The UK is still digesting the substantially higher imports of Chinese plywood that preceded implementation of the EU Timber Regulation (EUTR) in early March. Partly as a result, recent weeks have brought relative price stability against a backdrop of unspectacular UK demand. March was widely dismissed as a poor sales month in the UK whereas business levels are generally said to have improved in April “without ever becoming perky”, as one contact put it.
“We aren’t getting a true impression of the market at present because a lot of Chinese plywood was bought in the UK ahead of the EUTR coming into force; demand did not keep pace and so stocks built up,” said a Chinese plywood specialist. The UK’s imported volumes are dropping but “it will take months” for balance to be re-established, he added.
While others agreed that large volumes of pre-EUTR business remained in the UK market, one contact argued that “a lot of that stock has gone – I don’t think there is as much as people think there is”. And another added: “There have been stocks, but holes are appearing. Supplies of thin panel in particular are not plentiful.”
Latest figures from HM Revenue & Customs reflect the relative buying frenzy ahead of implementation of the EUTR: in value terms, UK imports of Chinese plywood surged to £26.76m in the first two months of this year – equivalent to an increase of almost 44% over the corresponding period in 2012. At the time of writing, statistics from the Timber Trade Federation (TTF) are available only for January, but again these show a 21% year-on-year increase in hardwood plywood import volumes – “driven almost entirely by increased shipments from China” – and a 34.1% jump in incoming softwood ply. In January, China accounted for 57% of UK hardwood plywood imports versus 48% in January 2012.
As mentioned above, Chinese ply prices have remained relatively stable in recent weeks. As regards the 2-3% price hike sought by some suppliers at the time of our previous report, “some got it but others didn’t”. Container shipping rates have been generally stable too, with lines failing to press home mooted increases in many instances.
Meanwhile, there is evidence that the EUTR is “causing problems in China itself”, according to a local contact. “A lot of suppliers who said they would be able to comply with the EUTR actually can’t.”
The main obstacle is securing adequate documentation regarding the legality of the logs, he said. “Logs change hands so many times in China without any documentation whatsoever, with people paying cash to avoid tax.”
Some Chinese producers who have sales links with Europe are now looking for alternatives to tropical species for the face and back, the most popular among which at present appears to be dyed and engineered poplar veneer – “but it’s significantly more expensive”, the contact said.
There are also problems surrounding some of the major alternatives to selling into Europe, with duty pressures in the US market becoming more severe. “We are getting far more unsolicited offers now from mills who have sold to the US in the past,” TTJ was told this week.
Labour shortage And to add to their woes, many of China’s plywood producers appear to have been confronted with even more severe labour issues than normal following the Chinese New Year. It has become an established practice for a significant number of workers not to return to plywood factories after travelling the often long distances to their homes to celebrate the holiday. This year the impact has been “even more pronounced” because many more new factories have opened in central China for the production of, for example, textiles or electronics. In general, these offer better working conditions than plywood factories and so are a tempting, more local alternative for those workers who have traditionally travelled eastwards to find work in plywood mills.
“We had excellent quality from one mill until Chinese New Year but we have had to reject a number of containers since then,” said one buyer. “We were told the quality had dropped because new employees were having to learn how to do it right.” Furthermore, many of these new plywood mill recruits will not stay for long because of the “dirty” conditions and relatively low pay compared with what is on offer in other industries.
Malaysian plywood mills have been applying familiar pressure for higher prices but actual values have held reasonably steady in recent weeks. “Trade is not busy and so there is less pressure on importers to buy,” a contact said. Freight remains a largely unknown quantity as shipping lines threaten to impose increases which, in many cases, fail to materialise in full or at all. “Nobody knows from one month to the next what is going to happen,” said one contact.
UK demand for Finnish spruce plywood has gathered momentum over the last couple of months, leading one major supplier to project a 3-4% price increase for some time in the third quarter. An increase was implemented on the Continent for the second quarter but UK prices were maintained at existing levels to allow more time for the strength and sustainability of demand to be assessed. However, “order books have continued to fill up and lead times have gone out to eight weeks rather than four to six”, a UK spokesperson said.
Finnish birch plywood has followed a similar pattern, with lead times extending from typically four to six weeks to upwards of 10 weeks in certain instances. “I imagine mills will be looking for a price increase in the third quarter,” one contact told TTJ.
Latvian plywood prices are understood to be firm, while Brazilian elliottii pine ply has continued to make significant value gains – estimated at between 10-15% for UK buyers in the year to date – as a result of, in part, strong demand from the US where housing activity is said to be providing the impetus. “House prices [in the US] have increased by over 10% in many areas but that is more due to the lack of new homes being built rather than a real sign of recovery,” one contact said. Elliottii pine plywood mills are “quite bullish”, according to another contact.
