Even one of the most optimistic voices in the Far East plywood sector acknowledged this week that the UK was ‘bobbing along the bottom’. Others were less charitable, describing the market as anything from ‘depressing’ to ‘the pits’.

However, according to one source, the trade sits on the threshold of a potentially major development following the announcement on October 9 that Indonesia is to reinstate a log ban. If the ban were policed, said one contact, it could become ‘one of the most important pieces of breaking news in the last two years’.

The key, however, is effective policing. If done properly, said the contact, increased prices for both raw material and finished product could filter into the market early next year once existing supplies have cleared. The measure should be ‘applauded from the treetops’ and would hopefully restore some much needed value to the plywood market, he said.

In general, the trade has taken news of the ban in its stride, especially since it prompted no immediate upward movement in prices.

Prices were described this week as generally weaker than in the late summer. However, it was widely hoped that the advent of the rainy season in the Far East might return some impetus to the plywood market.

The supply/demand balance in the UK has been tilted in recent weeks by the arrival of substantial quantities of plywood, particularly into Tilbury. There is also a strong trend of smaller vessels bringing plywood into smaller, less traditional British ports at highly competitive price levels. One importer also observed: ‘There are a lot of consignment stocks over here having a dramatic effect – and there are possibly more on the way.’ Deals were being done for volume and there was even evidence that the pre-Christmas ‘silly season’ had already kicked off as sellers attempted to sell at low prices for cash flow purposes.

Plywood has been flowing into the UK at a time when demand is even more hand to mouth than normal, despite signs of continuing robustness in the construction industry. The lack of upward momentum is widely blamed on a combination of late holidays, reduced confidence in the economy and uncertainty over the long-term impact of the terrorist attacks on the US.

US exports

The latest figures from APA – the Engineered Wood Association speak volumes about the problems faced by American exporters. Total shipments to the EU during the first seven months of this year failed even to match the amount imported by the UK alone in the first seven months of last year. A spokesperson said that 2001 had been, quite simply, ‘an appalling year’.

In more detail, the UK imported 7,873m³ in January-July 2001 compared with 24,613m³during the corresponding period of last year. The Netherlands received 5,965m³ as against 14,180m³ in the first seven months of last year, while the comparative figures for Germany were 2,546m³ and 5,328m³. In total, EU imports of American plywood just managed to break through the 20,000m³ barrier for January-July 2001, having exceeded 50,000m³ in the same period last year – and 2000 was an historically poor year for American plywood exports to Europe.

The market in the US is said to be ‘no better than holding’ but there appears to be little continuity to the flow of business. One contact reported the comment of a States-side friend who described the US market as ‘standing around kicking tyres’.

&#8220Plywood production in the Baltics is described as ‘steady’, with lead times said to be average for the time of year despite evidence of over-buying by importers around July ”

The decline in American plywood exports to Europe is attributed to three main factors: the relatively high lumber costs in the US; exchange rate disadvantages; and, by no means least, the availability of Brazilian elliottii pine plywood at far lower prices.

Elliottii competition

Finnish producers of spruce plywood have also been forced to contend with the impact of elliottii, with one contact suggesting that his own company’s prices were under pressure because of the estimated 30-40% price differential with the South American plywood.

As for the Finnish market itself, there are mixed messages emerging from the birch plywood sector. Some producers are said to be operating on lead times of less than two weeks while others are claiming to be enjoying healthy order books and have pushed out lead times to around a month.

Finnish birch prices have fallen during the year and further declines are not ruled out. One contact predicted that the price drop for the year as a whole would approach 10-15% and that, with Latvia providing stern competition, a further fall of 10% next year was possible. He confirmed that there was little robustness in any of the main markets for Finnish birch plywood, although the strength of sterling meant that UK orders still offered better returns to the mills than other importing countries.

One source said of the UK market: ‘The phones went dramatically quiet after September 11 but, in the end, people just get on with business.’

Another contact in the Finnish birch plywood sector confirmed that the main market of Germany remained lacklustre and that competition from Latvia and Russia was becoming ever more intense as new capacity was brought on stream. Against this backdrop, Finnish producers were moving increasingly in the direction of product and specification innovation, he added.

Finnish spruce plywood is said to be experiencing price pressure because of reduced demand and the price differential favouring elliottii pine plywood. This pressure is expected to grow, given that the duty is scheduled to come off the Brazilian plywood in January. Demand from Continental Europe is reportedly ‘hopeless’ although the UK is still believed to be taking reasonable quantities of board.

Plywood production in the Baltics is described as ‘steady’, with lead times said to be average for the time of year despite evidence of over-buying by importers around July. August had consequently been quieter than normal but this proved to be only a temporary blip. The mills are keen to obtain price increases but levels appear to be remaining steady.

In Russia, the strength of the domestic economy is continuing to have an effect on the plywood market. Lead times have lengthened in some instances because of strong domestic sales, while internal transport of all goods is proving problematical because of the lack of sufficient rail wagons to cope with demand.

Home market prices in Russia remain higher than those for export. According to one regional expert, the plywood mills would like to raise export prices ‘but they are not in a dominant position’ because of the ‘whip hand’ held by producers in the Baltics and other eastern states such as Belarus.

&#8220The phones went dramatically quiet after September 11 but, in the end, people just get on with business
”

Competition from Brazilian material on the lower grades had also made it difficult to push prices higher, he added.

Also on the downside, it was suggested this week that a reduction in demand from the US could mean ‘the bubble may be about to burst’ for Russian producers. ‘They [the Russians] are certainly more receptive to offers from others now,’ TTJ was told.

Elliottii pine plywood remains a deeply controversial issue within the UK plywood and OSB sectors. Nexfor‘s marketing and sales director Maurice Fitzgibbon has been in contact with the government about inappropriate use of the product in structural load-bearing applications. He confirmed this week that he had been disappointed by the response from the Department of Transport, Local Government and the Regions and that he had now placed all correspondence on the issue in the hands of the Timber Trade Federation so that the matter can be taken forward on an industry-wide level.

Mr Fitzgibbon said the matter was certain to be pursued given a growing consensus in the industry that ‘we need to expose the cheats’.

APA – Engineered Wood Association has continued to wage an education campaign on building control officials and architects concerning the use of non-complying plywood in load-bearing applications. But as the more cynical members of the trade have observed on numerous occasions, the most important issue for many UK buyers is not safety but rather ‘price, price, price’.

While elliottii pine plywood is making all the headlines, the news on hardwood plywood from Brazil is that mills are demanding higher prices but meeting resistance from the market. Producers are eager to attract the cash but are proving generally unwilling to conduct business at low levels. In general, Brazil is having to endure a poor domestic market exacerbated by a reduction in demand from the key US market and from neighbouring Argentina, which has been hit by currency problems.

For the UK’s OSB sector, concerns over the availability of cheap elliottii pine plywood have been tempered by the fact that prices appear to be on the way up. Levels have risen by around 10% in recent weeks, while the influence of French producers on the UK market has diminished, with their production said to have come more into line with market conditions. There were suggestions of downtime having been taken in the OSB market – described by one source as ‘a new phenomenon in Europe’.

Price rise?

The general view is that the new OSB prices will be sustained but that no new increases are anticipated before the end of the year. That said, one manufacturer believed the next price rise could be as early as January on the back of ‘good order files’. Low prices throughout the year had enabled OSB to break into new applications and this trend towards product substitution was running well ahead of expectations, he said.

Asked whether the general economic downturn was likely to dampen any OSB revival, one leading contact in the sector suggested it was ‘too early’ to comment, before adding wryly: ‘We have had our recession in the panel industry for the last three years, so this is nothing new.’