Summary
• The UK has sufficient stocks to meet the current low demand.
• In the UK, deals have been offered in an effort to move material.
• China’s plywood sector continues to contract.
• OSB prices have fallen by around 10%.
• Logistics costs and exchange rates have reduced European OSB imports
into the UK.
“Worryingly quiet” is how many plywood traders are describing the UK market. But while stocks appear sufficient to cope with existing low demand, there is also concern that a post-summer improvement in order levels could quickly accentuate shortages.
World demand may have been hit by the downturn but, at the same time, the plywood sector is grappling with a lack of capacity and a global shortage of raw materials, notably in Brazil and parts of the Far East. Sellers in the UK have been offering deals on plywood in a bid to move material “and yet there is no weakness in forward prices”, he said.
Mills in Malaysia are said to be fielding a satisfactory level of enquiries and orders. A UK importer commented: “I expect UK demand to pick up in the next few weeks because people haven’t been buying, but there’s not a lot of Malaysian material around. Europe as a whole is under-bought; stocks are low and it will create an artificial demand.”
Another contact said that, with the demise of Indonesia as the world’s major supply source of thin panel, Sabah and Sarawak have taken on much of this market owing to the availability of suitable log species. However, Japan and Korea have become “favoured markets”, he added. “Effectively, the majority of mills have little or no interest in European specifications when margin return and ease of production are taken into account.”
Chinese contraction
Across in China, recent months have brought a continuation of the contraction of the country’s plywood manufacturing sector, with one contact estimating that more than 60% of China’s mills have closed since the start of the year, partly as a result of the spiking cost of labour, energy and raw materials. “It has sorted out the wheat from the chaff, but the surviving mills are becoming really bullish,” he said. In recent weeks, he said, the price expectations of some producers have leapt 5-10% on certain specifications for certain customers.
The UK price of good-quality Chinese ply has increased but remains at a competitive advantage to rival Malaysian and Brazilian products. However, buyers are proving reluctant to commit to significant volumes at present, with many said to be awaiting further developments in the pound/US dollar exchange rate.
Stocks in the UK are said to be sufficient to cope with the current low level of demand. However, a sudden surge in orders after the summer holiday period could put more strain on availability, not least because of supply issues in China. It has been claimed, for example, that power to some plywood factories was restricted during the Olympic Games in Beijing and even that the sailing competition at Qingdao had led to delays of some shipments.
With several contacts complaining of continuing evidence of “misrepresentation against which it’s hard to compete”, efforts are continuing to halt the bogus CE marking of some forms of Chinese plywood.
Meanwhile, a leading UK expert in Chinese plywood highlighted a continuing purchasing trend away from red-faced poplar in favour of either hardwood throughout or eucalyptus core with red face and back. This was a reflection, he explained, of higher poplar prices which had significantly reduced the differential to the hardwood alternatives.
And several contacts acknowledged a move towards smaller and medium-size UK importers sourcing their Chinese plywood needs from larger importers, thereby circumventing direct contact with China itself. In this way, it was explained, the smaller operators are effectively insulating themselves against, for example, CE marking, quality and currency movement issues. “I believe this trend will become ever more apparent,” said one.
Limited Brazilian plywood supply
As mentioned, there is a shortage of hardwood logs in Brazil while the relative strength of the country’s currency and shipping costs are hampering long-distance export opportunities; at the same time, domestic sales and those to countries in the immediate vicinity are seen as “quite brisk”. The volumes of hardwood plywood that are making the journey from Brazil to the UK have been limited principally to the larger sizes. Once again, stocks in this country are described as adequate for existing demand, while prices have been firm.
As for elliottii pine plywood, prices have remained firm in Brazil. Below-normal forward buying in the UK has laid the platform for supply gaps, according to several experts. “9mm material is particularly short, and 12 and 18mm are not in abundance,” one contact said. However, he added, there was currently a window of opportunity for buyers given that, as a result of the strength of the US dollar, stock was available in the UK that was cheaper than replacement cost.
In northern Europe, some more attractive offers have emerged on Russian birch ply but UK customers have been generally reluctant to commit. Meanwhile, suppliers of Latvian plywood are contending that UK demand has held up reasonably well but that stocks in the UK are adequate despite less frequent shipments from the Baltic owing to the problems within the softwood market. Finnish mills entered the current economic downturn in perhaps the greatest position of strength but have also been impacted by the general slow-down in buying, to the extent that lead times have shortened.
