Galloping imports from China, arrests of key officials in Brazil and worries over the potential impact of the prolonged industrial dispute in Finland have woken up a UK plywood market that was otherwise destined to slip into its seasonal slumber.

Imports from China have maintained a relentless momentum and the latest statistics from independent industry analyst Timber Trends fully reflect this fact: in the first four months of 2005, this major South-east Asian power dispatched 37,000m3 of plywood to the UK compared to 14,000m3 during the corresponding period last year. Indonesian imports, meanwhile, slumped from 42,000m3 to 29,000m3 – a clear indication of mill closures, reduced production rates and the effectiveness of the clampdown on illegal logging activities.

The Timber Trends data also reveals that UK imports of Brazilian plywood slid from 64,000m3 in January-April 2004 to 59,000m3 during the first four months of 2005. The same comparison for Malaysian plywood shows a sizeable increase in UK imports from 36,000m3 in early 2004 to 48,000m3 in the same portion of 2005.

Additional costs

It has been estimated that Indonesian logs have become between 30-40% more expensive as a result of additional legal and compliance costs. In addition, Chinese plywood is generally between 25-30% cheaper than Indonesian material, leading one expert to comment: “I don’t understand why any importer would switch from Indonesian to Chinese plywood because the lower value reduces the opportunities for a margin.” Another contact complained that some buyers were mistakenly believing that products labelled “Far East” had their origins in Indonesia or Malaysia whereas, in fact, they were of Chinese origin.

Those engaged in importing Chinese plywood would no doubt argue that a large proportion of the UK market has traditionally been guided by price and that the strength of demand for Chinese plywood fully justifies their commitment to the product. They also argue that quality is constantly improving and that, for many applications, the Chinese plywood available to the UK market is “perfectly fit for purpose”.

Better quality

According to one leading importer, his company’s UK sales of Chinese plywood have increased by “hundreds of per cent” over the last year.

“With each shipment, the good suppliers are providing better quality product and better packaging,” he said. “People want to buy Chinese plywood because it’s good value for money.” It was perhaps time, he added, for the UK market as a whole “to re-align itself on stocks to take account of the China factor”.

Panda Panel Agencies recently underlined its own commitment to supplying the domestic market with Chinese plywood by establishing its own office in Shangdong province so as to ensure at first hand that shipments comprised good quality plywood with genuine CE certification. According to the Guildford-based firm, its sales of Chinese plywood have grown 300% in volume terms over the last year and are “snowballing the whole time”.

While UK demand for plywood has been generally unexciting over the last couple of months, sales of Chinese material into the market have maintained their upward curve even into the summer, according to several contacts. One source also noted: “There is also a lot of decorative plywood from China out there and it is really establishing itself in this market.”

Freight rates

It was also pointed out that China’s plywood exports to the UK are also heavily influenced by Continental freight rates and that shippers were looking to implement an increase of around US$500 per container for the third quarter, although some experts believed the final increase could be somewhat lower.

&#8220With each shipment, the good suppliers are providing better quality product and better packaging. People want to buy Chinese plywood because it’s good value for money”

Competition from China is being blamed in large measure for “very flat” sales of Indonesian plywood into the UK market during the last two months. The Indo96 list price for Indonesian plywood was put at between +8 and +10 in some quarters, but these levels were described as “wishful thinking” by other sources who considered +6 or lower to be more realistic in what is generally considered to be a “weak” market.

Malaysian plywood, meanwhile, was trailing a few points further back. That said, one contact reported price increases for thicker sizes and for MR plywood out of the Far East.

Having pointed to “erratic” arrivals into the UK and to a dearth of forward buying, several experts suggested a significant post-summer upturn in demand could lead to shortages in some thicknesses of Far Eastern material.

One source contended that over-purchasing of Far Eastern and Brazilian plywood as far back as 2004 had led to a situation where “everybody is de-stocking and has held back on buying”. He added: “Some of the big players have still got a lot of stock but I expect that to change over the next couple of months. Based on my inventories, there could be one helluva shortage come September.”

Brazilian hardwood plywood prices have risen significantly over recent weeks amid factory closures, the “crippling” impact of a strengthening real versus the US dollar, and arrests of senior officials over accusations of falsifying permits to transport illegally cut wood. On the latter point, temporary bans on the movements of logs and timber have caused “big” delays throughout the plywood supply system, according to a number of UK sources. This was showing signs of having an impact on July price levels, it was added.

Prices of Brazilian elliottii pine plywood have improved over recent weeks but pricing has been somewhat “de-stabilised” by the removal of GSP status in the US. Margins on 18mm remain fragile while availability of 9mm and 12mm material was described as limited.

In Europe, an industrial dispute involving the Finnish Paper Workers’ Union led to a lockout in mid-May which was finally resolved only on July 1. The dispute became so protracted that even Finland’s prime minister became involved in negotiations. There has been talk of bringing forward the summer holiday breaks where possible as part of a bid to minimise the impact of the dispute.

Log supply

With harvesting activity hit, mills have begun to close because of a lack of log supply and a glut of residues that cannot be moved.

Plywood manufacturers are continuing to operate by digging into their stocks but a prolongation of the dispute could ultimately bring the entire system to a halt. It is rumoured that spruce plywood lines are already beginning to close; birch mills are thought to be in a better position by virtue of the fact that they generally hold higher stocks.

Amid this controversy, UK demand for Finnish birch and spruce plywood has remained strong, while prices are largely unchanged despite the potential implications of the strike.

In Latvia, meanwhile, log yards are said to have become fully replenished following the devastation caused by the storms of early 2005. Plywood lead times are understood to be between three and four weeks for most items but slightly longer for the more uncommon specifications.

UK demand has been reasonable and prices have stabilised of late following a period of steady upward progression prompted in part by raw material/resin price increases and by the above-mentioned storms.

UK demand for OSB has been abnormally low – even for what is traditionally the quiet time of the year – and the product has continued to suffer a general deterioration in price. This weakness has been blamed to a large extent on mainland European production being sold at cheap prices into “an already difficult UK market”. It was argued: “Everybody’s stock gets devalued and nobody gains anything.”

According to a leading expert, there was still plenty of room to expand markets for OSB and yet UK consumption of this panel product was likely to be “static at best” this year.