Exchange rates are having a major effect on the plywood sector, changing supplier volumes to some markets and bringing prices down.
The devaluation of the Brazilian real has led to elliotis pine plywood being offered at “very cheap” levels in the UK, while the weak rouble and poor domestic demand in Russia mean Russians are desperate to export as much as they can, and in doing so have brought birch plywood prices down to historically low levels. They have fallen by around 25% over the past 12 months.
“With birch being such a quality product it’s disappointing for it to be sold at lower levels,” said one UK importer.
While another importer acknowledged that conditions for birch ply were “difficult”, he said prices had remained stable after falling last year and he expected no change in the near future. The collapse of the Russian domestic market would keep a lid on any increase, but he didn’t expect prices to fall further.
Despite these pressures on birch ply he was “satisfied” with the current market. In the UK there was good demand from trailer manufacturers and scaffold manufacturers. There were also healthy orders for lacquered and melamine-faced birch plywood, suggesting that the kitchen sector was busy. “If you read the papers you wouldn’t bother coming into work but when you do come in you find you have 10 new enquiries. Demand does seem to be there,” the contact said.
Another trader described the elliotis pine plywood market as “a bit of a nightmare”. With the devaluation of the Brazilian real the price went “lower and lower and lower” and there was still cheap product on the ground, he said.
“The prices forward seem to be firming a bit but that hasn’t come through to the base level price in the UK and we have brokers offering 18mm Brazilian pine at less than £10 a sheet, which is a concern,” he said.
A merchant contact said the UK had been a “bit of an open door” for elliotis pine and now there was an excess. “It’s very tricky for importers to make any money out of it at the moment,” he said.
These low prices can have implications for other panel products too, said another contact. “If elliotis comes down it puts pressure on MDF and OSB and other products that could be used as an alternative so generally people are expecting discounts on everything,” he said.
The low prices are also squeezing merchants’ margins but one contacted by TTJ was hopeful that softwood ply prices would rise once the duty-free quota was exhausted. “Plywood importers are running out of options to sell at the prices they’re at. They’re worried they’ll lose the order but they’re going to be forced to raise prices because of the dollar forcing the price up and once the quota is exhausted they’ll have to apply duty,” he said.
According to another contact, the exchange rate volatility had led to customers buying off of the ground when it was available rather than booking forward or trying to get a price firm in sterling. The EU coniferous plywood duty-free quota, which was depleted more quickly than in recent years, may also have had some impact on import volumes.
“There’s certainly been plenty of stock at Tilbury and that, along with the quota going quite quickly, suggests people have been bringing in a lot of wood,” said one contact. According to the Timber Trade Federation’s full-year statistics for 2015 there was a 17% increase in imports of Chinese hardwood plywood last year, which drove the overall growth in volumes. The UK’s hardwood plywood imports were up nearly 9% on 2014. European demand for Chinese plywood remains consistent, said one importer, although prices for Chinese softwood plywood have been high compared with South American production.
However, another UK trader said prices had weakened slightly as people had brought in product in anticipation of Chinese New Year closures. “We’re quite good as a trade at bringing in far too much stock before new year and worrying we won’t have enough wood. Instead we over-egg it and have too much stock,” he said.
Heavy snow and temperatures as low as -20ºC forced many mills to close ahead of the scheduled holiday for Chinese New Year. Some mills tried to mitigate the downtime by returning from holiday early to fill orders that were scheduled for shipment before the holidays. Others chose to take the full holiday and were only beginning to catch up in mid- March.
As usual, a significant number of workers did not return to work in the mills after the New Year celebrations and so mills had to hire new and inexperienced workers, resulting in slow production and a risk of inferior quality.
Chinese mills are also facing the fallout of the country’s weakening economy. Many new construction projects, which are generally huge and create a significant demand for plywood, especially film-faced concrete shuttering plywood, have been put on hold until the economy improves. Mills that specialise in the production of plywood for the Chinese domestic market are already feeling the squeeze and are looking for ? alternative markets.
Some have switched their production to “furniture quality” plywood to meet increasing demand from Chinese furniture manufacturers specialising in furniture for export markets.
In the UK and Europe there has been a swing in demand from poplar core plywood to eucalyptus core product, said one contact, so suppliers in Jiangsu and Shandong provinces, which are surrounded by an abundant supply of poplar, are having to adapt their raw material supply and production accordingly.
“A number of mills are also beginning to produce value-added products such as melamine-faced plywood and HPL-faced plywood and some are even producing downstream products such as knock-down furniture.
Mills are also having to grapple with the government’s programme to reduce industrial pollution. The policy has particularly affected those in Shandong Province where mills are under instruction from local government to change their coal or waste wood-fired boilers to gas.
“Apart from the investment cost in new boilers, the cost of gas is significantly higher than coal, or waste wood which is a by-product of their plywood production, and as a consequence their production costs have increased,” TTJ was told.
Some of these costs are being met by the benefit they’re receiving from the weakening exchange rate between the Chinese yuan and the US dollar. They are also passing on part of the 7% or so increase in their income to buyers, resulting in a reduction in FOB prices of around 5%.
At the same time, container freight rates are exceptionally low, having fallen from around US$1,000 for a 40ft container (about US$21/m3) before the holidays to US$400 or about US$9/m3 in March.
As to what will happen in the coming months, one trader told TTJ it was very difficult to predict.
“For example, it has been said that the current export tax rebate might be adjusted to encourage more exports but in the past when such changes have been ‘hinted’ the rebate has actually reduced,” he said. “However, bearing in mind the current state of China’s economy with falling exports, the rebate is unlikely to be cut.”
While all the traders contacted by TTJ said they had well-established and reputable suppliers in China, one identified what he said were dubious practices between UK buyers and Chinese suppliers.
On a recent visit to China the trader said he visited two mills that didn’t have CE certification and weren’t able to provide documents in support of the EUTR yet both had crates in their warehouses market with UK buyers’ shipping marks.
“When we asked how they are able to sell to UK buyers we were told that the plywood was exported via another supplier who uses their CE marks and presents their EUTR documents to buyers,” the trader said.
At another mill where product was packed with the UK buyer’s name and the supplier’s FSC and CE marks the trader asked where the mill sourced its FSC raw material. “The owner openly admitted that with the agreement of the UK buyer the mill was using non FSC raw material – saving about 15% in raw material cost – and as a consequence the plywood was not actually FSC-certified,” he said.
“In the first instance the buyers might be unaware that the plywood being supplied was produced by a third party and that the EUTR documents were fraudulent but in the second instance the buyer actually condoned the use of non-FSC raw material and saved a significant amount of money by doing so.”
Overall there is expected to be little change in the UK plywood market over the next six months or so. One contact predicted the market would “flatline”, adding that importers, in particular, were in for a hard time and merchants’ profitability would be affected.
However, others were slightly more upbeat. “Generally we’re quite busy. Month on month this year has been fair; there’s nothing to get excited about but it’s not too gloomy either,” said one trader.
Another contact shared his sentiments. “The market is alright but nothing fantastic. It’s survival mode and you’ve just got to get on with it.”
