For plywood coming out of China, Malaysia and Indonesia, FOB prices have held reasonably steady in the last couple of months – despite a push for increases by some Malaysian producers in particular as a response to log supply problems. For China, one local expert predicted that FOB prices "are not set to increase in the foreseeable future"; at the same time, the majority of sellers are offering no scope to negotiate lower FOB levels.
But amid this relative price stability there has been a huge hike in container freight rates, with a contact in the Chinese market reckoning the cost of a 40ft container has risen from around US$1,600 to nearer US$2,750. Exporters are "strongly resisting" this upsurge in rates but shipping lines are "remaining firm", even with large volumes. He added: "A number of exporters are now delaying shipments in the hope that the new rates will be reduced – especially as exports from China are currently in decline and demand for containers is relatively low," he said.
Freight rate impact
According to another contact, shipping lines’ efforts to increase freight rates by as much as US$1,500 per container "have impacted on plywood selling for August and September". Simply to cover the freight component, plywood prices will need to have been hiked by typically US$25 per m³. Adding yet more heat to the freight market has been the withdrawal of vessels following an incident in June in which a container carrier operated by Mitsui OSK Lines sank in the Indian Ocean after its hull cracked amidship.
Meanwhile, some plywood mills in China are working at reduced capacity because large numbers of workers have been heading home to gather in the harvest, often leading to a slight delay in shipments. Generally plywood mills were not directly affected by the severe flooding in central China but they have encountered difficulties not only in extracting logs from some plantations but also in drying the veneers once the logs have been peeled. "Some mills attempt to produce plywood using ‘wet veneers’ and hope that the hot presses used to cure the glue will dry the veneers," a local contact explained. "However, moisture in the veneers turns to steam during pressing, leading to glue failure and serious delamination. And while the problem is not always immediately apparent, the weak glue lines are usually found during cutting or further processing." As a result, he said, there should be a heightened expectation of "claims for delamination".
The Chinese market has continued to evolve in light of the EU Timber Regulation (EUTR) introduced in March. "With imported tropical hardwood logs used to produce face and back veneers having such a long chain of custody from forest to mill, it is absolutely impossible to secure all the relevant documents to comply with EUTR," said a Chinese market expert. As a consequence, some of the country’s mills were now "cutting out all the middlemen" by importing "either their own logs or their own veneers directly from overseas".
According to another contact, Chinese mills capable of producing to the EUTR standard are "vastly oversold" at present, leading to delays. Demand in the UK is currently low but "massive shortages" would be inevitable, he added, if orders were suddenly to pick up.
Timber Trade Federation (TTF) statistics reveal that UK imports of hardwood plywood were more than 12% lower in the first quarter when compared to January-March 2012, but that incoming volumes soared to almost 100,000m³ in April – the second highest monthly tally in the last two years. The upsurge, said the Federation, was "driven by a more than doubling of volume by China", while Finland too almost doubled its shipments to the UK. After four months of 2013, UK imports of Chinese hardwood ply were 6% higher year-on-year, giving it a 52% market share.
Chinese imports
For softwood ply, China more than doubled its exports to the UK in the first four months of this year compared with the same period in 2012. Taking into account all supplier countries, UK imports of softwood plywood were 11.7% higher than in January-April 2012 at 144,000m³, according to the TTF.
Although its share of the UK market has dwindled in recent years, largely on the grounds of price, Indonesian plywood is expected by some to witness improved fortunes. One contact believed that the EUTR would push some buyers in the direction of higher-quality board and that, as a result, growth in Indonesian exports to the UK could be expected this year.
A leading UK panel product distributor echoed these sentiments: "I believe Indonesian plywood has still got a role to play [in the UK market] and may make a bit of a comeback." However, he also acknowledged that China was likely to remain the majority supplier of hardwood plywood to the UK.
The latter contact also said he "wouldn’t be surprised" if Brazilian hardwood plywood featured more prominently in the UK in the future, even though very few mills were currently interested in this market because of the strength of domestic and nearby outlets, including the US. Similarly with elliottii pine plywood out of Brazil, volumes crossing the Atlantic are relatively low at present, not least because of healthy demand in the Americas; prices are described as "very firm".
As expected, Finnish spruce plywood prices have risen by around 4% since our previous report against a backdrop of "fairly full" mill order books and lead times drifting out as far as two months compared to the more normal four to six weeks for this time of year. Demand in the UK has been "reasonable" of late, prompted to some extent by reduced availability.
As for Finnish birch plywood, mills are reportedly sold out as far ahead as October – with lead times extended by a combination of summer production stops and "very strong" order files. In particular, the transport industry on mainland Europe has been purchasing more significant volumes of late. Price increases of typically 4-5% have been implemented on birch ply in recent weeks, with experts suggesting no further upward moves are now likely before the end of the year.
"Stronger-than-expected" demand has been reported in the UK for Latvian plywood, partly as a result of the lower volumes available to this market and customers making preparations ahead of summer shutdowns. Lead times have extended to, typically, 10-12 weeks at a time when stocks in the UK are believed to be quite low. Latvian plywood prices were increased in early May and a further climb of up to 5% is anticipated shortly after the shutdown period.
Producers look to close price gap
A recovery in the US market for OSB has reduced the volumes available for export to Europe, trimming supply at a time of "medium-to-strong" demand in the UK and in several Continental markets, according to a producer. Another OSB seller in the UK market said his business was encountering no problems in shifting the volumes available to him.
With lead times already out to three weeks, the former added, all the ingredients were in place for an OSB price increase of "up to 10%" before the end of the current quarter. He based this assertion on the lack of price progress in recent months; rising costs for producers, especially with regard to resins; and the price differential to plywood.
"The gap to plywood is too big," he said. "The industry can’t keep selling at these numbers. OSB’s value for money at the moment is tremendous." With the extended period of good summer weather assisting building activity across the UK, there is a widely-held view that OSB supply could shorten and that lead times could become even more extended heading into the autumn.
