The majority of plywood traders appear to have received an encouraging welcome back to their desks following the festive period, with orders and enquiries attaining decent levels in the first couple of weeks of January. However, demand lost some of this early momentum after the middle of the month.
Among the early headlines for 2006 was an approximately US$10/3 drop in the price of Brazilian elliottii pine plywood, although some experts say the product has subsequently shown signs of firming on the back of renewed buying interest from the Americans. Nevertheless, from the UK perspective, elliottii is struggling to remain a viable proposition. “We have not bought any this year because it’s not worth it when you take into account the costs of distribution and of running a business,” TTJ was told.
Meanwhile, Brazilian hardwood plywood producers are continuing to be squeezed by the lower prices on offer from China. Mills are said to be resisting downward price pressure simply because of their own spiralling costs.
As for plywood of Asian origin, the European Federation of the Plywood Industry (FEIC) has expressed its continuing concern about the increasingly severe impact of foreign competition and, in particular, the growing “market distortion” created by imports from China. While Europe’s imports from Brazil, Indonesia and Malaysia declined in the first eight months of 2005, deliveries from China soared 131% from 144,0003 to 333,0003. Imports of okoumé plywood continued to drop, while the volumes of other tropical plywood – and in particular broadleaved plywood – achieved strong growth. In addition, coniferous plywood imports from China were becoming more important, according to FEIC.
Surveillance
The FEIC board was particularly concerned about an “unsatisfactory quality situation” on the British market. It is therefore looking into establishing a market surveillance group to check the plywood imports more thoroughly and frequently. FEIC observed: “One of the problems is that the CE marking is not compulsory in the UK for applying plywood in construction. The fitness for purpose in accordance with the British Building Regulations and the EU Construction Products Directive may also be proven by other means.”
The proposal has drawn a mixed response from a UK market which has increasingly become a magnet for Chinese plywood. Latest figures from the independent analyst Timber Trends show that UK imports of Chinese plywood soared almost 70% in the first 11 months of last year – from 91,0003 in January-November 2004 to 154,0003 in the corresponding period last year. By comparison, Brazilian imports fell by 22% from 175,0003 to 138,0003 and Malaysian deliveries by 17% from 163,0003 to 135,0003. The most dramatic decline, however, was reserved for Indonesian plywood imports, which slumped almost 43% from 121,0003 to 68,0003.
It was towards the end of last year that Greenpeace produced its report alleging illegally-logged timber from Papua New Guinea was being processed in China and then sold to the UK in plywood. One UK company heavily involved in bringing Chinese plywood to these shores acknowledged that the report had dampened demand initially but that many UK users were still keen to obtain the bintangor product “because they have grown to like the quality and the price”. However, his company was looking to source alternative species and to establish the firmest possible chain of custody.
Chinese plywood prices
Chinese plywood prices have remained relatively static over recent weeks but UK orders have made a slow start to 2006 owing to a temporary glut in supply. In effect, said one source, “three months’ stock arrived in the space of three weeks” towards the end of last year. However, experts believe the volume of plywood shipped from China to the UK will be higher in 2006 than in 2005, not least because other importers “are jumping on the China bandwagon rather than lose business”. Furthermore, China’s development as an exporter of value-added products – such as film-faced plywood and medium density overlay ply – is expected to continue apace.
The competitiveness of Indonesian imports has been dented not only by the 20%-plus price differential in favour of Chinese plywood but also, it is claimed, by the EU‘s decision to set duty at 3.5% for Malaysian plywood as opposed to 7% for both Indonesian and Chinese product. BB/CC plywood is currently attracting prices around Indo96 list +2 or +3, but mills say this level means they can’t compete with China or cover their own rising costs. Meanwhile, Malaysian plywood prices are said to range between -2 and -7.
Indonesian mills are faced not only with increasing labour and production costs, but also with mounting problems in securing logs. The chairman of Apkindo was recently quoted as suggesting that it was now harder to move logs than drugs around the country because of the stringency of the controls. This combination of pressures has led Indonesia’s reduced number of plywood producers to hold firm on their prices.
Unlike many of the world’s other plywood manufacturers, Finnish producers have enjoyed positive market conditions in recent times. UK demand for Finnish spruce plywood has maintained its strength into 2006 and prices remain firm, although at least one major manufacturer has opted to monitor market developments throughout the first quarter before deciding whether to impose any further price increases. Lead times are put at around eight weeks.
Lead times
Lead times for Finnish birch plywood are marginally shorter while demand is said to have softened slightly owing to slow uptake from Europe’s industrial sector in the early weeks of 2006. As with spruce, birch plywood prices have continued to be firm, with any price movements likely to be upwards.
European Panel Federation statistics reveal that OSB production increased by 3% in the first nine months of last year. However, the momentum behind this growth was provided mainly by export rather than domestic European sales; notably, shipments to North America jumped 11% during the first three quarters of this year. Prices in the US – where demand has been underpinned to some extent by repairs relating to last year’s hurricanes in the Gulf Coast region – are around 15% higher than those available in the UK. As a result, a number of European mainland producers have been focusing their sales efforts on the other side of the Atlantic.
Still losing money
UK prices increased by around 5-6% in January and, according to one manufacturer, further hikes of between 5-7% are anticipated before the end of the first quarter although this would still leave the price short of last summer’s levels. “This is the first increase for some time but everybody who is making OSB is still losing money,” TTJ was told. A further 12.5-15% increase would be required to deliver “a reasonable return on assets”, particularly in view of the rising costs of energy, distribution and raw materials such as glue.
2006 was unlikely to prove a stellar year for OSB unless there was a “considerable” improvement in prices and demand, it was added. Another producer argued that European demand was reasonably good but that the 2006 outlook for domestic manufacturers would depend on the extent to which the US absorbed Continental production.
