Summary
• Plywood buyers are putting pressure on suppliers for deals for 2009.
• UK sales prices for Brazilian elliottii plywood are 5-10% below replacement cost.
• Malaysian prices are the most stable in the market.
• UK plywood stocks are adequate for current demand.
• OSB producers are operating at break-even at best.

In our previous plywood and OSB report, written in late-August before the global banking crisis, we were already highlighting a lack of enquiries and new orders. Two months later, the reluctance of UK buyers to commit to volume – let alone substantial volume – has become significantly more entrenched. Experts now divide neatly into two camps: those who see no demand improvement in the foreseeable future; and those who believe “the rule book has been thrown out the window” and that any predictions are therefore fundamentally unsound.

“The biggest factor in the UK and European markets at the moment is fear,” said a UK importer. “Stock is becoming a liability. Stock reduction is running ahead of demand reduction and, as we run into autumn and winter, we will see some shortages. The trade has still got some buying to do before the new year.”

With construction in the doldrums, plywood buyers in the merchant sector are putting pressure on their suppliers to come up with competitive price arrangements for 2009.

Elliottii stocks

UK sales prices of Brazilian elliottii pine plywood continued to slide during the first half of October and, at the time of writing, are said to be between 5-10% below replacement cost. According to some contacts, a lack of forward buying has resulted in a noticeable dip in stocks of some thicknesses, especially 12mm. However, others say that recent arrivals into the UK should ensure that no serious supply gaps develop at a time when, in any case, hardly any buying activity is being registered.

Softwood plywood mills in Brazil are said to be “desperate” to offload inventory, not least because demand is so flat from the US market on which it has relied heavily for many years. The country’s hardwood plywood mills are similarly keen to sell but their prices are not at levels that are attracting significant business on this side of the Atlantic.

Mills in Malaysia are enjoying more stable prices for their product when compared with most suppliers into the UK market, not least because of pockets of reasonable demand, especially from some of the Pacific Rim nations and the Middle East. Supply of logs in Malaysia remains difficult and is unlikely to improve as the country heads into its rainy season. Meanwhile, stock levels in the UK appear adequate in the context of current demand. “End users are saying that they are OK for material until January, when normally they would now be putting on at least some bits and pieces,” said one UK trader.

Chinese plywood

Said to be trading largely “sideways” in price, good-quality Chinese ply is continuing to benefit from a significant price advantage compared with the Malaysian competition.

Following ongoing consolidation in China’s plywood production sector, many of the country’s remaining mills have been keen to book business. “I get unsolicited emails from China every day telling me how wonderful their plywood is – they must be desperate for orders,” said one trader. Another source said that, despite the closure of many of the smaller to medium-size mills in China, some of the producers of what is widely regarded as poor-quality plywood remain very active. “We are still seeing thinner and thinner faces coming through and there are still some serious question marks over glue,” he said. Worse still, he added, the reputation of Chinese plywood in general was being further undermined by many customers responding to the downturn by choosing “the cheaper option”.

On the same subject, a leading UK-based distributor said this week that the gap between the top and bottom end of China’s plywood product offer was continuing to narrow. “If people are going for Chinese plywood, they generally want to make sure they get the best quality available,” he said.

Finland suffering

For so long a demand juggernaut, Finnish plywood is also feeling the effects of the global downturn and producers are now in the market for new business. Whereas lead times had drifted out as far as two to three months not so long ago, availability has come in to two to three weeks on the country’s spruce and birch plywood. As regards the former, UK demand is said to have fallen – albeit “only slightly” – in recent weeks as a response to the substantial volumes of stock available on the ground in the UK. On average, prices appear to have dropped around 5% since the start of September.

Over recent years, Finland’s birch plywood producers have been focusing on adding value and have insulated themselves to some extent from the decline affecting other parts of the sector; even so, prices are said to have fallen 5-10% over the last two to three months.

Finnish plywood experts in the UK are anticipating no improvement in prices or overall demand before the start of next year at the earliest. But in a period when optimism is in short supply, it is worth noting the following comment from one of them: “The market has gone full circle but it will come back – the cycle will continue.”

Falling Russian values

The price pressure on Finnish birch plywood mills has been mirrored by falling values elsewhere, notably on Russian material. Several experts predicted that Russian plywood prices had probably reached their floor, with one saying: “I can’t see them going any lower because, even then, they wouldn’t sell any more material.” Indeed, there have been rumours that Russian plywood prices could be about to buck the general trend and move upwards.

Trading in Latvian plywood has also remained “subdued”. With markets throughout Europe and beyond presenting reduced sales prospects, “mills have capacity available if they need it and availability of raw material is not an issue”, TTJ was told. Lead times have dropped from between three and four months at one point last year to nearer three weeks at present. As a result of this improved availability, forward ordering has all but dried up. “Everybody is looking to keep their stocks as low as possible to keep down the costs of financing,” one contact said.

Latvian producer prices have remained largely unchanged of late, not least because of rising labour, log, energy and transport costs. “After being pushed higher in the first half of this year, costs of shipping plywood have remained at quite high levels because of a lack of vessels out of Riga,” a UK-based contact told TTJ.