A sudden drop in freight costs in the fourth quarter last year has created competition between UK plywood importers now holding expensive stock.
“Freight costs have come down considerably, almost to pre-pandemic levels, and everyone is leaving a bit of blood on the carpet,” said one importer.
Container freight rates, which rocketed to US$16,000 when global demand for goods created a shipping shortage in 2021-2022, have fallen to around US$1,450 because of the economic downturn around the world. When containers were scarce, many importers turned to break bulk, paying US$100-120m/3 and this has now fallen to US$30/m3.
These lower shipping costs are creating fierce competition among traders who want to clear stock, especially when forward orders are low.
“Last year you couldn’t get containers for love or money; if you didn’t accept a quote, the next day it had gone to someone else. Now you can pick up the phone and have a container delivered tomorrow,” a contact said.
Some importers started discounting in January, rather than imposing a 20% reduction in one hit, but one contact told TTJ they are now fighting to secure orders almost at any cost.
This comes at a time when demand is steady to low – back at 2019 levels and down 20-25% from the peak of 2021-2022.
A distributor said demand for softwood plywood was low, there was no confidence in the erratic pricing, and OSB continued to take some market share.
Hardwood plywood demand was s lightly better, and more stable, but still rather flat.
“We’re not going to break any records this year; it’s just going to be steady,” he said.
An agent, however, described UK demand as at an “all-time low”.
The softening plywood market is evident from Timber Development UK’s (TDUK) latest statistics. In January, imports of all plywood were down 42.4% on January 2022, softwood plywood imports fell 28.8% and hardwood plywood imports were 53.4% lower. China suffered the greatest drop in hardwood ply volume but, as there was a similar rate of decline overall, it did not impact its market share.
While most contacts reported no issues with Chinese plywood quality generally, one merchant said sourcing consistent middle to upper grade product was more difficult as manufacturers had reduced the quality to mitigate the higher shipping costs.
“A lack of consistency with hardwood plywood is the biggest issue we have on sheet materials. We’ve had to push back more because of quality in the last year than I ever remember. It’s at the point where we urge our customers not to use hardwood plywood wherever possible because we can’t guarantee a stable grade of product,” he said. “With 18mm material we recommend a type 3 glued structural softwood plywood or if they’re just looking for a price we point them to OSB.”
He hoped the current lower shipping costs would allow producers and importers to invest in quality rather than “just hammering the price”.
Another contact reported an issue with fraudulent product marking in China. On a recent trip, in two factories with no certification he saw plywood stamped with the name of the UK buyer, FSC logo and certificate number, and UKCA mark and number.
“Some manufacturers subcontract orders to other factories, probably to save money, and give buyers copies of all the certificates so it looks as though everything is in good order. I don’t blame the third-party manufacturer – they just accept an order – but it’s fraudulent and unfair competition to those who try to do everything by the book. The third-party producers will be quoting a lower price than those who take the order,” he said.
He reported about 20% of Chinese plywood factories have closed because of the downturn in global trade, and they were unlikely to re-open because the workers had found alternative employment. Those that remain have good stocks and are looking for new buyers.
The ban on timber from Russia and Belarus is putting pressure on supplies of birch plywood from Finland, Poland and the Baltic states and prices have risen accordingly.
“Demand on the available supply is huge,” a merchant said.
A distributor, however, said he was securing a good supply from Finland and the Baltics and had product available, possibly because buyers thought all birch plywood was from Russia and were steering clear of it.
On that note, one contact took issue with the TDUK’s website post regarding birch plywood on February 20 which said “there are no birch plywood trees growing naturally in China or the Far East”. He said he had visited a factory in China which had stocks of Chinese birch logs and was shown a video of the plantation and the EUTR documents. The factory was undergoing FSC accreditation.
“We have a 100% clear conscience about selling it because we know where the logs come from,” he said.
He added that it was the same species but the ratio of heartwood and sapwood differed from Russian birch so it was light pink rather than white.
Another contact reiterated TDUK’s advice. “If you’re not able to trace where your material has come from then it’s highly likely it’s from an illegal source. The regulatory authorities want to find people doing it because they want to be seen to be supporting Ukraine. If anyone is thinking of doing it in the UK it would be ultra high risk,” he said.
He added that some Russian birch plywood was entering Europe via Turkey and then Bulgaria and being sold as Turkish birch plywood.
“There are lots of other avenues with similar tactics,” he said, adding that the deception was masked by false paperwork.
The difficulty with birch plywood is sending UK traders in search of worthy alternatives but most admit it is a hard product to replicate.
“Every manufacturer is looking for an alternative but I’ve not seen one product that’s as good as birch,” said the distributor.
A merchant said poplar ply was an increasingly popular alternative to birch and he had sold more in the past nine months than he could ever remember.
If buyers and end users were happy with the alternatives, this could affect birch plywood demand long term, he said.
An importer said some people were using veneered MDF, or a high quality Indonesian or Chinese plywood with good core construction, or softwood plywood where appropriate.
Within a year, plywood demand and shipping rates have gone from one extreme to the other but traders are now expecting little change in the months ahead.
The distributor predicted a relatively stable period for hardwood plywood, while softwood plywood would remain flat, unless the US market picked up.
A merchant contact said demand for all building products was surprisingly strong in Q1 and it would only strengthen as the weather improved. He then predicted “a significant increase through to Q4”.
An importer was also expecting the market to settle. “The drama was November to February. It was a horrible winter with prices coming down but it seems to have stabilised now. Demand is going to be steady, there will be product available and no lack of shipping space; the only variable is sterling possibly strengthening,” he said.
OSB DEMAND STRONG BUT PRICES SOFTEN
UK demand for OSB was fairly strong in the first quarter but, with plenty of supply available, prices remain weak.
“There is strong demand but there’s probably a little more stock around because other markets, such as Europe, have been quieter,” a distributor told TTJ.
He expected demand to remain firm and prices would certainly not soften further because “they’re as low as they can be”.
A manufacturer described the OSB market as competitive but reported steady demand and no interruption to sales during the Easter break.
“If you deliver to customers the last day before Easter and they come back again on the Tuesday it means they’re busy, and that’s encouraging,” he said.
He was happy with the stable level of business, which he suggested could be down to the growth in timber frame construction in the UK.
“Currently OSB is a competitive market but it’s a market that has something to give,” he said.
He did warn, however, that the OSB market could change very quickly. It could be affected by Europe’s building season, which is not under way yet, and a possible uplift in US activity.
A merchant said his sales of OSB continued to rise, with customers attracted by the generally consistent quality.
“We’re definitely selling more OSB and it continues to climb. Generally, it’s a consistent product and it does what it says on the tin,” he said.
The distributor agreed. “OSB from European and UK manufacturers is highly engineered so it’s a good quality product and is now seen as a better product than lower quality softwood plywood,” he said.
He added that the quality of OSB from Asia could not be guaranteed and this was echoed by another contact.
When OSB was in demand this time last year, some UK traders turned to Asia for supply. In some cases it took months to arrive because of the container shortage and when it did turn up some was of such poor quality it had to be binned.
On a visit to China the contact had seen good quality OSB but was also shown samples where pieces of plastic and textiles were visible in the board, and interior glue had been used.
