Summary
• Freight rate increases have driven up the price of Malaysian plywood.
• The cost of shipments from China is also expected to rise.
• Elliottii pine plywood prices have risen steadily.
• UK purchases of Finnish product are slow.
• OSB prices are expected to rise again.

At the risk of stating the obvious, the severe winter weather across the UK has done nothing to improve the momentum of early-year trading in the plywood sector. At a time when customers were already exercising extreme caution in their buying patterns, the snow and ice have delivered yet another chill blow to sales by, for example, delaying building work.

There has been a warning that, once order levels begin to improve in concert with the weather, buyers could well be facing shortages and higher prices. But instead of buying forward, a number of UK concerns are understood to be “dumping stock” in the face of lacklustre demand.

Recent freight rate increases – described by one contact as “gargantuan” – have driven up the buying prices of Malaysian plywood in the UK. At the same time, log shortages and Malaysian producers’ efforts to recoup higher glue costs are understood to have added, typically, US$5-15/m³ to FOB prices. One UK-based seller noted: “For March shipment, we will be asking for prices 20% higher than for January shipment.”

The same contact acknowledged a significant differential between the prices on offer from the various producers in Malaysia but said: “The common factor is prices are rising compared to December. Tropical hardwood plywood stocks are not that high and are going to be difficult to replace.”

Chinese plywood

FOB prices in China are relatively static but, according to a regional expert, the cost of a 40ft container will soar some US$1,000 between the end of 2009 and the start of February – a development favouring those importing companies which are chartering their own vessels. Significant volumes of Chinese ply are continuing to enter the UK at competitive prices.

According to a leading supplier into the UK market, Chinese plywood is currently occupying a huge price range. “We are seeing more of a swing to hardwood-throughout Chinese plywood rather than poplar core because the latter has seen its general quality driven down in the UK,” he said. And he claimed that material with “bogus” FSC certification has been entering this country and further undermining the reputation of Chinese ply in general.

Meanwhile, and as has been the case for some time, UK imports of Indonesian plywood are small-scale and limited mainly to specialist, premium-priced products.

A sizeable gap in price favouring Malaysian product over its hardwood plywood counterpart from Brazil is also resulting in generally low sales of the latter in the UK. However, one contact said that some of the larger press sizes were still finding their way across the Atlantic.

Staying with Brazil, one of the major topics of conversation within plywood circles remains elliottii pine plywood’s strong price progress. According to one specialist in this area, FOB prices for 18mm product are now perhaps 25-30% higher than they were at the same point in 2009, not least because of the relatively rapid appreciation of the real in relation to the US dollar.

Brazilian exports

In terms of export business, producers in Brazil have been “resolute” on their plywood prices and don’t foresee any easing in the near future. Logging has been difficult in many parts of the country because of wet weather, and production capacity is said to be “much reduced”. Another factor in this equation is the strength of demand within Brazil itself on the back of a strong developing economy and a broad programme of inward investment.

By contrast, seasonal UK demand for elliottii has been more muted than in previous years. The major buying spree inspired by the duty-free quota has largely failed to materialise this time round “because people wanted prices to fall and they haven’t”, TTJ was told. There is a widespread belief that this lack of forward buying will result in “holes” in UK stocks of elliottii. “I expect some shortages by February – especially in structural and FSC-certified product,” said one contact. Another argued that thin panels of 12mm thickness or below are “under-bought” and will become short when the “pent-up demand” caused by the weather conditions is released. “There will be a surge in buying in Europe. It’s not just the UK that is under-bought.”

At the same time, it is understood that a significant number of buyers have been attracted to alternatives such as plywood product from Uruguay. “This has taken up some of the slack [from elliottii] and has found a level in the market based on price,” TTJ was told.

Finnish product

UK sellers of Finnish plywood reported that the freezing weather in this country contributed to a “very slow” start to the new year’s business. This sluggish beginning followed a fourth quarter in 2009 that was “not brilliant by any means” in terms of UK purchases of Finnish spruce and birch plywood. Against this backdrop, prices have been largely held for the first quarter of the year despite the fact that mills would have liked to push for increases to compensate for rising costs and for the continuing strength of the euro in relation to sterling.

According to a leading supplier into the UK market, there have been no major problems with raw material availability in Finland or with shipping. Lead times on both Finnish spruce and birch plywood are “prompt” at effectively three to four weeks from the point of order to delivery. “Everything is in place,” he commented. “All we need now is the business.”

Looking ahead, he said that the upturn in elliottii prices could well widen the scope for higher Finnish ply prices once the markets settle down in 2010. And he added that forward buying of most forms of plywood had been relatively slight and that, with stocks generally low, any significant upturn in demand could prove difficult to satisfy.

Prices for Latvian ply entering the UK have also been held firm for the first quarter of this year. Once again, the intention had been to implement an increase, again in part because of the “disappointing” returns resulting from the strength of the euro against sterling. “But we don’t think the market is up to an increase at the moment,” TTJ was told. “The market is somewhat flat and the weather hasn’t helped.”

At the same time, he said that demand for some forms of Latvian ply has been helped by a relative lack of supply from Russia because of the holiday season. Lead times have extended into March for competing Latvian products; this compares to around four weeks for other forms of plywood from the same country. Filling this “supply-led vacuum” may have helped UK sales of Latvian ply but overall demand from this country remains no better than “steady”.