Summary
¦ UK stocks of Asian plywood are high.
¦ Chinese produce continues to take UK market share for hardwood ply.
¦ The price of Brazilian elliottii plywood has fallen.
¦ Russia ply prices have risen in the UK because of low supply.
Following recent vessel arrivals in the UK, the market is currently “overcooked” with plywood of Asian origin, TTJ was told this week. And with demand described as “far from buzzing”, it is expected to take several weeks for this glut of material to filter through the system. Forward buying has become quite limited as consumers look to operate from low stocks, given the significant uncertainty surrounding business prospects for late 2010 and for 2011.
Chinese plywood prices have been rising – “but only marginally” – and are widely expected to remain quite stable for the rest of the year. Recent increases are attributed to: higher raw material costs resulting from heavy rains which have severely curtailed the cutting and transport of poplar logs; elevated labour costs; and the strengthening of the yuan in relation to the US dollar. Indeed, fluctuations in exchange rates are said to have encouraged a number of Chinese mills to focus on their domestic market – “especially the busy furniture manufacturing industry where there is high demand for good quality plywood at good prices”, a regional specialist said.
Prices of Chinese plywood have also been underpinned by the fact that there is insufficient production capacity to satisfy world demand. In recent months his shortfall has been exacerbated by power cuts which led to some mills losing up to 20% of their production.
Growing Chinese dominance
Monthly break bulk shipments from China have helped to cement the country’s growing dominance of the UK market for hardwood plywood. Supplies of Malaysian material are continuing to arrive, but UK sales have declined significantly because the price differential to the Chinese competition – typically around 30% – is dampening buying interest in what continues to be a heavily price-dependent environment. At the same time, UK imports of hardwood plywood from Brazil have dried up while volumes from Indonesia are limited almost exclusively to specialist items.
Malaysia’s mills are not expected to make significant changes to their FOB prices in the near term, even though the imminent monsoon season will probably force log costs higher. With demand from Continental Europe only slightly better than that in the UK, Malaysia’s producers are likely to continue to focus more heavily on sales into countries closer to home, such as Japan and South Korea.
While China’s exports of genuine FSC-accredited plywood appear to be on the increase, concerns continue to circulate in the UK over how some of the Chinese product reaching these shores is being used. One contact said that a significant proportion of this plywood sold into the UK construction trade is clearly unfit for purpose, adding that some importers did not appreciate the importance of this issue. “We’re not back at square one – we’re at square minus three,” he said.
Loss of conscience
Another contact said that the recession had helped to “kill” many buyers’ consciences about fitness for purpose, quality and the environment. A leading UK distributor acknowledged concerns over use of some forms of plywood in external applications and added: “There is a lot of discussion at the moment about how Chinese plywood should be marked.”
Meanwhile, Chinese pine plywood’s increasing share of the international market is identified as one of the reasons behind a US$10-15/m³ drop in the Brazilian elliottii pine plywood price. Experts are not ruling out further weakening in the elliottii market, especially as the price is still “nowhere near” that of the Chinese material. “I can’t see anyone putting elliottii on forward at the moment, given these conditions,” said an established buyer.
The elliottii price has also been affected by more than adequate stock levels in the UK and the re-emergence of plywood exports from Chile. A number of buyers – notably in the US and also western Europe – had been forced to switch to elliottii and other forms of plywood following the Chilean earthquake earlier this year, but they have now taken the opportunity to revert to their product of choice. The strength of UK demand for elliottii has also been undermined by an increasing number of orders for plywood from Uruguay.
Despite this return of Chilean material to the international market, sales volumes of Finnish spruce plywood have reportedly held up quite well in most European countries. According to one leading supplier, increases of around 10% at the start of July brought prices paid in the UK more into line with the higher levels prevailing on the Continent. Finland’s producers are reporting lead times of around six weeks.
European product
As for Finnish birch ply, the market has been less busy and prices have remained relatively stable. Producers have not ruled out a “small” increase for the fourth quarter but will not want to prejudice their sales volumes – particularly at a time when birch-faced ply out of China is becoming “more apparent” in the market as an alternative “for those who buy on price”. At present, lead times for Finnish birch ply are around a month or slightly longer.
Russian birch plywood prices have been rising in the UK, partly because of a lack of shipments. Meanwhile, prices paid in this country for Latvian birch plywood have been somewhat steadier, with increases focused mainly on the more specialist items; however, a more general round of increases could be implemented for the start of next year given that demand from some quarters has returned to pre-recession levels, said a regional expert. His own company is working on a three-month lead time for most items and UK stocks of Latvian birch ply are described as “tight”.
But even in those pockets of the plywood trade which are enjoying steady-to-healthy levels of business, there is concern about what 2011 will hold as public expenditure cuts are expected to take their toll on panel-consuming projects. Indeed, a number of contacts are casting doubt on the revival in the construction sector’s fortunes reported over the summer. “I don’t buy this about the construction industry – the figures are just wrong,” said one.
Against this backdrop, a prominent distributor identified the importance of strict credit control before warning: “November to February could be a difficult period.”
