UK plywood demand has remained relatively stable this year but exchange rate changes and low margins continue to pose trading challenges. The sector is also seeing global trading shifts, as demand dips in a number of major consuming countries.
"Demand is reasonably good, but everything is still a bit volatile," one company told TTJ. "Exchange rates are making people jittery," said another business. "Buying little and often is the way if you’re sensible as nobody knows quite what’s going to happen."
Despite some companies following this policy, UK stocks are relatively high, thanks in part to market conditions in Russia and Brazil which are driving producers’ exports.
The state of Brazil’s economy is prompting producers not only to look abroad, but also cut elliotis pine plywood prices. According to Brazilian trade association ABIMCI, elliotis exports to the US more than trebled to 105,994m3 in the first half of 2015, compared to last year. And the ITTO says the value of Brazil’s total pine plywood exports this June jumped 17% to US$34m, compared with US$29m in 2014.
But more worrying, say traders, is the amount of Russian birch ply coming to market – largely a consequence of the impact on domestic Russian demand of Ukraine crisis trade sanctions. The result is price deflation.
"Russia has put big industrial projects on hold so they’re looking for other markets. There’s been a lot of pressure on the UK and European birch plywood markets to take up volume and that will affect price," said one trader. The two price reductions his company had made this year were mainly currency related, but"where the market goes from here depends on where the Russians find their best market".
Another company detected the impact of increased Russian supply already.
"Birch plywood prices have been coming down month on month since January. Where will the bottom be?" they said, adding that birch plywood prices were now not far off Far Eastern plywood.
For a China-based supplier, the UK and European markets have remained generally weak with relatively high stock levels and, with the onset of the summer holiday period, there was unlikely to be any significant recovery until the autumn.
China’s domestic demand for plywood has also fallen significantly, with the faltering economy leading to building projects being postponed and cancelled.
At present production still exceeds demand for Chinese plywood and some mills are falling victim to the tough business climate.
"Mills continue to close with many defaulting on bank loans taken out to expand and increase their production," TTJ was told.
Some mills are also having to reduce working hours, or stop production temporarily, to meet government pollution reduction targets. Among the cities affected are the major plywood centres in the north, such as Linyi, Pizhou, Xuzhou and Wenan.
In addition to reducing their work hours, mills are also being told to switch from coal or wood to modern oil or gas-burning boilers. This, of course, places further financial burden on Chinese companies hit by the domestic demand downturn.
"In the worst case scenario, mills in Wenan have been instructed to stop production for one month, while those in Linyi have to cut working hours and change their fuel," TTJ was told.
China Crisis
The result of this combination of factors is Chinese mills also turning to other markets, such as the US, Middle East and the rest of Asia, where demand has either increased or remains more stable.
"In the past the Chinese have tended to concentrate on specific markets, but they’re now becoming more flexible and able to cater for different requirements," a trader said. "[And they’re finding that] while UK and European markets have a reputation for demanding the highest quality at the lowest price, others are prepared to be a little more reasonable and offer a fair price which reflects the actual quality."
UK traders are keeping a watchful eye on China’s slowing economy but so far the impact here has been on quality, rather than quantity of supply.
"It means some of the smaller mills can no longer exist so takes away some of the potential rubbish. It’s only a good time if you’re a Chinese mill that has a few quid and you’re making a reasonably good product. If not, you’ll struggle," said an importer. Another trader, however, said that some quality problems persist.
"The big thing for us is the same now as always: ensuring we maintain a standard in what we source, a standard of quality as well as certification."
He added that his Chinese suppliers were quite open if they were having trouble sourcing quality product.
The China-based contact said EU Timber Regulation (EUTR) compliance continued to be a problem for many Chinese mills. In fact, it was alleged that some that were struggling to comply were exporting their plywood via mills or export agents that were able to, although it wasn’t explained how the latter could provide the required chain of custody data from the original producers that European ‘operator’ importers would require under the EUTR.
Despite a raft of issues, however, plywood traders are fairly optimistic and expect stable demand for the rest of 2015.
"The UK economy is doing better than expected; it’s not necessarily all in manufacturing, but the manufacturers we deal with seem to have reasonable order books," said one supplier.
Others agreed.
"The last five years have been very challenging for a lot of people so you have to look at it philosophically," said another trader. "We’ve come through the other side and will be there to take advantage when things are booming again."
Diversity keeps UPM upbeat
Serving a broad spread of markets worldwide is helping to keep birch plywood giant UPM optimistic.
Mika Sillanpää, executive vice-president of UPM Plywood, said, while Europe’s construction sector had been at a virtual standstill for years, there were now signs that activity was on an upward curve and demand was also good from the repair, maintenance and improvement sector.
The latter, he said, starts from a higher base as it faired better through the recession.
"Although construction volumes have been low throughout Europe, renovations are happening all the time and that has kept plywood sales going."
UPM exports some 90% of its plywood output and its overseas business has continued to climb, with its diverse range of key target markets also including transport flooring and liquefied natural gas (LNG) carrier linings.
Birch plywood’s insulating characteristics make it ideal for the extremely cold temperatures required to contain LNG and UPM said the market has remained steady and strong.
"One carrier requires 1-3,000m3 of plywood," said Mr Sillanpää.
"This is a growing business with a bright future."
"The fact that the large markets in Europe, the US and China still use a lot of steel in transport means we still have a great deal of potential for growth," said Mr Sillanpää.
UPM is investing €40m in doubling capacity at its Otepää mill in Estonia.
OSB demand rises
The Uk’s Osb imports rose by 28.4% to 95,000m3 in the four months to April, according to the latest figures from the Timber Trade Federation.
The increase is bigger than the 25.7% rise for the same period between 2013 and 2014, and contrasts sharply with the 27.2% decline between 2012 and 2013.
Meanwhile, from January to April the volume of exports fell 33.1% to 41,000m3 compared with 62,000m3 for the same period in 2014.
With OSB demand improving across Europe, manufacturers are said to be seeking price increases of 3-4%.
Premier Forest Products is one company that is supplying abroad – this time to the furniture manufacturing sector in south China.
Through its partner in Romania, Premier will supply an initial trial order of 20 40ft containers of OSB and another two containers of Scandinavian timber worth a total of €250,000.
"This deal is a reversal in general furniture trends overseas and shows that Chinese producers are just as keen to use top-quality product as their British counterparts," said Premier director Nigel Williams.
