Summary
• Container freight rates have risen sharply.
• Malaysian producers are suffering from a log shortage.
• Finnish spruce sales have benefited from reduced production in Chile.
• UK sales of Finnish birch plywood are quiet.
All the market experts contacted this week were agreed on the key issue currently exercising the plywood sector, namely container freight rates.
Rates have reportedly risen by anything between US$2,000-3,000 per 40-foot container since January. “This means in effect that the freight rate for plywood has risen from just under US$50/m³ to about US$75,” one plywood specialist told TTJ. And the talk at the time of writing was of the shipping lines adding a further US$800-1,000 to the bill for May.
So while FOB prices of Chinese plywood have remained fairly stable, CIF levels have increased significantly. However, with the Chinese economy losing some of its momentum and property prices falling, a marked slowdown has occurred in building projects and thus domestic demand for plywood. “As a result, it is expected that, in the short term, FOB prices – especially for red-faced poplar plywood and film-faced plywood – will show signs of weakness,” TTJ was told.
Other downstream effects of the freight rate hikes have included: an upturn in demand for space on the conventional break bulk service from China to Tilbury; and a noticeable drop-off in UK buyers’ interest in plywood from the Far East. “There will be a shortage,” said one contact, although he said this would perhaps take a month or two to manifest itself because of the generally low levels of purchasing activity.
“People are relying on the big importers,” he said. “The ones who will benefit from all this are those with big stocks on the ground.”
Besides freight rates, another regular topic of conversation in China has been the new anti-illegal wood EU Timber Regulation which comes into effect in March next year. This effectively requires the supply of documentary evidence to prove that wood-based products entering EU countries come from a legal and sustainable source. It has the potential to create “a huge problem” in China, according to a regional specialist.
The only plywood coming from China that will meet the new criteria is likely to be legitimate FSC-certified plywood, poplar-throughout plywood, pine plywood and eucalyptus plywood, he said. Several suppliers are already experimenting with alternative local species such as Chinese birch but available volumes are restricted and “could not possibly meet the demand from the EU”.
FSC-certified mills in China are already seeing an increase in demand from existing and new buyers, such that certain would-be purchasers will lose out if they fail to act quickly to secure future supplies, he added.
Malaysian log shortages
Malaysia has been affected not only by what one contact described as “ridiculous” freight rate movements but also by a shortage of available logs, partly because the authorities in the west of the country have been intensifying their crackdown on illegal logging activity. “What logs are on the market are expensive,” a regional expert said. And with help from freight rates, Malaysian ply prices in the UK have appreciated by approximately 10% since the start of the year, he reckoned.
Freight rates have also been a key factor in plywood shipments out of Brazil, with increases so far this spring put at typically US$200-300 per 40-foot container. Elliottii pine plywood out of Brazil is firm in FOB price terms, with the 18mm thickness valued some 10% higher than the levels prevailing around the turn of the year. However, interest in the UK has been dampened by the availability of competitively-priced Chinese material.
In terms of hardwood plywood sales to the UK, Brazil is becoming an ever diminishing player: according to Timber Trade Federation (TTF) statistics, the share of the UK import market claimed by Central and South America dwindled to 7% last year owing to “substantially lower volumes from Brazil”. Only larger sizes appear to be attracting any significant interest among UK buyers, one contact noted. Total hardwood ply imports climbed 6% last year, with Asia boosting its sales into the UK from 543,000m³ in 2010 to some 582,000m³ to increase its UK import share from 64% to 65%.
Finnish plywood
Helped by the fact that plywood production in Chile has remained compromised by the loss of Arauco’s Nueva Aldea to forest fires in January, Finnish spruce plywood sales have been holding up reasonably well in recent months, paving the way for price increases of typically 5-6% for the second quarter. Despite reporting that his own company was currently booked out for most of the second quarter, a spokesperson cast doubt on whether a further hike would be attempted for the third quarter. “The last thing we want to do is to have a downward effect on volumes,” he said.
By comparison, UK sales of Finnish birch ply are reportedly “very quiet”. With order books described as generally poor, delivery times have contracted and mill downtime has been taken. Headline prices have not softened but spot deals have been done on volume orders, TTJ was told.
Signs of softness were also indicated for Russian birch, while stable volumes and prices were reported for sales of Latvian plywood into the UK.
Modest growth in UK softwood plywood imports was confirmed by the TTF for 2011 although there were some major fluctuations in regional year-on-year totals: volumes arriving from Central and South America dropped from 240,000m³ to 217,000m³ whereas Asia upped its shipments from 58,000m³ to 89,000m³. In January this year, total UK softwood ply imports were a thumping 24.2% lower than in the same month last year at around 33,000m³.
