Since the last plywood report, the Brazilian hardwood plywood market has “crashed” by as much as US$80/m3 and is currently in a “disastrous” state, according to leading players in the trade. Large volumes were purchased by agents and importers during the second half of last year in the belief that prices would continue to improve, but consumption failed to keep pace and the almost inevitable price collapse duly materialised.

“Prices went up too fast – the trade didn’t hold its nerve and started ditching material,” said one trader. Another added: “It has undermined volumes that are both on the water or already over here.”

Meanwhile, the price of elliottii pine plywood from Brazil has been holding up reasonably well in the UK over recent weeks, although the market remains “highly competitive”. The UK is thought to be holding reasonable volumes but, at the same time, there have been isolated reports of slight supply problems on certain thicknesses, notably 18mm.

The problems with Brazilian hardwood plywood appear to have had some impact on Far East material, with prices said to have settled generally around Indo96 list -19 or -20 for immediate shipment after having been nearer -15 a couple of months ago. Demand has been generally slow in the early weeks of 2003 and there have been reports of boats struggling to find full loads because of a lack of logs.

Longer-term prospects will depend to a large extent on the impact of logging restrictions in Indonesia. “These restrictions need clarification,” said one trader. “At the moment, we don’t know what we will be able to get from Indonesia and this uncertainty is not helping.”

Price rise predictions

A number of leading plywood sector players have predicted higher prices for 2003 on the grounds of increasingly restricted supply from the Far East. However, despite a gradual erosion of UK stocks, the relatively low level of demand is prompting some analysts to forecast no major price improvements before the second half of the year.

Temperatures below -30 degrees C are having a detrimental impact on the plywood trade in the Baltics. According to one regional expert, the weather is the worst seen in 25 years with 60cm of ice reported at the Estonian port of Tallinn. Indeed, ice class regulations have been imposed at both Tallinn and Riga, while shipping lines have introduced ice-breaking surcharges of between £2-2.50/m3 for what is believed to be the first time.

Plywood factories in the Baltics have been experiencing production problems – particularly in peeling – and are understood to be operating generally some way below full capacity. Despite uninspiring birch plywood sales in December and a slow start to the new year, the problems caused by the severe weather could ultimately lead to shortages – especially if, as some have predicted, the big freeze persists into March or even April. For the moment, lead times on new business shipments to the UK are around four to six weeks. “We will be pushing for higher prices for February shipments,” confirmed one contact.

Russia’s plywood mills are continuing to benefit from strong domestic demand, with the result that birch plywood export prices have risen by around 10% since November. Nevertheless, some importers have reportedly been buying any available volumes in response to the strength of demand in Russia itself.

UK demand for Russian plywood was relatively sparse during December and early January but, according to regional contacts, shortages are expected to develop as early as next month, particularly in the thinner and higher grades.

The lower cost base enjoyed by Baltic and Russian birch plywood producers has increasingly focused the minds of their counterparts in Finland on the end user route to market and on adding value. UK demand for Finnish products was reportedly fairly strong in the final weeks of 2002 although the new year has begun with supply problems caused by severe weather conditions. Lead times are put at between four to six weeks. Many smaller vessels have been unable to leave port while the larger ships have been “inundated” with tonnage.

&#8220UK demand for Russian plywood was relatively sparse during December and early January but shortages are expected to develop as early as next month”

For the moment, the UK market appears to have adequate supplies of Finnish birch and spruce plywood. Early 2003 demand for the latter has been strong and, with weather-related difficulties also having an impact, lead times have extended to between four and six weeks from the norm of around three weeks. According to one leading producer, price increases of £5-10/m3 are under consideration for April onwards.

North American claims

North American plywood interests on this side of the Atlantic continue to be aggravated by what they claim is the use of inappropriate, cheaper alternatives in structural applications. One representative noted, however, that help may be at hand in the form of a voluntary, EU-wide CE marking scheme covering all panel products. Voluntary from April 1 this year, but compulsory from April 1, 2004, this will put the focus squarely on fitness for purpose since incorrect specification could lead to a fine or even a custodial sentence, he contended. “The trade needs to pay attention to this or it could be catching an almighty cold.”

For the moment, the UK and wider European market remains largely a ‘no-go’ area for North American plywood. The most recent statistics from APA – the Engineered Wood Association indicate that deliveries to the UK totalled just 1,435m3 in the first 10 months of last year compared with 8,005m3 during a by no means buoyant January-October 2001. The comparative figures for the EU as a whole were 4,919m3 and 22,656m3 respectively.

One trader acknowledged that, while his company had brought a few truckloads of North American plywood into the UK around the turn of the year, the underlying trend remained broadly unchanged because of the estimated 12-15% price differential in favour of elliottii pine plywood from Brazil.

In a move that would help level the playing field, Brazil is widely expected to lose GSP duty status on all its plywood during the course of 2003.

Plywood demand in North America is reasonable on the back of encouraging housing starts. The importance of strong home sales in the US has become ever more important given that many of its export markets – including the Caribbean countries – have been seduced by the cheaper offers from Brazil.

Bleak news for OSB

And while OSB sales continue to nibble away at plywood’s market share in North America, demand for the latter panel material continues to be bolstered by relatively low prices and a healthy housing sector. On this side of the Atlantic, meanwhile, the past couple of months have produced yet more bleak news in the OSB sector, with prices reportedly dropping by more than 10% in November. Demand remains reasonable but over-capacity continues to undermine the material’s immediate prospects.

One leading supplier observed: “In 2002, we were up year on year in terms of volume and our market share increased, but this remains an unprofitable business and board is being sold at well below the cost of production. There seems to be less imported board around at the moment, but that is probably because prices are pretty grim over here even for the overseas producers.” The same source anticipated a 20-30% increase in OSB sales volumes throughout Europe during 2003. He also felt that prices had bottomed out and that “small” increases might begin to seep into the market by the second quarter of the year.

Another leading supplier to the UK market confirmed that his company was holding off bringing large volumes into the country until prices improved. “There is massive price pressure at the moment,” he stated.