The price of high-end mahogany raw materials falls, and the investment in Hongmu needs rationality.
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In recent months, the prices of high-end mahogany raw materials have experienced a significant decline. According to Mr. Liu, a manager at a major redwood furniture store in Zhengzhou, both Siamese rosewood and Burmese rosewood have dropped by over 20%, with some types falling as much as 30% to 40%. This sharp decrease has started to impact the profit margins of mahogany furniture retailers, who are now struggling to maintain sales. To attract customers, some stores have even adopted a "no-profit" promotional strategy during the Spring Festival, but the results have been underwhelming. Many consumers remain cautious, expecting further price drops and choosing to wait before making purchases.
The most dramatic drop has been seen in Siamese rosewood from Laos and Cambodia, where top-grade materials have fallen from over 400,000 yuan per ton to between 250,000 and 280,000 yuan per ton. Similarly, lobular rosewood has also seen a 30% to 40% price decline, bringing it back to levels seen in early 2013. According to Mr. Liu, this decline is largely due to excessive speculation in previous years, with many investors now eager to sell off their stocks for quick returns.
With a large inventory of raw materials in the market and limited demand, the price of precious redwood is unlikely to rebound in the short term. A rosewood supplier revealed that in recent years, the price of red rosewood soared to 1,000 yuan per kilogram, leading many manufacturers to stockpile the material without using it for production. As social funds tighten, the supply of raw materials has exceeded demand, prompting some manufacturers to sell at a loss.
The market is now entering a period of adjustment. According to a report on China’s redwood imports in the first half of 2014, import volumes surged, reflecting strong domestic demand. However, the industry expects this trend to slow down as the market becomes more saturated. The price drop in raw materials is gradually being reflected in finished products, with profit margins shrinking by 5 to 8 percentage points.
Mr. Liu believes that reducing product prices and lowering profit margins is a smart move to stimulate demand among middle- and high-income consumers. While the price of finished mahogany furniture will not fall significantly—since it is usually priced at least double the cost of raw materials—cheaper varieties such as Burmese rosewood are becoming more popular.
With the rise in anti-corruption efforts, high-end luxury consumption in China has declined, affecting the demand for premium mahogany. In contrast, more affordable options like Burmese rosewood have gained popularity. In the future, low-cost or mid-range mahogany furniture is expected to dominate the market, with consumers seeking value and durability.
As purchasing power increases among ordinary consumers, some mahogany dealers are shifting their focus to the mid-to-low end market. For example, a set of mahogany sofas can be purchased for around 20,000 yuan, while a single Dining Chair might cost nearly 10,000 yuan. Despite these prices, many consumers still see them as a better investment compared to leather sofas, which can be just as expensive or even more.
Industry experts believe that the price of Burmese rosewood will continue to decline for some time, despite claims of scarcity. While redwood resources are indeed becoming scarcer, it is unlikely that the market will completely dry up. Countries like Myanmar and Vietnam still allow the export of processed wood and semi-finished furniture, ensuring continued supply.
Both consumers and businesses should take a rational approach when considering the investment potential of mahogany. The current market faces challenges such as limited distribution channels and high brand premiums. While the resource may become rarer over time, it is important not to overestimate its future value. The long-term outlook remains uncertain, and caution is advised when making investment decisions.