Despite rating as one of the UK plywood sector’s best years for some considerable time, 2004 is ending on a somewhat downbeat note with an increased flow of plywood imports from China being widely blamed for driving down the price of more traditional products from South America and the Far East.
The UK trade enjoyed largely positive market conditions for the first seven to eight months of the year, but has since watched prices tumble from their peaks. For example, Far East plywood prices scaled the dizzy heights of Indo96 list +17 just before the middle of the year but subsequently fell as low as -5 before recovering slightly to occupy a range between -2 and +3. “These prices bear very little relation to replacement cost,” it was said.
The market decline also saw Brazilian hardwood plywood nosedive more than US$100 from a top level of approaching US$400/m3. Some distress parcels were being picked up at one stage for as little as US$260/m3 but, as in the case of Far East hardwood plywood, the price began to nudge higher during the second half of November. One source observed: “Prices have gone up again because the distress parcels have disappeared from the market place and because producers could no longer afford to sell at those levels, especially as the US dollar has been getting weaker and their glue costs have risen by up to 30%.”
Elliottii pine plywood from Brazil was also caught up in the “general malaise” afflicting hardwood plywoods. Prices slid to an fob level of just above US$200/m3 before rebounding in the latter part of November to US$215-220/m3. “US buyers have now returned to the market and this has coincided with late European quota buying,” TTJ was told. “But for Brazil’s producers of hardwood and pine plywood, the current prices are still too close to break-out costs.”
Most experts believe the bottom of the elliottii market “has been and gone” since mills appear to be sold out for December and freight space is at a premium. However, the strength of the market will largely be dictated by demand from the hugely influential US.
The influx of Chinese plywood into the UK has been the major topic of conversation for the domestic trade. While some product of Chinese origin is acknowledged to be of decent quality, experts point out that most of the country’s producers are small in scale and so buyers are often having to accumulate supplies from a number of sources, leading to quality variations. Some contacts questioned this week whether certain certified products had been subjected to sufficiently rigorous testing and whether they would perform adequately in an external UK environment characterised by high levels of moisture and temperature fluctuations.
In early November, the European Commission proposed a definitive 66.7% anti-dumping duty on imports of okoumé plywood originating in China, as well as the following duties for four individual exporter producers: Zhejiang Deren Bamboo-Wood 23.5%; Jiaxing Jinlin Lumber Co 17%; Nantong Zongyi Plywood Co. 9.6%; and Zhonglin Enterprise Co 6.5%. However, several contacts argued this week that the duty regime should have been extended to all Chinese plywood rather than just okoumé.
One expert described Chinese imports as a “catalyst” for price declines in the UK but went on to say: “We have done this to ourselves – we have been fighting each other. It’s not a world problem, it’s a UK problem.”
The recent price weakness has prompted a return to hand-to-mouth buying, with many buyers able to source their needs from landed stock. Given the distinct dearth of forward booking, many experts believe this could lead to shortages and higher prices in the UK by late January or early February. Upward price momentum is thought likely to be fuelled not only by rising raw material and energy costs but also by further freight rate increases.
Shorter supply
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“We have done this to ourselves – we have been fighting each other. It’s not a world problem, it’s a UK problem” |
According to one contact, a US$10 increase in freight rates for December shipments out of the Far East has helped to make producers in the region “a little more bullish”. Following in the wake of Ramadan, the mid-November festival week had eliminated a significant chunk of production such that the mills “no longer seem so hungry for orders”, he said. Another contact said: “Some items of Far Eastern plywood are already running leaner than people will admit. This could become an issue by January or February next year, but perhaps it’s a little optimistic to expect prices to rise like they did earlier this year.”
Elsewhere, demand remains strong for Russian 8×4 birch plywood with one UK contact claiming that “we could sell three times as much as we have been able to get”, while customers for squares have not been hard to find. Domestic consumption in Russia has remained high and demand from overseas buyers – particularly the Americans – has helped to keep supply tight and prices firm.
A large proportion of Lithuanian production is understood to be feeding the domestic market. Meanwhile, the Latvians have announced a multi-million pound capacity expansion programme and, in common with the Finns before them, are expected to focus more closely on added value rather than standard products.
Finland’s plywood producers have continued to experience voracious demand for their products during the final quarter, due in large part to good orders from the key German market. Spruce plywood prices have gained ground over the course of the year on the back of “crazy” demand and order files for the first quarter of next year “are looking just as strong”, TTJ was told this week. Buying decisions have been increasingly influenced by compliance factors, it was added.
Finnish birch plywood has seen some signs of a seasonal downturn in demand but prices remain firm and lead times are out at between six and eight weeks.
Clear improvement
Summing up 2004, UK plywood specialists hailed the year as a clear improvement over 2003 even though the market dipped after the summer. Several expressed concern about planning difficulties caused by price volatility but were generally bullish about prospects for the early part of 2005.
The OSB market is witnessing a relatively stable end to the year, with volumes and prices not expected to vary too much in the run-up to Christmas. One contact reported minor downward price pressure from imported board but foresaw little prospect of lower prices once normal trading levels were resumed in the new year, not least because of rising costs. He estimated that glue costs had risen 40% year on year while power bills were thought likely to increase by upwards of 20% in 2005.
However, another prominent industry figure anticipated pressure on the OSB 2 price early next year owing to the influx of cheap plywood from China. “If the market were better policed, then poor quality materials wouldn’t be allowed to disrupt it,” he argued.
Many OSB manufacturers have “made it over the line from loss” this year but escalating costs have ensured that profits have remained “marginal”. Nevertheless, the product featured in the upbeat assessment of the panel products market heard at last month’s general assembly of the European Panel Federation. During the first half of 2004, delegates learned that OSB production in Europe increased by a “striking” 20% in the first half of this year compared to 8% growth in January-June 2003. Having experienced “firm” growth in 2003, OSB shipments from Europe to North America remained close to the same level in the first half of 2004, while sales to Asia and other overseas markets “improved noticeably”. In line with the other panels, OSB was also enjoying “historically low stock levels and a favourable year-end outlook”, commented the EPF.
