Summary
• Unless forward buying increases, there could be shortages in late summer.
• Some Chinese mills are said to be reducing production, or closing altogether.
• Many buyers who switched sources have not returned to Chinese plywood following the EU‘s anti-dumping investigation.
• Indonesian producers are keen to supply the UK but their prices are higher than their Malaysian counterparts.
• Competition, freight costs and exchange rates are posing problems for Brazilian hardwood ply producers.
UK plywood sales have entered the summer on a rather subdued note, while the trend in forward prices is generally upwards as producers around the world struggle with rising costs.
Although some importers are buying decent volumes, many other customers in this country have reined in their purchases in a bid to control their own costs and cash flow, with the result that plywood suppliers say shortages may arise if demand were to increase significantly.
Without a significant improvement in forward buying, shortages of Malaysian and Brazilian hardwood plywood – as well as good-quality Chinese ply – could well emerge immediately after the summer holiday lull, according to a leading UK importer.
Producer troubles are particularly apparent in China where product quality, financial standing and a host of other factors, including a drop-off in demand from the west, has contributed to rapid consolidation – or what one contact described as “natural wastage” – within the country’s plywood sector. Having recently travelled to China, this UK-based specialist confirmed that many mills had ceased production and were effectively “boarded up”.
His first-hand view is backed by a report which emerged following the recent 2008 China Plywood International Trade Fair in Pizhou City, Jiangsu province, and which highlights the rapid changes taking place in the domestic production sector. In Pizhou alone, it is estimated that 30% of plywood manufacturers have ceased production and that 50% of factories will have closed by the end of 2008. For the smaller factories, average profit levels are said to have been either at zero or below.
It was also suggested that, having focused previously on export business, some Chinese producers have since switched to supply the domestic furniture industry.
Q-Mark scheme
News that BM TRADA has launched a third-party certification Q-Mark scheme which provides for CE marking of Chinese plywood has been broadly welcomed by the domestic plywood trade. The initiative is a response to concerns about unreliable quality which has created nervousness about selling into structural markets, raising issues of liability, according to business development manager Mark Wilkinson.
One leading distributor hailed the development as “a good idea” since “anything with genuine CE marking is better than nothing” given the significant amount of misrepresentation surrounding Chinese ply.
The same contact argued that the more enlightened Chinese mills were developing a greater understanding of the requirements of UK customers in relation to, for example, glue lines and other practical quality issues. There was also growing confidence among such mills that investment in their facilities to achieve higher product standards would yield due reward.
Price variations
In recent months, UK specialists in Chinese ply have noticed a surge in unsolicited enquiries from producers as well as a substantial variation in the prices on offer. In the UK, said one, there was concerted interest in safeguarding replacement costs “but not many people are buying very much at the moment”. UK sales of Chinese plywood were markedly lower compared to the corresponding period of last year, with similarly reduced demand levels also apparent in Continental Europe, he said.
He added that last year’s anti-dumping investigation by the European Commission was continuing to benefit Malaysian producers. Although the commission ultimately decided against imposing duties on tropical red-faced poplar plywood and tropical hardwood-throughout red-faced plywood from China, the uncertainty created by the investigation is said to have prompted many buyers to switch to – and subsequently stick with – Malaysian product. Attempts to secure compensation for this loss of business are on-going. although the European Commission is arguing that it has no jurisdiction over trade developments during an investigation, he explained.
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“If buyers are not willing to pay what mills are asking, then they will not get the plywood because the producers have absorbed all the costs they can” |
Several UK-based suppliers of Malaysian plywood confirmed that they were probably busier than most in sales terms, with one ascribing this phenomenon to buyers “struggling to get quality plywood from anywhere else”.
Since many of the Malaysian producers have been hampered by unfavourable weather and by pressure on log availability, they are currently rather bullish on price. “If buyers are not willing to pay the mills’ asking price, then they won’t get the plywood because the producers have absorbed all the costs they can,” one contact told TTJ. The UK market was becoming “increasingly aware” and accepting of this requirement to meet these higher prices, he added.
Indonesian mills are understood to be keen to supply the UK market but their asking prices are well above those of their Malaysian counterparts. Meanwhile, supply of hardwood plywood out of Brazil is universally acknowledged as difficult. Export business has been dented by rising freight costs, currency exchange factors and the competitiveness of Malaysian product in all but some of the larger-size and speciality product segments. In general, UK customers appear to be living on existing stocks while forward buying is dismissed as “a non-event”, such that some experts believe shortages will begin to emerge sooner rather than later.
UK price levels for elliottii pine plywood out of Brazil are still some way short of replacement costs and inter-importer trading is currently minimal. Stocks in the UK are thought to be insubstantial.
Russian birch ply
Prices of Russian birch plywood have softened in recent weeks despite reasonably good domestic demand. With orders weaker from the UK and leading markets in Continental Europe, Russian mills are understood to be more willing to discuss lower prices – particularly for larger-volume business. Stocks in the UK are described as “not plentiful” but “adequate” given current levels of demand.
Over recent times, Finnish product has remained perhaps the hottest property in an otherwise lukewarm plywood sector. Even here, however, experts are saying that material availability has increased significantly owing to a general reduction in buying interest.
The UK is said to be home to “quite high” volumes of landed Finnish spruce plywood but the market is described as “very quiet”. One UK spokesperson commented: “Mills are looking for a price increase because of the euro/pound exchange rate but the market would not stand for it. We would struggle to pass on the increases at the moment.” Indeed, he expected prices to remain unaltered for the remainder of 2008.
Birch plywood
Birch plywood mills in Finland are keen to obtain higher prices from the UK to compensate for currency factors. However, with customers keeping an ever-keener eye on their cash flow and therefore their stock levels, UK market contacts are envisaging no price increases until the fourth quarter of this year at the earliest. Capacity being made available to the UK market has improved and lead times have shortened slightly, TTJ was told.
Similar sentiments were voiced in relation to Latvian plywood: sales prices in the UK have held steady but no further increases are being contemplated for the third quarter. While demand from vehicle producers has been quite stable, orders from UK builders, distributors and the merchant sector have been more muted. Having drifted out as far as three months at one stage last year, lead times are now around four weeks across most of the product range and supply is said to remain “very good”.
