Perhaps inevitably, the chatter among the UK’s timber industry is dominated by economics and politics. Looming trade disputes between the US, China and the EU and increasing concern over the direction of the UK’s exit from the latter have received huge interest over the last six months or so.
On the face of it the sector is unfazed, reporting “steady” or even “buoyant” demand for plywood within the UK – despite a marked slowdown in construction at the beginning of the year. One importer said packing, boat building and furniture was leading the way, while another said the “usual sectors” – construction, furniture, caravans – were the chief drivers.
It seems stock levels are not of major concern right now either, with many reporting levels to be high or at least steady. Although one importer described them as being “bitty”, saying levels depended on the product and there were concerns over lead times, up to seven weeks in some cases. “No one can guess what they need that far ahead, so some imbalance in stock holding will occur,” he added.
But forward ordering is happening, due in large part to uncertainties over supply and businesses trying to get ahead of rising freight costs. “Although still very hand-to-mouth, some bigger merchant customers are looking to try and beat price and currency increases, so it’s definitely picked up,” said one importer.
However, it would appear OSB is continuing to make inroads, pushing demand for plywood down a little according to one merchant. An importer agreed saying: “OSB is definitely on the up and volumes have been rising nicely year-on-year. I think it’s taken business away from softwood ply, MDF and chipboard”.
With UK manufacturers continuing to push for higher prices, the door is opening for OSB importers from Germany, Russia, Latvia, Hungary and France in particular. However, UK production is ramping up, significantly, and it will “continue to replace plywood in many markets”, TTJ was told.
Underlining that, Norbord’s confidence for the future of OSB was outlined in the company’s recent Q2 results briefing. President and CEO Peter Wijnbergen said: “We expect that OSB demand will continue increasing and Norbord is investing in incremental future capacity through a number of capital projects. Our 2018 capital expenditures are now forecast at US$200m and include projects at our mills in Chambord, Quebec, Grande Prairie, Alberta and Huguley, Alabama.”
The company recently opened a new manufacturing line at its plant near Inverness following a £95m investment. The mill – the first of its kind in Europe when it opened in the 1980s – will now produce 640,000m3 of OSB, almost double its previous capacity.
Despite the desire of UK manufacturers on pricing, OSB prices have stabilised with new plants coming online and increased efficiency. A merchant said: “18mm edge 2440×1220 is our top seller in volume and numbers of sheets. We are seeing stronger demand on 9, 11 and 18mm too.”
However, this current demand for OSB and plywood is perhaps masking some underlying issues that will likely begin to have an impact in coming months. Trade disputes and talk of tariffs have occupied the headlines since even before Donald Trump was elected US president, but now he’s in office that rhetoric is increasing in its volume.
For US timber exporters, trade tensions between the country and China have already had an impact. At the beginning of August, China’s Ministry of Commerce announced increases on tariffs by between 5-25% on goods worth up to US$60bn. Among them were timber and timber products such as logs, lumber, OSB, sheet materials, and veneers.
The traffic is two-way, however. “A very interesting, and worrying, piece of information concerns import duty on furniture products exported from China to the US,” one agency representative said. “I have been told by a reliable source that of the US$200bn-worth of tariffs Trump has put on Chinese goods, US$32bn is on furniture products. The rate of duty is currently 10% but in a recent tweet Trump threatened to increase the rate to 25%. If true this could affect prices.”
Currency markets have also been volatile and are likely to continue to be so given the current climate. One importer/merchant told us currency, along with freight cost fluctuations, were helping keep costs high and that would have to ultimately trickle down to the end user. He said the US dollar rate has continued to move, down 2-3% in recent weeks. “That difference has to be accounted for, thus making costs rise. Regrettably sales do not reflect these increases at the present time,” he added.
Those views were supported by the agency representative who said: “Whilst the sterling to US dollar exchange rate has been gradually falling from a rate of £1.00/US$1.42 at about the middle of May, to £1.00/US$1.27 today, importers do not yet appear to be increasing prices to reflect the increased cost of imminent arrivals and increased replacement costs for new purchases. Inevitably with a reduction of about 10% in the value of sterling, importers will soon have no option.”
One supplier labelled currency a “major concern” saying recent falls were “hurting imports”. This is exacerbated by increasing costs in shipments. Another said currency, freight costs and lower log yields would see OSB prices go “only one way”.
Poor weather conditions have significantly impacted supply throughout the year. A harsh winter in the Northern Hemisphere, followed by a hot and dry summer, have been troublesome and it is taking its toll.
“There are concerns over the quality of good log supply as there has been hardly any rain and the hot summer continues, causing some poor yields and possibly rotting,” said one importer/supplier.
The quality of goods from China continues to be an issue too, according to some TTJ contacts.
“They (Chinese suppliers) are having to get to grips with the new imposed legislation of ensuring the product is fit for purpose and meets the necessary standards being requested by the UK, especially where the glue lines have been questioned,” said one importer/supplier.
“Many mills in China find it difficult to comply with the EUTR – especially for tropical hardwood face/back veneers for which it is very difficult for the mills to obtain credible documentary evidence of compliance with EUTR,” added an agency representative.
“There is still an element of ‘cheating’ with some Chinese mills providing documentary evidence from one mill to confirm compliance, but in fact the plywood is being produced at another mill unable to comply. In many instances, the producer does not have any CE certification,” he warned.
Mills have been under close scrutiny by Chinese authorities conducting Environmental Impact Assessments and converting to steam power from coal. However, Chinese producers are looking for domestic market growth now.
“Having recently returned from China, it was very interesting to hear the views of many suppliers and the way in which the focus of attention is shifting from exports to domestic sales,” said one agency.
Much of this refocus is due to currency fluctuations and growing friction with the US. However, increasing demand from southern China is also a factor. “The exchange rate has now significantly improved but despite this, mills wish to continue focusing on domestic sales – especially sales of good quality furniture grade plywood for which there is significant demand from furniture manufacturers in southern China who will pay high prices for high quality plywood, without any risk of any exchange rate variations,” said one interviewee.
However, this push to concentrate on the domestic market hasn’t hit imports yet according to latest figures from the Timber Trade Federation. Imports from China of softwood plywood were up on the year to April, accounting for 11% of all imported softwood to the UK, while hardwood imports remained strong at 56%.
It’s clear the immediate future is one of uncertainty, fuelled largely by economics rather than demand. However, one particularly difficult situation looms large on the horizon – Brexit.
With the UK’s departure from the EU just seven months away, a lack of certainty is growing. “As you can imagine, Brexit is the main talking point in business circles and the uncertainty over the future is having an effect on investment,” said one interviewee. “So far public sector spending appears to be holding up but for how long?”
Another asked: “Come the end of March what happens? Do we beat the GSP quota on softwood plywood; do we then pay duty with WTO rules; what happens to the VAT on imports, do we have to pay on deposit? Lots of questions and very few answers.”
And one simply replied: “Brexit is a mess, the less said the better.”
