Following a relatively quiet summer, the plywood sector is hoping that the arrival of September will nudge buyers into greater action. However, there is also a feeling that UK demand has held up reasonably well in recent months compared with many parts of mainland Europe.
China remains the dominant factor in the UK market – having supplied 54% of hardwood plywood imports in the first five months of the year compared to 46% in the same period last year, according to latest Timber Trade Federation stats. FOB prices in China appear to have eased slightly on the back of lower demand from key markets.
Heavy rainfall in many parts of China has led to problems for some mills, particularly those producing poplar core plywood. They have had difficulties not only in extracting logs from plantations but also in air-drying veneers, leading to a shortfall in both. In addition, a local contact said, those veneers available and used in plywood production are generally too wet, resulting in plywood with exceptionally high moisture content and rejections in some instances by inspectors.
In some regions, including Linyi, the rains have been so heavy that flooding forced several plywood mills to close. The drop-off in domestic and international demand induced by the global economic downturn has also led to the closure of some plywood mills in China and the adoption of short- or part-time working by others.
On the plus side, the contact reported a growing number of enquiries for "genuine FSC plywood" out of China, and confirmed the booking of a significant monthly order for shipment to Continental Europe. Meanwhile, container freight rates have continued to fall and are equivalent to around US$58/m3.
Having pushed for FOB increases in the recent past, Malaysian plywood mills have been forced to accept a slight softening in prices owing to reluctant demand, notably from Japan. Malaysia’s producers are also facing tight log availability and labour shortages. "Mills rely on imported labour, and workers are proving harder to get because people don’t want to work in a tough plywood mill environment," TTJ was told.
The duty-free quota on Brazilian elliottii pine plywood ran on into August compared to the norm of June or early July. Since then, buying in the UK market has been relatively quiet against a backdrop of adequate stocks. "We might see a shortage by the end of September because of indifferent forward booking," one contact told TTJ, adding that FSC 18mm structural items in particular could be affected.
Of late, elliottii prices have eased typically US$10/m3 FOB, although freight rates have wiped out around half that.
Availability of Finnish spruce plywood is now described as "good" because of "pretty slow" demand on mainland Europe; lead times are around three to four weeks. However, prices are widely expected to hold for the remainder of the year, with just the possibility of pressure for a downward step in the fourth quarter. "There is some slack in the currency [for prices] to come off slightly for the UK market. But I don’t think lower prices will lead to more sales because demand is just low."
Lead times for Finnish birch plywood are six to seven weeks "but there are still volumes available", TTJ was told. "People seem to be leaving it later to place their orders, or are ordering smaller volumes."
Finland’s birch ply prices have been generally stable although "the odd spot deal" has been concluded for some higher-volume orders. "I would expect this situation to continue," a regional expert told TTJ. "List prices should hold until the year-end and into the first quarter of next year."
Prices of Latvian plywood for shipment to the UK have been stable for most of the year and are also expected to remain so until the end of the year – despite the downward pressure applied by "highly competitive" Russian and Polish birch plywood mills. Order levels for Latvian ply are described as "fairly satisfactory" for both the UK and Continental Europe.
Conversations in the plywood market are turning increasingly towards what was described this week as "the elephant in the room" – the EU Timber Regulation (EUTR) due to come into effect next March. "The question on everybody’s lips" is how the rule will affect China’s mills in particular. According to one contact, Chinese manufacturers "are definitely going to have great difficulty in making sure the tropical hardwood face and back veneers comply with the regulation".
There is already feedback from China of "log importers being extremely reluctant to provide any evidence whatsoever in respect of the origin of their logs".
The expectation across much of the UK trade is that many Chinese plywood mills will not be able to meet the EUTR requirements – and in some cases will not even make an attempt to achieve compliance. "I’d expect a lot of imported volume towards the end of this year and start of next year in the lead-up to the regulation entering force next March – and then I would expect plywood prices to go up and long-running shortages," said a contact.
OSB prices set to rise
Despite "fairly constant but flat" demand and some talk of isolated deals being concluded over the summer, a leading producer of OSB for the UK market has already guaranteed a near-term price increase of 5-7%. A spokesperson cited a number of factors that have persuaded his company to make this move, including higher costs – notably for haulage – and also the impact of sharply rising OSB prices in the US.
The increase would be underpinned by the still-significant price advantage over plywood and by the prospect of decent OSB demand in the immediate term from some growing markets. The EU Timber Regulation which comes into effect next March "will also be pushing people in the direction of OSB", the producer added.
According to Norbord’s review of this year’s second quarter, OSB prices have come off their 2011 peak levels and were 13% lower than the same quarter last year. Latest figures from the Timber Trade Federation show an 11.8% increase in OSB exports in the first five months of this year compared with the same period in 2011
