . lb) Dressed Pinus r a d i a t a 100 mm x 25 mm T and G, double nai led and punched. a f t e r November 1978 t o t a l f loor a rea 100 m2. (c) 19 mm phenolic, r e s i n bonded, panel subflooring, l a i d to la rge a reas . (dl 19 mm Pinus, panel subflooring, waterproof g lue l ine , T and G two s ide s , l a i d t o l a rge areas . le) 20 mm th ick , T and G edged, r e s in bonded pane l f loor ing . Total f loor area 100 m2. ( f ) 17 mm th ick , T and G edged, Pinus panel f loor ing , excluding f l a s h - t o t a l a r ea 100 m2. na. Not ava i lab le .

Source: Cordel l C o s t Services Pty Ltd (1980).

Table 6: ESTIMATED MRRKm SUPPLIES : PLYWCOD

Item 1976-77 1977-78 1978-79 1979-80

S a l e s of l o c a l p roduc t ion (a )

Th in 8 000 Thick 70 409 Exceeding 23 mm -

T o t a l 78 409 (c ) Local s a l e s per thousand p e r s o n s ( e ) 5.6

Impor ts

T h i n ( £ ) 66 679 Th ick(g ) 12 060 Exceeding 23 m 24 T o t a l impor ts 78 763

Imports per thousand p e r s o n s ( e ) 5 .8

Est imated s u p p l i e s

T h i n 72 679 Thick 82 469 Exceeding 23 mm 24

T o t a l e s t ima ted s u p p l i e s 155 172 141 582 157 033 147 301

Est imated s u p p l i e s p e r thousand persons ( e ) 11.1 9.9 10.9 10.1

(a) S a l e s by P lymod Assoc ia t ion o f A u s t r a l i a members on ly . (b) BAE e s t i m a t e s based on t r e n d s i n s a l e s o f t h i c k and t h i n plywood. (c) Source, IAC (1978). ( d ) P roduc t ion o f Plywood, Department o f Primary I n d u s t r y (1980b). ( e ) Based on t o t a l A u s t r a l i a n popu la t ion a s a t 30 June 1977, 1978, 1979 and 31 March 1980 (30 June 1980 f i g u r e s a r e no t a v a i l a b l e ) . ( f ) Thin impor t s i n c l u d e : plywood no t exceeding 23 mm t h i c k ; i n t e r i o r g l u e l i n e - d o o r s k i n s no t exceeding 4 mm t h i c k - grooved OK s l i c e d - o the r no t exceeding 5.5 mm t h i c k ; E x t e r i o r g l u e l i n e - o t h e r ( i n c l u d i n g c a s e ) . (g) Thick impor t s inc lude : plywood n o t exceeding 23 m t h i c k ; I n t e r i o r g l u e l i n e - o t h e r exceeding 5.5 mm t h i c k and o t h e r ; E x t e r i o r g l u e l i n e - marine , o v e r l a i d , s t r u c t u r a l waterproof and o t h e r . - I n s i g n i f i c a n t .

-%~rCes: IAC (1978). A u s t r a l i a n Bureau o f S t a t i s t i c s ( p e r s o n a l communication, 1980) ; Department o f Pr imary I n d u s t r y (1980b) ; Plywood Assoc ia t ion of A u s t r a l i a (pe r sona l communication, 1980) .

Table 7 : TWIN PLYWOD IMPORTS TO AUSTFSLIA: BY TYPE AND COUNTRY OF ORIGIN

and c0mtr9 Quantity value Quantity value Quantity value Quantity Value

m3 $'000 m3 $ '000 ,3 $'OOO .3 $'OOO f.0.b. E.0.b. f .o.b. f.0.b.

INTERIOR Doorskins

Taiwan 1 4 198 3 598 1 4 929 3 9 8 3 1 3 460 4 300 1 3 310 6 473 Other 1 540 381 1 294 373 1 311 315 132 65

T o t a l 15 738 3 979 16 223 4 356 14 771 4 615 1 3 442 6 538

Grmved Taiwan 5 271 1 393 5 587 1 595 9 385 3 113 8 503 3 766 Korea. Rep. o f 840 219 886 227 553 144 225 125 New Zealand .4 1.8 7 4 184 50 - -

Other 495 371 360 1 3 6 511 205 528 298

T o t a l 6 606 1 985 6 840 1 962 10 663 3 512 9 256 4 189

S l i c e d Taiwan 2 251 650 1 630 511 1 973 714 1 198 609 S ingapo re 282 62 243 78 144 40 35 10 New Zealand - - 50 1 3 576 157 87 28 Papua New Guinea 42 1 8 - - 14 5 72 34 Other 581 162 158 52 200 66 146 103

T o t a l 3 156 892 2 081 654 2 907 982 1 538 784

Other - less t h a n 5 .5 m Taiwan 20 504 4 647 1 3 136 3 353 1 5 176 3 690 8 765 3 872 Korea, Rep. of 7 965 1 642 6 834 1 601 3 342 894 1 993 719 P a p a New Guinea 5 658 2 246 4 383 1 886 5 883 2 567 6 262 3 170 Other 4 907 1 225 2 563 1 465 4 892 2 259 2 053 772

T o t a l 39 034 9 760 26 916 8 305 29 293 9 410 1 9 073 8 533

EXTERIOR Othe r - i nc lud ing case Taiwan 555 84 178 54 125 29 194 130 Korea. Rep. o f 1 496 200 214 36 - - - - New Zealand 28 7 962 192 1 061 240 258 64 Other 66 14 46 1 3 154 42 4 2

T o t a l 2 145 305 1 400 295 1 340 311 456 196

T o t a l t h i n PI-d 66 679 1 6 920 53 460 1 5 572 58 974 1 8 830 43 765 20 240

- I n s i g n i f i c a n t .

Source: A u s t r a l i a n Bureau o f S t a t i s t i c s ( p e r s o n a l c o m u n i c a t i o n , 1980; 1980a ) .

Tab le 8: THICK PLYWWD IHPORTS lo AUSTRALIAr BY TYPE AND COUWRY OF ORIGIN

Item 1976-77 1977-78 1978-79 1979-80 ~ n d c o w t r y Quant i ty Value Lhrantity Value Lhrantfty Value Quant i ty Value

m3 $ s ~ O O m3 Soo0O m3 $ 'a00 m3 $ '000 f .0.b. f.0.b. f.0.b. f.0.b.

INTERIOR 5 .5-U m t h i c k Taiwan 913 236 855 306 764 238 34 12 Papua New Guinea 712 283 568 239 477 204 443 205 New Zealand 555 172 1 938 435 2 798 742 307 119 Other 1 575 178 1 719 329 1 157 283 240 75

T o t a l Other 13-23 m t h i c k

Taiwan Papua NRI Guinea New Zealand Other

To t a l

Marine P a p a New Guinea USA Nethe r l ands Other

T o t a l S t r u c t u r a l waterproof Singapore Malays ia P a p a New Guinea New Zealand O the r

T o t a l Other

66 14 369 80 115 33 3 1 15 208 77 245 9 1 312 108 350 145 261 80 1 802 458 3 035 759 221 70 307 65 208 61 414 109 74 30

842 236 2 624 690 3 876 1 009 676 260 EXTERIOR

- Taiwan 67 1 7 24 7 231 104 10 5 Pepua New Guinea 968 392 477 200 945 415 635 3 2 3 USA Other

T o t a l 1 545 555 1 020 361 1 797 742 668 342 T o t a l t h i c k p l y m o d less than 23 m 12 060 2 470 11 053 2 891 1 2 654 3 705 16 431 5 040

Exceeding 23 m Taiwan 14 12 - - 19 7 1 7 1 75 Papua Na. Guinea 2 1 10 4 12 5 8 4 New Zealand 7 1 - - 3 Other

1 64 48 1 - - - - - - -

T o t a l 24 14 10 4 34 13 243 127 m t a l p l y w o d 78 739 1 9 403 64 523 1 8 467 7 1 662 22 548 60 439 25 407

- I n s i g n i f i c a n t . source: A u s t r a l i a n Bureau o f S t a t i s t i c s ( p e r s o n a l c m u n i c a t i o n , 1980; 198Oal.

Competitive with medium-thickness plywood such a s MDE, OSB and veneer bonded blockboard w i l l continue to exer t s igni f icant competitive Pressure on plywood i n many end uses.

P l y d is not expected t o regain the share of the boat building market l o s t to f ibreglass , s t e e l and ferrocement, pr inc ipa l ly because o f the expensive ongoing maintenance required for plywood hul l s .

Thick plywood is used extensively a s formwork for c o n s t r u ~ t i ~ n projects. Competing products are f ib reg la s s (for moulded sect ions) r s t e e l (used a s moulds for prefabricated sect ions) and, i n the fu ture , thick particleboard with moisture r e s i s t a n t laminates. Plywood formwork is favoured for its low cos t and s t r u c t u r a l i n t eg r i ty for most i n S i tu a e l i c a t i o n s . Exceptions a r e the use of f ibreglass or s t e e l mouldings, hired out by contractors , for the fabr ica t ion of complex shapes such a s 'waffle' beams. 'Waffle' beams a f e specif ied both for addi t ional strength and a s an archi tec tura l fea ture . Metal formwork is a l so used instead of plywood in prefabricat ion operations. Fmy movement e i the r toward or away from use of i n s i t u formwork is not expected t o be rapid.

A s already noted, i n f looring, t h i ck plywood competes with thick part icleboard, lumber s t r i p f looring and concrete. The ready ava i l ab i l i t y of hardwwds and p lanta t ion softwoods and the buildup of industry exper t i se i n the i r usage indica tes the l i ke ly continuation Of t h i s competitive relat ionship. Greater acceptance of non-appearance grade softwood for s t r i p f looring, linked with an increased emphasis On the need t o insula te houses to conserve energy. could in tens i fy the competitive pressure on panel products for flooring.

Expansion of the use of p l w d a s i n t e rna l house l in ing can be expected to continue to be r e s t r i c t e d because of competition from a l t e rna t ive panel products such a s gypsum board, asbestos sheeting, s t r i p boards and other panel products. Recent changes in building codes which allow the greater acceptance of plywood a s an in t eg ra l pa r t of house framing could lead to an expansion of the market for plywood. However, the expected ready and increasing a v a i l a b i l i t y of supplies of coniferous framing and accumulated industry knowledge of its use could lessen the r ap id i ty with which a l t e r n a t i v e building techniques are accepted. Exceptions are the spec i f ica t ion of laminated plywood a s a major component for construction of cyclone-resistant houses and the promotion of plywood of s imilar spec i f i ca t ions a s an i n t e g r a l component i n a new building system su i t ab le for farm buildings and sheds. In t h i s l a t t e r use, plywocd competes with mild s t e e l but is claimed t o o f f e r several advantages such as a higher strength-to-weight r a t i o , du rab i l i t y and be t t e r thermal q u a l i t i e s (Australian Forest Indus t r ies Journal 1980).

Overall, the a b i l i t y of plywood products t o withstand competition from subs t i t u t e s or to expand the i r present market share appears t o depend on continued product and market innovation. Development of plywood products able t o meet r i g id engineering spec i f ica t ions not normally met by current imports may a l s o o f f e r scope for retent ion of a s igni f icant share of the Australian domestic market by Australian manufacturers. Conversely, however, it can be expected tha t plywood manufactured i n Austral ia w i l l meet more severe competition from imported plywood in uses where r ig id engineering spec i f ica t ions are not required.

4. Implicat ions of Developnents Affec t inq Plywood and Veneer Imports t o Aus t ra l ia

Under cu r r en t arrangements, imports of plywood from New Zealand a r e accorded duty-free en t ry with the except ion of res idua l grades of f l oo r ing ( t h i ck ) plywod which a t t r a c t a r a t e of duty of 12.5 per cent . S imi l a r l y , imports (mainly t h in ) of high moisture r e s i s t a n t (HMR) plyrood from Papua New Guinea c u r r e n t l y a r e allowed duty-free e n t r y up t o a l i m i t o f 7135 m3. A l l o ther plywood from Papua New Guinea ( including HMR i n excess of the by-law l e v e l ) e n t e r s a t a spec i a l r a t e o f 30 per cen t with an add i t i ona l du ty for thick plymod. Imports of plywood from count r ies other than New Zealand and Papua New Guinea a r e s u b j e c t t o a 40 per cen t t a r i f f and, i n the case o f t h i ck plywwd, a t a r i f f quota . (3) Duty-free access is accorded t o 2000 m3 of plywood and 2000 m3 of blockboard a year from F i j i . Imports of veneers from New Zealand and P a p a New Guinea, and of veneers of Balsa (Ochroma pyramidale) from developing coun t r i e s and of non Caribbean Pine (Pinus caribbea) from the Forum I s l ands a r e du ty f r ee . Imported Canadian veneer shee t s for p l w o d manufacture valued a t l e s s than $0.47/m2 a t t r a c t only 7.5 per cen t . Other veneer imports a t t r a c t 15 per cent .

Table 9: IMPORTS OF PLYWWD TO AUSTRALIA : BY PRINCIPAL COUNTRY OF ORIGIN

Country 1976-77 1977-78 1978-79 1979-80

m3 % m3 % m3 8 m3 8

Korea. Rep. o f 12 176 15.4 7 368 11.6 5 046 6.9 2 320 3.9

Taiwan 45772 57.9 35724 56.3 44372 61.1 32240 53.6 Malaysia 2 030 2.6 2 513 4.0 2 157 3.0 585 1.0 Phi l ipp ines 1 616 2.0 17 0 149 0.2 0 . O Singapore 5 545 7.0 4 920 7.7 3 107 4.3 396 0.7 New Zealand 1 153 1.5 5 264 8.3 8 313 11.4 14 404 23.9 New Guinea 7 540 9.5 5 829 9.2 7 720 10.6 7 773 12.9 Other 3 238 4.1 1 866 2.9 1 827 2.5 2 444 4.0 - T o t a l 79 070 100.0 63 501 100.0 72 691 100.0 60 162 100.0

Sources: Aus t ra l ian Buceau of s t a t i s t i c s (personal communication, 1980) : Department of Primary Industry (1980a).

Taiwan ha s maintained its dominant pos i t i on a s a suppl ie r of plywood t o Aus t r a l i a ( see Table 9 ) . I n 1979-80, imports from Taiwan represented 57.5 per cent by volume of t o t a l imports of ply& i n t o Aus t ra l ia . The Republic of Korea was Aus t r a l i a ' s second major suppl ie r i n 1977-78 but accounted for only 3.9 per cen t of imports by volume i n 1979-80. Veneer imports (listed i n Table 10) continued t o be drawn p r inc ipa l l y from t h e Phi l ipp ines . Malaysia and Singapore. Imports from Papua New Guinea remained a t about t he quota l e v e l . Imports o f New Zealand plywood were

(3) See Footnote (1) .

Table 1 0 : IMFURTS OF VENEER TO AUSTRALIA : BY PRINCIPRt PNTRY OF ORIGIN

Country 1976-77 1977-78 1978-79

Malaysia 2 809 12.4 1 094 7.5 338 2.2 Phi l ipp ines 3 715 16.5 2 745 18.7 4 342 28.3 Singapore 1 886 8.4 1 173 8.0 1 559 10.2 New Zealand 153 0.7 126 0.9 516 3.4 New Guinea 3 115 13.8 575 3.9 753 4.9 Other 10 888 48.2 8 932 61.0 7 819 51.0

To t a l 22 566 100.0 14 645 100.0 15 327 100.0

Source: Department of Primary Industry (1980a).

concentrated i n i n t e r i o r grades up u n t i l 1978-79. However, i n 1979-80, there was a s u b s t a n t i a l r ed i r ec t i on of imports away from i n t e r i o r grades to t h e supply of ex t e r i o r s t r u c t u r a l waterproof plywood, with t h e import o f 13 467 m3 (see Table 11).

4.1 Recent Development Affec t ing Imports

( a ) East Asia

The apparent s t a b i l i t y of recent t r ade flows b e l i e s t he emergence of f o r ce s which may lead b s ign i f i c an t changes i n f u tu r e trade. Recent and impending changes t o production and t r ade pa t t e rn s i n the Asia-Pacific region have been discussed by Byron (1980a) and Sebi re (1980a).

South-East Asian coun t r i e s have s i gna l l ed t h e i r in ten t ion t o s ca l e down or e l iminate t he log export indus t ry , and t o give g r ea t e r emphasis t o the establishment of secondary manufacturing p l an t s i n t he timber supplying count r ies and t o t he d i v e r s i f i c a t i o n of products produced. Character i s t i c s of the ex t r ac t i ve phase have been i den t i f i ed as unsa t i s fac tory from the po in t of view of some, but not a l l , developing count r ies . These include the unchanging propor t iona l share i n t o t a l value added i n wood production accruing t o t he developing count r ies ; undue concentrat ion on a small number of common commercial spec ies , r e su l t i ng i n unde ru t i l i s a t i on of f o r e s t s and t rade linkages; and p r i c i n g s t r u c t u r e s which have given l i t t l e e f f e c t i v e bargaining power t o log suppl ie r s .

Recent pol icy changes a f f ec t i ng t he t r ade i n logs from south-East Asia have been export quotas on logs and bans on logging of se lec ted spec ies , introduced u n i l a t e r a l l y and s e l e c t i v e l y by var ious South-East Asian Governments. Price inc reases have a l s o been i n i t i a t e d by members o f SEALPA - the South-East Asian Log Producers ' Association - formed i n 1974.

Table 11: AUSTRALIAN IMPORTS OF NLW ZEALAND PLYWOODS

1976-77 1977-78 1978-79 1979-80 I t e m

Quan t i ty Value Quan t i ty Value Quan t i ty Value Quanti ty Value

Not exceeding 23 m th ick I n t e r i o r - doorsk ins 0 - grooved 0.4 - s l i c e d , no t o v e r l a i d wi th

DAP (b) 0 - o t h e r not exceeding 4 m t h i c k 1.6 exceeding 4 nun and up to

5.5 mu t h i c k - exceeding 5.5 nun and up

t o 1 3 mm t h i c k 555 o t h e r [c) 261

E x t e r i o r - s t r u c t u r a l waterproof 353 - o the r 20.6

Other - i nc lud ing c a s e 28.1

Exceeding 23 nun t h i c k 7.4

T o t a l 1227.1 386 5265.0 1 256 8312.7 1 212 14416.4 4 108

(a) Converted from m2, 1 m b a s i s . (b) D i a l l y l ph tha la t e . ( c ) Exceeding 13 mm i n th i ckness p l u s any plywood not included i n t h e preceding c l a s s i f i c a t i o n s . - I n s i g n i f i c a n t . Source: Aus t ra l i an Bureau of S t a t i s t i c s (pe r sona l c o m u n i c a t i o n , 1980).

Reductions in exports of logs i n i t i a t e d progressively by Peninsular Malaysia, t he Philippines and. more recently, by Sabah and Indonesia have not grea t ly affected the t o t a l export supplies of logs although more subs tant ia l reductions are forecas t (see Table 12).

Table 1 2 : ESTIMATED SUPPLIES OF LOGS FROM SOUTH-EAST ASIAN COUNTRIES Millim m3

Country 1977 1978 1979 1980/al

Indonesia Sabah Sarawak Philippines Others

Total

(a) Forecasts by SEALPA. I t should be noted t h a t Sarawak exporters a r e not members of SEALPA. Source: Japan Lumber Journal (1980a).

Of greater impact, a t l e a s t i n the shor t run, have been increased pr ices i n 1979, i n i t i a t e d by SEALPA, but fue l led by increased p r c h a s e s by Japanese, R e p b l i c of Korea and Taiwanese firms i n an t ic ipa t ion of further r i s e s . Log p r i ces f e l l equally dramatical ly a t the end of 1979, due t o the v i r t u a l withdrawal from the log markets by North-East Asian plywood producers who had found themselves overstocked with logs and facing extensive buyer resis tance for t h e i r f inished products i n the USA and Europe. The upward trend i n log p r i ces , both E.0.b. por t of export and exlog pond a t Tokyo port i n U.S. do l l a r s , resumed in the f i r s t two months of 1980 and then dropped sharply. I n October 1980. pr ices were about the same a s i n l a t e 1979 (see Table 13).

Factors contr ibuting to pr ice i n s t a b i l i t y have been the strengthening of the export regulat ions by the Indonesian Government since 15 May 1980 and the subsequent erosion of the e f f e c t of these regulations, exchange r a t e f luc tua t ians , cutbacks i n a c t i v i t y among plywood mi l l e r s and d i s t r ibu to r s resu l t ing from buyer res i s tance t o peak plywwd pr ices , and manufacturers' expectat ions of pr ice f a l l s i n logs fol lcuing buildup of stocks. Stocks of f resh and o ld logs i n Indonesia are now 4-5 mill ion m3 (Japan Lumber Journal 1979a) or 2-3 months normal imports by Japan.

The marked pr ice r i s e s for logs for processing i n t o plywood have led to cutbacks i n mil l ing a c t i v i t y i n Taiwan and the Republic of Korea a s well a s i n Japan. Attempts to pass on the Price r i s e s i n logs t o the f i n a l pr ice for plywood i n the American market have been l e s s t h a n SUCC~SSPU~, a t l e a s t i n the short run. Factors contr ibuting t o t h i s outcome are the U.S. building recession and increased competition, a r i s ing from the higher imported plywwd p r i ces from subs t i t u t e s such as

Table 13: F.O.B. PRICES OF LAUAN-SERAYA-MERANTI LOGS AT BALIRPAPAN (INDCWGSIA) AND SANDARAN (MAIAYSIA)

Nonth and y e a r Balikpapan Sandakan

1979

J a n u a r y

Febr U x y

March

Apr il

May

June

J u l y

August

September

OctOber

November

December

1980

J a n u a r y

February

March 13 6 14 8 186 203

A p r i l

May

June

J u l y na na na na

August 106 122 139 161

September 100 118 134 156

October 82 94 109 12 8

(a) Log p r i c e s a r e quo ted i n U.S. d o l l a r s . The s l i g h t l y d i f f e r e n t t r e n d s shown by t h e $A f i g u r e s a r e due to t h e f l u c t u a t i o n i n t h e r a t e of exchange between t h e t w o c u r r e n c i e s . r,qs a r e Shorea and Parashorea Spec ies . na, Not a v a i l a b l e .

Source: Japan Lumber J o u r n a l (1979a) .

gypsum board from Braz i l , particleboard and other grades and spec i f ica t ions of plywood. For example, i n 1980, softwood plywoods from the USA and Canada became competitive with Lauan plywood (Shores Species) for such general uses a s packaging, sheathing and subpanelling i n Japan. A t the same time, i n the USA, Lauan plywood has met s t i f f Competition a t the ' top end' of the market from domestically produced Birch plymod (Betula species) .

A s well a s cu t t i ng back mil l ing a c t i v i t y , plywood manufacturers i n Japan, Taiwan and the Republic of Korea have switched t o the p rchase Of Comparatively low-priced logs from Sarawak, and t h i s has resul ted in an increase of 44 per cent i n shipnents of logs i n 1979 and a forecast Of s l i g h t l y higher exports from Sarawak i n 1980.

The process of relocat ion of the plywocd manufacturing industry can be expected t o lead t o subs t an t i a l increases i n i n s t a l l ed plywood mil l ing capacity i n South-East Asia. However, relocat ion of a s ign i f i can t proportion of the plymod mil l ing capaci ty of Taiwan, the Republic of Korea and Japan to log supplying count r ies is l ike ly to be gradual, given the need to build up the required inf ras t ruc ture and expert ise i n the developing countr ies . The emergence of South-East Asian countr ies a s important d i r e c t plymod suppl ie rs t o the USA and other major world markets could r e su l t i n the t rans la t ion of the short-term buildup of s tocks of logs i n t o s tocks of'plywood products. Establishment of subs t an t i a l plywocd processing capacity i n log supplying countr ies could r e s u l t i n the more rapid transmission of pr ice movements generated by short-term s h i f t s i n demand from major world markets in to offer pr ices t o Australian importers. Should South-East Asian exporters be more t i g h t l y constrained by cash flow problems than exporters i n the present major exporting countr ies , then un i l a t e ra l discounting of plywood stccks could lead t o greater short-term v o l a t i l i t y of pr ice movements and in the volume of plywood shipped t o Australian markets.

Adjustments i n the s t ruc ture of plywood processing i n Japan, which accounts for about 80 per cent of the Asian and Paci f ic regions' panel production (Asian Developnent Bank 1978, p.24), a re already under way, following reduced demand, both through involuntary business f a i lu re and a s a r e s u l t of government i n i t i a t i v e s . Since 1973, nearly 50 m i l l s have closed i n Japan (Timber Trade Review 1 9 8 0 ~ ) . Two i n i t i a t i v e s were recently taken i n Japan t o reduce further the number of operating m i l l s . A scheme to st imulate the scrapping of plant was introduced i n 1980 through the Japan Plywood Manufacturers' Association and the Small and Medium Enterprise Promotion Organisation; t h i s scheme, however, has been r e s t r i c t ed i n scope, a f f ec t ing only 1 2 m i l l s ou t of a t o t a l of about 200. The second i n i t i a t i v e was the enforcement of an ordinance by the Japanese Ministry of Agriculture, Forestry and Fisher ies prohibi t ing the i n s t a l l a t i o n of new or replacement plywood manufacturing equipment, introduced i n May 1978: t h i s i n i t i a t i v e a l so has not proved successful.

The Republic of Korea has recently removed plywood from its list of most-favoured indus t r ies for developnent. However, the promotion of the need to d ivers i fy product l i nes , including the manufacture of particleboard a s well as plywood, and the introduction of new and highly e f f i c i e n t plywood machines has been d is loca ted by the sharp drop i n exports to the USA following increased plywood prices. Two plywood

m i l l s , one of which was formerly the world's l a rges t hardwood m i l l , were closed i n the Republic of Korea ea r ly i n 1980.

Singapore has no plans t o permit the establishment of further primary wood processing f a c i l i t i e s , following recent closures of m i l l s .

The Governments of Indonesia and the S t a t e of Sabah are ac t ive ly encouraging further investment i n plywood mil l ing capacity. A new plymod m i l l has been establ ished i n the Indonesian Island of Batam, c lose w Singapore, a s a jo in t venture with a Singapore F i rm.

Another example of the s t r u c t u r a l changes taking place i n the Asian plywood industry is the complete t ransfer of used p lants from the Reprblic of Korea to Indonesia and Sabah. Four of these p lants a re already i n operation i n Indonesia and a major expansion i n capacity has been completed by P.T. Nusantara Plywood, a member of the Djajant i Timber Group, Indonesia's l a rges t producer Of fo re s t products. Machinery in s t a l l ed by P.T. Nusantara Plywod produces plywood from 3 mm to 1 8 m th ick , which is current ly sold on the domestic market when q u a l i t y spec i f ica t ions for i n t e rna t iona l markets can be met. However, t h i s plywood w i l l be exported when a cheaper plywood/blockboard product u t i l i s i n g plywod and plywood t r i m i n g s becomes avai lab le t o the loca l market. A sumary of the present and forecas t aggregate mil l ing capaci ty , production and exports of plywood by Indonesia is shown in Table A . l of the Appendix.

New plymod processing capaci ty a l s o has been in s t a l l ed a t Sandakan i n Sabah a s a jo in t venture between a Japanese trading company and the government-backed Sabah Foundation. This m i l l is designed t o supply both the loca l market and export markets. Export marketing s t ra tegy i n the long term is based on d ivers i fy ing from the Japanese market t o European and other markets.

I r respec t ive of the locat ion of plywood m i l l s , the c o s t s of log supply a r e l ike ly to r i s e i n t he 1980s a s less -eas i ly logged timber is sought and WStS Of extract ion increase; these cos ts can be expected t o r e s u l t i n co-ordinated r i s e s i n supply pr ices t o processing countr ies . D i f f e r e n t i a l pr icing to encourage l o c a l processing can a l so be expected tn continue. Scarci ty of expe r t i s e i n m i l l design and management could r e s u l t i n s ign i f i can t opportunit ies for Australian firms t o pa r t i c ipa t e i n j o in t ventures for the developnent of processing a c t i v i t y i n South-East Asia.

The immediate impacts of the major changes i n government and indus t ry pol ic ies i n South-East Asian log supplying countr ies can be s m a r i s e d as:

. continuing downward pressure on log supplies for export;

. expansion of plywood manufacturing capacity i n log supplying count r ies and moves t o t i e up supplies i n a reas of cur rent ly l e s s favoured fo re s t resources;

. upward pressure on pr ices of logs, pa r t i cu l a r ly for export (except over sho r t periods) ; and

continuing closures of plywood m i l l s i n Japan, the Republic' Of Korea, Taiwan and Singapore.

The longer term impacts are more uncertain. While relocat ion of a s igni f icant proportion of the Asian plywood mil l ing industry i n South-East Asia may require considerable time for developing countr ies to build up in f r a s t ruc tu re and exper t i se , the sca le of p lants established in the short term is l i ke ly t o represent a subs tant ia l increase in p l y w d mil l ing capacity within log supplying countries. On the other hand, the need to maintain foreign exchange earnings t o finance import requirements is l i ke ly t o ensure continued exports of logs to the pr inc ipa l processing countr ies .

A s table pa t te rn of t rade based on secure fo re s t resources must be regarded a s uncertain beyond a 30-year time horizon unless e f f ec t ive af fores ta t ion programs are implemented or technological progress and the developnent of other wood-based indus t r ies allow the u t i l i s a t i o n of fo re s t s current ly considered uneconomic.

(b) New Zealand

The inclusion of most plywood products i n Schedule A of NAFTA - the New Zealand-Australia Free Trade Agreement - r e f l e c t s the importance placed on fores t products i n general by New Zealand since the inception Of NAFTA.

Given duty-free access t o the Australian market for most plywod and veneer products under current arrangements, the competitive pos i t ion of the plyuood mil l ing industry i n New Zealand r e l a t ive t o the industry i n Australia is influenced s ign i f i can t ly by the s t ruc tu re of f r e igh t r a t e s and the intervention measures introduced by the respect ive governments. The s t ruc ture of trans-Tasnan f r e igh t r a t e s is such tha t f r e igh t from New Zealand to Austral ia may be a t a lower r a t e than the r a t e s for the opposite d i rec t ion . In addit ion, f r e i g h t r a t e s i n Austral ia from major fo re s t areas to major markets a re r e l a t i v e l y high.

The New Zealand Government has given a higher l eve l of assis tance t o fo re s t ry and the wood processing indus t r i e s i n the form of grants and tax concessions to pr iva te fo re s t ry not avai lable to t h e i r Australian counterparts. In addit ion, the wood New Zealand processing indus t r ies are ass i s ted by i n p l t subsidies, e.g. reduced e l e c t r i c i t y r a t e s , possibly lower roya l t i e s (Byron 1980b, p.4) and s igni f icant export incentives aimed spec i f i ca l ly a t the wood processing indus t r ies .

There are nine veneer p lants i n New Zealand. Of these, the four largest a l so produce plywood. The New Zealand Forest Products plywood plant a t Kinlei th, which began production i n 1976, is the newest and largest plywocd plant and uses rad ia ta pine t o produce s t ruc tu ra l and construction grade ply for l oca l and export markets.

Plywood production i n New Zealand has varied between about 20 000 m3 and 43 000 m3 a year from 1970 t o 1979 (see Table 14). The s ize of the New Zealand veneer and plywood mi l l ing industry has been limited by the a v a i l a b i l i t y of peeling logs; veneer and plywood manufacture cur rent ly consumes only 1-2 per cent of t o t a l f o r e s t

removals. Indigenous spec ies have t r a d i t i o n a l l y accounted for much of t h i s supply although r ad i a t a pine has been used more ex tens ive ly s ince 1970. The s u b s t a n t i a l increase i n the usage of r a d i a t a from 1977 (see Table 15) r e f l e c t s the conmencement o f opera t ions of the Kin le i th p lan t descr ibed above.

Table 14: PLYWOOD PRODUCTION I N NEW ZEALAND(a) : Thousand rn3

Plywood production 24.4 25.7 29.1 27.1 30.5 27.0 19.3 25.9(p) 33.2 42.1

( a ) For years ended 31 March. (p) Provis ional .

Source: New Zealand Forest Service (1978; personal communication, 1980).

Table 15: NEN ZEALAND PEELER LOGS FOR VENEER PRODUCTION: Thousand m3

Indigenous spec i e s Imports Total

Yearfa) Rimu Kahikatea Radiata Other

(a ) Year ended 31 March.

Source: New Zealand Forest Serv ice (1978; personal communication, 1980).

The most notable recen t d e v e l o p e n t i n t rade i n plywood from New Zealand t o Aus t ra l ia has been t h e r ed i r ec t i on of t r ade from i n t e r i o r g rades to s t r u c t u r a l waterproof plywood.

f i ) Future deve loment o f t he New Zealand p lymod i ndus t ry

Production of the g r e a t e s t proport ion of clearwood for marketing of veneers. plywood, boards and components, processed t o t h e ex t en t t h a t i s economically v i ab l e , has been i d e n t i f i e d a s one of t he long-term p r i o r i t i e s f o r New Zealand i n t he r ecen t l y published r epo r t on t he f o r e s t i ndus t ry by the Developnent Finance Corporation of New Zealand (1980).

The pat tern of previous fo re s t plant ing d i c t a t e s t h a t there w i l l be limited opportunity for major new f o r e s t industry developnent i n the 1980s. Any s ign i f i can t fo re s t ry industry developnent during the 1980s W i l l be based largely on young t r ees t h a t w i l l ( a t t h a t time) be unsuitable for use a s sawlogs. Only pulp or reconst i tuted board products rrould be l i ke ly fo r consideration during t h i s period. Not u n t i l t he ea r ly 1990s w i l l there be a rapid increase in the volume of mod su i tab le for a f u l l range of sawlogs and logs for peeling. The forecas t limited supply of logs su i t ab l e for peeling in the 1980s has been ident i f ied a s a factor expected to c rea t e problems in s t ead i ly building up exports t o po ten t i a l long-term markets.

Continued p re fe ren t i a l access for imports of plywood from New Zealand can be expected to resul t i n growth in t rade t o Austral ia i n the 1980s and subs tant ia l increases i n the 1990s, with the extent Of t h i s growth being determined by expansion in market opportunit ies . Assistance to fo re s t growing and wood processing i n New Zealand and high in terna l f r e i g h t charges i n Austral ia may well provide the New Zealand industry with a competitive advantage i n major Austral ian markets. The s t a b i l i t y of current N e w Zealand-Australian in ter f i rm trade linkages is more l i ke ly t o come under pressure from the developnent of plywood manufacturing capacity i n Austral ia than from stimulus t o t h e New Zealand plywood i rdus t ry in the 1980s. The establ ished t rade pa t te rn between New Zealand and Austral ia a l so would be sens i t i ve t o any changes in the leve l of t a r i f f applied by Austral ia t o imports.

(c) Papua New Guinea

The provisions of PATCRA (Papua New Guinea Austral ia Trade and Comercial Relations Agreement) which came i n t o force on 1 February 1977 were designed t o ensure tha t the t r ans i t i on of Papua New Guinea t o independent nation s t a tus d id not cause it t o become worse of f in terms o f its trading position with Australia.

Consideration of whether quota entry a t concessional r a t e s of duty provided under current arrangements is appropriate for the fu ture requires examination of recent policy developnents a f fec t ing the fo re s t ry sector i n P a p a New Guinea. In general, development of policy for the fo re s t ry sector has taken three separate influences i n t o account:

. the nature of the P a p a New Guinea fo re s t resource base;

. markets for timber raw mater ia l s ; and

. the perceived need to develop long-term developnent goals appropriate fo r Papua N e w Guinea.

li) The fores t resource base

P a p a New Guinea has been grouped with the S ta t e s of Sabah and Sarawak i n Malaysia, Indonesia, Burma, Vietnam, Kampuchea. Laos and t h e Solomon Is lands i n a report t o the Asian Developnent Bank a s a country with underut i l ised f o r e s t resources and a lack of plywood mi l l ing capaci ty (Asian Development Bank 1978, p.25).

The f o r e s t s of Papla New Guinea d i f f e r from those of the Phil ippines, Sabah, Sarawak and Indonesia west of I r i a n Jaya in t ha t they are t yp ica l ly non-dipterocarp fo re s t s . These fo re s t s have high t o t a l volumes but they are comprised of a much grea ter mixture of species than any other South-East Asian fo re s t s and, consequently, t he volume of any one species is not great . Harvesting of timber is confined currently to a r e l a t i v e l y small number of species (Sebire 1980a). Topography is a lso an important fac tor l imit ing the p o t e n t i a l u t i l i s a t i o n of f o r e s t resources.

(ii) Market conditions i n the 1970s

The v o l a t i l i t y of the market for logs for processing, influenced mainly by Japan, t he Republic of Korea and Taiwan, i n the mid-1970s resul ted i n the forecas ts of Endacott (1971) for log exports and processing within Papua New Guinea not being rea l i sed . Contributing f a c t o r s i den t i f i ed by Yauieb 11978) were the higher cos ts of production of Papua New Guinea logs, d i f f i c u l t i e s experienced in meeting grading standards. the r e t r e a t of buyers from the use of lesser known species and the po l i c i e s of the Papua New Guinea Government on involvement of overseas firms i n developnent.

( i i i ) Development goals

The goals s e t by the Papua New Guinea Government for the fo re s t ry sec tor emphasise the need fo r ca re fu l planning for the u t i l i s a t i o n of f o r e s t resources. The goals include the eventual cessat ion of systematic logging or clear f e l l i n g of f o r e s t a r eas purely for t he export of unprocessed m d in the form of logs and chips.

'Existing operations w i l l be encouraged t o increase the degree of processing and v e r t i c a l in tegra t ion within Papua New Guinea. New a c t i v i t y by foreigners must be i n t he form of integrated fo re s t i ndus t r i e s or i n en te rp r i se s which fur ther process timber now being logged. In any fo re s t ry developnent, re fores ta t ion must be undertaken a s a means of renewing the resource and sustaining the industry. ' (World Bank 1978, p.167)

I n prac t ice , the developnent s t r a t egy has been directed e s sen t i a l ly tcmafd an increasing percentage of sawntimber and veneer/plywood production over time, w i t h lessening dependence on log and chip exports. A t t he present time, however, Papua New Guinea has only one plywood m i l l ( i n the Bulolo Valley) and two veneer m i l l s ( i n Lae and Rabaul) compared with about 90 sawmills.

A fur ther factor a f f ec t ing the developnent of the fo re s t indus t r ies o f Papua New Guinea is land r igh t s . Land is owned general ly by loca l communities and timber r i g h t s m u s t be purchased i n small parcels .

f i v ) The present plywod indus t ry

The plywood industry cu r ren t ly draws most of i ts resources from n a t u r a l s tands of hoop pine and k l inki pine (Araucaria hunate in i i ) i n t he Bulolo Valley. Corestock of a few other species - notably Mersawa (Anisoptera polyandral - has been used t o extend the c lear face supply.

The na tura l k l inki s tands are of l imited extent and a r e expected t o be at out by about 1982. Production of plywocd is expected t o proceed a t about current leve ls (13 000 m3 t o 15 000 m3 a year) u n t i l 1982 when a h ia tus i n operations may occur u n t i l an expansion of production o f P l w o d is possible from plantat ion sources in the ea r ly 1990s (Yauieb 1978).

Total plywood exports from P a p a New Guinea have r e l i ed heavily on Preferent ia l access to the Australian market. Plywood exported t o Austral ia from the Bulolo m i l l is mostly t h i n HMR plywood. Thick Plywood presently imported from Papua N e w Guinea is used i n the furn i ture trade for shelving and, hence, is more d i r e c t l y competitive with thicker grades of particleboard than with thick plywocd produced i n Austral ia for use i n construction.

Veneer production a t Lae and Rabaul is oriented t o the provision of core mater ia l for plywod production and for export t o Australia. Expansion o f veneer production for export rather than for the domestic market is l ike ly . Imports of veneer from Papua New Guinea should continue to be complementary t o plywood manufacture in Austral ia (Yauieb 1978, p.13).

(v) Recent developments

The pr inc ipa l recent developnents which have affected t h e fo re s t ry sector i n Papua New Guinea are the jo in t a c t i v i t y of i ts log exporters with exporters from Sabah, the Phil ippines and Indonesia within SEALPA and the increased i n t e r e s t i n a l t e rna t ive sources of logs by Taiwan, t he Replblic of Korea and Japan following imposition of reduced log quotas from t r ad i t i ona l sources.

I n addit ion, there have been i n i t i a t i v e s such a s the establishment of fo re s t ry developnent corporations; the p r s u i t of j o in t venture investment projects by Asian countr ies and the conduct of j o in t missions ty the Government and pr iva te industry t o Japan and other countr ies t o stimulate investment for developnent of the timber indus t r ies of Papua New Guinea.

l v i ) Conclusions

There is a degree of c o n f l i c t evident between the long-term policy of developing i n d u s t r i a l capacity for t he export of sawnwood, plywocd and veneer and the immediate developnent prospects. The removal of quota r e s t r i c t i ons on imports from Papua New Guinea appears unlikely t o r e su l t i n increases of imports of plywood in to Austral ia i n the 1980s unless plywood mil l ing capacity designed t o u t i l i s e species other than k l inki pine and hcop pine is establ ished a s pa r t of jo in t venture operations by major importers seeking to secure suppl ies of raw materials .

4.2 Imp2ications for AustraZia

The short-term implication for Aust ra l ia of the developnents i n South-East and North-East Asia is for upward movement i n o f f e r pr ices fo r plywood t o Australian importers. However. abrupt changes i n of fer pr ices

can be expected from time t o time - a r e s u l t of cyc l i ca l changes i n building and construction a c t i v i t y i n major importing countr ies .

In the short-to-medium term (1-10 years) the developnent of s ign i f i can t plywood manufacturing capaci ty i n South-East Asia could bring competitive pressures on exis t ing exporters and Australian manufacturers a s new mi l l s seek to d ive r s i fy markets. Pol ic ies of the Governments of South-East Asian nat ions designed t o reduce the r a t e of exploi tat ion of f o r e s t s and, a t t he same time, maintain or boost foreign exchange earnings v i r t u a l l y ensure tha t newly establ ished m i l l s w i l l d i r e c t a s ign i f i can t proportion of t h e i r production to export markets. Resource pr ic ing pol ic ies of ASEAN - the Association of South-East Asian Nations - s p e c i f i c t o the f o r e s t products i ndus t r i e s Such a s d i f f e r e n t i a l log pr ic ing for domestic processing could be used t o sus ta in competitive advantages vis-a-vis other suppl ie rs i f government object ives, such a s t h e generation of regional employment and the earning of addi t ional foreign exchange, a re considered more important.

Factors which introduce uncertainty i n t o longer term forecas ts of t he l i k e l y pat tern of t rade i n logs and plywwd from Asia are the possible emergence of countr ies such a s Saudi Arabia, the Gulf sheikdoms and the Indian subcontinent a s important markets for plywood and of the People's Republic of China a s a major market for both plywood and logs.

Further , FA0 projec t ions (see Table 16) suggest growth i n u t i l i s a t i o n of plywood within t h e Asian developing countr ies themselves. However, those project ions do m a t take in to account the e f f e c t on aggregate demand Of changes i n world p r i ces or the e f f e c t of changes in the pr ice of plywood r e l a t ive to subs t i t u t e s .

The expected deplet ion of the fo re s t resources of Asia despi te current reaf fores ta t ion programs may ac t to underpin a general r i s e i n p r i ces although technological progress and the developnent of other wood-based indus t r ies may allow the u t i l i s a t i o n of Eorests cur rent ly considered uneconomic.

Factors act ing t o cons t ra in r i s e s i n plywood pr ices on world markets a re the l i ke ly emergence of Braz i l a s a major supplier of plywood t o Europe and the USA i n the 1980s and the apparently high pr ice e l a s t i c i t y of demand for Asian plywood i n major markets such a s the USA.

The s t a b i l i t y of the present pa t te rn of imports from New Zealand depends on the continuation of present import t a r i f f s s e t by Australia. The a v a i l a b i l i t y of resources s u i t a b l e for establishment of plywood mi l l ing based on u t i l i s a t i o n of p lanta t ion softwood within Austral ia could lead t o plywood manufactured i n Austral ia displacing New Zealand imports. However, Austral ian producers could meet s t i f f competition from New Zealand exporters a s the Australian market w i l l almost ce r t a in ly remain a most a t t r a c t i v e o u t l e t . Competitive pressure can be expected to increase i n the 1990s a s addi t ional fo re s t resources su i tab le for plywood and veneer production become avai lab le i n New Zealand.

Plywood and veneer imports from Papua New Guinea are based on a l imited species resource. Consequently, removal o f quota r e s t r i c t i ons on imports from Papua New Guinea i n the 1980s can be expected t o r e s u l t i n

Table 16: ACTUAL AND PROJECTED COMESTIC CONSUMPTION OF PLYWOOD

Total consumption Consumption per person Region

1974 1985 2000 1974 1985 2000 Low Bigh Low High Low High Low High

w wor id Asia developing Indonesia Korea, Rep. of Malaysia Phi l ippines Singapore Japan

na, Not avai lable .

Source: Pringle (1980) .

only small absolute increases i n imports of a r e l a t ive ly special ised product.

Pr ices of future imports from Papua New Guinea can be expected to move i n p a r a l l e l with world p r i ces , given the increasing awareness of P a p a New Guinea of its po ten t i a l r o l e a s a supplier of wood and woal products.

A s for New Zealand, the ex i s t i ng t r ade pat tern can be expected t o be sens i t i ve to any changes i n import regulat ions by Austral ia a f fec t ing Asian COuntr i e s . 5. Competitiveness of Imports

This section has two par t s . In the f i r s t par t , t rends in world and Austral ian pr ices for plywocd and trends i n f r e i g h t r a t e s to major Austral ian markets a re used to assess the present competitiveness of imported plywood with plywocd manufactured i n Australia. In t he second p a r t , t l ike ly d i r ec t ions of movements i n t he pr inc ipa l fac tors determining the fu ture competitiveness of imported plywood are analysed.

5 . 1 The Present Competitiveness of Imported Plywood

The present competitiveness of imported plywod depends on the f.0.b. o f f e r p r i ce s of exporting count r ies converted t o Australian currency and the r e l a t i v i t y between the cos ts of shipping t o Australian markets and the cos t s of t ransport ing Austral ian manufactured plywood from the m i l l t o major Australian markets. Because of the small s i ze and d ispersa l of t he Australian market r e l a t ive to other markets supplied by Asian exporters , comparisons were made not only between p r i ces of plywood manufactured i n Aust ra l ia and p r i ces on major world markets but a l so between these l a t t e r pr ices and the o f f e r pr ices of plywood to Austral ia from Asian exporters and from Papua New Guinea. Extension of t he p r i ce comparison to include un i t f.0.b. values of plywood exported from New Zealand t o Australia was not undertaken because of data def ic ienc ies and the recent marked changes i n the composition o f imports from New Zealand. ( 4 )

(a ) Import prices and m r l d pr ices

Movements i n f.0.b. o f f e r p r i ce s for Asian plywood t o Australian importers since the beginning of 1977 have closely para l le led movements i n pr ices for s imilar plywood in Japan, selected a s a major world market (see Figure 2 ) . In the case of Lauan plywood of an average thickness of 3.3 mm, absolute o f f e r p r i ce s to Aust ra l ia were a l so cons is ten t with p r i ces on the Japanese market. Austral ian importers do not, therefore , appear t o have suffered any pr ice disadvantage by reasons of the smallness Of the Australian market over the period considered.

( 4 ) For reasons of con f iden t i a l i t y it has been necessary t o r e s t r i c t the reporting of the de ta i led analys is t o r e l a t ive pr ice movements.

Figure 2: INDEXES OF AUSTRALIAN PRICESla) AND OFFER PRICES FROM PAPUA NEW GUINEAlb) AND SOUTH-EAST ASIA FOR 4 mm PLYWOODIC) Base: January 1977 =I00

- : t f

..z.* 160 - South-East A s i a . . .....,............ ....... .. 4 - i"'

140 -. A u s t r a l i a

-

i 2 0 -

I 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ,

1977 1978 1979 1980

( a ) S e l l i n g p r i c e s of plywood from secondary r a i n f o r e s t s p e c i e s , f r e e i n s t o r e ; Sydney. (b) Unit p r i c e s of a l l a c t u a l imports of a l l s p e c i e s , f .0.b. t o Aus t ra l i a . ( c ) Uni t p r i c e s of imports i n t o Sydney.

Note: p r i c e s converted t o Aus t ra l i an d o l l a r s before indexing.

Sources: Aus t ra l i an Bureau of S t a t i s t i c s (1980b); Indus t ry sources .

Comparisons of f.0.b. un i t values for imports from Papua New Guinea and f.0.b. pr ices for Asian plywood t o Australian importers a re subject t o e r ror because of aggregation i n the Papua New Guinea former ser ies . Nevertheless, inspection of indexes o f the two s e r i e s shown in Figure 2 suggests tha t , i n r e l a t i v e terms, p r i ce s offered for plywood from Papua New Guinea have not f u l l y re f lec ted the general upward movement i n world p r i c e s s ince December 1978. However, i n absolute terms, un i t f.0.b. values fo r Papua N e w Guinea plywood have remained above the of fer pr ices from Asian exporters over the period from December 1978 t o Apri l 1980, which could r e f l e c t both the r e l a t i v e proximity and p re fe ren t i a l access t o the Australian market.

(b) Australian domestic p r i ce s and p r i ces on the world market

Price indexes constructed from s e r i e s of monthly average se l l i ng p r i c e s for four thicknesses of Lauan plywood sold by prime wholesalers in ~ o k y o and free-in-store pr ices i n Sydney of comparable thicknesses of Austral ian manufactured plywood are shown i n Figures 3-6.

Although there were considerable d i f ferences between trends in pr ices for d i f f e ren t thicknesses of plywood, inspection of Figures 3-6 suggests t h a t pr ices m the Sydney market have general ly been f a r more s t ab le than p r i c e s for Lauan plywood i n Tokyo.

I n 1979 and 1980, pr ices on the Tokyo market were extremely v o l a t i l e , r e f l ec t ing the i n i t i a l impact and subsequent consumer response t o the p r i ce r i s e s for log imports co-ordinated by members of SEALPA. The longer term implications of policy i n i t i a t i v e s i n South-East Asia and t h e i r in terac t ion with f luc tua t ions i n leve ls of building and construct ion a c t i v i t y i n world markets suggest t h a t world p r i ces may continue W exhib i t a r e l a t i v e l y high degree of v o l a t i l i t y .

The reduction i n 1980 of the competitive pressure on Australian manufacturers of plywood, following from the policy-induced s t r u c t u r a l change i n the pricing of the log i n p l t s i n to plywood manufacturing in East Asia i n 1979 and 1980. has been associated with more frequent upward revis ions in p r i ces by Austral ian manufacturers. These recent domestic p r i ce r i s e s have been a t t r i bu ted t o higher factor cos ts , i n par t icu lar increased log royal t ies , and higher f u e l and glue prices.

I n absolute terms, the recent p r i ce r i s e s for Australian manufactured plywood and sharp f a l l s i n world plywood pr ices i n the second half of 1980 have brought the Australian p r i ces roughly in to l i ne with duty-paid import pr ices .

(cl Freight r a t e s

( i l Comparison o f shipping r a t e s f r o m South-East Asia t o Austral ia

The cost of f re ight ing a cubic metre of plywood from Taiwan t o Austral ia is current ly 8 per cent below the corresponding r a t e from the R e p b l i c of Korea (see Table 17).

The Malaysian r a t e undercuts the Taiwanese r a t e by 14 per cent , so t h a t further developnent of an export-oriented plywood industry i n

Figure 3: INDEXES OF WORLD AND AUSTRALIAN PRICES FOR 2.5 mm PLYNOOD(a1 Base: January 1977 = 100

240-

~.o.b. wholesalers' average selling price 230- of ~auan plywood in ~okyo: converted to

Australian dollars before indexing

220- --- selling price of plywood from secondary rainforest species, free in store, Sydney

- 2 00-

-

1c0-

-

160-

-

1 4 6

-

120-

1977 1978 1979 1980 Sources: Japan Lumber Journal (1979a); Industry sources

Figure 4 : INDEXES OF WORLD AND AUSTRALIAN PRICES FOR 4 mm PLYWOOD(a) Base: January 1977 = 100

'0° 1

( a ) World p r i c e s : f.0.b. who lesa le r s ' average s e l l i n g p r i c e of Lauan plywood i n Tokyo; conver ted t o Aus t ra l i an d o l l a r s before indexing. Aus t ra l i an p r i c e s : s e l l i n g p r i c e s o f plywood from secondary r a i n f o r e s t s p e c i e s , f r e e i n s t o r e , Sydney. Sources: Japan Lumber Journal (1979a); Indust ry sources .

Figure 5: INDEXES OF WORLD AND AUSTRALIAN PRICES FOR 5.5 - 6.0 lm PLYWOOD(a) Base: January 1977 = 100

+

~ B I I I I ~ I I I I I I ~ I t I ~ ~ ~ ~ I I I I I I I I ~ I I I I I I ~ 1977 1978 1979 1980

( a ) world p r i c e s : f .0.b. wholesa lers ' average s e l l i n g p r i c e of Lauan plywood, i n Tokyo: converted to A u s t r a l i a n d o l l a r s before indexing. Aus t ra l i an p r i c e s : s e l l i n g p r i c e s of plywood from secondary r a i n f o r e s t spec ies , f r e e i n s t o r e , Sydney. Sources: Japan Lumber Journa l (1979a): Indust ry sources .

Figure 6: INDEXES OF WORLD AND AUSTRALIAN PRICES FOR 12 mm PLYWOOD(a) nase: January 1977 = 100

I

l l l l ~ , l ~ ~ ~ q , ~ ~ l l l ~ l l l l l , I I I I I 1 r l l l l l l l l l l l l 1977 1978 1979 1980

( a ) World p r i c e : f.0.b. who lesa le r s ' average s e l l i n g p r i c e of Lauan plywood i n Tokyo: conver ted t o Aus t ra l i an d o l l a r s be fo re indexing. Aus t ra l i an p r i c e s : s e l l i n g p r i c e of plywood from secondary r a i n f o r e s t s p e c i e s , f r e e i n s t o r e , Sydney. Sources: Japan Lumber J o u r n a l (1979a): Indus t ry sources .

Table 17: CONTAINER FREIGHT RATES OF PLYWOOD INTO AUSTRALIA : OCTOBER 1980(a)

Add : Add : Subtract: Add : Add : Source Port of Base Currency Bunker Full Australian Lift-on/Lift-off country origin service adjustment adjustment container port charge charge Total

rate factor factor load allowance

Indonesia Jakarta 64.50 13.71 9.68 1.00 1.76 0.37 89.02 W 'D

Korea, Rep. 0 f

West Malaysia Penang 67.75 0.51 10.16 1.71 1.89 0.37 78.97

Taiwan 61.00 28.91 0.75 1.89 0.37 91.42

(a) Based on a Lull 20-£cot container lmd of 30 m3 plywood into Sydney.

Sources: Department of Transport (personal communication, 1980); Reserve Bank of Australia (personal communication, 1980).

Malaysia may be expected to capture some of the Austral ian plywood market from Taiwan and other supp l i e r s . This Malaysian f r e i g h t advantage is preserved when the r a t e per nau t i c a l mile is considered - 3.40c/m3 compared with 5.52c/m3 from Indonesia, 4.14c/m3 from the Republic of Korea, and 4.26c/m3 from Taiwan.

f i i ) F r e igh t r a t e s within Aus t r a l i a

Comparison of the r a t e s i n Table 17 with those i n Table 18 suggests t h a t South-East Asian expor te rs a r e a b l e t o compete with domestic producers i n the Sydney market i n s p i t e of a s i g n i f i c a n t f r e i g h t disadvantage. From Table 18, it can be seen t h a t f r e i g h t r a t e s from t h e producing a r e a s of Queensland t o major market c e n t r e s i n the southern S t a t e s a r e a s i g n i f i c a n t component of f i n a l user co s t .

Developnent o f plywood manufacturing based on r ad i a t a pine p l an t a t i ons c loser to major Aus t ra l ian markets would a s s i s t Aus t ra l ian manufacturers by reducing f r e i g h t cos t s .

Table 18: FI1EIGHT RATES OF PLYWOOD WITHIN AUSTRALIA : October 1980

Or ig in Dest inat ion Base r a t e ( a ) F l a t de l ivery charge

Br isbane Adelaide 22.80 - B r isbane Melbourne 21.60 5.00 Br isbane Sydney 14.40 3.00 North Queensland (b) Adelaide 51.75 - North Queensland (b) Melbourne 42.75 - North Queensland (b) Sydney 36.60 11.00 ( c )

( a ) Figures modified from $ ~ / t using conversion f ac to r of 2.00 m3/ t obtained from Plywood Associat ion of Aus t ra l ia . ( b ) North of T a m s v i l l e . (c) Per consignment under 2 m3.

5 . 2 Factors Affecting the Future Competitiveness o f Imported Plywood

The p r i nc ipa l f a c t o r s which w i l l determine the fu tu r e competi t iveness o f plywood produced i n t he presen t and p o t e n t i a l plywood-exporting coun t r i e s i n East Asia with plywood manufactured i n Aus t r a l i a may be surmnarised as :

. r e l a t i v e movements i n t rade- re la ted va r i ab l e s such a s exchange r a t e s and r a t e s of i n f l a t i o n ;

. p o l i c i e s of East Asian Governments which inf luence Aus t ra l ian import p r i c e s ;

. p o l i c i e s o f New Zealand and Papua New Guinea s p e c i f i c to t h e f o r e s t p roduc t s p rocess ing i n d u s t r y ;

. movements i n sh ipp ing r a t e s f o r logs and f i n i s h e d products t r a d e d w i t h i n E a s t Asia;

. movements i n sh ipp ing and f r e i g h t rates to major A u s t r a l i a n markets ; and

. s h i f t s i n demand fo r Asian plywood.

The aim i n t h i s s e c t i o n is t o e x p l o r e t h e l i k e l y d i r e c t i o n of t h e in f luence of each o f t h e s e f a c t o r s . Examination of t h e i n t e r a c t i o n s o f t h e s e f a c t o r s and t h e i r o v e r a l l e f f e c t s would r e q u i r e a f a r more d e t a i l e d a n a l y s i s than was p o s s i b l e i n t h e t i m e a v a i l a b l e . Wherever p o s s i b l e , t h e arguments presented a r e suppor ted by an examination o f q u a n t i t a t i v e da ta . Many o f the s e c t i o n s , however, have had to r e l y on g e n e r a l economic arguments.

( a ) R e l a t i v e movements i n t r a d e - r e l a t e d v a r i a b l e s

In t h i s s e c t i o n , t h e e f f e c t s o f movements i n d i f f e r e n t macroeconomic v a r i a b l e s on A u s t r a l i a ' s i n t e r n a t i o n a l compe t i t iveness i n plywood manufacture a r e examined. The a n a l y s i s is p a r t i a l ; a complete a n a l y s i s would r e q u i r e t h e c o n s i d e r a t i o n o f t h e g e n e r a l e q u i l i b r i u m e f f e c t s o f i n t e r a c t i o n between v a r i a b l e s w i t h i n i n d i v i d u a l c o u n t r i e s and also between c o u n t r i e s . Such an a n a l y s i s was precluded by t h e lack o f formal models which a l low a n a l y s i s s p e c i f i c to i n d i v i d u a l i n d u s t r i e s o f i n t r a c o u n t r y and i n t e r c o u n t r y e f f e c t s o f changes i n macroeconomic v a r i a b l e s . Never the le s s , it was cons ide red t h a t even t h e l e s s formal a n a l y s i s p resen ted i n t h i s s e c t i o n would provide some g u i d e t o A u s t r a l i a ' s f u t u r e compe t i t ive p o s i t i o n i n plywood manufacture.

F a c t o r s o p e r a t i n g w i t h i n t h e A u s t r a l i a n economy which a r e l i k e l v to a f f e c t t h e i n t e r n a t i o n a l compe t i t iveness o f t h e A u s t r a l i a n manufactur ing s e c t o r a r e d i scussed i n some d e t a i l i n O'Mara, Carland and Campbell (1980). The p r o s p e c t s f o r t h e 1980s a r e f o r a g e n e r a l r e a l a p p r e c i a t i o n

o f the A u s t r a l i a n currency a g a i n s t A u s t r a l i a ' s t r a d i n g p a r t n e r s , fo l lowing an enhanced l e v e l of mine ra l e x p o r t s . This r e a l a p p r e c i a t i o n would make it more d i f f i c u l t fo r b o t h t h e t r a d i t i o n a l e x p o r t i n g and import-competing i n d u s t r i e s to compete a g a i n s t o t h e r s e c t o r s f o r s e r v i c e s . I f p r o t e c t i o n b a r r i e r s were d ismant led , t hen t h e e f f e c t o f mine ra l e x p o r t growth on t h e r e a l exchange r a t e ( 5 ) would be l e s sened t o some e x t e n t by t h e r i s e i n t h e l e v e l o f imports. The adjus tment p r e s s u r e s t h a t would have been placed on r u r a l and o t h e r non-mineral e x p o r t i n g s e c t o r s would be l e s sened (O'Mara, Carland and

(5 ) The r e a l exchange r a t e or r e a l e f f e c t i v e exchange r a t e is an index formed by weighting t h e movement i n r e a l b i l a t e r a l exchange r a t e s by t r a d e s h a r e s . The r e a l b i l a t e r a l exchange r a t e is de f ined a s an index formed by t ak ing t h e movement ( i f any) i n t h e nominal b i l a t e r a l r a t e between t h e A u s t r a l i a n d o l l a r and some o t h e r cu r rency s i n c e some i n i t i a l t ime p e r i o d , and a d j u s t i n g t h i s movement f o r t h e e f f e c t o f any d i f f e r e n c e i n t h e r a t e o f i n f l a t i o n i n t h e t w o c o u n t r i e s over t h e same per iod.

Campbell 1980). In t h i s case, the import-competing indus t r ies would bear a grea ter proportion of the ove ra l l adjustment i n the Australian economy.

While movements i n r e a l exchange r a t e s are an index of changes in the ove ra l l competitiveness of Australian industry, such an index is not a prec ise indicator of the competitiveness of Australian industry with industry in spec i f i c competing countr ies or of the competitiveness of pa r t i cu l a r indus t r ies . It is a l so necessary t o consider the expected movements i n trade-related var iab les within current and po ten t i a l competing countr ies plus s p e c i f i c resource, development and import po l i c i e s re la t ing to the f o r e s t industry in competing count r ies a s discussed in l a t e r sect ions.

These are export-oriented economies, highly responsive t o of changes in world market requirements. The o i l c r i s i s has led these countr ies t o r e a l i s e more c l ea r ly tha t t h e i r comparative advantage l i e s i n manufactures and services t ha t incorporate higher leve ls of s k i l l and knowledge. Phasing out or reduction i n the emphasis on plywood processing, discussed e a r l i e r , is cons is ten t with t h i s recognition. Nevertheless, plywood processing may remain a s igni f icant par t of the manufacturing sec tors of these economies during the 1980s.

( i i I Singapore

Manufacture of plywood i n Singapore could remain competitive with manufacture i n Australia. However, t he fu ture of the plywood processing industry i n Singapore is uncertain. Recognition by the Singapore Government of t h e e f f e c t s of the country 's success i n manufacturing and more pa r t i cu l a r ly in export services placing upward pressure on both the r e a l exchange r a t e and wage f a t e s has led t o the implementation of p o l i c i e s designed to concentrate more heavily on indus t r ies of greater s k i l l and knowledge i n t e n s i t y than plywood manufacture. Additionally, continuing log supplies from resource-rich countr ies such a s Indonesia and Malaysia cannot be guaranteed.

( i i i ) Malaysia

I n a manner s imilar t o t ha t expected for Austral ia , strong export performance by Malaysia based on commodities and na tura l resources e i t h e r places upward pressure on the nominal exchange r a t e or leads t o increased domestic i n f l a t iona ry pressure. Upward movements i n t he nominal exchange r a t e , containment of i n f l a t ion and a higher r e a l wage l eve l than t h a t prevai l ing i n the other ASEAN countr ies with the exception of Singapore a r e l i k e l y to force Malaysia, l i k e Singapore, t o concentrate on more s k i l l - and knowledge-intensive manufactures. There remains, however, the poss ib i l i t y of further processing of na tura l resources linked with economic growth i n North-East Asia; Malaysia may

( 6 ) The sec t ions r e l a t ing t o the R e p b l i c of Korea, Taiwan, Hong Kong, Malaysia and Indonesia have drawn heavily from Uhrig and Edwards (1980) and Garnaut and Anderson (1979).

therefore remain an important and increasingly s k i l f u l manufacturer of WCcd products. Malaysia's po ten t i a l a b i l i t y t o s e l l processed timber products, including plywood, t o Austral ia can be expected t o be sustained.

( i v ) Indonesia

The r ich resource base of Indonesia exe r t s pressures on the nominal exchange ra te s imilar to t h a t experienced in Malaysia. However, t he r ea l appreciation of the Indonesian exchange r a t e has resul ted more from consequent inf la t ionary pressure than upward movement of the nominal exchange rate . Unlike Malaysia, Indonesia has a very la rge labour force which is expected to continue to grow rapidly during the remainder of t h i s century. Real wages are lower than i n Malaysia and are l i ke ly t o r i s e more s l a r ly . However, any increase i n the comparative advantage of Indonesia i n plywood processing by reason of low r e a l wage r a t e s needs

be balanced by the value placed by t h a t country on the r e l a t ive ly scarce foreign exchange needed to import c a p i t a l equipment and the lower productivity of labour resu l t ing f r m organisat ional and i n f r a s t r u c t u r a l d i f f i c u l t i e s .

(v) New Zealand

An improvement i n New Zealand 's competitive p s i t ion vis-a-vis Australia could flow from an expected r e a l decl ine of the New Zealand doll% re l a t ive to the Australian dol la r a s well a s the enhancement of the competitiveness of New Zealand plywood producers and exporters by po l i c i e s of the New Zealand Government spec i f i c to the fo re s t products industry.

(b) Resources, developnent and import pol ic ies of East Asian Governments

The recent policy i n i t i a t i v e s of the Governments of the t r a d i t i o n a l log supplying count r ies i n South-East Asia and of SEmPA r e f l e c t the concern with the r a t e of depletion of f o r e s t resources in South-East Asia and with the proportion of the t o t a l value added which has accrued to these countr ies .(7) The c lear l imi ta t ions t o the extent which log exporters, even ac t ing in concert, have been able t o capture a grea ter share of the t o t a l value added i n plywood production from world markets has provided an addi t ional reason for s t imulat ing in-country processing.

Continued emphasis on r e s t r i c t i o n of log exports in favour of domestic processing can be expected. The goals of regional developnent and employment generation are a l s o l i ke ly to be of importance. CO-Ordinated approaches by South-East Asian countr ies t o Japan, t he major importer of logs, seeking removal of t a r i f f r e s t r i c t i ons on imports of processed products can be foreshadowed.

Underpiming the policy i n i t i a t i v e s re la t ing to the export of logs are expected movements i n logging cos ts . Increases i n log haul

( 7 ) Any redirect ion of emphasis toward the manufacture of thick plywood i n major plywocd exporting countr ies i n Asia following a r e s t r i c t i o n on the a v a i l a b i l i t y of t o p q u a l i t y veneer logs for peeling could lead to greater i n t e r e s t i n s a l e s of thick plywood t o Austral ia i n the longer term.

d i s t ance , t rends i n timber wastage r a t e s a t domestic m i l l s and the a c c e p t a b i l i t y of a l t e r n a t i v e grades and/or spec ies of logs t o buyers have been noted by Stephens (1980) a s important elements inf luencing the p r i c i ng and quota p o l i c i e s of log expor t ing count r ies .

Further developnent o f d i f f e r e n t i a l log p r i c e p o l i c i e s designed t o encourage processing within log export ing coun t r i e s can a l s o be expected. Provision of cons iderab le government a s s i s t ance by d i f f e r e n t i a l log pr ic ing may be required for the establ ishment of a d d i t i o n a l plywood processing capac i t y i n South-East Asia. Transfer of modern technology through j o i n t venture programs and the presen t d i f f e r e n t i a l s i n wage r a t e s between South-East Asian log supplying coun t r i e s and the major processing coun t r i e s of Taiwan and t h e Republic of Korea a r e not necessar i ly s u f f i c i e n t condi t ions for plywood processing i n South-East A s i a to be competitive with the e x i s t i n g i n d u s t r i e s i n Taiwan and the Replb l ic of Korea.

There a r e few apparent avenues f o r Austral ian plywood manufacturers t o o f f s e t t h e i r wage r a t e disadvantage through ga ins i n p roduc t iv i ty , p a r t i c u l a r l y a s sophis t i ca ted plywood processing technology is r ead i l y a v a i l a b l e t o Asian manufacturers. I n add i t i on , plywood processing i n Asia is labour in tens ive and t he markedly lower average wage r a t e s paid by Asian manufacturers (see Table 19) enable the p r o f i t a b l e employment of labour i n u t i l i s i n g de f ec t i ve ma te r i a l s and spec ies unacceptable t o most Aus t ra l ian manufacturers.

Table 19: AVERAGE ANNUAL WAGE RATES I N THE PLYWOOD OR MANUFACTURING SECTORS OF AUSTRALIA AND FIVE SOUTH-EAST ASIAN COUNTRIES ( a )

Year Aus t r a l i a ~ n d o n e s i a Korea, Rep. Malaysia Phi l ipp ines Taiwan ( b l ( c l o f l d l ( e l ( d l ( d l

$A $A $A $A $A $A 1970 3 234 na 494 399 383 536 1971 M na 502 402 407 na 1972 3 933 124 483 446 415 na 1973 4 419 137 4 73 499 376 na 1974 5 321 na 620 624 389 na 1975 6 829 na 726 776 4 22 962 1976 7 805 477 1 046 818 462 ( f ) na 1977 8 962 59 3 1 546 na 542 ( f ) na 1978 9 754 na 2 012 na 548( f ) na 1979 1 0 129 na 2 650( f ) na 590( f ) 2 308

(a) A l l f i gu r e s i n nominal Aus t ra l ian d o l l a r s . Overseas data converted using ' r ' S e r i e s exchange r a t e s presented i n I n t e rna t i ona l Monetary Fund (1980). (b ) WIC 2533: vene i r s and manufactured boards of -wood, formerly ASIC 2513: plywood and manufactured boards. ( c ) Ent i re wood produc ts s ec to r . (dl Manufacturing s ec to r . (e) Plywood and par t i c leboard sec tor . ( f ) BAE estimates. na, Not ava i lab le . Sources: Biro Pusat S t a t i s t i k (1975, 1980): West Malaysian Department

Of S t a t i s t i c s (1977) ; Aust ra l ian Bureau of S t a t i s t i c s (1980b) ; I n t e rna t i ona l Labour Off ice (1980) ; I n t e rna t i ona l Monetary Fund (1980); Of f i c e of National Assessments (personal communication. 1980).

Large-scale, capital- intensive plywood p lants establ ished a s par t of integrated p lants processing plantat ion softwoods should be able t o U t i l i s e the r e l a t ive ly high s k i l l l eve l of the Australian work-force t o become much more competitive than many ex i s t i ng Australian manufacturers. However, i n su f f i c i en t information is avai lable on the cos t s t ruc ture of ex is t ing and proposed integrated processing p lants fo r any firm judgment t o be made a s t o whether these p lants would be competitive with Asian plywood mil ls .

(c ) New Zealand and P a p a New Guinea po l i c i e s spec i f i c t o the fo re s t products indus t ry

The New Zealand Government gives a high l eve l of industry-specific ass i s tance (other than in the form of ex terna l t a r i f f and related measures) t o fo re s t ry and the wood processing indus t r ies i n the form of grants and tax concessions to p r iva t e fo re s t ry and incentives to the wood processing industr ies . The e f f e c t has tended t o d i s t o r t the r e l a t ive competitiveness of the wood processing indus t r i e s i n favour of New Zealand.

AS noted elsewhere in t h i s repor t , the Papua New Guinea Government h a s a policy of reducing log and chip exports t o favour increased domestic processing of wood. This policy may be aided by indus t r i a l Par t ic ipa t ion i n SEALPA log pricing s t r a t eg ie s .

The plywood indus t r ies of both count r ies have enjoyed considerable ass i s tance from p re fe ren t i a l trade access t o Austral ia , and changes i n Australian policy i n t h i s sector would have subs t an t i a l e f f e c t s on the indus t r ies i n both these countr ies .

(d) Movements i n intra-Asian shipping r a t e s for logs and plyvmod

Upward movements i n f r e igh t cos ts w i l l have a grea ter e f f e c t on the cos ts of shipping logs than plywood products because of the r e l a t ive ly lower value-to-weight r a t i o of logs. Any upward movements i n f r e igh t r a t e s would tend t o reinforce the re loca t ion of processing in to log supplying countr ies . A sector study by the Asian Developnent Bank i n 1978 forecast the demise of processing by entrepot countries' due t o r i s ing f r e igh t costs . The subsequent log pr ice increases i n i t i a t e d by SEALPA have reinforced the Bank's project ion.

Movements i n f r e igh t r a t e s w i l l depend on movements i n f ac to r s such as:

the price of fue l ;

. the r a t e of improvement i n the e f f i c i ency of f u e l use;

. increases i n e f f ic iency of vesse l operat ion and, espec ia l ly , of fur ther reductions in manning; and

the s i ze of vessels used.

General prospects are for reasonably s t ab le r e a l cos ts of bulk shipping (relevant for shipnent of l o g s ) , with the prospect f o r

s t a b i l i t y in. r e a l l i ne r f r e igh t r a t e s (relevant for plywwd) being somewhat l e s s ce r t a in (Trace 1980).

Expected movements i n f r e igh t r a t e s within Asia therefore may not be a s ign i f i can t factor influencing decisions to relocate processing i n South-East Asia and, equally, cannot be expected t o be a source of s ign i f i can t addi t ional protect ion f o r the Australian plywood manufacturing industry.

( e ) Movements i n t ransport r a t e s t o major Australian markets

Expansion of trade i n lumber products from Indonesia t o Austral ia could lead eventually t o a reduction i n f r e igh t r a t e s per naut ica l mile and provide Indonesia with one po ten t i a l source of competitive advantage over the 'newly indus t r i a l i s ing countr ies ' of Taiwan and the Republic of Korea.

Within Austral ia , relocat ion or establishment of plywood mil l ing capaci ty closer to major market cent res would probably provide an add i t i ona l advantage t o domestic processors by d i r e c t l y lowering transport costs .

Domestic trucking cos t s are not l i k e l y t o f a l l , but they may be l e s s responsive to o i l pr ice r i s e s than the shipping cos t s of bunker-fuelled vessels . O i l pr ice r i s e s may, therefore , tend t o favour the domestic industry subjec t to changes in conference-agreed shipping r a t e s (Bureau o f Transport Economics, personal communication, 1980).

(£1 S h i f t s i n demand for Asian plywood

Plywood mil l ing and the export of plywood t o world markets is current ly of considerable importance t o Taiwan, the Republic of Korea and Singapore and po ten t i a l ly t o the South-East Asian log supplying count r ies , notably Indonesia and the Malaysian Sta tes of Sabah and Sarawak. However, the response i n major world markets t o the rapid p r i ce increases i n 1979 suggests t h a t t he pr ice e l a s t i c i t y of demand fo r Asian plywood i n world markets may be q u i t e high. Although exports t o t he USA and Canada i n 1977 from Asia represented the la rges t s ingle t rade flow of plywood, these exports accounted for only about 20 per cent of t o t a l u t i l i s a t i o n of plywocd i n the USA and Canada. Addit ional ly, close subs t i t u t e s for plywood are ava i lab le i n these markets.

Prospects for price increases i n plywood on world markets s t e m i n g from s h i f t s i n demand, therefore , depeml on the emergence of a l t e rna t ive world markets i n which Asian plymod manufacturers would be l i ke ly t o have a competitive advantage. The net outcome of the possible emergence of West Asian countr ies and the People's Republic of China a s major markets and the possible displacement of Asian suppl ie rs by Brazi l a s major suppl ie rs to the USA are necessari ly uncertain. Given the present cutbacks in mil l ing a c t i v i t y i n North-East Asian plywood manufacturing count r ies , the i n i t i a l impact of any expansion in market opportunit ies can be expected t o be increased volume of t rade rather than increases i n u n i t values.

The other source of increased demand is from u t i l i s a t i o n of plywood domestically within South-East Asia. There is an element o f uncertainty a s to the l eve l of fu ture domestic demand within countr ies Such a s Indonesia. However, unless t a r i f f s or quant i ta t ive r e s t r i c t i o n s a re Placed on exports, these markets a r e l i ke ly t o provide an Outlet complementary t o the development of an export t rade, taking mainly lower qual i ty spec i f ica t ion products, ra ther than providing a s i g n i f i c i a n t source of pressure on o f f e r pr ices t o world markets.

6. Implications of Continued Assistance to the Plywwd Industry

The nature of the competitive environment within which the Australian plywod industry operates has important implications for the effect iveness and appropriateness of a l t e r n a t i v e forms of ass i s tance .

The relocat ion o f a s ign i f i can t proportion of the Asian Plywood industry to members of ASEAN can be expected t o lead to continuing and possibly greater competitive pressure upon the Australian industry. Potent ia l cos t savings from processing of logs i n the supplying country may be o f f s e t by lower productivi ty and, i n the case of Malaysia, by the poss ib i l i t y of a r ea l appreciation of the Malaysian exchange r a t e against other Asian currencies. Aowever, the competitive advantage of the f o r e s t products indus t r ies of t he ASEAN countr ies could be sustained by resource pricing po l i c i e s , pa r t i cu l a r ly if government objec t ives such a s the generation of regional employment or the earning of addi t ional foreign exchange were considered more important.

The expected appreciat ion of Aus t r a l i a ' s r e a l b i l a t e r a l exchange r a t e against cur rent and po ten t i a l Asian exporting count r ies i n the 1980s w i l l a l m wt continuing pressure on import-competing indus t r ies such a s plywood.

The scope for Australian plywood manufacturers t o improve the i r competitive pos i t ion through gains i n productivi ty is limited. Sophisticated technology is avai lab le t o emerging world plywood suppliers . In addition, plywood processing i n Asia is labour intensive and the markedly lower average wage r a t e s paid by Asian manufacturers enable the prof i tab le employment of labour in u t i l i s i n g defec t ive material and species unacceptable to most Australian manufacturers. The manufacture i n Austral ia of plywood i n large-scale, more capital- intensive p lants a s pa r t of the integrated processing of softwood from plantat ions located closer to major markets may o f f e r advantages i n terms of cos t s of processing and f r e igh t r e l a t i v e t o ex is t ing Australian manufacturers.

6.1 Tar i f f Measures

In times o f depressed world demand, r e su l t i ng from a slow-down i n building a c t i v i t y i n major i ndus t r i a l i s ed importing countr ies , assis tance t o the Australian plywood industry by means of t a r i f f s is^ unlikely to be e f f ec t ive i n protect ing the industry from Asian imports. Short-term s h i f t s i n demand in the major world markets would be expected to be transmitted even more rapidly i n t o movements i n o f f e r p r i ce s t o

Australian importers following the relocat ion of a s ign i f i can t proportion of plywood processing t o ~ s i a n log supplying countr ies whose policy i n i t i a t i v e s have contributed t o recent v o l a t i l i t y i n world pr ice movements.

Continued ass is tance by high t a r i f f s would be b u i l t in to the p r o f i t expectat ions of current and p o t e n t i a l manufacturers of plywood, r e su l t i ng in greater investment i n processing f a c i l i t i e s than warranted by the medium-term and longer term prospects for the competitiveness of Austral ian plywood manufacturers. To the extent t ha t t a r i f f s provide protect ion to the Australian industry, they would a l so reduce the r a t e o f industry adjustment. Additionally, i f protect ion accorded plywood manufacturing is grea ter than t h a t accorded other wood processing indus t r i e s , further d i s to r t i on of investment decisions would be introduced.

Continued protect ion of the Austral ian industry would be expected t o encourage the expansion of New Zealand exports of s t r u c t u r a l plywood t o Aust ra l ia and st imulate the manufacture of plywood subs t i t u t e s within Austral ia . In pa r t i cu l a r , the benef i t from continued t a r i f f r e s t r i c t i o n on th in plywood would flow mainly t o manufacturers of competing products, given the r e l a t ive ly m a l l volume of th in plywood produced i n Austral ia .

However, i t needs a l s o t o be recognised tha t s ign i f i can t reduction or the immediate removal of t a r i f f ba r r i e r s would postpone the developnent of plywood manufacturing based on softwood from planta t ions u n t i l such time a s pressures on f o r e s t resources i n Asia or an expansion i n world demand a l t e r ed the competitive posi t ion of manufacturers i n Austral ia .

The adverse short-term e f f e c t s of any reduction i n t a r i f f s on plywood manufacturers, pa r t i cu l a r ly those dependent on the hardwood resource, need t o be taken in to account i n determining the l eve l of continued ass is tance t o the industry. Probably the most important of these would be the e f f e c t s on employment and regional economic a c t i v i t y . Any reduction i n t a r i f f s , therefore , should be made in a gradual, phased manner to allow adequate time for industry pa r t i c ipan t s to respond to the e f f e c t of these reductions.

A gradual phased reduction of t a r i f f l eve l s t o the average nominal l e v e l fo r other wood product i ndus t r i e s determined by the IAC inquiry was, therefore, recommended i n the Bureau's submission. Equalisation of average nominal r a t e s of ass i s tance would reduce the d i s to r t i on of consumption choices and would provide a more ce r t a in planning bas is for investment i n wood products i ndus t r i e s although e f f ec t ive r a t e s of ass i s tance would be subjec t to some va r i a t ion among these indus t r ies .

Inspection of the volume of imports of plywood indica tes t h a t import quotas. and hence the penalty r a t e s of duty, have a s yet not been opera t ive r e s t r a i n t s on imports. However, the expected continued competitiveness of imports and the p o s s i b i l i t y of v o l a t i l i t y i n both o f f e r p r i ce s and the associated po ten t i a l volumes avai lable for s h i p e n t t o the Australian market suggest t h a t t a r i f f quotas may become e f f e c t i v e i n the future.

dny future accentuation of import pressures would lead t o Considerable windfal l gains by ex i s t i ng quota holders. Sales of quota by the Government could t ransfer any addi t ional quota r en t from importers to the Government but would not be of d i r e c t benefi t t o Plywood consumer s .

Tariff quotas could prove to bc a more e f f ec t ive policy instrument for protect ing the Australian industry than t a r i f f s alone because of t he poss ib i l i t y of short-term v o l a t i l i t y of p r i ce s of plywood on world markets. However, a s with t a r i f f ass i s tance , continued provision of t a r i f f quota assis tance greater than t h a t accorded other wwd processing indus t r ies introduces a d i s to r t i on i n investment decisions. I t Was, therefore, recomended tha t t a r i f f quotas on thick plywood be removed.

6.2 Other Forms of Assistance

The plywood industry i n Austral ia is l i ke ly t o face considerable competitive pressure i n the 1980s a s a r e s u l t of changes in resource a l loca t ion and pricing pol ic ies i n Asia, fur ther developnent of plywood manufacturing i n New Zealand, the developnent of subs t i t u t e s within Austral ia and movements i n macroeconomic variables. A t the same time, ava i l ab i l i t y of su i t ab l e veneer logs from mftwood plantat ions w i l l increase.

The moves within South-East Asia toward r e s t r i c t i o n of supplies of logs for exports and the regulation of pr ices , and f luctuat ions i n building a c t i v i t y i n major importing countr ies make it reasonable t o suqqest t ha t pr ices w i l l continue to be v o l a t i l e i n the future. The l iki l ihood of-continued v o l a t i l i t y of pr ices may be an important fac tor inhib i t ing investment i n larger s ca l e p l y 4 mil l ing p lants i n

~ -

conjunctiim with integrated God processing f a c i l i t i e s . While t he prospect of a r i s ing trend in world p r i ces over time may provide a competitive advantage t o Australian plywood producers, the prospect of v o l a t i l e pr ices could imply tha t , from time t o time, unexpected decl ines i n world pr ices could r e s u l t i n surges i n imports of plywood i n to Australia competing d i r e c t l y with domestically produced plywood,

To provide a more ce r t a in production and investment environment for plywood producers, there would be some meri t i n insula t ing the domestic producer from sharp and unexpected decl ines in world pr ices , a s would be ref lected in an increase. i n the l e v e l of competing imports. Such a s i tua t ion could a r i s e through a buildup of s tocks, or a downturn i n building or construction a c t i v i t y i n major importing indus t r ia l i sed countries.

The domestic producer could be insulated from the sharp and unexpected f a l l s i n pr ices t o r e l a t ive ly low leve ls and from the resul t ing import competition by providing a un i t f loor pr ice for imports below which pr ice a variable import duty would become operat ive t o t h e extent of the difference between the u n i t f loor pr ice of imports and the minimum o f f e r pr ice when the l a t t e r was lower. Separate f loor pr ices would be s e t for d i f f e ren t grades of plywood.and veneer and a t l eve l s which would become operat ional Only infrequently in s i tua t ions of abrupt short-term decl ines i n world pr ices to unexpected levels . The suggested

mechanism would provide a form of insurance t o domestic producers aga ins t a surge of low-priced imports, with consequent d is rupt ive e f f e c t s on production planning decisions.

No attempt was made i n the submission t o recornend spec i f i c leve ls for the f loor pr ices , but such l eve l s could be s e t with reference t o recent pas t movements i n world p r i ce l eve l s . I t should be stressed t h a t the f loor price would need to be s e t a t such a low level t ha t it would become operat ional only infrequently, i n s i tua t ions of a marked pr ice decl ine to r e l a t ive ly very low l eve l s .

6.3 Summary o f Recommended Forms o f Assistance

The l eve l of plywood t a r i f f s should be gradually reduced t o the average nominal leve l for other wood products determined by the IAC inquiry and the t a r i f f quotas for thick plywood should be removed.

Appendix

T m D S THE EAST ASIAN PLYWOOD INWSTRY

Mandy Wallace

Inc reas ing awareness o f t h e r a t e o f d e p l e t i o n of t h e f o r e s t r e s o u r c e s Of South-East Asia , and macroeconomic g o a l s o f t h e Governments o f South-East Asian c o u n t r i e s , such a s t h e g e n e r a t i o n o f a d d i t i o n a l employment o p p o r t u n i t i e s and a d d i t i o n a l f o r e i g n exchange, have l e d t o t h e implementation o f r e source p o l i c i e s by Governments and i n d u s t r i e s which have had, and w i l l con t inue t o have, s i g n i f i c a n t impact on t h e s t r u c t u r e o f t h e Asian p l y w o d indus t ry . I n t h i s a t t achment , t h e major r e c e n t t r e n d s a r e reviewed on a country-by-country b a s i s .

A.1. Indonesia

Indonesian plywoad m i l l s , p roduc t ion , c a p a c i t y and e x p o r t s have inc reased d r a m a t i c a l l y s i n c e 1973, when t h e r e was o n l y one m i l l , producing 9000 m3, w i th a c a p a c i t y o f 28 000 m3. By 1977, t o t a l c a p a c i t y on a two-shi f t b a s i s had i n c r e a s e d to 461 000 m3. I n 1980, product ion was e s t ima ted a t 645 000 m3, from an es t ima ted c a p a c i t y o f 1.37 m i l l i o n m3.

The r epor t ed number o f m i l l s i n e x i s t e n c e i n 1979 v a r i e s from 21 t o 26 according to t h e source o f informat ion. P r o j e c t i o n s f o r 1983 a r e f o r 61 m i l l s producing 1.6 m i l l i o n m3 w i t h a d e s i g n c a p a c i t y approaching 3 m i l l i o n m3 on t h e assumption t h a t t h e planned r a t e o f development is achieved (Timber Trades J o u r n a l 198Oa). These m i l l s would have an average c a p a c i t y o f abou t 49 000 m 3 , n o t a b l y h igher than t h e ave ra e of 28 000 m3 fo r 1977, wh i l e a c t u a l s i z e s ranged from 10 000 m' to 50 000 m3 a year (Japan Lumber J o u r n a l 1978) . I n 1978, average annua l c a p a c i t y was 44 000 m3 ( see Table A.1 ) though an a l t e r n a t i v e source gave it as 60 000 m3, w i th t h e l a r g e s t m i l l , Porodisa P ro jan i n South Sumatra, having an annua l c a p a c i t y of abou t 100 000 m3 (Timber Trade Review 1980b). However, pe rcen tage u t i l i s a t i o n o f c a p a c i t y has been low, ranging from 23 pe r c e n t i n 1974 t o 62 pe r c e n t i n 1979 (Japan Lumber J o u r n a l 1979b). I n 1977, t h e main s p e c i e s used were meran t i (Shorea s p e c i e s ) and t e a k (Zectona s p e c i e s ) . Ninety per c e n t o f t h e plywood produced was mois tu re r e s i s t a n t , 4-6 m t h i c k , and p lans were being made t o manufacture c o n c r e t e formwork plywood, 6 mm, 12 mm and 19 mm t h i c k . Other t y p e s produced were fancy, s p e c i a l and lumber c o r e plywood. Greater use h a s been made o f plywood i n t h e domest ic c o n s t r u c t i o n i n d u s t r y than expected (Japan Lumber J o u r n a l 19781, wi th on ly t h r e e p e r c e n t o f product ion being expor ted , o f which one-quarter was two-ply pane l s f o r t h e U.S. market (Japan Lumber J o u r n a l 1979b).

Es t ima tes o f domest ic consumption f o r 1985 range from 260 000 m3 t o 340 000 m3 o f p l y w o d ( P r i n g l e 1980). No a l lowance was made i n t h o s e e s t i m a t e s f o r a p o s s i b l e r educ t ion i n u t i l i s a t i o n due to t h e i n f l u e n c e o f h igher p r i c e s , o r increased compet i t ion from s u b s t i t u t e s . With a t l e a s t 1 .6 m i l l i o n m3 product ion planned f o r 1983 (Timber Trades J o u r n a l 1980a). e x p o r t s cou ld reach 1 m i l l i o n m3.

Table A . l : TRENDS I N THE PLYWOOD INDUSTRY : INDONESIA

Year Operating m i l l s Production Capacity Exports

1979 (a) 1980

no.

1 3 8

1 4 16 18

21-26 27 M

na 61-127

80

. . 799 70-83 (a)

1 090-2 060 90-168

( a ) A range of f igures is given where conf l ic t ing est imates have been obtained from a l t e rna t ive sources. (el Estimates. (p) Provisional. na, ~ o t avai lable.

Sources: FA0 (1977, 1980); Japan Lumber Journal (1978, 1979a.b. 1980a) ; Plywood Association of Austral ia (personal communication, 1980); Pringle (1980); Timber Trade Review (1980b) ; World Wood (1980b).

Indonesian Government policy is t o reduce log-oriented exports by promoting po l i c i e s encouraging the fur ther processing of wood products. This w i l l increase the po ten t i a l t o export semi-finished and f inished products. There is L i t t l e doubt t h a t Indonesia has s u f f i c i e n t resource for the proposed new m i l l s . In 1977, t he estimated area of commercial f o r e s t was 59 mil l ion ha (World Wood 1980b). However, hindrances to the planned development include high construct ion cos t s r e l a t ive t o those i n Taiwan and Singapore - a s ingle l i n e m i l l co s t s USS2.5m i n Taiwan, USS3m i n Singapore and USS5m i n Indonesia (Japan Lumber Journal 1978). In addit ion, current i n t e r e s t r a t e s a re high and production operating r a t e s a r e low compared t o in s t a l l ed capacity. Costly supporting in f r a s t ruc tu re s are poorly establ ished and there are doubts a s t o whether the export market w i l l accept a l l the Indonesian grades and species of plywood, some of which are still r e l a t ive ly unknown (Timber Trades Journal 1980a).

The achievement of the planned r a t e of development may depend on a higher proportion of the nanufacturing capacity being establ ished by jo in t ventures, with foreign par tners providing the c a p i t a l and exper t i se and the Indonesian counterpart providing the resource concession. However, only s i x joint-venture m i l l s a r e operat ional or c lose t o being operat ional : P.T. Kalhnanis Plywood Ind. (U.S. partner , P.T. Georgia Pac i f i c , Indonesia - Page 1978); Kutai Timber Indonesia (Japanese

Par tner , Sumitomo Fores t ry - Awanohara 1979) and a t r an s f e r of four Republic of Korea plywood p l a n t s t o Indonesia by Korea Deve lopent CO., Kyong Nam, Hanihutana and Korea Indonesia Timber. Three more, Sunchang, Indus t r ies . Akju Forestry and Kenakutani Co. have recent ly signed joint-venture agreements (Ocampo 1979b).

It is not poss ib le to p r e d i c t whether s u f f i c i e n t j o i n t ventures w i l l be i n operat ion by 1983 t o s a t i s f y the Government's plans, though a t t h i s s tage it seems improbable, a s complete establishment Of la rge wood processing opera t ions can take s eve ra l years.

A.2 Malaysia

S ign i f i c an t d i f f e r ences a r e ev iden t i n recen t and projected s t r u c t u r a l changes i n the plywood i n d u s t r i e s of Peninsular Malaysia, Sabah and Sarawak, due l a rge ly t o the considerable d i f fe rences i n f o r e s t resources. For t h i s reason, separa te reviews a r e presented for each of these regions.

A.2.1 Peninsular Malaysia

There was a g radua l growth i n plywood capac i ty i n Peninsular Malaysia from 1973 to 1976, a s ind ica ted i n Table A.2. Average m i l l capaci ty i n 1976 has been estimated a s 20 000 m3 (FA0 1976), which is above t he average capac i ty t h a t can be deduced from da ta i n Table A.2.

Table A.2: TRENDS I N THE PLYWOOD INDUSTRY : PENINSULAR MALAYSIA

Year Operating m i l l s Production Capacity Exports

no. '000 m3 '000 m3 1~~~ m3

1975 39 1976 39 1977 (a) na 1978 na 1979 35

(a) Alternat ive es t imates - production, 89 mi l l ion m 2 , expor t s 63 mil l ion m2 (World Waod 1979). (b) Estimate only ava i l ab l e expressed i n square metres - production 88.4 mi l l ion m2 (World Wood 1980b). (c) Alternat ive es t imate - exports 77.4 mi l l ion m2 (World wood 1980b). (d) Estimate only ava i lab le expressed i n square metres - production 104.7

mi l l ion m2 (Timber Trade Review 1 9 8 0 ~ ) .

Sources: FAO (1977, 1980) ; World Wood (1979a, 1980b) ; Sebire ( 1 9 8 0 ~ ) ; Timber Trade Review ( 1 9 8 0 ~ ) .

A r e l a t i v e l y high proportion of t o t a l production which is or ien ted mainly to cons t ruc t ion plywood has been exported. Exports var ied from 59 per c en t t o 95 per cen t of production during the 1973-78 period.

Looking toward t he fu tu r e , expec ta t ions of t he Fores t ry Department fo r Peninsular Malaysia a r e t h a t suppl ies of logs w i l l not be s u f f i c i e n t to meet domestic requirements fo r both sawntimber and plywood by the end o f t h i s century (World Wood 1980b). To overcome t h i s projected s h o r t f a l l , government-approved i ncen t i ve s Lor p r i v a t e indus t ry t o r e f o r e s t have recen t ly been introduced. Addit ional ly , Peninsular Malaysia indus t ry represen ta t ives have proposed t h a t a proportion of logs from Sabah and Sarawak be red i rec ted t o Peninsular Malaysia, poss ib ly a t p r i c e s h e l m export p r ices . Foreseeable problems with t h i s proposal include r e l a t i v e l y high t ranspor t c o s t s ( sea t ranspor t fo r logs from East to West Malaysia co s t s more than from East Malaysia t o Pusan, Republic of Korea - Gigot 1979a), i n s u f f i c i e n t po r t s and landing f a c i l i t i e s (World Wood 1979a1, t he reluctance of log vendors t o s e l l a t p r i c e s below export p r i c e s (Gigot 1979a) and t he i n t en t i on of Sabah and Sarawak t o encourage a higher degree of wood processing before export (World Wood 1980b).

A.2.2

l o da t e , there has been slow progress i n t he developnent of t he plywocd and veneer i ndus t ry i n Sabah ( s ee Table A.3). Exports i n 1973 amounted to 75 per c en t of production but decl ined t o between 33 per cen t and 48 per cen t of production i n t he per iod 1974-77. Current ly , only t h r ee of the plywood p l a n t s a r e opera t ing (Timber Trades Journa l 1980a), and the annual production of one of t he se p l an t s owned by Teck Heng Lwng is about 48 000 m3 (12 nm bas i s ) (Fraser 1980b).

A s many a s ten j o i n t domestic and fore ign owned ventures have been arranged for Sabah, de sp i t e the fea r t h a t s u f f i c i e n t Malaysian s k i l l e d manpower w i l l not be ava i l ab l e fo r them (Gigot 1979b). One j o i n t venture t h a t has a l ready commenced production of 80 000 panels a month (Fraser 1980a) is Sinora Sdn Bhd, a pa r t ne r sh ip of Yuasa Ind. and Rakyat Bersatu. Another, about t o commence production, i s P a c i f i c Hardwood Sdn Bhd, a par tnersh ip of Weyerhaeuser Co. (USA) and t he Phi l ipp ine Santa I n i s . Japanese companies Marubeni and Sumitomo Trading a r e consider ing j o i n t ventures (Gigot 1979b). Machinery from the world's l a r g e s t hardwood p lan t i s c u r r e n t l y being bought t o be t r an s f e r r ed from the Republic of Korea t o Sabah (Plywood Association of Aus t ra l ia , personal communication, 1980) .

The number of p l a n t s , production and capac i ty and expor t s of plywood and veneer m i l l s i n Sabah, 1973-78, is given i n Table A.3.

A.2 .3 Sarawak

Average annual production of plywood i n Sarawak from 1974 t o 1978 was 20 800 m3 (World Wwd 1980b). This inc ludes a 14 per c en t increase i n product ion i n 1978. The capaci ty of one m i l l , Forescum, is between 25 000 m3 and 30 000 m3 a year (Sebire 1980b). From a peak i n 1973, when expor t s accounted f o r 95 per cen t o f production, t he proport ion exported f e l l to 43 per c en t of production i n 1978 (see Table A.4).

Tab le A.3: TRENDS I N THE PLWWD AND VENER INWSTRY : SABAH

Produc t ion Year Plywood Plywood and Capac i ty Expor t s

p l a n t s veneer p l a n t s plywood and of plywood o f Plywood veneer p l a n t s plywood

no. no. '000 m3 '000 m3 ,000 m3 '000 m3

na , N o t a v a i l a b l e . Sources: FA0 (1977, 1979) ; World Wood (1979a, 1980b).

Tab le A.4: SAWARAK, BINTULU HINTERLANDS : PROJECTED ADDITIONAL FOREST PRODUCTION I N 1985

Licensee/Opera tor F o r e s t e d a r e a Annual l o g Est imated veneer / a v a i l a b i l i t y plywood o u t p u t

B i n t u l u Lumber Dev. Sdn Bhd

Timplex (S) Sdn Bhd 82 870 178 000 21 000

Bor-Tisam Timber Sdn Bhd 52 000 162 240 20 000

Sarawak Plywood (M) Sdn Bhd 110 880 270 400 32 650

Sarawtab Sdn Bhd 100 446 194 692 31 000

Arab-Sarawak Timber I n d u s t r i e s Sdn Bhd 88 887 146 020 18 000

Dura F o r e s t P r c d u c t s Sdn Bhd 103 137 1 7 1 075 20 000

Sarawak Pu lp I n d u s t r i e s

T r i p l e x Sdn Bhd 87 336 128 713 15 500

Source: Kor ld Wood (1980a).

Plans for p l y m d d e v e l o p e n t i n Peninsular Malaysia i nd i ca t e t h a t s u f f i c i e n t log resource should be a v a i l a b l e t o supply s eve ra l proposed ply-d p lan ts . Their es tabl ishment w i l l be a s s i s t ed by the d e v e l o p e n t o f a major deep-water p o r t a t Bintulu, planned f o r completion by 1982. Data on nine f o r e s t concession ho lders , t h e i r f o r e s t a rea , es t imated annual log a v a i l a b i l i t y and est imated veneer/plywocd o u t p l t once p l a n t s assoc ia ted with the po r t d e v e l o p e n t a r e f u l l y opera t iona l , a r e shown i n Table A.4. Production i n 1982 would then be increased by up t o 202 000 m3 ( see Table A.5). By 1985, production could be 340 000 m3, wi th 300 000 m3 ava i l ab l e fo r export.

Table A.5: TRENDS lN THE PLYWOOD INDUSTRY: SARAWAR

Year Operating m i l l s Production Capacity Exports

no. '000 m3 '000 m3 * O O O m3

( a ) Estimate only ava i l ab l e expressed i n square metres - 4.4 mi l l ion m2, (world wood 1979a). (b) A l t e rna t i ve es t imate - 2.9 mi l l ion m2 (World W d 1979a). (c) Estimate only ava i l ab l e expressed i n square metres - 5 mi l l ion m2, (World Wood 1980a). (d) Al te rna t ive es t imate - 2.2 mi l l i cn m2 (World Wood 1980b). na, Not ava i lab le . Sources: PA0 (1977, 1979); Sebire (1980b) ; World Wood (1979a. 1980b).

A r e l a t i v e l y high propor t i o n of Malaysia 's plywood production was exported between 1973 and 1978 (see Table A.6).

Table A.6: TRENDS I N THE PLYWCOD INWSTRY MALAYSIA

Year Production Exports

~ ~

1977 565 334 1978 481 410 Source: FA0 (1980).

Future domestic plywood consumption is expected t o r i s e t o a l eve l between 185 000 m3 and 265 000 m3 i n 1985, a f t e r an ac tua l domestic consumption o f 150 000m3 i n 1974 (Pringle 1980). Hence. a conservative prediction would be tha t ~ a l a ~ s i a w i l l continue t o export s imilar annual quan t i t i e s of plywood i n the next decade t o tha t exported between 1975 and 1978 (i .e. 300 000 m3 t o 400 000 m 3 ) . This assumes t h a t the export pr ice of Malaysian p l y w d remains competitive with world pr ices and t h a t proposed new developments i n Sarawak and Sabah eventuate and are of su f f i c i en t s i ze and su i t ab l e timing to compensate for expected losses i n Peninsular Malaysia production.

A.3 The Philippines

Philippine plyrnod production peaked a t 705 000 m3 i n 1973 and exports were 388 000 m3 (see Table A.7). Recent annual production has remained a t about 500 000 m3 (71 per cent of 1973 production) while exports, a f t e r declining i n 1974, had increased t o 410 000 m3 by 1978. Of these, 190 000 m3 were exported t o the USA but cur rent exports would be l e s s than t h i s due to higher p r i ce s and the present housing recession i n the USA. The formation of KOMASI, the plywood trading bloc formed by the Republic of Korea, Malaysia and Singapore to control the plywood market i n Europe (Timber Trade Review 1980a), has ass i s ted the export of plywocd to the U.K. and Continental Europe, although the Philippines has refused to become a KOMASI member so f a r .

Domestic consumption is projected t o increase from 86 000 m3 i n 1974 to between 130 000 m3 and 165 000 m3 i n 1985 (Pringle 1980). This increase of almost 80 000 m3 could be eas i ly accomodated by inc reas ing , capacity u t i l i s a t i o n , given the d i f ference of almost 1 million m3 between current production and estimated current capacity.

A ra t ional i sa t ion program commenced i n 1975 t o encourage the processing of f inished and semi-finished wood products a s wel l a s the optimal use of the fo re s t resource. Ver t ica l in tegra t ion of ex is t ing m i l l s and in s t a l l a t i on of modern technology of s u f f i c i e n t s i z e t o a t t a i n ecornmies of sca le has been encouraged. A plan to gradually phase out log exports by 1982 was introduced. However, doubts e x i s t on ra t ional i sa t ion progress due t o the depressed s t a t e of the industry a t the plan 's inception. Not only were the m i l l s located in a reas of low log supply t u t there was more p r o f i t to be earned from exporting logs than se l l i ng them domestically. To overcome the problem of p lants being obsolete and ruming a t only 32 per cent capacity (Ocampo 1979a), an obvious disincentive to increase capaci ty, the Government has offered incentives to wood processors who import modern equipnent to replace such obsolete plants . However, no major modernisations have occurred in the pas t two years , though two new developnents a re planned. A plywood f in ish ing plant by Agusan Wood Ind. Inc. is scheduled t o commence by 1983 and Paper Ind. Corporation of t he Phil ippines plans to increase plywood output by 9.3 mil l ion m2 (Timber Trade Review 1980a).

The adequacy of the raw mater ia l resource for the future remains uncertain. A Philippine plywood indilstry spokesman has apparently commented tha t t he i r plywood industry has an adequate raw material supply although r ad ica l conservation measures a re being implemented. These measures include the reduction in the allowable log c u t , from

16 mi l l i on m3 i n 1977 t o 6 mi l l ion m3 i n 1979, p lus the P r e s i d e n t i a l decree t o c i t i z e n s to p l an t a t r e e a month fo r f i v e yea r s (Ocampo 1979a).

I n s m a r the Phi l ipp ine wood indus t ry has an unused capac i ty of l m i l l i o n mj(.' Although r a t i o n a l i s a t i o n plans e x i s t , given t he i ndus t ry ' s p a s t performance, m a l l capaci ty- increasing developments and doubts about the s i z e of its raw ma te r i a l resource, the quan t i t y of expo r t s from the r e w i l l probably remain near cur ren t l eve l s .

Table A.7: TRENDS I N THE PLYWWD INDUSTRY: THE PHILIPPINES

Year Operating mills Production Capacity Exports

no.

31 29 29 32 M

34 32 33

( a ) A l t e rna t i ve es t imates only a v a i l a b l e expressed i n area u n i t s - 2.5 b i l l i o n sq. f t (Ocampo 1979a), 5283 m3 per day (Sebire 1980d). na, N o t ava i lab le . Sources: FA0 (1977, 1980) ; Ocampo (1979a) ; World Wood (1979a. 1980b) ;

Pr ing le (1980) : Sebi re (1980d).

A.4 Japan

Japan is the second l a r g e s t plywood producing country i n the world next t o t h e USA (Timber Trades Jou rna l 1980b). Thou h production f e l l sharp ly t o 6.2 mi l l ion m3 i n 1975 from 8.6 mi l l ion m3 i n 1973, i t has nod recovered t o 99 per Cent of t h a t l e v e l . From 1978 t o 1979 t he r e was a 6 per cen t increase i n production, t he o v e r a l l r e s u l t of a depressed market e a r l y i n the p e r i d being followed by a recovery. Higher plywood p r i c e s a r i s i n g from SEALPA log p r i c e s l a t e i n 1978 l ed t o the erosion of Lauan plywocd markets by s u b s t i t u t e s such a s gypsum board (Japan Lumber Journal 1980d). Nearly 50 producers, including the l a r g e s t , Eidai Sangyo, f a i l e d i n 1978 (Peyman 1979) , although only 27 manufacturers f a i l e d according t o The O r i e n t a l Economist (1980). To a s s i s t the i ndus t ry , t he Government formed a recess ion c a r t e l from January 1974 and, with Minis t ry of I n t e r n a t i o n a l Trade and Indus t ry guidance, a ban on new f a c i l i t i e s and new r e s t r i c t i o n s on man-hours worked per month by t h e plywood indus t ry were pt i n Eorce. Capacity was t o be reduced by 12 per cen t i n 1980 (Peyman 1979) . With increased publ ic works p ro j ec t s and p r i v a t e housing cons t ruc t ion i n 1979, t he indus t ry recovered s l i g h t l y , with Eida i Sangyo report ing a p r o f i t f o r t h a t year (Or ien ta l Economist 1980) .

A d i sused equipment purchase program was announced l a t e i n 1979, whereby funds would be r a i s e d to p l r c h a s e plywood machinery Out of use f o r a t l e a s t two yea r s . I n i t i a l l y , f i f t e e n m i l l s w i t h an annual c a p a c i t y o f 250 m i l l i o n s h e e t s 3 'x6 ' (4 m b a s i s , t h e r e f o r e appeoximately 1.67 m i l l i o n m3) were s e l e c t e d t o be scrapped (Japan Lumber J o u r n a l 19798). However, on ly 25 pe r c e n t o f t h e funds i n i t i a l l y r equ i red could be r a i s e d . Opposi t ion to t h e funding h a s inc reased s i n c e t h e o rd inance r e s t r i c t i n g t h e i n s t a l l a t i o n o f new or a d d i t i o n a l machinery t o i n c r e a s e product ion c a p a c i t y was i n v a l i d a t e d i n September 1979 (Japan Lumber J o u r n a l 1 9 8 0 ~ ) . . .

Ninety-five pe r c e n t o f Japanese plywood product ion i n 1978 was Lauan plywocd, w i t h t h e remainder being indigenous s p e c i e s (Japan Lumber J o u r n a l 1 9 7 9 ~ ) . I n 1979, 75 pe r c e n t o f product ion was t h i n plywood under 12 m t h i c k ( 8 per c e n t i n 1 9 7 6 ) , wh i l e 60 per c e n t o f t o t a l product ion was u t i l i s e d by t h e c o n s t r u c t i o n and c i v i l eng inee r ing i n d u s t r i e s (Japan Lumber J o u r n a l 1 9 8 0 ~ ) .

I n 1981, domest ic u t i l i s a t i o n o f plywood is n o t expected to i n c r e a s e , due to an expected d e c l i n e i n housing c o n s t r u c t i o n by Japan Housing Corpora t ion , t h e l a r g e s t home b u i l d e r i n Japan ( O r i e n t a l Economist 1980). I n t h e longer term, consumption has been p r o j e c t e d to r i s e t o between 1 5 m i l l i o n m3 and 19 m i l l i o n m3 by 1985 from 8 m i l l i o n m3 i n 1974. Expor ts , mainly hardwood plywood from Hokkaido, a r e between 1 per c e n t and 2 pe r c e n t o f product ion ( s e e Tab le A.8).

L i t t l e expansion h a s been announced or is expected f o r t h e Japanese t o t a l plywood p roduc t ion c a p a c i t y f o r t h e near f u t u r e . An expansion i n the q u a n t i t y o f e x p o r t s is, t h e r e f o r e , no t expected u n l e s s compe t i t ion wi th s u b s t i t u t e s i n t e n s i f i e s .

Table A.8: TRENDS I N THE PLYWOOD INDUSTRY : JAPAN

Year Opera t ing m i l l s Product ion Capaci ty Expor ts

no. '000 m3 uooo m3 '000 m3

( a ) Est imated us ing 1 m3 = 1 m Z ( 4 m b a s i s ) c250. na, N o t a v a i l a b l e . Sources: FA0 (1977) ; Japan Lumber J o u r n a l (1979a.c) ; O r i e n t a l

Economist (1980); P r i n g l e (1980) ; World Wood (1980b).

A.5 Replbl ic of Korea

I n 1976, the Republic of Korea was the f i f t h l a r g e s t plywood producer, with an average m i l l producing 100 000 m3 a year (FA0 1976). Production, capaci ty and expor t s slowly increased from 1975 t o 1979. This includes the scheduled commencement of a 320 m3 (3.6 mm bas i s ) a day, or about 100 000 m3 a year, waterproof plywood p lan t l a t e i n 1979 (World Wood 1979b). Since then, plywcod manufacturing has l eve l led ou t (Richardson 1979).

U t i l i s a t i o n of product ive capac i t y has f a l l e n t o 40-50 per c en t (Japan Lumber Journa l 1980e) and Dong Myung Timber Co., the world's l a r g e s t plywood producer, has c losed and two other c losures a r e imminent (Timber Trades Journa l 1 9 8 0 ~ ) . Korean manufacturers a r e now looking t o j o i n t ventures i n coun t r i e s with g r ea t e r f o r e s t resources . Transfer t o Indonesia and Sabah o f used plywood p l a n t from the Republic of Korea has a l ready been e f f ec t ed and th ree j o i n t ventures with Indonesian timber concession holders have been signed. Papua New Guinea, B raz i l and Ecuador a r e other count r ies being considered (Richardson 1979).

Hardwood log cos t s , which a r e almost 100 per cent higher (Gigot 1979a) because of l og export bans by Indonesia and Malaysia, p l u s increases i n domestic labour c o s t s have forced expor te rs t o r a i s e t h e i r p r i c e s . The decrease of 7.2 per cen t i n the volume of expor t s i n t he f i r s t n ine months of 1979 (Richardson 1979) has been a t t r i b u t e d mainly t o the housing recession i n t he USA and increased competition from s u b s t i t u t e s such a s gypsum board, a s a r e s u l t of t h e higher p r i c e s f o r plywood. Sa les t o non-EEC coun t r i e s o f Europe and t o t he Middle East have compensated for t h i s l o s s t o some ex t en t .

I f export markets do not recover or manufacturers do not adapt t o an a l t e r n a t i v e resource, e.g. so£ t w o d s , t he fu tu r e f o r plywood production i n the Replb l ic of Korea may depend on a r e s t r uc tu r i ng of indus t ry to concent ra te on supplying t he domestic market.

Table A.9: TRENDS I N THE PLYWOOD INDUSTRY: THE REPUBLIC OF KOREA

Year Operating m i l l s Production Capacity Exports

no. u o ~ ~ m3 '000 m3 '000 m3

na, Not ava i lab le . Sources: FA0 (1977) : Timber Trades Jou rna l ( 1 9 8 0 ~ ) ; Pr ing le (1980) ;

World Wod (1980b).

P l y d capac i ty is expected t o dec l ine t o a l e v e l of about 20-25 per Cent a b v e domestic demand by 1983-84 (Travers 1980) , i n con t r a s t t o t h e export of 9 7 p e r c en t of production i n 1976 (see TableA.9) . Al te rna t ive ly , domestic consumption is expected t o r i s e from t h e 137 000 m3 i n 1974 (Pr ing le 1980) t o between 480 000 m3 and 680 000 m3 (12 m3 and 16 m3 per 1000 persons, respec t ive ly) i n 1985. Given t h e presen t shortage of 1.5 mi l l ion dwellings, the p o t e n t i a l t o use more plywood domest ical ly a l ready e x i s t s (Richardson 1979).

A.6 Singapore

Imports of plywood by Singapore increased from 98 000 m3 i n 1974 t o 233 000 m3 i n 1978 (FA0 1980). Being an en t repot country. it a l s o imports logs from SEALPA f o r fu r ther processing i n t o plywood and other mod products. Production is concentrated on s p e c i a l i t y plywoods including blockboard, concre te formwork plywood, marine plywood, pref inished plywood and s iding. The average m i l l capac i ty is grea te r than 40 000 m3 a year.

I n 1977, more than 90 per cen t of Singapore plywood was exported t o t he U.K., Europe and t he Middle Eas t (Moore 1978). The drop i n Asian P ~ Y W D ~ exports s ince then ( a s documented previously) by other en t repot coun t r i e s (Republic of Korea and Taiwan) has s im i l a r l y a f fec ted Singapore. 'Ruo major p lan ts have closed down, another is i n the hands of the receiver and two more a r e report ing g r e a t d i f f i c u l t i e s such a s unsold s tocks of 1 8 000 m3 (Timber Trades Journa l 1980b). Accordingly, no fur ther increases i n i n s t a l l e d capaci ty a r e planned f o r Singapore.

Table A. lO : TRENDS I N THE PLYWCOD INWSTRY: SINGAPORE

Year Operat ing mills Production Capacity Exports

no. '000 m3 '000 m3 1~~~ m3 1973 13 350 650 436 1974 12 350 550 2 89 1975 11 334 500 380 1976 I1 3 80 500 4 59 1977 11-12 ( a ) 380 500 441 1978 11-12 (a) 348 500 553 1979 12 na na na

(a ) A range of numbers is given when con f l i c t i ng es t imates have been ob t a imd from a l t e r n a t i v e sources. na, Not ava i lab le . Sources: FA0 (1977, 1980); World Wood (1979a, 1980b).

Comestic consumption is pro jec ted t o increase t o a l e v e l between 225 000 m3 and 340 000 m3 i n 1985 (Pr ing le 1980). This may include e r r o r a s the 1974 consumption f igure was 216 000 m3 (Pr ingle 1980) whereas an apparent consumption of Only 159 000 m3 can be derived from Table A . l O . Overa l l , Singapore 's r o l e a s a log processing country is expected to decline s t e ad i l y .

Plywood manufacturing is Taiwan's l a r g e s t forest-based processing i ndus t ry (world Woad 1980b) although Taiwan is h igh ly dependent on log impor ts for plywood production.

The 1973 production l e v e l s o f 1.6 mi l l ion m3 have not been achieved s ince. In f a c t , during 1979, a 40 per cen t dec l ine i n product ive capac i ty occurred a f t e r the increased plywood p r i c e s l ed t o reduced demand f o r Taiwanese exports t o the USA and t he EEC. I n response, the indus t ry is turning t o t he production of more highly processed high value items such a s decorat ive doors, b l inds and door frames (World Wood 1980b).

NO es t imates of planned changes t o capac i ty or plywood consumption a r e ava i lab le . However, Travers (1980) s t a t e s t h a t Taiwan's production w i l l dec l ine t o between 35 per c en t and 40 per c en t above domestic demand by 1983-84, which would mean a dec l ine t o about 600 000 m3 i n 1978 f i gu re s ( see Table A . 1 1 ) .

Table A.11: TRENDS I N THE PLYWOOD INDUSTRY : TAIWAN

Year Operating m i 11s Production

no. 1~~~ m3

1973 70 1 600 1974 70 1 090 1975 70 1 090 1976 70 1 250 1977 70 1 280 1978 70-78 (a) (b) 1979 na na

Capacity Exports

(a) A range of f i gu re s is given where c o n f l i c t i n g es t imates were ob ta ined from d i f f e r e n t sources. (b) Alte rna t ive es t imate - 445 466 000 m2 (World Wad 1980b). na, Not ava i lab le .

Sources: FA0 (1977) : (1980b).

Dixon Pr ing le World Wood

A.8 Other Countries

Hong Kcng has two plykvod manufacturers. I n 1978, they produced approximately 12 000 m3 of plywood from a capac i t y of 15 000 m3. I t appears t h a t Hon Kong w i l l remain an importer of plywood, having imported 123 000 m3 i n 1978 (FA0 1980).

Thailand has e i g h t plywoad m i l l s (a t o t a l ra ted capac i ty o f 100 000 m3) including one government-owned, the l a r g e s t one, which produces 2 mi l l ion 4'x7' (4 nm! b a s i s ) shee t s a year. However, t h e

l imited fo re s t resource in Thailand means tha t u t i l i s a t i o n of capaci ty has not exceeded 65 per cent. The main species used is keruing (Dipterocarpus species) and teak, although the teak resource is diminishing. A t present , Thailand is the world's la rges t producer o f teak veneer, which is of a very high qua l i t y (Timber Trade Review 1980d).

Papua New Guinea has one plywood m i l l which has a capacity of 15 000 m3 plywood a year, approximately half of which is sold t o Australia a s high moisture r e s i s t an t thick plywood. Klinkl is the main species used. However, manufacturers i n the Republic of Korea a r e reported to be considering se t t i ng up jo in t venture plywood m i l l s there , but a s yet no contracts have been made (Richardson 1979).

A.9 Conclusion

Recent bans on log exports and the r e su l t an t pr ice increases for exported logs have been two of the f ac to r s leading to an e f f ec t ive relocat ion of plywood manufacturing capaci ty from entrepot countr ies such a s Singapore, the Republic of Korea and Taiwan t o those Asian countr ies with r e l a t ive ly r ich fo re s t resource bases such a s Indonesia, Malaysia (Sabah and Sarawak) and the Phil ippines. Additional fac tors are t h e Government pol ic ies of the l a t t e r count r ies encouraging fur ther processing of the i r wood indus t r ies t o increase regional employment and foreign exchange earnings. Exports from Asian count r ies could possibly continue a t the current quant i ty l eve l , on the assumptions t h a t consumpticm est imates by Pringle (1980) prove correc t and increases i n South-East Asian production and exports equate the reduction i n North-East Asian production and exports.

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Timber Trade Review (1980a), ' B r i g h t f u t u r e f o r e c a s t f o r P h i l i p p i n e s plywood', Timber Trade Review 9 ( 2 ) , 33-6.

(1980b). 'High cost o f c r e d i t and t r a n s p o r t a t i o n hamstr ing Indones ia ' s plywood i n d u s t r y ' , Timber Trade Review 9 ( 2 ) . 31-2.

(1980c) , 'Plywood l e a d s t imber ' s t h r u s t i n t o downstream d i v e r s i f i c a t i o n ' , Timber Trade Review 9 ( 2 ) . 24-7.

- (19806). 'Thai p l y m o d geared towards h o m e marke t ' , Timber Trade Review 9 ( 2 ) , 28-31. -

Trace , K . (1980). T r a n s p o r t ' s m n t r i b u t i o n to A u s t r a l i a ' s compet i t iveness i n t h e f o d and f i b r e markets o f E a s t and South-East Asia , Paper d e l i v e r e d to BAE workshop on Economic Developnent and Change i n Eas t and South-East Asia: I m p l i c a t i o n s f o r A u s t r a l i a ' s A g r i c u l t u r a l Trade i n t h e 1980s. 12 August.

T rave r s , W. (1980). 'SE Asia c r y s t a l b a l l hazes: major per iod of change a t hand ' , World Wood 2 1 ( 9 ) , 12-15.

Uhr ig , J . A . and Edwards, C. (19801, P r o s p e c t s fo r t h e outward looking manufactur ing s e c t o r , D i scuss ion Paper No. 13, Department oE Economics and I n s t i t u t e of I n d u s t r i a l Economics, U n i v e r s i t y Of Newcastle, J u l y .

West Malaysian Department Of S t a t i s t i c s (1977), Monthly S t a t i s t i c a l Bul le t in , Kuala Lumpr (and previous i s sues ) .

World Bank (19781, Paper New Guinea, Its Economic S i tua t ion and Prospects f o r Developnent, A World Bank Country Economic Report, Washington, D.C.

World Wood (1979a). 'Review 1979 r Asia ' , World Wood 20 (7) . 49-60.

(1979b), 'Major new p ly m i l l f o r South Korea - supplier is E u r o p e a n 1 , World Wood 20 (81, 3.

(1980a). 'World repor t , major po r t w i l l a i d Sarawak's f o r e s t p r o d u c t s processors ' , World Wood 21 (1). 28.

- (1980b). 'Review 1980 : Asia' , World Wmd 21 (8 ) , 41-54.

Yauieb, A.M.D. (1978), Export a s p i r a t i o n s of Papua N e w Guinea with pa r t i cu l a r reference t o Aus t r a l i a a s a Market, Paper No. 15, Austral ian Timber Industey S t a b i l i s a t i o n Conference, 1978.

OTHER READING

Balassa. B. (1977). A ' s t ages ' approach to comparative advantage, World Bank Sta f f Working Paper, No. 256, May.

Bureau of Industry Economics (1978), I ndus t r i a l i s a t i on i n Asia - Some Implicat ions fo r Aus t ra l ian Industry, Research Report 1, AGPS, Canberra.

(1979). Aus t ra l ia ' s Share of Imports by Developing Asian Countries, 1965 to 1975, Information Bul le t in 1, AGPS, Canberra.

Department of Secondary Indus t ry (19721, Review of the Austral ian Plywood and Veneer Indus t r ies , AGPS, Canberra.

FA0 (1980). Forest Products Pr ices , 1960-78, Rome.

Ferguson. I.S. and Parkes, E.D. (1976). I n t e rna t i ona l Trade i n Forest Products, Report for Department o f Indus t ry and Commerce, AGPS, Canberra, (2 volumes).

I ndus t r i e s Assistance Commission (1977). Plywood and Veneer (Thick Plywood). Inter im Report No. 125, AGPS, Canberra, 10 March.

- (1980). Trends i n S t ruc tu re of Assistance t o Manufacturinq, Amroaches to General Reductions i n Protect ion, Information Paper NO. 1, AGPS, Canberra.

Sebi re , R.A. (1980). 'Resource review - the fo r e s t and f o r e s t i ndus t r i e s of Indonesia ' , Aus t ra l ian Fores t I ndus t r i e s Journa l 46(5), 47-52.

- (1980), Global Demand and Supply of Softwoods : Implicat ions for Aus t ra l ia , Paper presented t o 24th Austral ian Agr icu l tura l Economics Society Conference Wor kshop on In t e rna t i ona l Trade i n Forest Products - What is AuStr'alia'S Future?, Adelaide, 12 February.

Study Group on S t r u c t u r a l Adjustment (1979). Report, AGPS, Canberra. March.

Temporary Assistance Authori ty (1975)-, Plywood, Report NO. 18, AGPS Canberra, 27 August.

- (1976j, Thick Plywood (exceeding 5.5 m i n th ickness ) , Report No. 23, AGPS, Canberra, 28 July.

- (1978). Thin Wmd-Based Panels, Report No. 40, AGPS, Canberra, 9 January.

World Bank (1978), Fores t ry , Sector Pol icy paper, Washington, D.C.

(1980): Comodity Trade and Pr ice Trends, Johns Hopkins Universi ty Press , Baltimore, August.

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