Supply disruption and rapidly-rising prices have made the first quarter of 2004 one of the most dramatic periods in the recent history of the plywood trade. Prices of tropical hardwood from both the Far East and Brazil are estimated to have risen by more than a third over the past three months, with every indication that this will be no temporary blip.

Far East hardwood plywood was priced at around Indo96 list -18 to -19 in the run-up to Christmas but, by the early days of March, it was generally said to be fetching +5 to +10, although even higher levels were reported by some contacts this week. However, with some cheaper material still to arrive from the Far East, one contact described these as “dangerous times” given the price differential involved.

This stupendous increase is attributed to a shortage of logs created by adverse weather and by the clampdown on illegal logging, as well as to rising freight costs and to the general shortage of vessels resulting from China’s seemingly insatiable demand for raw materials of any description. It is understood that a significant number of mills are not even making offers at present because of the lack of logs.

The surge in Far East hardwood plywood prices has had a knock-on effect on competing Brazilian material. Again by early March, the K14 list price was generally put at between -7 and -2, although net was claimed in one or two instances. Once again, reports suggested that many mills were simply running out of logs.

While UK demand for hardwood plywood has been reasonable rather than buoyant, the supply issues have sparked a flurry of inter-importer trading “because they are all terrified of being caught short of material”. The impact on the merchant and consumer sectors has been far more mooted to date because of the insulating effects of currency exchange rates. “Prices at the merchant end are progressing north at a very slow rate compared to forward buying levels,” it was suggested by one operator. Another warned: “Merchants and consumers are in for a big shock. I think these prices will be sustainable at least in the medium term.”

Seller’s market

Buyers may gasp on hearing the latest price levels but, according to one seller, “they may as well buy now because it will almost certainly cost them more next week”. One leading UK plywood trader commented: “I see no reason why these price levels can’t be sustained. We have been at these levels before but, since that time, our costs have moved on. We are certainly not getting ahead of ourselves.”

Another contact agreed: “If you have plywood, you are in the driving seat. It has become a seller’s market for all types.”

The price of Brazilian elliottii pine plywood has also skyrocketed. Prices that had been lagging below the US$200/m3 level during the course of 2003 had escalated to well over US$300/m3 by early March. From the UK perspective, little volume has been bought forward or is on the ground. Several contacts warned that these high elliottii prices were entirely dependent on continuing strong demand from the US; if this declined to any significant extent, more material would become available for export elsewhere and the present price levels would come under severe pressure.

For the moment at least, the American market is booming: housing starts are running at almost the 2 million mark at a time when no major structural panel capacity is due to come on stream in the near future. In terms of domestic plywood production, the Sturdifloor price was not far off US$900 per thousand bd ft in the first half of March. It would seem, therefore, that the Americans have been prepared to pay extra to secure a large share of the elliottii pine plywood that becomes available, and is also buying sizeable volumes of Chilean radiata pine.

Finnish producers have been expected to capitalise on these high elliottii prices. A spokesperson for one of the country’s spruce plywood manufacturers confirmed that lead times had moved out as far as August and that, despite no significant price movements in the first two months of this year, increases were now planned for both March and April. Meanwhile, lead times on Finnish birch plywood are between four and six weeks.

&#8220Prices at the merchant end are progressing north at a slow rate compared to forward buying levels”

Shortages of Far Eastern hardwood and Brazilian hardwood/softwood plywood have already begun to emerge across the board in the UK. “It’s been a case of getting what you can get,” TTJ was told this week. “It’s a case of whether the mill has got the logs and can ship it on time.” Against this backdrop, it comes as no surprise to hear stories of contracts becoming subject to reneging and re-negotiation. One operator said: “We are not offering anything until we have got the plywood in the port and it has been cleared.”

While buyers may be greeting these elevated prices with a sharp intake of breath, leading sellers in the UK are happy that significant higher values have returned to the plywood market and hope that the benefit of these higher prices “extends all the way back down the supply chain to those that need it to make it sustainable”.

Alternative supplies

One of the side effects of these price increases has been to push buyers towards alternative sources of supply. One commented: “We are looking to buy in the short term from Europe – western as well as eastern – so that we have something available.” Perhaps unsurprisingly, dramatic price developments have also been reported in relation to plywood from CIS countries and the Baltics. Major shortages of the grades favoured in the UK have helped to push up US dollar-quoted prices by some 10% since the start of the year. Exchange rate fluctuations have ensured a more mooted impact in sterling terms although prices seem set to rise higher still for UK buyers. As one regional expert explained: “Log quality out there is very high at the moment and so they are peeling more high-grade veneers rather than the lower grades used in the UK.”

Some plywood factories in the region are experiencing such strong domestic demand that they are not prepared to offer at all. Meanwhile, the Klaipedos Mediena mill in Lithuania has reduced its squares capacity by 75% and is installing equipment to produce 8×4 plywood sheets in the hope that this will prove to be a more lucrative business. This new large sheet capacity is expected to come on stream by the spring.

Also from the supply perspective, ice-class vessels are now required to operate to and from the ports of Riga and Tallinn although, by early March, there had been no moves to introduce the ice surcharges seen during last year’s particularly severe winter.

CE marking

On a general note, many plywood and OSB contacts noted ongoing concern surrounding CE marking, despite the fact that only weeks remain before the April 1 deadline when it becomes a requirement on all wood-based panels in order to conform to safety demands laid down in the Construction Products Directive. According to an OSB producer, the CE issue is “still causing mass confusion”.

As for the OSB market itself, prices have been given momentum by the strength of demand both in Europe and in the US, which has been boosted to some extent by the short supply of plywood. Some OSB product values have effectively gained 40% since last summer and further, significant increases are predicted. According to a leading OSB producer, “double-digit increases are on the way from April”. He added: “We are on allocation and have no spare capacity. We are taking business for June.”