Towards the end of the summer, plywood was in short supply from almost every source – with even Chinese product said to be less readily available. In contrast, traders now identify a temporary oversupply of Chinese plywood in the UK market.
A pronounced “imbalance” had emerged in the UK between plywood from China and product from more traditional sources such as Indonesia and Malaysia, according to sources in the trade. Reports suggest Chinese plywood is being offered at “way below replacement costs”, partly because “there are now too many people in the game”. “There is still an overall shortage of plywood in the UK but people got a bit greedy with Chinese material and this has led to some indigestion,” said a source.
Certification was becoming an ever more prominent requirement among “smarter” plywood buyers but there was insufficient material to go round, TTJ was told. Nevertheless, the first question asked by a large proportion of UK customers remains: “What’s the price?” Some sources drew a connection between the price-led, speculative nature of the UK market and the fact that most Continental European countries were currently enjoying good plywood market conditions.
Chinese producers continued to increase their share of the UK market in the first eight months of this year, according to latest hardwood plywood statistics from independent analyst timbertrends. The Asian giant dispatched 165,200m3 to these shores over the January-August period compared to 108,700m3 during the same period last year – a jump of 52%. Malaysian plywood exports to the UK improved 12% to 111,500m3.
Of course, such growth has meant bad news for Brazilian and Indonesian exporters. The former saw shipments to the UK cut by 14.5% to 85,900m3 in the first eight months of this year while the latter sustained the most precipitous drop – from 57,000m3 in January-August 2005 to 27,500m3 in the same period this year.
Describing 2006 as “a very sad year”, an advocate of Indonesian plywood complained that the UK timber trade was “thinking with its wallet” rather than from any ethical standpoint. He added that the UK market was likely to remain largely a “no-go area” for Indonesian plywood until the UK trade “starts acting responsibly”; the UK government acts to stem the flow of “illegal” material; and action was taken to change the GSP system that favoured Malaysian plywood over that from Indonesia.
Another contact said that the UK “has got itself over-supplied with Chinese plywood” to the extent of “devaluing” the market. However, his company was encountering no problems in moving supplies of certified Malaysian plywood because many major buyers were prepared to pay more for “added environmental and quality assurances”.
“The big merchants have been taking the lead and we live in hope that the smaller merchants will follow,” he said. “At present, though, they have a passion for cheapness.”
Change unlikely
All experts agree that the tide of Chinese hardwood plywood exports is unlikely to ebb in the near to medium term, especially as several of the country’s commercial mills have obtained FSC accreditation and volumes have already been contracted for the UK. Some sceptics cast doubt on whether these producers would be able to show appropriate certification for their face veneers, while others questioned how much poplar would be available to the Chinese in the longer term.
Those companies responsible for bringing Chinese plywood into the UK acknowledged a “temporary indigestion” in the market. At the same time, however, they pointed to a slight improvement in Chinese plywood prices over the last few weeks. Freight costs from China were expected to drop in the near future as peak season surcharges disappear, although a renewed upward movement in rates is envisaged ahead of Chinese New Year in February.
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“ There is still an overall shortage of plywood in the UK but people got a bit greedy with Chinese material and this has led to some indigestion ” |
Despite these recent increases, the price differential between Chinese hardwood plywood is put as high as 40% to Malaysian material and around 20% to Brazilian supplies. Prices of Far Eastern plywood have remained quite firm over recent times although it was emphasised this week that levels can vary by as much as 5% depending on the amount of commission willing to be conceded in order to make a sale.
Prices of Brazilian hardwood plywood have held reasonably firm at levels below earlier peaks. Following a resolution of the severe logistics problems encountered during the summer, significant volumes have arrived in the UK recently and many buyers are now declining to place forward orders. “The UK is awash with material and nobody is buying at the moment,” said one contact. “Brazil’s producers haven’t had the chance to capitalise fully on problems with Far Eastern supply.”
Also hit by the logistics difficulties earlier in the year, Brazilian elliottii pine plywood prices remain low at the mills while exporters continue to face currency problems.
By contrast, northern European birch plywood prices are benefiting from strong demand and from extended lead times. Encouraged by these prolonged, favourable market conditions, several manufacturers are planning new capacity for 2007.
In Finland, some mills introduced price increases for the fourth quarter and further hikes are planned for early next year; one producer spokesperson said his company would be looking for increases in January of 7-10% depending on the specification. The country’s spruce mills are also claiming full order books until early next year, with talk of 4-5% price increases being introduced in early January. As a testament to the strength of demand, some spruce plywood producers severely curtailed their holiday shutdowns this year.
Traditional autumn weather has led to familiar problems in extracting logs from Russian forests. With the pulp industry prepared to pay higher prices for those logs coming available, the country’s plywood manufacturers are failing to match production to demand. Prices of sheets have firmed up to 15% over the last two months while squares have also seen price rises, albeit to a lesser degree. Lead times at the mills are said to be between four and six weeks.
UK demand has been quite strong and wide-scale inter-importer trading was reported this week. At the same time, sellers noted some reluctance among customers to meet the higher price levels. “We expect good business for arrivals in December and early January,” said one Russian plywood expert.
Latvian supply
Demand continues to outstrip supply for Latvia’s birch plywood producers who have continued to achieve upward price progression. Having raised its prices in October by 3-5% depending on specification, one supplier to the UK confirmed that further hikes of at least 10% would be implemented from the start of next year. Stocks in the UK are reportedly low, with many regular customers forced to look to other countries for their supplies.
According to a leading domestic manufacturer of OSB, the company was now “hitting break-even” on its production following a 5% price increase in October. Given the current strength of demand and the fact that lead times were out to between 10-14 days, the firm was likely to impose a further increase – again of around 5% – in January. He attributed the market’s robustness to two principal factors: intense demand from eastern Europe which has diverted a large proportion of Continental production eastwards; and a desire among many customers to buy an FSC-accredited product because of the concerns and negative publicity surrounding plywood supplies out of South-east Asia. Given these conditions, the same source suggested OSB buyers should act quickly to seal supply contracts for next year.
OSB production capacity was extended in the Czech Republic during the summer but, according to reports, there has been no difficulty in selling the additional volumes. Meanwhile, Kronospan has confirmed that a new, high-volume OSB line will be constructed shortly in Latvia and is scheduled to come on stream in the second half of 2007.
