There is no doubt that the slump in new build housing output is having a dramatic effect on all timber products but OSB and plywood are perhaps faring better than others, and nothing like the “war zone” that softwood is said to be experiencing.
“Anything to do with the construction industry is under pressure. Our OSB volumes are slightly down but nowhere near like everything else. It’s a popular product,” an importer told TTJ.
While the new build sector and jobbing builders are quieter, the UK DIY market appears to be maintaining some demand for OSB and several contacts commented that, although OSB volumes are down, they have now stabilised a bit and the real concern is the falling price.
“Volumes were down mid last year and stayed on par with that but we’ve had higher costs to run the business and the price has weakened, so margins are under pressure,” said one contact.
OSB prices have fallen from the unnatural peak of £700/m3 during the Covid pandemic to around £200/m3 today.
“£700/m3 was too high but it’s undervalued at the moment,” said a producer.
On the plus side, end customers might be attracted by the lower price, especially as OSB can be used as a substitute for many other timber products.
“We can gain market share so if the market falls, OSB volumes don’t necessarily fall,” he said. “The price is low but I’m happy with that as long as it generates volume.”
More worrying than OSB’s low price is the potential for costs to rise and unsettle the fragile market. The cost of diesel has been increasing and the crisis in Gaza and Israel could push up oil and energy prices.
“We all have to try to keep prices steady, even if costs are rising and margins are being squeezed,” a producer said. “What the market can’t cope with at the moment is a sharp increase in prices; that will just kill demand.”
Some fear the current low demand and higher costs could also kill companies. As an indication of just how much housebuilding has slowed, in early October UK Windows & Doors, one of the UK’s largest PVCu joinery suppliers, went into administration, “mainly because of the sheer slump in new build volumes”, said a contact.
Fortunately, timber products are more versatile than PVCu joinery and traders know that, despite the current challenges, OSB now has a firm place in the UK.
“Chipboard had its big decade in the 70s; MDF in the 90s; OSB now has its big decade. Whether markets are up or down, demand is still there,” said a contact.
A merchant said a lot of tradespeople from new build sites, where they were used to working with OSB, were now finding work in RMI and could expand OSB’s use further.
UK demand for plywood has also slowed, as illustrated by the latest statistics from Timber Development UK (TDUK). From January to July this year, total plywood imports were down 18.8% on the same time last year, with hardwood plywood imports 24.8% lower – and the lowest volume since 2005 – and softwood plywood 3.5% lower.
The decrease in hardwood plywood imports included a fall of 106,000m3 from China, although the country increased its market share by one percentage point to 69%, and a 26,000m3 reduction from the removal of imports from Russia.
TDUK says the combined and individual values of hardwood and softwood plywood imports was 25% lower than over the same period in 2022. The fall in the value of softwood plywood imports, however, was generated by a 22% drop in the average price and a 3% fall in volume, while for hardwood plywood it was driven by a 25% fall in volume with average prices much the same as in 2022.
Importers and agents have the pleasure of containers being readily available and dramatically cheaper than during the pandemic – down from US$15,000-16,000 to US$850-2,000, depending on the ship’s UK port destination. Some shipping lines are reported to be taking ships out of service because of low demand.
One importer said business was going well, because he had diversified in terms of products and new customers, but he still predicted quieter times in Q1 next year.
“If we hadn’t diversified we might be struggling,” he said.
There are no issues with the supply of Brazilian plywood but the US dollar exchange rate is putting Brazil at a disadvantage.
“Elliottis pine plywood has come down a lot but it’s still more expensive than OSB so people are buying OSB,” said an importer. “Volumes of OSB are increasing and volumes of softwood plywood are decreasing.”
One merchant, at least, is also pushing OSB rather than Chinese hardwood plywood because he said the latter was often of poor quality and not fit for some purposes.
“With hardwood plywood prices falling, a sheet of OSB is a few pounds more so we’re doing ourselves out of some value but we see it as a duty of care to advise customers on what’s best for their end use,” the merchant said.
Earlier this year Chinese plywood factories were closing at a fast pace because of the downturn in global demand. The rate of closures has slowed but some mills have taken extended holidays.
The closures have not affected supply for UK agents and importers who deal with larger, well-established producers, but they have brought a deluge of unsolicited enquiries from mills looking for new customers.
Some Chinese agents are also contacting UK traders with dubious offers of birch plywood.
“If you ask for proof of origin or UKTR documents they can’t provide them,” a UK agent said.
The same is true of some eastern European countries. “We’ve done due diligence on birch plywood being offered by Russia’s neighbours. We ask for the paperwork and they can’t provide it,” said an importer.
A merchant told TTJ there was no doubt that large quantities of Russian birch plywood were still being offered, mainly in Europe, but he was reassured that reputable UK traders wouldn’t touch it.
“It’s impossible to shut the whole thing down but we’re lucky in the UK, we have some strong birch plywood suppliers who you know won’t dabble in dodgy products,” he said.
Meanwhile a trader who has been selling Chinese birch plywood now has the test results to prove it does come from birch plywood plantations in China, not Russia.
“One plantation is FSC certified so we can sell genuine Chinese birch plywood that’s certified, and that’s a first as far as we know,” he said.
The construction and glue are the same as European birch plywood. “If you put them side by side the Chinese is a slightly darker colour but not so much you’d worry about it,” he said.
Another development from China is the trend towards eucalyptus rather than poplar plywood. Chinese mills favoured poplar because of the ready supply of raw material but now eucalyptus is available from plantations in southern China and some is also being imported from Uruguay.
“It looks virtually the same but it has a much better core, it’s stronger and generally better quality, although that’s not to say you can’t get very good quality poplar ply,” TTJ was told.
As winter approaches, UK plywood and OSB traders are preparing for some tough months ahead but are hopeful there may be some uplift in spring next year.
One importer described current trading conditions as “in the realms of survival mode” but he had been in the industry long enough to know what goes down will go up.
“Timber traders are used to these ups and downs and big swings, so experience is vital,” he said.
Another contact cautioned against comparing any market to the explosive demand and high prices experienced during the Covid pandemic, and which are unlikely to be seen again.
“Those of us who have been in the industry for a long time have a different perspective from people who joined three or four years ago,” he said. “The Covid time was unique so you have to forget it; get it out of your system.”
It might be a year from now, however, before any significant change is noted.
“We’re not predicting any change for next year until perhaps Q4 when there will potentially be a change of government,” said an importer. “I get the impression people are almost waiting for that. The big housebuilders are waiting for a government change that might make it more lucrative for them.”
Housebuilding output is expected to remain flat for the foreseeable future, and economic forecasts for the UK are hardly upbeat. In October, in its half-yearly update on the global economy, the IMF warned that the UK would be the slowest growing economy in the G7 next year. Two days later, the Office for National Statistics revealed the UK economy grew by an unexpected 0.2% in August. What seemed like positive economic news was tempered, however, by economists warning that the economy was flatlining and the full impact of the 14 consecutive interest rate rises had not yet been felt.
Several traders are choosing not to pay much heed to economic forecasts, which haven’t always been very accurate in the past few years, and concentrate on what they can do in their own businesses.
“The people actually doing business, we know where it’s at; we know what’s happening in the real world,” said one contact. “It’s tough but there’s still work going on and people have to get on with it. In the past 20 years we’ve been here before: it will bounce back.”
