Industry specialists were struggling this week to recall a time when they had faced more challenging conditions in the hardwood plywood market.
There is a large volume of stock in the system and a general reluctance among UK buyers to build inventories. As a result, the trade has entered what was described this week as “dumping mode” in a bid to spark some cash flow, resulting in “hellish levels of competition”. One trader lamented: “The UK market is bent on suicide – on giving away the money it made last year.”
The situation owes much to events occurring towards the end of 2002 when Brazilian producers introduced price increases in response to improving Far East levels. Agents, importers and speculators bought substantial volumes in anticipation of further price rises but, as one contact put it, “the feeding frenzy quickly ran out of steam”. In an over-stocked market, Brazil has reacted by slashing around US$100/m3 from the price in a bid to encourage sales but, according to one expert, this approach “hasn’t helped them to sell another stick”.
Price recovery
The K14 list price had slumped at one point to -44 but has subsequently recovered to just below the -40 mark. The price differential between Brazilian hardwood plywood and Far East material has widened from its average of just over 10% to nearer 30-35%.
In general, the few buyers that exist appear prepared to pay only low prices. TTJ was told this week: “No-one is buying forward because it is cheaper to buy material off the ground.” At the same time, plywood market players are “losing money in spades because current prices don’t deliver a margin”.
Some industry contacts are anticipating the emergence of some large stock imbalances in the UK over the coming weeks and months, with even the possibility of difficulties in obtaining certain thicknesses. A shortness of supply has already been indicated in some quarters for 6mm, 22mm and 25mm material.
By comparison, the Brazilian elliottii pine plywood price has been stable over recent weeks, although experts agree on the difficulty in making money on what has become a commodity item. “People are treating it like a loss leader – something they can sell just to keep volume and money turning over,” said one trader. According to another, one major UK player has been accepting “silly” prices in the run-up to the end of the financial year in order to reduce stock and turn it into cash.
It almost goes without saying that these conditions have kept UK imports of North American plywood to a virtual trickle.
Far East supplies
The Far East picture has been dominated by the limited supply coming out of Indonesia. According to one regional expert, the country’s allowable log cut has dropped to around 20 million m3 in recent years and the figure mooted for 2003, following central government pledges to improve forest management, is around 6-7 million m3.
“The Indonesian government is trying to reduce the legal cut to the point where it is sustainable, while at the same time it is trying to prevent illegal loggers from flourishing,” he explained. Many UK buyers are complaining because they are unwilling to pay higher prices, and yet the “lousy” prices of recent years have been underpinned by illegal logging activities, he added.
For the moment, Far East hardwood plywood prices are said to be ranging between Indo96 list -19 or better for guaranteed delivery, high-quality material and -25 for lesser quality material and/or large customer deals. Most mills in Indonesia are said to be “driving towards prices between -20 and -22”.
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“The UK market is bent on suicide – on giving away the money it made last year” |
Log shortage
Across in Malaysia, meanwhile, a lack of logs has resulted in some mills operating at barely half their normal capacities. Some cut-price offers are said to exist where stocks are available, but the volumes involved are generally small.
First quarter demand in the UK has been unspectacular but there is still considered to be a real possibility of shortages in the months ahead. With shippers in the Far East struggling to fill their vessels, orders booked in February/March may not arrive in the UK until “well into the summer”, by which time gaps may have started to appear in certain thicknesses, it was suggested this week. According to one trader, tightness could be expected to emerge first in some of the thinner sizes – with 6mm and 9mm mentioned in particular.
“There is a real prospect of firming prices in the near term,” TTJ was told, “especially now that the reductions in log cutting in Indonesia are beginning to bite.”
Turning to the market for European-made plywoods, an approximately 5% increase in the price of Baltic and Russian material since the start of the year has been “reluctantly accepted” by the market place. However, sales have been adversely affected by the increasing unwillingness among many UK buyers to lay down stocks. “The pound has been quite strong against the US dollar – which is good. But forward buying has been more hand to mouth,” a regional expert explained this week.
Russian producers have been grateful for the continuing strength of domestic demand given that orders from some of their major export markets – most notably the US – have been decidedly weak in the first quarter. Meanwhile, UK birch plywood demand has been weakened by the downturn in a number of consuming sectors, most notably the furniture industry.
Ice surcharges
Baltic shipments continue to be affected by ice restrictions, with shipping lines imposing surcharges of £2-3/m3 out of Riga and Tallinn because vessels are still having to leave port behind ice breakers. As a result of these conditions, some vessels have been delayed while some of the smaller ships have been unable to get through at all. However, the low level of UK demand has meant no major impact on delivery times.
Finnish plywood contacts also reported ice-related problems even though no surcharges have been imposed at the country’s ports. The fact that shipments have been restricted to larger vessels has led in some instances to a build-up of material awaiting export. For the moment, delivery times on both birch and spruce plywood are averaging between five and six weeks, whereas three to four weeks would be more normal for the latter at this time of year.
UK demand for Finnish spruce plywood is said to be “flying”, not least because it constitutes a certified panel product that is more easily accessible than many rival materials. Traders point to its relatively “hassle-free” image as well as to the market gains it has made on the back of publicity surrounding BS 5268 Part 2. One supplier confirmed that his company would probably be looking for a “demand-driven” price increase of between £5-10/m3 in the spring.
Finnish birch plywood demand has proved reasonably resilient despite competition from lower-cost producers in Russia and the Baltics. Given that these latter two countries “dictate the market price to some extent”, Finnish producers are continuing to shift the emphasis of their own production towards adding value.
OSB prices
First quarter trading has failed to lift the gloom settled over the OSB sector, with one operator suggesting that already-low prices have fallen by a further 10% since the start of the year. He reckoned the “ludicrous” sales prices for OSB were effectively some 25% short of production costs. “Prices can only go one way now – but only because they have to,” he complained.
One of the effects of ever-lower OSB prices in the UK has been to reduce interest in this market among overseas producers, even though the depressed state of the giant German economy has cut their sales opportunities on the European mainland. While OSB demand across most of Continental Europe is struggling, demand in the UK is said to be slightly higher than in the corresponding period of 2002.
