The current state of the UK plywood business is perhaps best summarised by the often-heard phrase: “the phones aren’t ringing much”.
The summer months are traditionally quieter but plywood experts are clearly concerned about a lack of impetus as the trade heads out of the holiday season. In general, the only people to adopt an upbeat tone this week were importers of Chinese plywood and those people involved in the birch plywood business.
Latest figures from independent industry analyst Timber Trends confirm the growth in UK imports of both Chinese and Malaysian plywood. Imports of the former jumped from 18,800m3 in the first five months of last year to 49,000m3 during the same period of 2005; market share increased over the two comparative periods from 6% to 15%. Meanwhile, UK imports of Malaysian plywood soared by more than 35% from January to May this year to 64,600m3.
By contrast, Indonesian imports fell 29% over the corresponding periods to 38,600m3, while Brazilian plywood suffered a 13.9% fall in its UK sales – from 78,900m3 in January to May 2004 to 68,000m3 this time around. The reduction in Indonesian exports to the UK reflects pressure on producers from government and environmental bodies to provide evidence they are buying legal logs – a clamp down that has been followed by the closure of many of the country’s mills.
According to some regional experts, UK stocks of Far East plywood are generally quite low due to a lack of forward buying, and so any upturn in demand could lead to shortages in some key thicknesses, including 9, 12 and 18mm. At present, however, UK purchasing activity remains limited on a forward basis, partly because buyers have responded to a slight drift in prices with a ‘wait-and-see’ approach.
Some Far East producers have been responding to the high costs of logs, glue, transport and freight with attempts to push up prices. One UK contact said: “We should be seeing higher prices but, at the moment, some mills are just hungry for business.”
As for Chinese plywood, the market has continued to expand on the back of prices that are substantially cheaper than rival products. “Our volumes are going up all the time,” said one importer. “As well as sales of poplar core, we are also seeing more demand for Chinese softwood plywood.”
Divided opinion
The poplar core product continues to divide opinion within the UK plywood sector. One side argues that Chinese plywood from reputable mills satisfies the requirements of a host of applications; the other side points to the variability of Chinese material and raises questions about overall quality and glue lines/bonds, while also alleging examples of misrepresentation. Describing the impact of Chinese imports, one source said: “In the past, buyers knew the names of individual mills because they had a certain reputation. Now with the Chinese in the market, buyers are being deluged by offers that are hard to compare with each other.”
The strong growth in competitively priced Chinese imports has forced Brazilian material on to the back burner, given that large segments of the UK trade will always buy principally on price, according to several plywood industry experts. The current price differential between Chinese plywood and Brazilian combi is put at around 10%.
Prices of both Brazilian hardwood and softwood plywood have increased in recent weeks. In the case of the former, exchange rate movements and delays in the issuing of cutting approvals have created widespread availability problems. “Many mills have either shut down or are considering closing,” said one source. “They can’t get the veneers and they can’t make money.” In the UK, the larger importer groups in particular have responded to this tight supply situation by increasing their buying activity.
Subject to a relatively broad spread of prices at present, Brazilian elliottii pine plywood has been affected by currency movements, further increases in production/freight costs and a slight increase in demand/prices from the key US market. Notably, container line Grimaldi recently announced a US$5/m3 surcharge increase to take account of upward oil price movements.
Although many areas of the plywood business are subdued, now is undoubtedly a good time to be part of the Finnish birch plywood industry. Mills appear to be sold out for much of the remainder of the year, thanks in part to some mild signs of economic recovery in the key German market. The spokesman for a major producer said: “We can’t really offer any material until December. If we did, it would have to be business that was too good to lose and for specifications that were good for us.” Finnish birch plywood prices appear to be on an upward spiral which, according to leading analysts, is likely to persist into 2006. The same producer contact added: “It has been a fantastic year for the mills.”
For their part, Finland’s spruce mills are enjoying firm prices on the back of strong demand throughout most of their major European markets. The majority of UK customers “still want to take their allocations”.
Talk of birch plywood price increases has also been heard from Russia and the Baltics. Some slight firming in Latvian prices has been foreshadowed for the fourth quarter against a backdrop of slightly more restricted availability to the UK market. A regional specialist reported increasing interest in Latvian plywood from new overseas markets, as well as an upturn in demand from the construction, joinery and furniture industries in the Baltic states themselves. One area of concern for Baltic plywood prices appears to be freight. Oil price increases and a shortage of vessels pushed up rates earlier in the year but these have since stabilised at pre-peak levels. However, the recent escalation in oil prices is threatening to have a significant impact on the market once again.
A further deterioration in OSB prices has been blamed on unspectacular demand and on competitively priced product from Continental Europe. These reductions are placing even greater strain on the margins of an industry confronted by constantly rising costs, notably those relating to glue. Indeed, several sources said this week that producers throughout Europe must be struggling to make any profit.
It was suggested in one quarter that OSB prices may well have bottomed out and that volumes had begun to improve towards the end of the summer. However, the more widely held view is that Continental mills will have to take downtime if the fortunes of the industry are to undergo a significant revival before the end of the year.
The difficult conditions currently facing the OSB sector offer a stark contrast to the upbeat market analysis contained within the latest annual report from the European Panel Federation (EPF) which, of course, focuses on the events of last year. Production of OSB throughout Europe as a whole increased to 2.8 million m3 in 2004, thereby exceeding the previous record of around 2.4 million m3 by some 14%. The growth rate was lower than the average of almost 30% established over the last 10 years although the 2004 increment was among the highest recorded over that period, according to the Federation.
Production totals improved in all countries with the exception of the UK and Ireland where output fell slightly. However, EPF pointed out that the plant in question was still operating close to its capacity of 320,000m3 given that “exports remained strong even though the home market failed to give a positive impetus to sales”. For Europe as a whole, EPF was expecting production capacity to total 3.59 million m3 in 2005 after having remained static at 3.12 million m3 since 2001.
European demand for OSB rose by 15% last year to a new record level of 2.4 million m3. North America accounted for 14% of all the sales recorded by European manufacturers although its purchases were actually 16% lower than in 2003 at 187,000m3. By contrast, European exports to Asia improved by around 10% last year.
