Summary
¦ Chinese plywood is around 30% cheaper than Malaysian.
¦ Competition between China and Malaysia has squeezed Brazilian ply out of the UK market.
¦ UK importers are said to be carrying significant stocks of Chinese ply.
¦ Finnish birch and spruce mills are booked well forward.

The annual dinner of the National Panel Products Division of The Timber Trade Federation, held in mid-November, used to be regarded by many buyers and sellers as an opportunity to establish pricing well into the future. However, such faith in the market now appears to be in far shorter supply, especially at a time when UK demand seems to have entered holiday mode several weeks prior to Christmas and when few if any industry experts are anticipating a bumper 2011.

“I would expect plywood demand to remain stop-start until there is more confidence in the market. Confidence is what we need,” said one. And another added: “There is no money in anything at the moment. People are selling at levels that don’t reflect the value of the plywood and the situation is not likely to change until February or March.” But at least one leading importer begged to differ, describing UK stocks as “comfortable” but likely to come under pressure early in the new year owing to a lack of forward buying.

Chinese plywood continues to dominate the UK market as it maintains an estimated 30% price advantage over rival Malaysian product. However, UK importers of Chinese material are said to be carrying significant stocks, and prices have been softer of late. One importer attributed recent developments to “weak” sellers acting out of a need to generate cash flow, whereas other contacts blamed the “headlong plunge into break bulk” which has resulted in a large volume of plywood reaching the UK “regardless of whether the market needs it”.

If most forecasters are proved to be accurate, China’s currency will continue to strengthen over the coming months and the country’s competitive position on international markets will be impaired to some extent. At the same time, China’s mill owners are expected to face labour cost increases of, reportedly, 20% per year over the next five years. And one UK expert who recently visited China said that the country may have insufficient core veneer to sustain massive further growth in plywood production.

Certified material

According to a regional expert, Malaysia’s plywood exports to the UK are being – and will continue to be – sustained by demand for certified material from buyers prepared to pay what amounts to a significant price premium. In recent weeks, exporting mills in Malaysia have made attempts to push their prices higher in a bid to offset rising costs of timber, glue, labour and transport, as well as the weaker US dollar. There are also renewed suggestions that the quality of standard ply produced by some of Malaysia’s mills is being impaired through their attempts to compete with China.

Competition from Malaysia and China has effectively squeezed Brazil out of the commodity end of the UK hardwood plywood market, with sales limited to large sizes. Prices have continued to rise, not least because of falling production in Brazil and a growing domestic economy.

The competitive position of Brazil’s elliottii pine plywood producers has been dealt a serious blow over recent months, with the price differential to rival Chinese product currently estimated at between 15-20%. Minor price falls were reported several weeks ago for Brazilian ply although the lower values appeared to provoke very few additional purchases.

Subsequently, significant buying from, notably, Germany served to renew earlier firmness at a time when, according to some experts, stock levels in the UK are starting to show the effects of a prolonged period of very limited forward buying. “FSC and/or certified structural panels appear to be shorter, particularly in the main thicknesses,” TTJ was told.

“A lot of elliottii buyers have held back and we could see some shortages,” said another.

That said, UK demand for elliottii is far from stellar, with the last couple of months yielding sales volumes well below the norm for this time of year. Few major forward orders are now anticipated prior to Christmas.

UK demand

Although UK orders for material of Chinese, Malaysian and Brazilian origin are muted for the time of year, plywood is still attracting pockets of demand. Latvian ply is said to be generating strong levels of interest in the UK and lead times on standard products are extending into March or even the early part of the second quarter. Sales opportunities have been enhanced by reports of 8-10% price increases on Russian plywood early in the fourth quarter in response to, among other factors, log supply issues and a healthy domestic market.

Price increases on Latvian material are also in the offing, with a producer representative indicating that average hikes of 9% are scheduled for implementation in the UK at the start of January. Although the forward market is demonstrating a resilience which has easily exceeded earlier expectations, there is still reason to be concerned that budget cuts in the UK will give rise to significantly weaker sales conditions for Latvian plywood at some point next year, he added.

Mills in Finland are reportedly booked well forward on both birch and spruce plywood. In the case of the former, delivery times are out to, typically, the end of January while price increases of around 5% are mooted for the start of the same month. “We are minimising the increases to protect our volumes,” a producer said.

Some more minor price increases were implemented on Finnish spruce plywood in the early part of the fourth quarter. Mills are said to be booked through until, typically, the end of January next year despite the year-end decline in sales occurring early in some markets, including the UK. “Demand has perhaps dropped off slightly earlier than normal this year,” said a producer. He attributed this in part to the fact that many customers are preparing for longer breaks over Christmas in the light of their own poorer business prospects heading into 2011.

In this context, one contact this week reported feedback from a credit insurance company that 2010 brought fewer plywood business failures than last year. However, most plywood experts are expecting a difficult ride in 2011. “At best, we would hope to maintain 2010 volumes,” was a message echoed by many.