The latter part of the summer proved to be slightly busier than anticipated for the UK plywood sector, while significant price increases have been witnessed for OSB. But of course, everything has been overshadowed by last week’s terrorist attacks in the US which appear certain to have major long-term implications for markets around the world.
For UK importers of plywood, competition remains fierce with gross margins said to be suffering ‘at all levels’. At the same time, importers are facing pressure from Indonesian mills to impose higher forward prices in the wake of the devaluation of the rupiah. Producers appear in no great hurry to break the stand-off that has developed, with UK importers unwilling to pay these higher levels.
Staying with the Far East, there have also been reports of a growing incidence of Chinese plywood arriving in the UK as ‘Far East’ material. While such nomenclature may be techni-cally accurate, said one contact, the plywood in question comprised thin face veneers that were liable to become easily damaged if used in construction applications. The lack of a durable species in the plywood’s construction made it more vulnerable than many buyers might imagine, he said.
The same importer suggested that the general quality of plywood entering the UK had dropped over the past couple of years but that ‘buyers’ expect-ations have accommodated this’. Unable perhaps to obtain the better qualities, many sellers had convinced buyers to accept cheaper, lower quality plywood on the grounds that it was equally fit for the intended application – even though this was often not the case.
A similar point was made by an agent recently returned from Indonesia. He spoke of the emergence of two distinct types of mill there: the smaller operator which was still trying to maintain high standards based around the production of traditional BB/CC grade material; and a host of larger mills which were now suffering as a result of their ‘big exposure’ to markets such as Japan and the US, whose orders had reduced significantly in recent times. These larger operators were having to ‘dodge around’ to sell material wherever possible, helping to create what he described as a 10-percentage point differential in Indo list prices.
Sub-standard material
On top of the good-quality material supplied in general from long-established sources, the UK was also receiving a substantial volume of plywood that was either sub-standard or improperly marked, he claimed. Unfortunately, price remained ‘the main criterion’ among UK purchasers.
A number of contacts pointed to a ‘feast and famine’ situation now affecting Far East plywood, with examples of several vessels arriving in quick succession to more than satisfy the UK market’s needs. ‘Quite a lot of plywood is coming in on these vessels,’ he said. ‘I can’t believe it can keep going on like this – mills, importers and agents all say they are losing money.’
In terms of the dramatic fall in American plywood exports to Europe, figures from APA – the Engineered Wood Association tell their own story. Remembering that 2000 was itself a poor year for shipments, volumes in the first five months were substantially lower in all major consuming nations on this side of the Atlantic. The UK imported 7,711m³ in January-May 2001 compared with 21,700m³ in the corresponding period of last year; The Netherlands’ total was 5,929m³ compared with around 14,000m³ last time; while German imports dwindled from around 4,000m³ in the first five months of last year to 2,400m³ this time round.
Despite the huge amount of information circulated on the subject, there were still too many examples of the use in load-bearing applications of plywood that did not comply with BS 5268 Part 2, according to an APA spokesperson. He feared that a serious accident and subsequent high-profile court case might be needed to convince some builders of the dangers of using uncertified timber.
The UK market had become ‘non-existent’, according to a leading agent for American plywood. ‘Elliottii pine plywood is killing us,’ he said. ‘You can’t compete when your own material is much higher in price than a product that has become, reluctantly, more acceptable.’
Another contact pointed to the ‘ridiculously low price’ for OSB and the relative cheapness of Finnish plywood as further reasons behind the dearth in US plywood shipments to Europe, while at the same time highlighting elliottii from Brazil as the pre-eminent obstacle to trade with the UK.
US production curtailed
Another contact suggested that American plywood prices were ‘quite weak’ at present but that the country was ‘unlikely to be a player’ on the European market for the rest of this year at least. A sizeable proportion of US plywood production had been curtailed and the result was now ‘a nice balance’ to the market, he added.
While exports to Europe have suffered a marked decline, there has been no major evidence of oversupply of plywood on the domestic US market, where house starts continue to run above a healthy 1.6 million. At the same time, said one source, there was growing disgruntlement that countries that had received substantial help from the US – such as Brazil – were now helping to erode its manufacturing base. ‘There has perhaps been a hardening of attitudes,’ commented a UK-based agent. It remained to be seen, he added, whether the Bush administration saw necessary to take some action on this issue.
Elliottii pine plywood prices were said to have hit ‘rock bottom’ in late July/early August but had subsequently recovered 5-6%, with further price rises anticipated before the end of the year. A leading importer explained: ‘People let their stocks run low and have all come back into the market at the same time.’ The supply pipeline in Brazil had also been impacted by poor weather and production curtailments or closures at many mills.
Meanwhile, several importers reported distribution problems at Tilbury docks affecting all Brazilian plywoods. Attributing an estimated three to four weeks backlog to the increasing number of plywood container loads now coming across from Brazil, one importer said he had yet to receive material that had arrived three weeks earlier.
Latest statistics from the European Federation of the Plywood Industry (FEIC) have shown that last year EU output of plywood increased by 30% over previous figures to 3.1 million m³, while European exports jumped from 2.1 million to 2.7 million m³. European consumption of plywood increased by 4.6% to around 5 million m³ last year.
Finnish interests
According to FEIC, France and Italy were the second and third largest producers of plywood in Europe last year on 471,000m³ and 398,000m³ respectively – both still some distance behind leading producer Finland on 1 million m³. This week, Finnish plywood interests have been reporting a slower than anticipated start to September given the summer shutdowns taking place at the mills in July and August. Orders for Finnish birch were reasonably healthy but there were signs of some major buyers having bought more than needed in the run-up to the mill holidays.
Meanwhile, demand for Finnish spruce plywood was described as ‘quite buoyant’ over the summer period, with order books at three to four weeks.
Focusing on the UK market in particular, the volume of Finnish plywood coming into the country has been affected by the availability of lower price material from Latvia and Russia in particular. The Finns’ market share was ‘under threat’, one contact acknowledged, although they had responded by moving more in the direction of specialised products.
Some Baltic mills have enjoyed a rather busy few months with reports of holiday shutdowns being shortened to accommodate healthy demand. Nevertheless, one of the mills that reduced its holidays has since reported a tendency for customers to put back orders, thereby suggesting that they may have over-ordered earlier in the year.
Russian producers are understood to be reasonably well booked for the fourth quarter despite making certain offers available in the shorter term, particularly on thicker panels. Demand for thinner panels remains strong and there is no sign of any price weakness. However, while mills may be keen to obtain price rises, these are unlikely to be pressed through until possibly October or November.
Russian plywood producers are continuing to benefit from strong domestic demand, to the extent that there have been some problems in securing sufficient wagon capacity. However, exports remain a crucial source of income for these mills and they have certainly been affected by apparent over-stocking in some key overseas markets. Longer-term prospects are expected to depend to a significant extent on whether the US maintains its current buying levels.
OSB market
According to a couple of leading players in the OSB market, prices have turned something of a corner and risen by an estimated 10% since the middle of the year, although prices are still some way below those at this time last year. Admitting to being ‘shocked’ by the scale of the upturn, one source attributed the increase to a high level of demand boosted by ongoing substitution of plywood, notably in roofing applications. ‘People were uncomfortable with using plywood in non-structural roofing and the quality of OSB has shone through,’ he said. ‘The merchant sector is moving very strongly to OSB.’
OSB was produced more locally and was more readily available – thereby ‘reducing the chances of buyers catching a cold’, added another source.
Much of the previous downward price pressure had been attributed to OSB interests in France, but there were now signs of them becoming ‘less aggressive’ in their attempts to obtain sizeable market share in the UK.
Noting ‘a bit of hysteria in discounting’ within the UK as part of a ‘fierce defence of market share’, another market player suggested the French were still active in a number of product areas but were having a less depressing impact on prices. He added that the recent rise in prices was partly the result of downtime taken by producers during the summer, which had served to reduce inventories.
There was still some concern this week that OSB prices might lose their impetus once scheduled new capacity came on stream in Europe. One expert predicted price stability at the current higher levels but no more major upward movements for the foreseeable future.
