Problems associated with a slow start to the new year for the plywood trade have been exacerbated by a number of difficulties at leading import destination Tilbury.
As reported in our January 19 issue, the liquidation of Harrison Logistics Ltd and Harrison Logistics Scotland Ltd had led to problems for timber importers using the Port of Tilbury, where a lien has been placed on all Harrison Logistics’ goods because of unpaid stevedoring bills. The affected cargoes are believed to include a substantial proportion of Far East plywood. As well as the hold-up of Far East plywood, which is causing cash flow problems to many, the port is also reportedly suffering from a container destuffing backlog mainly involving softwood plywood from Brazil. Space is said to be a problem at the port with one user suggesting that Tilbury officials ‘are screaming at us to get wood out – but not allowing us to get wood out easily’.
Several contacts said that manpower shortages at Tilbury may be adding to the problems at the port.
While this situation persists, however, it doesn’t look as though the market is about to run short of Far Eastern plywood. In fact, a number of contacts used the word ‘glut’ to describe the current market position. One importer suggested that, at a conservative estimate, there is ‘possibly three months’ supply of Far East material in the UK at the moment’, although perhaps not across every specification. Stock holdings appeared to differ substantially from one customer to another, it was also suggested.
Slow forward business
Firm forward offers to the Far East have been few and far between and shippers are understood to be struggling to pull cargoes together in this period of low activity.
‘We have been told that orders may have been placed but that it is not known when they will shipped,’ said one source. ‘It is hard for them to get full ships because of the poor weather in the region and because of Chinese new year.’
There were suggestions that, in the Far East itself, both the mills and the shippers are losing patience with price levels at which it has become almost impossible to make money. Towards the end of last year it was confirmed that a new joint marketing board was to be set up by the Association of Indonesian Wood Panel Makers (Apkindo) to support plywood prices (TTJ November 24). Scheduled to be launched this year, it is expected the new body will arrange the country’s plywood marketing by region to help avoid unnecessary market competition among producers, as well as offer advice to businesses on prices.
One leading industry player offered the comforting prediction that Far East plywood prices might be ‘about to turn the corner’ after plumbing record lows, not least because of supply disruption caused by holidays, weather and logging restrictions. At the same time, however, he acknowledged a price turn-round was unlikely to materialise before the early part of the summer, adding that some merchant groups ‘had got it terribly wrong on stocks’.
There is a general despondency hanging over the UK plywood market at present with some operators seemingly content to take business at any price – and below replacement cost in some instances. One experienced operator commented: ‘From an importer and distributor view, the marketplace is sluggish and all products are under a great deal of pressure because gross margins are way down.’ A change in the tone of the market was essential, he believed, if 2002 was not to become a year of widespread casualties in the plywood sector.
North American drought
The North American hardwood sales drought in the UK and Europe has continued into the new year with one leading agent confirming that ‘the statistics tell the story’. Latest figures from APA – the Engineered Wood Association, which cover the first three quarters of 2001, show that the EU as a whole took delivery of just 22,656m³ compared to 60,102m³ during the same period of 2000.
The UK was the leading EU buyer between January and September last year despite reducing its volumes by more than 75% from 33,120m³ to 8,005m³ over the two comparative periods. The Netherlands took 6,074m³ as against 14,619m³ in the first three quarters of 2000, while Germany’s total slid from an already lowly 5,598m³ in January-September 2000 to a meagre 2,821m³ last time round.
US construction
The same UK-based agent acknowledged ‘a slight rally’ in Sturdifloor and CDX sheathing prices since the beginning of the year because the mild weather in the US has been good for the construction sector and because there had also been major curtailments in production during the Christmas period. But despite remaining at generally low levels, US prices were still ‘15% too high’ to be able to compete with elliottii pine plywood, which has tended to dominate the early-year market because of the quota system.
An improvement in market conditions for US plywood was envisaged into the second half of the year given that many analysts are predicting that the US economic decline will have been halted by that stage. However, there seems little or no prospect of a major upturn in EU imports of these materials ‘unless Brazilian prices suddenly go through the roof,’ said an agent. ‘Only those customers who want to comply with BS 5268 Part 2 are paying the extra for US material.’
Elliottii pine plywood ‘is still flooding into the UK market and is still being used incorrectly on building sites for load-bearing applications,’ complained another source.
Of course, the plight of the Americans and the export of large volumes of elliottii to the UK has not meant a lucrative period of business for the Brazilian mills, with current market conditions termed variously as ‘a bloodbath’ and ‘a disaster area’. Producers are trying to engineer price increases on elliottii – not least because exchange rates have moved against them – but without any great success. Forward prices have shown some signs of upward movement but the same has not been reflected in today’s market levels. As one contact put it: ‘Every time we put our price up, we see the business getting done at the same level as before. The deals are becoming the market norm.’ There were suggestions from several quarters this week that UK buyers would remain disinterested in purchasing at higher prices so long as ample stocks were available in this country.
Finnish prices
Looking to other markets, Finnish plywood interests reported an easing in price of around 5% towards the end of last year for both birch and spruce plywood. Lead times for both were shorter to normal for birch plywood, while those for Finnish spruce plywood have come in significantly as a response to a dearth of orders. Finnish birch plywood, meanwhile, is under pressure not only from the Latvians but now increasingly from the Russians following the introduction of new capacity, resulting in some lower prices on regular boards in particular. According to one Finnish plywood expert, this situation has served only to reaffirm the local industry’s need to concentrate on specialised and added value products.
The news from Russia is of a slow start to trading in 2002, with lead times said to be relatively normal with shortages, if any, restricted to 6mm plywood for the export market. The domestic market remains relatively strong but there is still a shortage of rail wagons for taking timber to the ports. The prices paid domestically are generally higher than those available on the export market, although ‘hard currency is still an attraction for the mills’, noted one industry source.
Russian plywood prices are generally steady although some concern exists about how much longer the domestic economy might retain its strength.
Mushy forests
The Baltics, meanwhile, are understood to have experienced some supply problems due to ‘mushy’ forest conditions. The mills have been as keen as ever to push for price rises but a new factor is prompting them to redouble their efforts. With entry into the European Union becoming a rising agenda topic in the region, countries such as Lithuania are being called on to increase domestic taxation on, for example, oil in order to bring them into line with the rest of the EU. Higher energy prices will, of course, place more pressure on product prices and hence add momentum to the push for higher prices.
Returning to the Far East, Chinese plywood is continuing to arrive in the UK, with lightweight acume-faced material said to be developing a niche in the van lining, boat fitting and shopfitting sectors.
LP fire firms OSB price
It appears to be a case of ‘as you were’ in the OSB market despite what has been described as a ‘freak’ fire at Louisiana Pacific‘s Irish mill prior to Christmas. The plant was down for around six weeks and, according to one market observer, provided the market with a reason ‘to stop dropping prices’.
That said, price pressure is continuing to come on the UK during the traditionally difficult first two months of the year when the elliottii quota system sees the market ‘awash’ with competing Brazilian plywood.
Additional pressure is coming on the UK’s OSB producers from near Continent competition, with Belgium identified by one contact as the main source. As one domestic producer commented, some overseas manufacturers appear not to have got the message that the resistance among the UK domestic OSB producers to imported material ‘is strong and will remain strong’.
