Summary
• The UK plywood trade is less optimistic than it was at the start of summer.
• Chinese plywood prices have risen sharply.
• Heavy rain in Shandong Province has hampered deliveries of poplar logs.
• UK imports of softwood plywood rose 21.3% from January to May.
• Only very small quantities of Brazilian hardwood plywood have been imported into the UK.
• OSB demand was flatter this summer compared to last year.
• OSB prices are expected to rise in the final quarter of 2011.
Plywood trading activity in the UK has failed to achieve lift-off despite the holiday period drawing to a close. Whereas the start of the current month traditionally signals the end of the summer business lull, “September this year has come in with a real whimper rather than a bang”, one sector expert told TTJ.
In common with other contacts, he suggested that UK stocks of most forms of plywood are currently sufficient to satisfy demand for some weeks to come. As a result, companies with more inventory than they would like, including a number of agents, have been prepared to offer silly prices in order to offload volume, he claimed. “The mentality of the market has changed,” added another plywood trader. “Optimism is not as abundant as it was before the start of the summer.”
On the other side of the world, several factors have combined to precipitate a sharp upward movement in Chinese plywood prices, including: healthy demand; the rising costs of raw material, energy, labour and transport; and the strengthening of the domestic currency in relation to the ailing US dollar.
In addition, recent heavy rain in China’s Shandong Province, where many plywood mills are located, has hampered deliveries of poplar logs. “And they have been unable to peel any logs that were already in the veneer mills due to the inability to air-dry the veneers,” a local expert said. As a result, plywood mills are short of veneers and a number of them have closed pending an improvement in this situation.
The same contact also reported that, prior to the heavy rainfall, the north of China had experienced unusually hot weather, which placed an added burden on electricity supplies owing to greater-than-normal use of fans and air-conditioning units. Consequently, plywood mills in certain regions were forced to curtail production because of electricity rationing. Forward prices of Chinese ply may be on the increase but for the moment the UK is suffering from relatively high inventories, with the result that “importers are fighting amongst themselves to get whatever business is available and ex-stock prices are currently falling”, one expert said. “Forward purchases have been reduced, resulting in the large monthly break-bulk shipment from China tothe UK for August having been cancelled.”
Latest developments aside, figures from The Timber Trade Federation would tend to confirm the pre-eminence of China and the decline of Malaysia as suppliers of hardwood plywood to the UK market. The former’s share of UK imports surged from 33% in the first five months of 2010 to 46% in January-May this year, whereas the latter’s slice slid from 23% to just 13%. These percentages should be viewed in the context of an overall 9.8% increase in UK hardwood plywood imports to 343,000m³ in the most recent of the two five-month periods.
According to one industry veteran, Chinese plywood has become dominant at the lower, price-dominated end of the market, but its impact also extends to the top end, with its presence making it more difficult for Malaysia’s exporters, for example, to obtain a margin in the UK that amply reflects the higher quality on offer. At present, Malaysian plywood prices in this country are described as firm.
The January-May increase in UK hardwood plywood imports pales alongside softwood ply, imports of which soared 21.3% in January-May this year to around 189,000m³. Larger volumes were shipped from Brazil although its share of the UK import market actually dipped to 45% from 48% in the corresponding period of 2010. Once again, China was the major beneficiary as its share of UK imports leapt from 10% in the opening five months of 2010 to 18% in the same period this year. Specifically in relation to elliottii pine ply, major producers in Brazil took downtime immediately after the duty quota ran out earlier in the summer in what was seen as an attempt to bolster prices. Subsequently, FOB prices have remained reasonably stable although “very little buying” is reported from the UK, not least because stocks on this side of the Atlantic are generally sufficient to cover existing workloads.
Although it has been widely suggested that Brazilian producers cannot afford to lower their elliottii export prices because of the continuing strength of the domestic currency in relation to the US dollar, one expert added: “Mills in Brazil will be looking to ship before the end of the year and so we could see some price weakness ahead of the duty coming on again.”
As has been the case for some time, only very small quantities of Brazilian hardwood plywood have been making the journey to UK shores. Meanwhile, container rates from Brazil have fallen of late such that “they are now US$200 a box cheaper than they were two months ago”, one contact said.
As for plywood emanating from the Baltics, summer shutdowns have been completed and, despite the fact that mills are generally working flat out, lead times for deliveries to the UK remain extended, with one producer spokesman suggesting that his company was “pretty much sold out until the end of the year”. In contrast to many other forms of plywood, stocks in the UK are not plentiful, he added. According to one contact, Baltic product prices in the UK will have risen typically 25% over an 18-month period once a scheduled fourth-quarter hike has been implemented.
A reduction in product availability from Russia has put pressure on Finnish plywood producers, some of whom are not ruling out a price hike for birch ply. UK inventories are under pressure at a time when demand in this country is described as stable. One producer spokesman observed: “We are basically on allocation until the end of the year.”
According to a Finnish producer of spruce plywood, his company is “selling everything that we are making at the moment”. UK demand is currently holding up and stocks in this country are thought to be generally tight. A small increase in Finnish spruce plywood prices is envisaged for the fourth quarter.
Back in China, a large number of plywood mills closed in 2008, but there have been start-ups in outlying areas close to poplar raw material supplies and affordable labour. “Most of these mills are concentrating on redwood-faced poplar plywood production for target markets whose requirements are relatively big volumes of a restricted number of thicknesses, which are more economical to produce,” a local expert said. The UK tends to want a number of thicknesses in each shipment.
