10th global log & lumber conference

Levant region in double trouble: low oil price and COVID-19

Article by Gerd Ebner (translated by Eva Guzely) | 26.06.2020 - 08:54

Importers have no idea how the situation is going to develop and are therefore hesitant when it comes to buying wood. Additionally, their stock levels are high. Rashad even spoke of an “oversupply due to reduced demand”.

Measures implemented to limit the spread of COVID-19 differ greatly from country to country – and the same is true for the outlook for the post-corona period. Many of the region’s countries live from oil exports and now, there is very little public revenue generated in this sector.

At the same time, stocks melted in the main supplying countries Finland, Sweden and Russia due to the mild winter. Prices were down as a result of COVID-19, but Rashad expects them to recover after the end of the lockdowns.

Demand is slowing in the MENA region. The future development is uncertain.

Amir Rashad

Waiting for stimulus programs

MENA_3Q2020.JPG

In Q3 what changes can be expected in the countries of the MENA-region compared to the previous quarter? Further deterioration (red), stable development (yellow) or improvement (green);    from left to right: imports, stock levels, demand, constructions; top down: Morocco, Algeria, Egypt, Saudi Arabia, UAE, Jordan, Lebanon, Tunisia © Timber Exchange

The duration of COVID-19-related restrictions is uncertain. However, Rashad assumes that respective economic stimulus programs could lead to an increase in demand. In view of high stock levels, it is difficult to predict how high softwood lumber demand will be. Egypt is the biggest market of the region with an annual demand of 3.5 million m³. The country supposedly has 900,000 m³ in stock. Normally, this is enough to ensure supply for three months. At the moment, stocks could last for four to six months due to lower demand (80% of construction companies closed after the outbreak of COVID-19). Importers are currently very pessimistic. Egypt saw its GDP growth slow from +5% to +2% this year.

Saudi Arabia has a demand of around 1.5 million m³ a year. The country’s GDP is going to shrink by 2.3% this year. Many construction projects were cancelled, among other things because there is a lack in construction workers.

At the moment, stock levels are slightly higher than normal. Rashad expects that demand is going to normalize again over the course of this year.

Morocco would need 140,000 new housing units each year. Lately, however, 100,000 units a year were built, and housing construction has slowed considerably in recent weeks. According to Rashad, softwood lumber sales plummeted by 30% in March and by as much as 70% in April. Now, warehouses are full because sales have not been normal for two months.

Algerian GDP negative for two years

Algeria is particularly important for Central Europe. The country’s GDP growth was negative already last year (-1.4%). This year could see a 2.2% contraction.

COVID-19 countermeasures led to a 90% decline in softwood lumber demand in May and respectively high stock levels in Algeria. According to Rashad, there are already rumors about a re-introduction of the controversial import license system.

The United Arab Emirates are a market which needs increasing volumes of softwood lumber. From 2009 to last year, imports doubled and reached a total of around 800,000 m³. Currently, demand fell to only one quarter of the normal level.