Summary
• The pound/dollar exchange rate and freight costs are making UK importers cautious.
• Malaysian plywood suppliers have tried to raise prices in the UK.
• Brazilian hardwood exports have fallen.
• Buyers are looking for cheaper alternatives to elliottii pine ply.
• Latvian exports to the UK have been quite strong.
• Demand for OSB is improving.

Prices paid for plywood in the UK have been relatively steady to firm – despite the fact that demand is generally below par for the time of year. Against this backdrop, industry contacts say that any significant upturn in domestic consumption will have a substantial impact on forward prices. One contact summarised the thoughts of many others in saying: “Supply in the UK is okay for current demand, but if demand suddenly clicks up a few notches, we could be in trouble.”

There has been evidence of some restocking in the UK but two factors have combined to breed a sense of caution among buyers over here: first, the inconsistency of the exchange rate between the pound and the US dollar; and second, the surge in freight rates. “It is hard to control your costs when you don’t know what the freight charge is going to be,” said one contact.

China’s plywood mills have looked to be relatively firm on their prices, not least because of rising costs and supply issues; 70% of the country’s commercial plywood producers are thought to have either shut down or to be under the threat of closure.

Suppliers of Malaysian plywood have been attempting to edge up their prices in the UK since the late summer, although increases to date have been insufficient to offset higher producer costs relating to, for example, logs and labour. The drive for higher prices among Malaysian mills has also been spurred by the unfavourable rate of exchange between the ringgit and the US dollar.

Malaysian price rise

Noting that the price of BB/CC WBP plywood has increased by around 4% in dollar terms since January, mills could be looking to push up their prices by 5% or more for November and December shipments, one contact said. Severe production capacity cuts have already been implemented in some parts of the country to align with log availability, he said, before adding: “I would expect to see less hardwood-throughout plywood being available from Malaysia in the coming months, and what is available being offered at higher prices.”

TTJ was also told this week that, despite a growing interest in certified hardwood plywood out of Malaysia, the UK market remains more price sensitive in its buying patterns than some Continental countries.

Compared to the past, a larger proportion of the Chinese plywood – and to a lesser extent, the Malaysian ply – entering the UK is now coming through a handful of large-scale importers. One importer said that “historically the UK has had too many people in the supply chain”; and while agents would continue to play a role in “niche” areas, major importers would dominate the large-volume end of the plywood market in the UK, he predicted. Major importers enjoy economies of scale and are able to offer highly competitive prices, he added.

While acknowledging the prominence of these large importers in the market place, other contacts highlighted the valuable contribution made by agents. “A very traditional role of the agent seems to have been rekindled during this period [of recession],” said one. “Agents have extended credit lines and have offered support to a wide range of importers.” Another argued that agents supply expertise and also help suppliers develop new products and moves into new markets. At the same time, he added, they help to maintain a balance that ensures business offers something both to the mill and to the end user.

Brazilian exports

Producers’ inability to live with current export market prices has reduced the flow of Brazilian hardwood ply shipments to the UK, with mills hit by the effects of a weak US dollar in relation to their domestic currency.

Meanwhile, in sterling terms from the UK buyer’s perspective, the cost of elliottii pine plywood from Brazil has soared by more than a third when comparing July shipments with January 2010 arrivals. Freight costs have been a significant factor, with container rates spiking by an estimated US$900 per box over recent months. And with logging difficulties in Brazil, mills have been keeping a tight rein on capacity utilisation rates in a bid to maximise returns that have been undermined by the strengthening of the real in relation to the US dollar. Late shipments into the UK have also helped to keep this market on the boil.

Unsurprisingly, there has been buyer resistance in the UK to the elevated price levels for elliottii; it is understood that a number of leading importers have responded by investigating the possibility of reintroducing Chinese pine plywood to the UK market given the improvement in its competitiveness with regard to product from Brazil. “It’s starting to arrive now – and in increasing volumes,” a leading importer told TTJ. Other alternatives to Brazilian elliottii are also being sourced from Chile and Uruguay.

Shortages

The bottom line with all these developments is that shortages have begun to emerge in the UK for all forms of elliottii – both accredited and standard – in the 9-24mm thickness range. “If you have had material to sell, you will have made a good margin,” TTJ was told.

The significant increase in elliottii prices on this side of the Atlantic has raised hopes among Finnish spruce plywood producers that they might be in a position to push up their own prices. However, according to a spokesperson for one of these companies, no hike is likely to occur before the first quarter of 2010. “We would like increases now,” he said, “but it’s not clear whether the market could take it.” Undoubtedly, demand in the UK has been dampened by the strength of the euro in relation to the pound.

Finnish spruce

Finnish spruce ply volumes have held up reasonably well and availability is currently at around one month or just a little more for UK customers. However, lead times out of Finland are slightly shorter for standard specifications of birch plywood, for which UK demand has been relatively quiet. Producers in Finland have faced availability issues in respect of good-quality logs from Russia, prices of which increased significantly in early autumn. Wet weather and reduced harvesting activity in Russia has meant that the UK has received only “sporadic” offers of the country’s birch plywood – and at firm prices.

As for Latvia, where the government has guaranteed log availability for domestic production, exports of plywood to the UK have been quite strong in volume terms but margins have been eroded by the currency factor. Although prices for the UK market have been raised by around 3% for the fourth quarter, importer-led sales have been healthy because the expectation is of further increases in early 2010. Lead times from Latvia are said to be averaging around four weeks.