Well its that time of year again, time for changes to the Teak market. As Myanmar nears the end of their fiscal year we expect changes to hit in the Teak market. True to form there are murmurings coming out of Myanmar about changes and while nothing is yet confirmed, it has become our custom to keep our customers up to date as the situation develops. This year we are fortunate to have our president, Gib McIlvain, actually in Myanmar talking to government officials as the policies are being discussed.
We have seen log bans and logging bans in the past and this year it seems that there is talk of a 50% export tax on rough dimensioned lumber. Not only that, but there is talk of value added materials receiving less tax. In this case “value added” refers to mills in Myanmar dimensioning the lumber and exporting S4S (surfaced on 4 sides) material rather than the rough sawn lumber that we are all used to now. Certainly pushing the international customer to the value added material keeps more material in the country longer and increases the industry and jobs that the Myanmar economy so desperately wants. So it makes sense that the potential tax would be less on these products. Ultimately, growth of industry and encouraging more sustainable use of the forests is the long term plan for Myanmar and all of its customers. Introduction of value added services is the first step towards more a more complete manufacturing economy, capable of producing furniture and other more complex products.
It is important to note that this move is another in a series of moves that Myanmar has made all in the interest of improving the sustainability of the forest and increasing line of sight into legal export. The elephant in the room however is the volume of potentially illegal Teak coming out of place like China and India. While these moves are good, as legally exported Teak prices climb, the volume of questionable origin Teak will also climb. The buyer must beware of any supplier that does not have line of sight into the chain of custody and can verify the legality and origin of the material.
Here is the Rub
Teak is not a standard use species like some of the decking species; Teak is a custom product. Not everyone needs 1×6, in fact, just trying to figure out a list of “stock sizes” is a recipe for disaster. In other words, having someone else size your Teak could pose problems to the manufacturers of Teak products. Lumber sized to a final dimension also faces problems with potential wood movement and damage in transit. Also this changes how the product is bought and sold. Instead of a raw material that is sold by volume, we now have a product that has been specifically sized and is sold by the linear foot. This can be at once easier but also severely limiting for the end user that has highly specific or unique needs. Alas, we can only speculate at this point and we may be overemphasizing the value added point.
The big question on the export tax is what would this tax actually be levied against? 50% of what in other words? Again, Gib McIlvain is in Myanmar as I am writing this and sending up updates as things develop. What we can tell you is that we expect the prices of Teak to climb once again in response. How much really depends on what kind, if any, tax is levied on export Teak. Stay tuned and we will continue to update our customers as legislation is solidified.
The latest we have heard coming out of meetings between Myanmar government officials and our company president is that the export tax has been dialed back quite a bit. The unofficial word now is that the tax will be 10% on the value of the export document. This is much better news obviously than initial statements and we are hopeful that something official will be solidified shortly