Recent changes taking place within the UK panels sector have been so dramatic that industry experts are talking in terms of a “turning of the tide”. Nowhere has this been more pronounced than in the plywood and OSB sectors, both of which have been witnessing strong upward price momentum.
A widespread view among sellers is that many of the customers who have allowed their stocks to run down over recent years can expect a shock over the coming months. Strong demand in certain parts of the world, coupled with serious supply restrictions, meant that, in some instances, there was no longer the slack in the pipeline to cope with a sudden, general order glut, they argued.
Elliottii plywood
The engine for a substantial increase in the price of elliottii pine plywood has been rocketing demand from the US. Closure of domestic plywood capacity over recent years has combined with hurricane damage and a sharp upturn in military demand for work in Iraq to create a clamour for Brazilian imports. According to reports, certain US buyers have been prepared to pay ahead of delivery in some instances, simply to assure themselves of supply.
The Americans have also been willing to pay significantly more than their European counterparts for some types of non-certified elliottii. At the same time, prices of North American plywood are effectively “off the Richter scale”, while exports to the UK and elsewhere have come to a virtual standstill. To compound the situation, container and break bulk shipping rates out of Brazil have risen, although not to the same extent as shipment costs out of the Far East.
The end of the hurricane season and the run-up to Christmas are expected to lead to a reduction in US demand in the near future, although opinions vary as to the likely steepness of the decline in orders and prices on the other side of the Atlantic. “Some US wholesalers and stockists are fearing a shelve-off in prices but demand is still running ahead of supply and there is not a lot of material in the pipeline, so I don’t think prices will drop off a cliff,” suggested one North American market specialist. By contrast, another UK-based plywood expert argued that US demand for elliottii was already showing signs of decline and that prices paid would drop “as quickly as they have risen”.
For the moment, UK plywood specialists estimate that elliottii prices have increased by as much as 15-20% in recent months. One observed: “We had four price increases in one day on elliottii earlier this month and we all enjoyed that because the material has been undervalued for far too long.”
As a result of this forward price momentum, many mills in Brazil have naturally opted to concentrate on softwood plywood production rather than hardwood product, thereby putting pressure on supplies of the latter. Hardwood plywood prices out of Brazil have duly risen by 7-10% “and are still heading north”, it was said this week.
The Far East plywood market has also experienced significant changes over recent months as heavy rains and the well-publicised clampdown on illegal logging in Indonesia have restricted the supply of quality logs to the mills. In addition, the market has been rocked by freight rate increases of at least US$15/m3 for November, with the possibility of a similar rise for December.
Far Eastern shortage
However, the impact on prices is proving to be a matter of debate. Some contacts suggested that the Indo96 list price was heading from around -30 towards -20, and one importer felt moved to declare: “There will be a chronic shortage of Far Eastern plywood over here.” Asked where any such shortages were likely to arise, several sources pointed to 5.5mm and 9mm material, as well as larger sizes.
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“A widespread view among sellers is that many of the customers who have allowed their stocks to run down over recent years can expect a shock over the coming months” |
Most of the business currently conducted in the UK was claimed this week to be between importers because “none of them wants to be left short with the prices going up”, but the merchant sector’s reaction has been less decisive. According to one plywood expert, the larger merchants appear to have realised that “there isn’t much slack in the market” whereas many others still believe sellers are “crying wolf”. He insisted: “This time, I think they are going to catch a cold.” Another importer echoed the same sentiments in suggesting that, for many customers accustomed to receiving Far East plywood at unrealistic prices, “a rude awakening is coming this winter”.
As indicated above, this view was not universally shared. A large importer of Far East plywood argued that prices were still around Indo96 list -28 and that, partly as a result of pressure from environmental lobby groups, many buyers were shying away from Indonesian plywood altogether. UK demand had not been significant and plenty of mills were still looking for business, claimed one expert. “People are still buying hand to mouth and some customers have even reduced the amounts of material they are ordering,” he added. “A lot of them are switching to Brazilian plywood.”
Pressure on Finnish birch
Finnish plywood has not attracted the spotlight in the same way as elliottii, although producers are hoping that the steep increase in the price of the Brazilian material will push more customers their way. Lead times in Finland are said to be around the norm for this time of year and no significant shift in prices has been reported in recent weeks. But while the spruce plywood market is running broadly in line with expectations, the Finnish birch plywood sector has continued to come under pressure from lower-cost Baltic and Russian production.
That said, the latter part of the summer brought generally “awful” plywood export conditions for the Baltic states and Russia. More recent weeks have seen a significant upturn in orders and yet mills are holding higher stocks than many would like, with the result that some producers have been offering very quick lead times and/or have been operating below full production. Since the bulk of business is conducted in US dollars, recent currency movements have also impacted negatively on the market. One source observed: “The Baltic mills are saying that the UK market has picked up but currency has offset this completely.”
Meanwhile, it was pointed out this week that the Baltic countries joining the EU next year will benefit their domestic plywood mills since EU transfers do not attract VAT.
As indicated earlier, OSB prices have maintained a furious upward momentum in recent weeks, with one manufacturer suggesting that the price of bell-wether 18mm OSB 2 has improved by as much as 70% since July to its highest level in four years. Even so, a senior spokesperson underlined, product prices were still only “heading towards break-even for the manufacturers”. Once again, the strength of demand in the US has provided some of this market impetus. Some European mainland producers are shipping across the Atlantic but order levels on the Continent have also improved, with the result that the pressure on the UK from low-price imports has all but vanished. Furthermore, the substantial gains made by elliottii pine plywood have effectively “raised the price ceiling” for OSB.
Domestic OSB producers are understood to be on allocation, with one operator confirming that his company is sold out until the end of January.
December increases
With no major shift in the supply/demand picture envisaged until well into 2004, a domestic producer commented: “I would expect more price increases in December – perhaps another 7-10% – and then for prices to settle down. I would expect those levels to hold in the first half of next year.” But only if these price levels were sustained could the OSB sector look forward to break-even next year, he said.
