The plywood industry has grown accustomed to the odd false dawn where price increases are concerned. However, the almost universal reaction to the latest surge in Far East hardwood plywood prices is that there appears to be little likelihood of a rapid reverse.

From a low of Indo96 list -35 not so many months ago, price levels have soared to at least -15 with some mills offering as high as -11 to -13 for end August and early September delivery. For most UK observers, the question is not if, but when, the price will hit Indo96 net: most anticipated that would be achieved by early next year, but some are even daring to suggest it will be reached well before the end of 2002. Only a couple of contacts believed that prices might now stabilise below the net threshold.

Remarkably, this price juggernaut has begun to roll at a time when demand in the UK and many other major markets has shown only small signs of improvement. The fuel has been provided instead by ever-tighter control of the supply pipeline, exacerbated by the fact that, for some considerable time, a large proportion of buyers have been choosing as a matter of policy not to lay down extensive stocks.

Governments in the Far East have begun a campaign of tight harvesting controls and a clampdown on illegal logging. In Indonesia it is envisaged that logging may be cut by anything between 40-50% compared to last year, and as a result mills are struggling to obtain raw material and some closures appear inevitable. The Malaysian government too is exercising tighter control of logging activities.

Approval and panic

The reaction to these events in the UK has been a mixture of warm approval and panic. The trade has been encouraged by the fact that value has begun to return to the Far East hardwood plywood market and that there is more scope for increasing profit margins. At the same time, there are worries over the dearth of available material in the UK and over the fact that there is little likelihood of an end to this shortage in the near term.

With South-east Asia’s rainy season set to start around September, the UK market was likely to remain in short supply “right up until the new year,” predicted a contact. “It has taken more than three years for the trade to de-stock, so how long is it going to take to re-stock?”

There is evidence that some buyers have held off in the expectation that the plywood price hike would be followed by a crash, as has happened in the past. However, as one contact put it: “For the last four or five years, everyone has been enjoying ridiculously cheap Far East plywood prices, but all that is coming to an end.” We are witnessing “a new reality”.

According to several sources there is likely to be increased interest in Chinese plywood, despite concern about its thin veneers and glue lines.

Clearly aware of the rapidly rising prices for Far East hardwood plywood, producers in Brazil have responded with some major hikes of their own. The K14 list price had stood at around -35 several months ago but is now closer to -14.

Competitive position

The price of elliottii pine plywood may be on the increase but this has done little to improve the competitive position of North American plywood in the UK market given that, at the start of the summer, Sturdifloor had an estimated 20% price differential to make up on the Brazilian material.

In Russia, demand for plywood remains extremely strong and prices available on the domestic market are continuing to outstrip those for export. Mills are often keener to sell internally within Russia because payment is generally available up front.

Russian plywood prices are generally firming and producers have also been aided by an export tax reduction. Lead times are around six to eight weeks, with thinner material said to be more difficult to obtain.

In Finland, mills reportedly achieved a healthy level of order bookings for the holiday shutdown that will last into August.

Elsewhere, there has been mixed news for the UK’s OSB sector. On the upside, prices have continued to rise steadily into July, with one leading industry figure anticipating another slightly larger increase – of possibly 4-5% – before the end of the third quarter.

On the downside for OSB, there is growing concern in domestic circles surrounding the influx of allegedly unmarked product from Bulgaria. It has been exporting OSB2 material to the UK for some time, but the recent appearance of a keenly priced OSB3 material has set the alarm bells ringing.