Summary
• Chinese export tax incentives are expected to be cut to zero in early October.
• There is concern about the standard of some Chinese plywood coming into the UK.
• UK demand for plywood has weakened recently.
• Some mills are turning down UK orders in favour of better prices elsewhere.
• Last year European plywood production remained stable at around 4 million m³, although demand increased 5.2% to 4.5 million m³.
• The OSB market has been flat recently, following a period of healthy growth.

Plywood purchasing activity in the UK has been impacted by the threat of EU anti-dumping duties being levied on certain types of Chinese ply.

At present, the EU is giving no clues as to whether a 66% duty will be imposed on tropical red-faced poplar plywood and tropical hardwood-throughout red-faced plywood or whether the status quo will be maintained. With several procedural steps still to be taken, the duty will be imposed in December at the earliest and by February next year at the latest.

Despite rumblings to the contrary, the duty cannot be retrospective, a UK-based Chinese plywood expert told TTJ.

Some major UK importers have responded by ordering substantial volumes of Chinese plywood ahead of any duty being imposed, leading to prices described as “stable to weak” even though “costs going forward in China are rising dramatically”.

However, an increase of around 5% is widely expected to apply in early October when, it is rumoured, Chinese export tax incentives will be reduced to zero. This move had been expected in early September, but has been delayed.

Mounting concern

The market is already well stocked with Chinese product, but more is understood to be on the water or due to be shipped before the end of October. At the same time, there is mounting concern about the standard of some of the material entering the country: while most observers acknowledge that product for certain mills is of decent quality, it is feared that other material “will be sold for structural use when it is definitely not fit for purpose”.

One critic said: “The message is not getting through to builders merchants. And importers, in their passion for anything cheap, are prepared to buy anything.” In addition, accusations of misrepresentation have been directed at some plywood from China, which purports to be FSC-certified. Against this backdrop, demand from the traditional UK consumers of plywood has been relatively lacklustre in the late summer/early autumn period.

Figures from independent analyst, timbertrends, confirm China’s growing domination of the UK plywood market, even though shipments from Malaysia have also gained momentum. The UK imported 174,800m³ of Chinese plywood in the first half of this year – 78% more than the 98,400m³ brought to these shores in the corresponding period last year.

Malaysian imports surged more than 40% over the comparative periods from 78,600m³ to 111,800m³, according to timbertrends. At present, stocks in the UK appear adequate in relation to current demand, but some experts believe shortages may emerge in the coming months.

Brazil’s plywood exports to the UK suffered a small decline – from 60,200m³ between January and June 2006 to 57,800m³ in the same period this year. Currently, firm pricing levels are being maintained in the face of currency considerations and rising freight rates in which shipping costs have climbed around US$700 per 40ft container – or some US$15 per m³ – since the start of the year, including up to US$200 per box in recent weeks.

A Brazilian plywood contact commented: “There is a fair bit of Brazilian plywood in the UK market at the moment, but there is also the potential for tightness because of no forward buying.” There was nothing minor about the drop in Indonesian imports during the first half of this year: incoming volumes slumped from an already historical low of 25,200m³ in the first six months of 2006 to a meagre 11,100m³ between January and June of this year, according to timbertrends. UK imports of Indonesian plywood are now restricted largely to those volumes destined for specific, higher-value end uses, such as marine-grade ply and door-skin ply.

Overall, plywood production in Europe remained fairly stable last year at around 4 million m³ despite significant regional differences, it was reported at the fourth joint annual general meeting of the European Federation of the Plywood Industry (FEIC) and the European Panel Federation (EPF). Plywood demand in Europe increased 5.2% last year to 4.5 million m³. Wood availability was identified as the biggest concern for Europe’s wood-based panel producers. Tightness had been created by, among other factors, harvesting problems and “massive” log exports to China.

“Moreover, the new Russian export tax for logs threatens to increase the costs for wood even further in the near future,” noted FEIC.

Summer shutdowns

Staying with Russia, some of the country’s plywood mills elected to reduce their summer shutdown periods – in some cases, from a month to nearer two weeks. However, lead times remain relatively long at between four and eight weeks depending on the product.

Since the start of the summer, dollar prices of Russian plywood have increased by 5-10% across the entire product range, prompting a certain reluctance to buy at present in the hope that prices will fall with equal speed.

“But that won’t happen this time,” TTJ was assured by a regional expert. “There is no reason for prices to come down – it’s not as if supply is going to get any easier.”

There has been evidence of mills turning down certain orders from the UK “because they can get better prices” from other importing countries, such as Germany. Furthermore, mills are also more likely to snap up domestic business, not only because of the better prices on offer, but also because buyers pay up front.

OSB lead times are down from a peak of a month to one to two weeks

Across in the Baltics, supply remains tight and mills are operating short of their full capacity owing to timber and labour issues. Lead times have continued to grow, reportedly to 12 weeks on certain products despite some mills opting to reduce maintenance downtime during the summer months. As in Russia, plywood prices have remained firm.

In Finland, prices are traditionally pegged for several months at a time. However, regional experts are anticipating substantial birch plywood price increases – possibly 10% or more – from the start of next year against a backdrop of full order books. Mills are reportedly sold out for the remainder of 2007 although “a few pockets of product” are available from certain producers.

The supply situation for Finnish spruce plywood is only slightly easier: once again, mills claim to have orders to take them through to the end of this year.

TTJ was told this week: “Log prices are still high so producers will want to at least cover that in their price increases for 2008.” However, competition from other parts of northern Europe would probably keep spruce plywood increases below those of birch ply, he added.

OSB market

The OSB market has remained relatively flat over recent weeks following a period of healthy growth. According to a leading expert, purchasing levels from the

all-important timber frame housing sector were not as strong in the second half of the summer, but have shown limited signs of recovery in September. OSB lead times have duly shortened from a peak of more than a month earlier in the year to nearer one to two weeks at present.

Meanwhile, prices remain “firm to reasonable” although some imports of cheaper, “off-grade” material from the US have created “something of a two-tier market”, TTJ was informed. Limited volumes of OSB are also coming into the UK from the Continent, although not in sufficient quantities to disturb the apparently comfortable balance between supply and demand in the domestic market.

In terms of supply, the summer brought the start-up of a new OSB plant in Latvia under the Kronospan banner. Production capacity is estimated to be “greater than 20,000m³ per month” and “extendable”. It is thought likely that some – but not major – volumes from the new mill will be heading to the UK.

Looking back at last year, OSB recorded the strongest consumption growth among wood-based panel products, it was revealed during the recent joint meeting of FEIC and the EPF. European production climbed 12% to reach 3.5 million m³ while demand jumped 15%.