Summary
• RKL Plywood’s administration has led to increased availability of material to the UK market.
• Issues remain on the quality and certification of some Chinese plywood.
• China accounted for 48% of the UK’s hardwood plywood imports in the first eight months of 2011.
• Brazilian hardwood ply is difficult to move in the UK market.
• The UK OSB market is flat.
• Exports of OSB from the UK rose by 45% in the first eight months of 2011.
The refrain from the UK’s plywood sector is that too much material is chasing too little demand following an estimated 20%-plus drop-off in consumption during the autumn months. Meanwhile, “everyone is destocking in the importing world to the level they feel happy with,” TTJ was told this week.
According to market experts, one of the legacies of RKL Plywood’s entry into administration has been an increased availability of cheaper material to the UK market. Many buyers are being attracted by the low price tags, with the result that the values of many forms of plywood have been dampened at a time when, many argue, fundamental factors should be pushing prices higher rather than lower. The impact of this greater availability is widely expected to be felt for several more months to come, thus pointing to “hard times ahead”, said one contact.
Quality issues
According to one regional expert, “the UK is now on the edge of a precipice with regard to Chinese plywood quality issues and certification”. He reckons around 80% of all Chinese ply currently in the UK is “MR with dyed red glue to look like WBP”, with a large proportion being produced as “under-thickness” but marked as full thickness. A significant percentage is CE marked and yet a number of its suppliers “do not have their plywood performance-tested on a regular basis to confirm the structural performance”; therefore, it is likely, he added, that “the plywood they are selling would not perform to the required standards”.
Other contacts too were keen to highlight what they regard as “very questionable” claims being made about product, with one distributor: “The knowledge base in the UK industry has reduced and misrepresentation has increased.” It was predicted in another quarter that 2012 would see the exposure of a major FSC “fraud”.
Another factor that has served to depress sales prices of Chinese ply in the UK are dwindling freight costs. One specialist said freight rates had been slashed over a comparatively short period of time, describing them now as “ridiculously cheap” and “not sustainable”. Vessel owners would probably have to revert to idling some of their capacity in a bid to boost rates to workable levels, he added.
Another industry expert calculated that container freight rates from China to the UK had fallen from just under US$50/m³ to just over US$30/m³ in recent times and were “expected to fall further even further”. And he added: “The reduction in freight costs has basically wiped out any increases in FOB costs.”
Despite these issues, latest figures bear out how China has further cemented its domination of the UK market in 2011 – most particularly in the hardwood ply segment. From a 40% share of UK imports in the first eight months of 2010, the Asian giant achieved a 49% slice in the corresponding period this year when a total of 628,000m³ of hardwood ply (+11.9% compared to January-August 2010) arrived on these shores from all origins, latest statistics from The Timber Trade Federation (TTF) reveal.
As reported previously in TTJ, Malaysia’s share of the UK pie dwindled from 20% to 14% over the same comparative period. The country’s recent sales into the UK have been relatively low and forward prices have weakened by, typically, between 5% and 10% over the last three months.
A Malaysian specialist bemoaned the fact that too many UK plywood buyers were being seduced by a cheap price but suggested that supply of much of the poorer-quality material available at present would ultimately become “unsustainable”, thereby creating opportunities for properly certified plywood.
On the same theme, a distributor said that buying on price rather than on fitness for purpose was “the route to disaster”, adding: “People have got to learn to add value rather than to take value.”
Brazilian hardwood ply
Hardwood ply from Brazil, meanwhile, is proving very difficult to move in the UK market. One specialist said: “It’s being squeezed by Malaysia at the top end, and at the low end and in the middle by China.”
The latest TTF figures also show that Finland commanded 8% of the UK hardwood ply import market, as against 9% in January-August 2010, whereas Uruguay doubled its share in supplying more than 26,000m³ during the first eight months of 2011. “Flows to Europe will increase” from this latter origin in 2012 “as production is being ramped up”, TTJ was told this week.
China has also strengthened its foothold in the UK softwood ply market, accounting for 22% of the 311,000m³ imported in the first eight months of 2011, versus a market share of just 11% in the corresponding period of 2010. With shipments to the UK from all origins rising 10.2% in the year to end-August, the market shares of Brazil and Finland slid by nine and three percentage points, respectively, to 40% and 21%, according to the TTF stats.
Elliottii pine plywood prices have held relatively stable at decent levels in recent months when viewed on an FOB basis, with Brazilian producers’ order files said to be sufficiently healthy for them to be quoting earliest shipment in the second half of January. Demand for elliottii in the UK has been quite slow of late despite the fact that stocks are not considered to be excessive. Mills in Brazil have responded to poorer orders from many export markets by adjusting capacity and focusing more on sales into a relatively strong domestic market.
Considering extended downtime
Spruce plywood producers in Finland, meanwhile, are understood to be considering extended downtime around the Christmas holiday period owing to sluggish order files for December; however, sales for January are distinctly more encouraging, according to one contact. Prices were increased slightly for the fourth quarter but are unlikely to move again before the New Year, it was suggested.
Conditions for Finland’s birch ply mills are sufficiently more encouraging for operators to be aiming for normal shutdowns over the festive season. Deliveries are “certainly into the New Year” and order books for January are showing promise, TTJ was told. However, the same contact suggested that the economic climate allowed little scope for price increases at present.
Normal breaks for Christmas are anticipated in the Baltics where log supply remains good ahead of the onset of any serious winter weather conditions. Demand for plywood out of the Baltics has become less pressured only very recently following what has been described as “an exceptional 12 months”.
Price increases of typically 2-4% introduced at the start of October have been assimilated into the UK market – although no further hikes are now planned until next year. As in Finland, order books appear better for the first quarter of 2012 than for the final quarter of 2011.
