Khairuddin noted that furniture products made up the highest export at RM9.14 billion followed by plywood products (RM3.40 billion) and sawn timber (RM3.37 billion). — Bernama photo
The time is right for furniture makers to thrive, analysts say, as a rise in global furniture demand on the back of rising population, urbanisation, disposable incomes and real estate will spill over onto Malaysian shores.
An increase in furniture demand globally signifies growth opportunities for the furniture industry in Malaysia as consumers may opt to purchase imported furniture due to factors such as product pricing, design and quality.
In line with the increasing furniture demand globally, researchers at Public Investment Bank Bhd (PublicInvest Research) saw that demand for Malaysian furniture products has also increased, as depicted by Malaysia’s growth in furniture exports.
“The furniture industry has consistently contributed between 0.3 to 0.4 per cent to Malaysia’s GDP,” PublicInvest Research said in a special report on the sector.
Malaysia has always been a net furniture exporter and is ranked amongst one of the top 15 largest furniture exporters worldwide.
In 2019, Malaysia is the 11th largest furniture exporter in the world. Around 80 per cent of Malaysia’s furniture production is exported with US, Japan and Australia being the major export markets.
Plantation Industries and Commodities Minister Datuk Dr Mohd Khairuddin Aman Razali noted that Malaysia exported RM22.5 billion worth of wood-based products last year.
Of the amount, furniture products made up the highest export at RM9.14 billion followed by plywood products (RM3.40 billion) and sawn timber (RM3.37 billion).
“We hope that the value of exports this year will increase or at least matches last year’s figure,” he told reporters after launching the state’s Community Plantation programme in Batu Kikir.
Boon from global trade war
Malaysian furniture industry has its advantages when it comes to product creativity as designers are able to churn out unique designs and therefore attract furniture retailers and theme decorators despite charging premium margin.
“Malaysian furniture industry manufactures several types of furniture products such as wooden and cane furniture as well as metal furniture,” PublicInvest Research opined.
“However, in terms of value of gross output of the furniture industry, wooden and cane furniture is the largest segment due to the abundance of tropical wood found in Malaysia especially rubberwood.”
And this robust demand for Malaysian-made furniture is set to continue, especially from the US.
Prior to the trade war, Malaysia furniture exports were growing at a eight per cent-year cumulative annual growth rate (CAGR) of 3.3 per cent between 2009-2017, in tandem with the growth in the global furniture market.
Moving forward, PublicInvest Research believe that the growth in furniture exports will be mainly driven by the increase in demand for Malaysian furniture in the US as exports to the US grew by 44.7 per cent year on year (y-o-y) to RM4.2 billion in 2019.
“Although 2020 demand is expected to be disrupted by the impact of Covid-19 pandemic, we are of the view that Malaysian furniture will continue its growth in 2021 once global economy recovers and reverts to normalcy,” it supported.
“According to US Census Bureau, the furniture industry has been growing steadily at a CAGR of 5.7 per cent in between 2010 to 2019. Demand for furniture is still robust as US furniture imports have been on a steady rise.
“According to Statista, the US furniture market is expected to grow at a CAGR of 4. per cent from 2020 to 2023 on the back of the uptick in US homeownership as it has been recovering gradually post subprime mortgage crisis.”
Malaysian furniture and wooden furniture export (SOURCE: Malaysian Timber Council)
Breakdown of Malaysia furniture exports in 2019 (SOURCE: Malaysian Timber Council)
Opportunity to fill the void
Since the US imposed a 25 per cent tariff on Chinese furniture manufacturers, Malaysian manufacturers have seen an increase in orders as a result of trade diversion – exports to US jumped by 38 per cent to US$4.7 billion in 2019.
“Although the US furniture imports has fallen since the Covid-19 outbreak, we believe as the global economy reverts back to normalcy, household spending on furniture should gradually increase as evident by the rebound of 17.7 per cent month on month (m-o-m) in May retail sales.
“Furniture consumption per capita is on the rise especially in the US as it has always been the largest furniture consumer and importer worldwide.
“We believe that this trend is likely driven by the booming real estate industry supported by the growth in the US new housing starts as well as the increase in disposable income. This has led to an increase in demand for premium furniture.”
Additionally, a favourable foreign exchange rates will further boost Malaysian furniture.
As the ringgit depreciates against US dollar, Malaysian furniture will appear more appealing to customers due to cheaper product prices, as shown where Poh Huat, Homeritz and Wegmans cumulative earnings rose in tandem with RM weakening.
Meanwhile, PublicInvest said prices of rubberwood, a main raw material used, had fallen and stabilised since the export ban in 2017.
Given the ample supply of rubberwood as well as falling leather prices, the research firm expects an improvement in margins due to lower raw material costs.
This reaffirms its stance that exporters would likely benefit from the weak ringgit against the US dollar.
“We estimate that for every one per cent drop in the ringgit, earnings for the furniture stocks under our coverage would increase by 0.8 per cent.”
Listed furniture makers stand to gain
While the global furniture trade has been affected by trade tensions and weaker economic growth, demand for household furniture in the US remained strong, driven mainly by sustained employment, rising household income and a resilient housing sector.
This means furniture makers like Poh Huat Resources Holdings Bhd (Poh Huat) stand to gain from this uptick.
“Upbeat economic data on the labour market, housing, trade and manufacturing that had suggested that the US economy was growing at a moderate speed despite headwinds from trade tensions and slowing global growth,” Poh Huat cited in its Annual Report 2019 released this year.
“Strong consumer spending on discretionary, including household and furniture, have resulted in sustained orders for both our Malaysian and Vietnam operations.
“The protracted US-China trade war has resulted in disruptions in the global supply chain but bought about some positive surprises to several countries in the South East Asia region.”
For the global furniture trade, Poh Huat believed that Vietnam will benefit the most, with furniture exports increasing by 30 per cent this year, followed by Malaysia as orders shift to these Southeast Asia exporters.
“The structural changes in the supply chain is now permanent as more and more manufacturers relocate out of China to this region.”
In Vietnam, Poh Huat said it continued to receive sustained orders from our US customers particularly for our new ranges of bedroom set and occasional items.
Responding to the trade tariffs imposed by the US on China sourced furniture, it said several key customers have shifted some of their ranges of bedrooms suites and occasional items which were previously sourced from China factories to our factories in Vietnam.
“While the diversion of orders from China to Vietnam have resulted in more orders, negotiations for better pricing have not been fruitful as competition amongst furniture manufacturers in Vietnam has intensified over the last couple of years,” it added.
“Chinese and Taiwanese furniture manufacturers have over the years progressively invested and built up capacity in Vietnam while local Vietnamese manufacturers have gained strengths to become formidable competitors, especially in the affordable segment of the market where barriers to switching are relatively low.
“Our Malaysian operations continue to record higher shipment of office and home furniture, particularly to Canada and US.”
Wegmans expect uphill battle
On a more sombre tone, ACE Market-listed Wegmans Holdings Bhd (Wegmans) believes that 2020 will be a challenging year, due to the uncertainty of the US monetary policy in the global economy, the slowdown of China’s economic growth and the trade war between China and the US which have affected the global economic stability.
This comes as the furniture industry is particularly sensitive to cyclical variations in the general economy and to uncertainty regarding future economic prospects of the countries in which it exports to, it said.
“Economic downturns in these countries could affect consumer spending habits by decreasing the overall demand for home furniture products,” it said in Wegmans Annual Report 2019.
“Changes in interest rates, consumer confidence, new housing starts, existing home sales, the availability of consumer credit and broader national or geopolitical factors have particularly significant effects on our business.
“On top of this, the Covid-19 outbreak has evolved into a global pandemic, adversely affecting economies worldwide due to the widespread imposition of travel restrictions, constraints on themovement of people and the suspension of many business operations to curb the spread of this virus.
“In addition, our group needs to adapt to the 2020 Malaysia movement control order (MCO), while also addressing the impact of the ongoing Covid-19 pandemic which may affect the group’s financial performance arising from the delay in the restoration of disrupted supply chains and shipments in respect of major raw materials and deliveries of orders.”
The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.
“Nevertheless, we are fully confident in what the future holds. We will stay the course, remain steadfast in executing our efforts to strengthen our Group’s long-term competitiveness and continuously create value for our shareholders.”
Poh Huat explores diversification
While office furniture remained the mainstay for Poh Huat’s Malaysian operations, the group continued to expand its range of home bedroom furniture as more and more distributors and retailers in the US offer panel-based bedroom sets as alternative to the higher end spray finished products.
The sales contribution from these panel-based bedroom sets continues to increase steadily from about 26 per cent of its Malaysia’s sales in the previous year to 34 per cent in the current year.
“We increased shipments of panel-based furniture to our American customers and even include some internet/online retailers in India,” it said in the Annual Report.
“In product development, we continued to collaborate with our US customers to develop several ranges of new bedroom sites which were featured in the High Point Furniture Fair, one of the most prominent furniture trade shows in the US.
“Shift in demographics and the push for e-commerce have dictated new functional and design requirements and re-formatting of the furniture retailing, distribution and fulfilment channel.
“Over the last few years, we have worked closely with key customers in the US to develop and launch new ranges of panel based bedroom sets which incorporate requirements for more efficient warehousing and distribution as well as “consumer friendliness” considerations for ready-to-assemble products. We have also made efforts to rationalise our products mix to accommodate for younger US consumers.”
Also, the normalisation of the activities amongst Vietnamese furniture manufacturers following the surge of investment in new factories has also resulted the de-escalation for demand and hence, prices for key raw materials such as particleboards, solid timber and coating materials.
“The availability and prices of these materials were lower and more stable, allowing us to plan our sourcing visà-vis our production schedules better,” POh Huat revaled.
“Likewise, the scramble for workers in Vietnam due to vacancies in new factories which was apparent last year, has also similarly normalised during the financial year.
“The labour market appears to have stabilised during the year following market demand-supply and production adjustments amongst manufacturers in Vietnam.”
Ensuring sustainability of wood supply
The successful transformation of Malaysia’s wood furniture industry from a cottage industry to a billion-dollar industry currently owes much to the survival story of the rubber tree.
The timber is a by-product used mostly by the furniture industry, making it a sustainable alternative to tropical woods extracted from natural forests. As the rubber trees are cultivated, the trees can be replanted after the productive life cycle. Therefore, rubberwood is deemed as an environmentally friendly wood given that it is harvested from a renewable source.
“In a move to ensure adequate supply of rubberwood to the furniture industry, the government banned the export of rubberwood in 2017,” PublicInvest Research said.
“Rubberwood sawn timber exports to China and Vietnam was estimated to be at RM200 million to RM300 million annually before the ban. The shortage in rubberwood supply previously had caused the raw material price to surge to RM2,300 per tonne from RM1,600 per tonne.
“Since the implementation of the ban, the rubberwood prices have stabilised to RM1,600-RM1,700 levels and have provided the industry with sufficient supply.”
In order to reduce pressure on native forest as a source of raw materials to ensure forest sustainability, Malaysian governement had launched a Forest Plantation Programme in 2005. The program targeted to plant 25,000 ha of forest plantations per annum in order to achieve 375,000 ha of forest plantations by 2020.
For every 25,000 ha of mature forest plantation, it is expected to produce 5m m3 of timber. The plantation programme focuses on 2 species, namely Rubberwood and Acacia mangium. According to MTIB, as of 2016 a total of 114,355.43 ha have been developed under this programme.
Over the years, Malaysia has introduced several forestry programmes, projects and activities to ensure forest resources are maintained for perpetuity.
Initiatives that were introduced include forest mapping using Geographic Information System, research in forest management as well as formulating guidelines and standards to facilitate better management and planning.
“We believe that we are slowly seeing the results from the initiatives introduced as rubber acreage in Malaysia has stablised at 1m hectares for the past 10 years, which should be able to provide a sustainable supply of rubberwood to the furniture industry.”
Covid-19’s impact to furniture manufacturers
The Covid-19 pandemic made it tough for businesses to keep their financial wheels turning and the impact of lockdowns were particularly brutal for companies with little reserves for managing sudden slumps.
Malaysia was not spared as the economic indicators showed a worrying trend during the Movement Control Order (MCO) when it was first implemented from March 18 to 31, 2020 to contain the pandemic.
According to the Malaysian Timber Council (MTC), numerous consultation sessions among the various ministries, government agencies and the private sectors took place throughout the MCO to discuss and finetune the implementation of the regulations and satandard operating procedures (SOPs) for businesses that were given approval to operate during the MCO.
“As many industries were contemplating a shutdown, the timber sector received special approval from the Ministry of Health through the Ministry of Plantation Industries and Commodities (MPIC) to operate under strict adherence to the SOPs during the MCO,” it said.
“More than 500 timber-based companies were granted approvals of which over 70 per cent were furniture and moulding manufacturers. The Malaysian Timber Industry Board (MTIB) helped to evaluate and approve the companies to operate during the MCO.”
MTC, together with many public and private sector organisations, played a key role in facilitating the smooth operation of the timber sector by analysing and channelling feedback from the industry players to the government through consultation sessions.
MTC had also conducted an industry-wide survey which uncovered concerns over the slowing global and domestic demands, cashflow management, order fulfilling issues and workforce sustenance.
Worry over raw material supply
One of the primary hiccups during the MCO involved the supply disruption of timber raw materials which was swiftly resolved during the CMCO when the government granted permission for the transportation of logs from the landing sites to the respective factories. Since then timber-based manufacturers were assured of regular supply of raw materials for their operations.
“The timber sector has been literally up and running during the MCO and CMCO with 90 per cent of manufacturers having resumed operations and more than 60 per cent had begun exporting their products,” MTC added.
“These timber-based manufacturers are also revisiting their business plans and actively relooking at digitalisation and automation options to further fortify their operations.
“The timber sector in Malaysia has been largely operating unhindered, thanks to the quick response and strong support from the government which has also signalled of more assistance to stimulate the economy to enable businesses to weather the pandemic storm.”
MTC, too, in line with its role and obligation to the timber industry has taken the necessary steps to transform its operation model and activities to suit the current and post-Covid-19 business needs.
“It’s a digital push we are looking at now. We simply cannot ignore this fact and businesses must now consider operating on e-platforms,” said MTC acting chief executive officer Wong Kah Cane, who also assured buyers of Malaysian timber products that any order will be readily met by local manufacturers and suppliers.
“Together with the cooperation and collaboration among various ministries, agencies and the private sector, MTC will do its part to ensure that the Malaysian economy and timber industry will be more resilient post-Covid-19.”