Summary
• UK plywood stocks are low, in line with demand.
• Malaysian plywood prices continue to rise.
• The earthquakes in Haiti and Chile have put pressure on US mills.
• Finnish exports are being affected by the stevedores’ strike.

With plywood bookings in the UK less than robust, the country is widely said to be “well under-bought” on a number of the traditional imported products, including hardwood plywood from the Far East and elliottii pine plywood out of Brazil.

Resistance to ever-firming prices has limited the volumes of Malaysian plywood ordered in the UK. And the general view is that, while these prices may perhaps become more stable in the second quarter, they are unlikely to fall. Mills are declining counter offers because of the strength of the demand they are fielding, not only from their domestic market but also from, notably, other countries in their own region. “Importers would like offers to be around 10% below the current mark but they haven’t got a snowflake in hell’s chance of getting it,” one contact said to TTJ.

The rising trend in Malaysian plywood prices is partly the result of galloping producer costs. Not only are logs a more restricted and ever costlier resource, glue costs have risen on the back of a volatile methanol market and stricter labour rules are adding to mills’ financial burden. Combined, these costs are believed to have jumped around 30% over the past 12 months; according to one expert, mills have absorbed a significant proportion “but have now reached the point of no return”.

Freight rates

Another major factor is the estimated five-fold increase in freight rates since last autumn. “Break bulk is becoming an alternative and could be cheaper from some Malaysian ports,” TTJ was told this week. And according to one regional expert, poor container availability out of the region means that “shortages will appear in the UK whether buying increases or not”. A major importer added: “There are big shortages on the horizon for both Malaysian and Chinese plywood.”

Like Malaysia, China is facing labour issues because only around 60% of the plywood industry workforce is thought to have returned following the Chinese New Year holiday period. Many transient workers from outlying areas go home for the New Year celebrations, never to return.

In real terms, FOB prices for Chinese plywood have recorded a sideways to modest upward movement since the end of the Chinese New Year break whereas freight costs have escalated, with some shipping lines already adding peak-season surcharges. A number of importers into the UK have switched from container to conventional shipping. “On average, it makes a 10% saving on the cost price, and there are also a lot of on-costs with containers,” said one contact.

Meanwhile, UK demand for Chinese plywood is ticking along, with several contacts highlighting a continuation of the trend from poplar core towards hardwood-throughout.

Chilean earthquake

In the softwood plywood sphere, the recent earthquake in Chile has had a significant impact. Since the disaster, prices of elliottii pine plywood in Brazil have increased by US$20-25/m³, partly on the back of additional export orders to the US to make up for missing Chilean volumes. “Plywood mills in the US are already stretched because of strong demand from their own military and from putting wood into Haiti,” said a contact. Prices of US southern pine plywood have jumped around 20% in the last month or so.

The ripples from these factors are already reaching this side of the Atlantic. Major buyers in Europe have taken note of the rising elliottii prices and have “begun to scramble for supply”, TTJ was told this week. “The UK and Europe are well under-bought. A big increase in demand would be difficult to satisfy because there isn’t the wood in the market.”

Supply from Brazil has also been hit by exchange rate factors as well as by the impact of atrocious weather on logging and therefore production capacity utilisation rates.

Elliottii has been selling in the UK at well below full replacement cost: one contact said the gap reached £1 per panel on 18mm before narrowing in early March. And he added: “By the end of March or early April, I would expect there to be a shortage of softwood plywood in this market.”

A major importer said that the UK market was “at least 15% below replacement cost” and that “massive increases” were likely, partly because regular European consumers of Chilean plywood were now looking at elliottii as an alternative.

Brazilian plywood

As regards Brazilian hardwood plywood, producers have firmed their export prices in response to rising levels in the Far East. Volumes arriving in the UK are restricted mainly to large sizes.

Despite an increase in Russian plywood prices during the first quarter of 2010, Finnish birch ply producers have held their prices relatively steady in a bid to “maintain sales volumes in a dampened market”, according to a UK-based expert. Mills are keen to achieve higher returns from the UK – not least because of the renewed weakening of the pound in relation to the euro – but are “nervous about losing whatever business they have got”, he added. As a result, the clever money seems to be on prices remaining around their present levels for the second quarter. Of late, lead times on Finnish birch plywood appear to have edged out slightly to around four weeks.

The Chilean earthquake opens up the possibility of an improvement in European demand for Finnish spruce plywood, enabling producers perhaps to introduce higher prices in the near term. For the moment, their lead times are, typically, at five to six weeks.

Stevedoring strike

At the time of writing, a stevedoring strike in Finland is putting a question mark over the continuity of the country’s plywood exports. Shipments from northern Europe are also being affected by ice in the Bay of Riga and elsewhere; delays of several days have been reported while some shippers have responded by adding ice surcharges to their prices.

The decline in the value of sterling has also intensified the pressure for price increases on Latvian plywood. According to one contact, nervousness over the willingness of the UK market to pay higher prices resulted in the shelving of a proposed price increase in the first quarter; however, he added, a hike of between 3-6% has been implemented for the second quarter and “the customer base seems to have accepted it”. A further rise may be considered in order to take account of exchange rate developments, he added.

Latvia’s long-grain and large press plywood production is booked well ahead, resulting in lead times of up to 10 weeks and price bullishness. Cross-grain lead times are put at nearer three to four weeks.