The old year ended with firming prices for both Brazilian and Far East plywood, as well as continuing upward momentum for OSB.
There was a significant fall in Brazilian elliottii pine plywood prices in the US in the latter weeks of 2003 but many UK specialists believe the peak may not yet have been reached on this side of the Atlantic, despite having risen by 20-25% over the final quarter. They back up their opinion by pointing to shortages in certain dimensions: particular difficulty has been reported in obtaining the 9mm and 12mm thicknesses, with one trader claiming that he could sell what has been available to him “a dozen times over”. The market is therefore expected to remain strong at least into February.
Supply of elliottii from Brazil has been constrained by a protracted strike affecting the Ibama fiscal authority responsible for export documentation and permits. This has led to the interruption of shipments and to an “enormous” pile-up of material on the quays. Speaking prior to the Christmas break, regional experts suggested, for example, that the main port of Paranagua was in total chaos because many shipments were “out of rotation”.
Meanwhile, Brazilian hardwood plywood is said to have benefited from increasing difficulties in sourcing Far East material as well as from the prospect of faster shipment times. One contact observed: “Brazilian hardwood plywood mills have got to believe in themselves more – they have got a good product but are getting buttons for it.” Several industry sources pointed to the possibility of shortages in certain specifications, notably thinner panels of up to 9mm thickness.
Freight rises
Firmness in Far East plywood prices has been underpinned to some extent by a US$8-10/m3 freight rate increase in December, while further rate rises of US$5 and US$5-10 are anticipated for January and February respectively. The Indo96 list price was put at around -18 to -19 ahead of the Christmas break, but mills are said to be looking for significant price increases as the market moves through the first quarter.
It has been underlined once again that the direction of the UK market for Far East plywood will depend to a large extent on the effectiveness of the clampdown on illegal logging. For the moment, most contacts believe the UK market to be in reasonable balance, although a sizeable minority claims there is “not enough around to keep the market happy”.
The days of significant sales of US plywood into the UK market may well be over, according to a leading expert in the field. Imports were extremely limited last year and, as yet, little or no volume has been sold for arrival in 2004. Instead, the vast proportion of US plywood has been selling into its domestic market at rising price levels, not least because of excellent housing start figures. Strong consumption on the home market is expected to continue this year given the strong signs of economic recovery in the US and the fact that the country is in an election year, which traditionally bolsters business activity.
The weather is proving to be the guiding factor in the plywood market in Russia and the Baltics. Last winter, abnormally low temperatures disrupted exports and led to the introduction of ice surcharges at the worst-affected ports; this time round, the enemy during the latter part of 2003 was “sticky” conditions in the forests which created problems for loggers. Production has been badly affected, with many operators running well below capacity and some in Russia having shut down completely. In the run-up to Christmas, shortages were emerging in certain sizes – notably the thicker 12, 15 and 18mm panels – and lead times were already extending into late January and early February.
One local specialist talked of a mad rush for plywood in the middle two weeks of December and of price increases in US dollar terms of between 2-5%. The domestic Russian market is absorbing a substantial proportion of the available plywood and is prepared in many instances to pay more to secure its supplies.
Mixed fortunes
In Finland, there have been mixed fortunes for the birch and spruce plywood sectors. In the case of birch, mills were reportedly taking extended Christmas holidays due to a lack of orders; the key German market has remained largely flat despite the country’s key business confidence barometer having risen for five consecutive months in the latter part of 2003. Finnish birch order files for the new year were described prior to Christmas as merely okay; lead times are down to two or three weeks for more standard items while prices have been stable at a low level. As throughout last year, producers are continuing to feel the pressure of competition from mills in Russia and Latvia.
Finnish birch producers may be on short lead times but, prior to the Christmas holidays, the country’s spruce plywood mills were already quoting into February. Noting the general strength of global demand, one contact added: “The US has bought a lot of plywood in the market so we have been plugging some of the holes.” Prices were not being increased in late 2003 but remained under review for a possible upward move early in 2004, he confirmed.
In assessing the prospects for 2004, several experts suggested that availability of some types of plywood may fall short of achieving levels on which many importers and merchants have come to rely. As a result, generally upward price pressure is expected to persist for the foreseeable future.
Meanwhile, most contacts identified CE marking as the major issue confronting the plywood sector this year. Marking will become a requirement on all wood-based panels from April 1 in order to conform to safety demands laid down in the Construction Products Directive. “Between January and March, I would expect a lot of people to be looking for CE compliant plywood to offer the construction industry,” said one panels expert.
Similarly positive sentiment is to be found within the OSB sector. Confidence in the domestic OSB sector is being bolstered by the possibility that CE marking might lead to new business in 2004 because of the lack of competition from imported board and the increasing incursions made by OSB into application areas traditionally occupied by plywood – a process assisted to some extent by the horrendously low OSB prices of recent times.
Last year will go down in timber industry annals as one of the most topsy-turvy in the comparatively short history of this material. The first half of 2003 was characterised by rock-bottom prices and the threat of closures, but this has been followed by a period of sustained recovery.
Strong demand
And despite a steep and sudden drop in OSB prices in the US during the run-up to Christmas, players in the UK market pointed to strong demand across Europe and were reasonably content that the supply and demand ratio has been coming more into balance. There was “no chance” that the US price dive would affect Europe to the same extent, TTJ was assured. “There could be a marginal correction but the first quarter is going to be strong for us,” underlined a domestic producer.
Most of Europe’s OSB producers are said to be sold out until February or March. According to a domestic producer, prices in the UK had risen by some 40% since last summer and some products – notably OSB 2 and the timber frame grades – had been attracting even higher percentage increases. Prices may have reached a plateau for a while but further increases have been introduced for January, he said, before adding that OSB prices “are just about hitting breakeven for the first time in years”.
