Steady and sustainable growth in plywood demand during 2014 appears to be at the top of most companies’ Christmas wishlist. And there is growing confidence in the sector that such conditions will prevail next year, not least because of the ever-greater strength of the domestic building market. UK demand for Chinese plywood "appears to be increasing", a regional specialist told TTJ.
"While engineered poplar face and back veneer probably remains the number-one contender, there is definitely now a swing towards FSC sapele or bintangor face and back veneers with poplar core veneers," he said.
These non-FSC core veneers are compliant with the EU Timber Regulation (EUTR), he pointed out. Suppliers of this production have been able to provide "very credible documentary evidence" to confirm the legality of the sapele and bintangor logs/veneers and therefore to establish compliance with the EUTR.
In China, FOB prices have been static for some time although, for external consumption, the recent volatility of shipping rates has had a major impact and has fostered demand for firm freight. At the time of writing, the rate sits just above US$2,000 per container but has fluctuated of late between US$1,500-3,000 – a difference of more than US$30 per m³. Shipping lines are talking about increases of up to US$1,000 per container – or some US$20 per m³ – with effect from December 15.
A leading international trader said upward price pressure was also coming from the US International Trade Commission’s decision to throw out the 74% anti-dumping and countervailing duties on Chinese hardwood plywood. As reported by TTJ. the unanimous decision indicates the commission’s belief that the US domestic plywood manufacturing sector has suffered no material injury as a result of imports from China.
Another factor mentioned by the same trader was the "pre-Chinese New Year rush" to book consignments which, of course, is also a reason why shipping lines are particularly keen to hike their freight rates around this time of year.
Chinese New Year falls on January 31 and most mills will be closed for around four weeks starting from around January 15. A local expert confirmed that the majority of producers were already "heavily committed", with some mills offering for shipment at the end of February or even early March.
And traditionally, the conclusion of the Chinese New Year celebrations does not signal an end to supply issues. Increasingly, a significant proportion of workers in China decline to return to plywood mills after the holiday because they have secured more attractive jobs in the "cleaner" industries now spreading inland from the east where production and labour costs are lower. Therefore, plywood mills are forced to recruit and train new employees with the result that quality can become "inconsistent".
Chinese environmental protection
However, there is another, left-field factor which hangs as a threat over Chinese plywood production. In the 13 months since Xi Jinping assumed control of China’s ruling Communist Party, environmental protection has become a top priority. In this context, some of the country’s provincial and local governments are closely monitoring the air quality index and demanding immediate production stoppages when pollutant emissions – for example, from plywood mills’ coal/wood burning boilers – exceed desired levels. Mills failing to comply with such orders face heavy fines or even closure by the authorities.
As a result of these environmental protection actions, said a China-based plywood expert, "we have already faced delayed shipments from mills in Hebei province and it is anticipated that mills in other provinces such as Shandong and Jiangsu could soon face the same problems".
Meanwhile, companies specialising in the import of Malaysian and Indonesian hardwood plywood have witnessed an increase in UK demand of late, a fact which one of them attributed to concerns over the quality of some of the product coming from China and over the ability of Chinese mills to deliver on the documentation requirements of the EUTR.
"Our company has not sold so much Malaysian and Indonesian plywood in the UK since 2008," one contact told TTJ.
That said, FOB prices have been softening recently in Malaysia, partly owing to competition between mills. Higher freight rates have more than offset this decline while upward product price pressure is expected to intensify from next year owing to rising raw material, fuel and logging royalty costs, as well as to new minimum wage requirements. "For some mills, it will be a case of getting their prices up or of not producing," TTJ was told. Increased production in Indonesia had also led to softer plywood prices but producers remained "bullish" in their outlook.
Across in Brazil, elliottii pine plywood prices had been showing some signs of weakness in late autumn. But according to a leading UK distributor, rising adhesive costs for producers would force the market to accept FOB price increases of US$20-30 per m³ in the near term.
Finnish production
Finnish birch plywood prices will be hiked by typically 4% for the first quarter of 2014 following a strong end to the current year. Order books were described this week as "very full", with mills generally taking on new business only for added-value products. Lead times have extended to upwards of three months.
Despite healthy order files, Finnish spruce plywood producers are taking a more conservative approach: final-quarter prices will be held for the opening three months of next year, although a contact suggested an increase of perhaps 3-4% was likely to be implemented for the second quarter so long as sales momentum was not interrupted in early 2014 by, for example, inclement weather. Russian and Latvian birch plywood prices have also continued to head higher. In the case of the latter, the increase of around 5% for the fourth quarter is to be followed by a further 3-5% hike for the opening quarter of next year on the back of full order books. Although producers had been working "flat out", volume allocations were still being cut and this process would continue into 2014, according to a spokesperson. He identified good "across-the-board" demand from the UK, including from construction.
Better prospects for 2014
According to a spokesperson for a leading plywood distributor, the last three or four months in particular had brought an improvement in overall plywood demand, with birch ply sales termed "very strong". Although China would remain "the driving force" in the market next year, UK purchases of Malaysian and Indonesian hardwood plywood were "recovering" and "will get better still in 2014". The EUTR had already helped boost demand for good-quality plywood, he added, but its full force was likely to be felt next year .
Osb demand Continues
Demand for OSB has maintained its decent momentum, with contacts anticipating that the market would retain this strength well into – and possibly throughout – the coming year. But despite these buoyant sales conditions, one supplier into the UK market confirmed that he had been forced lately to "reduce prices to some of the biggest distributors" owing to competition to boost seasonal sales. A local producer predicted relatively stable prices into the early part of next year.
Meanwhile, OSB has been identified as the biggest beneficiary of a continued strengthening of panel markets in Europe by Norbord’s president and CEO, Barrie Shineton. Commenting last month at the release of the company’s third-quarter results, he said: "Our plants are running at capacity. It is clear that the housing recovery is now well entrenched in our core UK and German markets."
On average, European OSB prices were 8% higher in the third quarter of 2013 than in the corresponding period of last year and 3% ahead of this year’s second quarter, his company added. Compared to January-September 2012, UK imports of OSB were unchanged at 157,000m³ in the first nine months of 2013 while exports were 13.2% lower at 119,000m³, according to Timber Trade Federation statistics.
