The holiday season and building project delays were blamed this week for taking some of the edge off the UK plywood market, although the trade is continuing to adopt a generally upbeat tone. Certainly, compared to this time last year, demand is at a higher level and the trade appears to have more scope to make profits.
The most notable recent market movement has been a drop in the price of Brazilian elliottii pine plywood from its May FOB level of just under US$300/m3 to nearer US$240-250. “The market has cooled,” said one expert. “We had seen a lot of inter-importer trading but the higher prices have now reached the merchants and they have balked at them.” Other contacts attributed the price drop in the main to a fall-off in demand from the US and a resultant increase in the volume of material being offered into the European market. The drop in the elliottii price has also led to a weakening in Brazilian combi plywood values, although hardwood plywood has been affected to a significantly lesser extent.
These weaker prices have emerged despite a number of stubborn supply issues. Most notably, congestion at Brazilian ports has led to delays and further evidence of cargoes being “bumped” from one ship to another. According to a recent eye-witness report, the line of trucks queuing at the port of Paranagua was 30km long. As one contact observed: “If you can’t get the material, it doesn’t really matter what the price is.”
Shipping-related problems do not necessarily end once the cargo has arrived in the UK: for example, container de-stuffing facilities at Tilbury have been unable to cope with demand and this has led, in some instances, to several weeks’ delay. The market has also had to contend with a rapid increase in shipping freight rates out of Brazil. Several contacts confirmed that, over the past couple of months, these had risen from around US$40/m3 to more than US$60.
Opinions vary on the volume of elliottii pine plywood currently in the UK. Several contacts suggested that 9mm and 12mm board was not plentiful, while others argued that supplies have been coming through at a better rate in recent weeks. Several contacts pointed out that a large volume of softwood plywood had been bought of late to take advantage of the quota; this was expected to run out in early to mid-July – two months later than in 2003.
Elliottii prices
While acknowledging that elliottii had had “an exceptional run” in recent months, some sections of the trade are disappointed that prices dropped so swiftly. “They won’t sell more by lowering prices,” said one expert. Another prominent industry player suggested that plywood prices were still “at least 10% adrift” of reflecting replacement costs. “It is deeply, deeply frustrating that people fight on price when there are no grounds for lower prices.” Indeed, he added, higher freight costs and the prospect of 7% duty should be giving yet more impetus to the market.
Achieving replacement costs is a problem that also afflicts the UK market for Far East plywood.
“Shipments of the more expensive wood are due to arrive in the UK shortly, but this will probably get averaged out at a lower level because people won’t pay the true price for it,” TTJ was told.
Far Eastern output
Many Far Eastern mills are short of logs and, in some instances, their outputs are said to have tumbled by 30-40% over the past six months. That said, UK demand is said to have dropped off in line with supply, which was widely described this week as “sufficient”. Several vessels have arrived in the UK over recent weeks but some experts expect shortages to emerge in certain specifications over the next month or so, partly because of a lack of forward buying. “Customers have been holding off from buying in the hope of lower prices, but it won’t happen,” said one contact.
Our previous report placed the Indo96 list price at between +12 and +17, but ask a dozen people and you would probably get 12 different opinions on where price levels stand. Describing the recent market direction as “sideways”, one source suggested that some companies’ “cash flow considerations” were preventing others from pushing the market higher.
There are reasonable supplies of Chinese plywood in the UK and at least a further 25,000m3 is due to arrive soon. The company responsible for importing this material confirmed that it would be “the cheapest on the block” and would appeal to that element of the market that buys solely on price. A spokesperson added, however, that Chinese plywood has also carved a niche for itself among a number of end users requiring a lightweight plywood.
The last couple of months have brought little change to Russian and Baltic plywood market conditions. These materials have been the focus of strong inter-importer trading in the UK and healthy demand from the US. The market has also been influenced by buoyant domestic demand in Russia.
Log quality has remained high, thereby reducing the availability of the C grade plywood favoured by UK customers. Shortages are said to have emerged and prices are closing the gap on BB grade. “People in the UK are reluctant to put on large volumes in case the prices crash and they get left with stock,” said a regional expert. However, while prices could be expected to level off by September, he envisaged no downward movement in the coming months. “We have seen a 30-40% price increase since the start of the year but price levels are still some way short of their historical highs,” he added.
The well-filled order books and long lead times experienced by Baltic and Russian plywood producers have helped to build bullish sentiment among Finnish manufacturers. The country’s spruce mills are reportedly fully allocated and are not looking to take on new customers. Orders have been boosted by increased importer interest in stocking CE-marked plywood, by elliottii’s recent high prices and, to some extent, by concerns over obtaining supplies from Brazil. Meanwhile, Finland’s birch plywood producers are quoting delivery times into October and have benefited from an upturn in demand from the key German market.
OSB demand
The latest OSB industry news has been dominated by the announcement that, subject to approval, Nexfor Inc’s panelboard business Norbord Inc is to buy the OSB and particleboard assets of Agglo NV of Genk, Belgium. The additional 230,000m3 of capacity will make Norbord the second largest producer of OSB in Europe with a 20% market share. According to Nexfor, European demand for OSB is growing at an annual rate of 15-20%.
In terms of the latest market conditions, a leading domestic producer dismissed as “without foundation” a belief among certain sections of the UK trade that OSB prices might be about to follow the US in trending downwards. The two markets were distinct and the US price adjustment was the result of lower demand prompted by a combination of weather problems and a desire among some buyers to “take the heat out of the market”, he told TTJ. “US prices are also expected to go back up again.”
Even though US prices are still ahead of those available in the UK, domestic producers are preferring to concentrate on satisfying a domestic demand which is deemed to be “better than normal” for this time of year.
