Four months after the UK voted to leave the EU, the potential consequences of the referendum are still a subject of much debate and speculation.

The impact on sterling was immediate as it fell to a 31-year low against the dollar and it has remained around this level since June 23.

This in turn has, of course, raised the price of plywood, for which the UK relies entirely on overseas supplies. “In August last year the euro was 1.43 to the pound; now it’s €1.18 so it’s moved 17%. It’s something you can’t ignore,” one trader said to TTJ, adding that he didn’t expect sterling to rebound “any time soon”.

Another trader said that when prices dropped some buyers of Chinese plywood pushed for a reduction that was bigger than the exchange rate difference. However, now Chinese mills were trying to reinstate prices that reflected the exchange rate and nothing more, which was a good thing in terms of quality.

“In China price equals quality and if you push the prices down you’ll just get lower quality. The mills are saying to us they can continue to do lower prices but they can’t continue to do the same quality and that’s been reflected in a couple of shipments recently,” the trader said.

An importer said most of the increases were “quite sensible”. Most people understood the situation and accepted the new prices, and it was really just recovering what was lost when prices fell at the end of last year.

“Really the prices have gone back to where they were,” he said. This included the prices of Russian birch plywood and Brazilian elliottis pine ply which had fallen when producers were faced with weakening currencies and poor domestic demand. Another said that since the pound tumbled on June 24, plywood prices had risen by around 5% and would go up by another 5% purely to recover the dollar variation. After that it would be a matter of assessing demand.

“It really is a week by week process,” he said.

While acknowledging that the weaker pound could not be ignored, one importer/ merchant described the currency movement as “a relatively small change” when placed in a historical context.

“I can remember the pound being £1.05 to the dollar and I can remember it being £1.80 so I wouldn’t say it’s really taken a massive battering,” he said.

While the EU referendum’s effect on sterling and the share value of the likes of Grafton Group and Travis Perkins can’t be ignored, and the fact that housebuilding has stuttered since the EU referendum on June 23, which could impact demand for plywood formwork, for most traders it’s been matter of business as usual, at least in the short term.

“Brexit hasn’t caused any ripples in the market,” said one trader, and others agreed. However, the uncertainty that could result as the UK negotiates its exit from the EU could be more damaging.

“Once Article 50 is invoked it will take a couple of years to unscramble the uncertainties and uncertainty can create a slowdown,” he said, suggesting that at present people might be a little complacent about the mid-term implications.

“At the moment everything is probably going along quite nicely but, slowly and surely, people could pull the plug on new projects and start slowing down existing housebuilding projects. We could be sleepwalking into a difficult position.”

One product’s loss could be another’s gain and the weaker pound could make UK produced OSB more attractive. Of course some product substitution has always taken place but one trader believes “this could be where OSB really gets its foot in the door”. Ultimately, however, there would always be demand for plywood.

“Plywood is a massive commodity and masses of it will continue to be sold,” TTJ was told.

Currency and the UK’s EU place aside, most traders were satisfied with the current market and mills from Finland to China have been kept busy filling orders for the UK and Europe. “Demand really increased in May through to July. The market is a bit better for everybody,” an importer said.

Several traders commented that UK stocks were tight, with “not huge amounts of unsold stock around”, possibly because buyers were cautious in the lead-up to the EU referendum.

“In early July we heard that importers were giving stock away at very silly prices just to get rid of it and get some cash in,” said one contact.

With stocks low, as mills headed into their summer shutdowns lead times were likely to lengthen and product shortfalls were possible.

Added to this, container shipments from China – the largest source of hardwood plywood for the UK – were still facing some delays because fewer vessels were operating and now freight space has become competitive. In July this had pushed container costs up from US$800 to US$1,200 in just a few weeks.

In addition, some Chinese mills had to close briefly in July after the severe floods created some raw material supply problems and now some have reduced production to just four hours a day, from 6am to 10am, as the soaring summer temperatures make working in the non air-conditioned factories difficult.

Brazilian producers have continued to target the UK with their elliottis pine plywood and, according to the Timber Trade Federation’s statistics (see box) Brazil’s market share jumped by 28% in January to April this year compared with 2015.

“The Brazilians are keen to develop the UK market and I think it will continue,” said one contact. “They are probably at the forefrot in terms of certification and compliance so they have a good product. It’s a safe bet.”

Although one contact raised the possibility that trade might fall slightly towards the end of the year because buyers may have built stock, generally it is thought the market will continue much the same, albeit against the backdrop of a weaker currency.

“We’ve been through a major recession in 2009/10 and those that survived are here now. Companies will have to do what it takes to manage the new world,” said one contact.

“Once UK plc starts to get its mojo again perhaps we’ll see a rocket-fuelled climb. For the short term, however, pull your horns in. Keep calm and carry on; it’s not the time to be massively brave.”

Producers boost output

Latvian plywood producer Latvijas Finieris is building a new production hall at its Estonia-based subsidiary Kohila Vineer.

TTJ’s sister magazine, Wood Based Panels International, reports that Kohila Vineer’s operations will be expanded “by developing full cycle production of plywood and related products”.

The 17,000m2 facility will boost the subsidiary’s annual birch plywood capacity to 45,000m2.

The new building will have a timber structure made by Estonian engineered timber manufacturer Peetri Puit.

The project, which should be completed by the end of the year, takes Latvijas Finieris’ total investment in the Estonian plant over the past five years to €80m.

Spanish company Grupo Garnica Plywood also plans to increase production significantly over the next four years.

Garnica, which currently produces around 260,000m3 /year, will invest €60m in its five production sites to raise output to 400,000m3 by 2019.

It has production facilities at Logrono, Banos de Rio Tobia, Valencia de Don Juan and Samazan, and celebrated its 75th anniversary last year.

Q1 Plywood imports rise

According to the latest statistics from the Timber Trade Federation, during the period January to April the UK imported 23.3% more plywood compared with the same period last year.

Hardwood plywood imports were up 19.2%, thanks largely to higher volumes from China, Malaysia and Indonesia.

A 53% rise in Indonesian volume has given the country 4% of the UK market, although volumes remain well below those from Malaysia and China at 8% and 63% market share respectively.

Volumes from Finland and Russia also increased but the rise in imports from Asia meant their market share was unchanged.

Softwood plywood imports over the four months were 31.2% higher than in January to April 2015. There was a 30% drop in volumes from Finland and imports from China were down by nearly 50% but this was more than mitigated by an increase in product from Brazil.

Brazil’s market share grew by a massive 28% and the TTF says it may be even higher as around 4% of softwood plywood imports were recorded as coming from Malaysia but the shipments originated from Brazil.

“Such growth rates are seldom seen and these volumes are currently under investigation,” the TTF commented in its report.