Plywood and OSB markets – in fact, all panel products markets – are so busy it’s dizzying.
Globally, supply is failing to meet phenomenal demand and this is turning the market on its head. The hunger for plywood is accelerating OSB substitution, while one contact reported recently fulfilling an order of 9mm hardwood plywood for stair risers because it is now cheaper than MDF which would normally do the job.
Being a timber trader at present is a double-edged sword. The demand-led market is providing margins rarely seen in the timber industry and order books are full, but it comes with the challenge of securing enough stock to keep customers happy.
“Normally we pride ourselves on looking after our customers and making sure we have the material but there are times now where it’s out of our control, when we’re struggling to dictate what’s going on unless we pay the highest price,” one plywood contact told TTJ.
It’s the same for the OSB sector. “Customers are frustrated because they’re not getting as much as they could sell,” said a trader.
As demand for plywood and OSB has risen, so have prices. The cost of resins and glues has increased but also the US’s huge appetite for products, and its willingness to pay high prices, is influencing rates worldwide. The higher prices also make the US an attractive market for many of the world’s plywood mills, and European OSB manufacturers.
“The prices paid in the US are enormous,” said a contact. “The prices are fixed weekly, so it’s like the stock market. They go up and down more than in Europe but because they pay so much they’re drawing a lot of volume.”
Brazil and Uruguay’s struggles with Covid have impacted plywood production and now the massive US demand is absorbing most of what they are producing. As a result, in the past six months, prices of lower end constructional grades have risen by around 80%.
When US demand softens so too will prices but, with President Biden committing trillions of dollars to reinvigorate the economy, that’s not likely to happen soon.
“We’ve seen these things before but it does feel different this time,” said one trader. “There’s a worldwide increase in demand for timber products and it’s not a flash in the pan. There is a serious supply issue.”
Availability of Chinese plywood was reasonably consistent last year but it is now under pressure as buyers unable to source other supplies are turning to China.
“Anyone buying material away from China is being forced to go back there because they’re the only ones who can come up with solutions. Everyone’s done the same thing and now there’s not the extra material everyone was hoping for,” said one contact.
The dramatic market developments are now affecting birch plywood. It was stable over the past 12 months and prices were low, partly because Covid restrictions closed joinery and furniture production. Prices started to rise in the past few months, however, and one contact said in early April they jumped 20% in a matter of weeks.
“People are now asking for the material at the same time so it comes down to who will pay the highest price, and that’s pushing up the price of all birch ply,” TTJ was told.
The problems of securing plywood supply are compounded by the worldwide shortage of containers, port congestion and shipping delays. Container availability started to improve earlier in the year but that stopped when the Suez Canal was blocked by the Ever Given for six days in March.
Containers can still be found but there are massive delays, with shipping times twice the norm or longer, and even bigger cost hikes. The price of containers from China rose from around US$2,500 in February to US$14,000 in April, while containers from Malaysia and Indonesia have more than trebled from around US$3,000 to US$10-11,000, adding US$200/m3 to the price of Far Eastern plywood. The container shortage has forced many agents and importers to turn to break bulk, which is increasing competition for space on those vessels.
“We are desperately trying to ship by break bulk but there is not much space available because regular users have priority. It’s affecting the volumes we can bring in,” said one contact.
Break bulk also requires more planning. “You have to be a bit more organised,” said another contact. “You put more on a break bulk vessel than in a container so it can create more of a shortage; one minute you have loads of stock, the next you have nothing. It can cause problems for people not used to it.”
One contact believed agents and importers had established shipment plans and he did not foresee further supply problems, but another said container availability could worsen. There is talk that some shipping lines will discharge their containers and not wait in port to take empty containers back to China. Also, soon Christmas goods will be shipped from China to Europe and the UK and they always take priority in the container queue.
Unable to ship product, some Chinese plywood mills have had to reduce production or face cash flow and warehouse storage problems.
One contact noted that buyer specifications for Chinese plywood were changing. Whereas there had generally been a preference for red-faced tropical hardwood poplar core, buyers were now opting for eucalyptus face and back, or eucalyptus throughout, because it was easier to meet FSC, PEFC and EUTR requirements.
This gives buyers reassurance, especially in the wake of the Jiangsu High Hopes Arser group of companies (Arser Wood) having four of its FSC certificates terminated and two suspended pending further investigation. The company, one of the biggest FSC-certified suppliers to the UK and China’s sole importer of bintangor, was selling non-certified plywood as certified.
Plywood’s supply issue could work to OSB’s advantage as buyers look for plywood substitutes but it is contributing to the latter’s availability problems.
“Plywood is short so you could use more OSB but it’s short too so the combination has created even more demand,” TTJ was told.
Again, the US market for OSB is a big influence as some European producers are attracted by the higher prices, which in April were around £1,000/m3, up from £150/m3 in January 2020, but there is seemingly insatiable demand on this side of the Atlantic too.
“We just can’t get enough of it. From March onwards it’s got busier and tougher,” said one contact.
In the UK, housebuilding and homeowners using lockdown to do DIY, home improvements, loft conversions and garden buildings are accelerating what was already a strong, and growing, market for OSB.
“We always thought that the UK market for OSB could double. It has the capacity to grow and replace other products but it was always an availability issue: the more that’s available, the more people use it. There’s a strong growth trend and now it has a tail wind from Covid,” said one trader.
“Demand growth hasn’t been matched by growth in production capacity, despite increases in European capacity in recent years. The market seems to be able to take whatever volume is produced.”
Another trader predicted “big problems” going into the second quarter, largely created by European OSB going to the US. He said prices had risen by 36% in the past nine months, and more increases were coming.
Current conditions in the plywood and OSB markets, as with all timber products markets, have almost stunned traders. There is money to be made in the rising market but costs are rising too and the logistics problems of securing supply, and in the case of plywood, shipping, are ongoing headaches.
“The whole market is stressed,” said a UK contact. “Nobody in our business has been here before; we’re in unchartered territory.”
And whether it’s plywood or OSB, traders expect no easing in the market, at least for the rest of 2021, as the worldwide demand for timber will continue. There is the possibility that product availability issues could slow construction programmes in Europe and the UK but, ultimately, the underlying demand for timber products will still be there.
As the Covid vaccination programme widens and foreign travel opens up there is the chance that people will spend on holidays rather than their homes. Holidays will probably have a hefty price tag, however, and timber traders are confident that most of the £50bn spent on foreign travel each year will remain in the UK.
“This year 70-80% of us won’t have a foreign holiday so there is an enormous amount of liquidity being put into home improvements,” said a contact. “I can see in a year’s time we will be in the same situation. I can’t see what’s going to change it.”
Others agreed that there is unlikely to be any change during 2021.
“The market can change very quickly but I can’t see that happening. Perhaps there is a bit of a structural change as the general trend for wood products is upwards,” one trader said.
Another thought prices had peaked but demand would remain. “I can’t see pricing going much higher,” he said. “I can see it coming off a little bit but the demand is still going to be there and when demand is there, prices will hold.”
Another, however, predicted that as long as large volumes are being absorbed by the US, prices will continue to rise.
The consensus is that the market has so much momentum there will be no sudden changes. In the meantime, the plywood and OSB sectors will continue to tackle and make the most of what several described as the “craziest” market they had seen.
“Our industry is very busy and buoyant and as much as it sounds chaotic, and it is hard work, most are probably enjoying the run. We just hope it doesn’t have any long-term negative effects.”
