Summary
• Costs have pushed up plywood prices in recent months.
• Buyers have switched to elliottii because of a shortage of Chilean ply.
• Brazilian softwood ply is more expensive than Chinese hardwood product.
• Chinese mills are struggling to copy with the sudden demand surge.
• OSB prices have risen by around 20% in the past two months.
Name any type of plywood from virtually any source and its price has almost certainly increased over the couple of months since TTJ’s last report. But this is no reflection of a sudden spurt in underlying UK demand which many contacts continue to describe as flat to only slightly improved: instead, this general price surge relates to issues of supply, producer costs, transport and currency.
If anything, rapidly-rising prices have served as a further incentive for UK consumers to keep their plywood stocks to a minimum. In addition, higher prices have pushed some buyers towards their credit limits and forced them to rein in their purchases. One contact said that for both softwood and hardwood plywood “stocks must be at an all-time low”. But he added: “They will have to start buying soon.”
In the case of elliottii pine plywood out of Brazil, some experts are putting the price increase since the latter half of the first quarter at more than 40%. In some instances, softwood ply from Brazil has become more expensive than hardwood plywood from China – a situation described by one contact as “completely unprecedented and unsustainable”. Another said that such high prices for elliottii could prompt significant substitution with Chinese pine plywood and OSB. And if that were to happen, “some of this market would never come back”, he warned.
Chilean earthquake repercussions
The late-February earthquake in Chile altered the complexion of the market as the country’s plywood became unavailable and regular buyers on both sides of the Atlantic looked to switch to elliottii.
As a result, producers in Brazil are now generally quoting end-June or early-July shipment and are standing firm on far higher price levels as their capacities are used to the full. There are only a few suppliers and they are able to “dictate the game”, noted a regional expert.
In the UK, there has reportedly been very little forward buying of elliottii at current price levels but significant inter-importer trading. The elevated prices have also encouraged less frequent plywood visitors to this market including, for example, material from Ghana.
Despite the fact that UK demand for their product is doing no better than “ticking along”, Finnish spruce plywood producers have also witnessed an increase in business since the earthquake in Chile. And even though Chilean volumes have begun slowly to return to the market, lead times for Finnish spruce are out at 12 weeks, according to one producer. “We are almost on allocation,” he said. “Customers will have to get used to higher prices. Most of them are accepting it because they need a supply.”
In the case of his own company, spruce ply prices have been raised by 10-12% for the third quarter while birch plywood from the same Finland-based source is subject to a third-quarter increase of 6-8%. For both products, further increases are a real possibility for the fourth quarter – especially as the euro/sterling exchange rate remains an obstacle with regard to UK sales, he added. Finnish birch ply lead times are nearer four to six weeks.
Latvian and Russian plywood prices have also gained ground in the second quarter. A supplier of the former confirmed that increases of around 3% in early April would be followed by an across-the-board 3-5% hike at the start of July. He added that exchange rate developments have kept UK price increases “lower than they might otherwise have been” given lead times extending into early August and a scheduled production shut later that same month.
Log prices, as well as the costs of glue and freight, have been identified as key factors in recent Latvian ply price movements.
Pre-sold Chinese ply
On the hardwood plywood side of the business, significant volumes of Chinese material arrived in the UK during early May and more was on the water at the time of writing. But, according to a leading importer, much of this is pre-sold – a situation “not seen for a long time”. And he added: “I don’t expect a return to a supply comfort zone before the autumn.”
A substantial number of China’s plywood producers succumbed to the global recession, leaving generally the more reputable and better-financed operators. However, these remaining mills are struggling to cope with the recent surge in demand from China itself and from overseas. Prices have duly gathered pace over the last couple of months, with experts averaging the gains at anywhere between 5-15%. Over that same period, conventional freight rates have advanced 4-5%.
Writing to one of his contacts in the UK, a Chinese plywood supplier described the “rapid” rise in the market since January as “completely beyond our anticipation”. Production has become “very busy” since the Chinese New Year holidays, while lumber prices have been on the increase, especially hardwood lumber. “At the same time, the ocean freight keeps rising and shipping space is very tight,” it was added.
Several contacts pointed this week to slightly increased interest in FSC-certified Chinese plywood.
Malaysian plywood prices have also made gains in the last couple of months: freight charges have continued to rise, while FOB rates from some mills have reportedly jumped as much as US$40 per m³. Producers are eager to secure even bigger increases given hikes in their timber, glue, utility and labour costs, prompting a leading importer to say: “I still feel there is more upside on Malaysian prices.”
With the commercial plywood sector having become more price conscious than ever since the Chinese began to dominate the international scene, Malaysia’s plywood producers have focused ever more strongly on specialist products – a route down which their Indonesian counterparts have also travelled.
Brazilian currency obstacle
Returning to Brazil, currency is standing in the way of wholesale exports of the country’s hardwood ply to the UK. Standard boards are now significantly more expensive than the Chinese alternatives and are continuing to push towards Malaysian plywood prices. Large press product out of Brazil is more competitive but quantities entering the UK are quite low.
Another key factor in plywood market developments over recent months has been currency fluctuations. Looking ahead, one major international bank has predicted that, by the end of the year, the US dollar will strengthen from US$1.46 to the pound to nearer US$1.30. If this were to happen, one timber industry contact said that plywood prices to the end user would increase and that OSB, and even MDF, could well be the beneficiaries.
OSB prices continue to rise
Industry commentators had been predicting for some time that the OSB market would “lift off” at some point, but even a seasoned specialist was forced to concede this week: “I didn’t expect it to go so far so fast.”
In effect, price increases over the last couple of months have averaged around 20% as producers responded to a combination of: higher timber, glue and haulage costs; ever-tightening raw material availability; a pick-up in demand from the timber frame sector; and a continuing drop-off in volumes entering the UK from either North America or mainland Europe.
Another key factor in this price upsurge has been the late-February earthquake in Chile which decimated the country’s plywood production and pushed buyers in the direction of alternatives, including elliottii pine plywood from Brazil but also OSB.
Having said that most of Europe is sold out of OSB well into the autumn, an industry contact said that production costs are “just about sustainable” at current price levels.
And he warned: “Prices will continue to go up. OSB is still tracking too far below coniferous plywood.”
Another would-be OSB seller confirmed this week that, at present, he had no material to offer. Current production levels in Europe are “just big enough” to meet demand, he added.
