Supply issues and very firm prices have continued to dominate the plywood sector and nothing has appeared on the radar that is likely to change these market conditions in the near term. As one expert put it: “Everything is driving the market forward at the moment and there is nothing out there to weaken it. These conditions are set in for the year.”
That said, this week the merchant sector was still accused of “dragging its heels” on prices and of working on stocks in the misguided expectation of price falls in the near future. UK consumption is quite restrained at present and so any sudden buying surge created by buyers who are holding off on their purchases could prove difficult to satisfy, according to several suppliers.
The strain on supply is being felt most keenly in relation to South America. A major break bulk line stopped shipping plywood from Brazil several weeks ago while lack of interest in plywood among other shippers has led to material being “bumped from vessel to vessel”. Port congestion in Brazil has worsened and availability of containers is so short that a number of major shippers are said to be considering US$500 container rate increases for June. Furthermore, Brazil reportedly introduced a currency adjustment factor of 5.8% per freight bill earlier this month.
“We have been told that, if you don’t pay surcharges, you are not going to get the material,” said one contact.
In the wake of these developments, prices of Brazilian hardwood and softwood plywood have remained “very firm”. FOB prices of upwards of US$300/m3 were widely reported for elliottii pine plywood while the K14 list price for the country’s hardwood plywood was put at between +3 and +8 – the first time TTJ has been able to report positive figures for a number of years. As for marine ply, one UK source quipped: “We’ve got armed guards on our boats.”
Availability of elliottii pine plywood in the UK was said to be particularly tight in the 9mm and 12mm sizes, while shortages were reported across the range of sizes
and thicknesses of Brazilian hardwood
plywood.
Far East prices
Similarly firm prices are coming out of the Far East where plywood supply continues to be restricted by the clampdown on illegal logging and by tightness in the shipping market. Log supply shortages could force some mills to make less frequent deliveries on the basis of “skipping production months”, while other producers could shut down completely owing to an inability to compete on raw material prices, it was suggested.
These conditions are widening the scope for shortages while sales prices have continued to move steadily upwards. The Indo96 list price was this week occupying a wide band between +12 and +17, with mills said to be eyeing +20 for the not too distant future – a far cry from the -19 level reported as recently as December last year. UK demand was described this week as steady to good, amid continuing evidence of importer inter-trading and of some major players being under-bought.
These conditions have emerged despite the fact that orders from end users in the UK have been dented by concerns over the Iraq conflict, rising oil prices and the possibility of further interest rate rises. By contrast, high-flying demand in the US for elliottii pine and other forms of plywood has shown no signs of abating.
This strong US demand has also helped birch plywood prices out of Russia and the Baltic states to maintain their strong upward momentum. And with Latvia, Lithuania and Estonia now officially part of the EU, costs in the region are expected to rise and add further fuel to price increases going forward.
Plywood from Russia and the Baltics has also been the focus of a large amount of importer inter-trading. Most suppliers
are quoting late June or July shipment although not much of the material favoured by the UK market seems to be available for export. “The log quality is good at the moment and so mills are not producing much of the veneer that the UK market tends to go for,” TTJ was informed. “Log quality will go down over the coming months and so there will be more of this veneer available, but I don’t expect prices to dip too much.”
Shortages developing
Shortages have already begun to appear – notably in the thicker panels – as a result of a number of factors: the US has been buying, heavily fuelled by its commitments in Iraq; the Russian economy itself remains quite buoyant; and, as reported previously, the Klaipedos Mediena mill in Lithuania has reduced its squares capacity by 75% and has installed instead the necessary machinery to produce 8×4 plywood sheets. Shortages of 5×5 birch plywood C grade are beginning to emerge in the UK “because mills are getting better offers from the US,” was one comment made this week.
Despite these upward movements, Finnish birch plywood producers have yet to respond with major price increases of their own in the UK market and instead appear to be opting to claim a larger share of the available orders while price differentials are more in their favour. “We are looking for opportunities to increase prices, but more so on the Continent,” commented one producer representative.
Finland’s birch plywood mills are said to be operating on lead times that are between normal and slightly extended for the time
of year, taking some of them beyond the summer holiday shutdown period. For
their part, the country’s spruce plywood producers are extremely busy and, according to some reports, are “sold out until
the autumn”.
Talk in the trade this week has also centred on the EU’s decision to impose anti-dumping measures on Chinese okoumé plywood. The move, which was based on a comparative study involving okoumé plywood manufactured in Morocco, has been attacked by the Timber Trade Federation (TTF) as “unfair, punitive and technically incorrect” since it “ignores the fact that the Moroccan board comprises okoumé veneers throughout and uses exterior grade glue” whereas the Chinese product is made up of “plantation growth poplar core with a thin okoumé face and back veneers, and gene-rally lower grade glues”. Since the raw material cost of the Chinese board was considerably lower, “a direct cost comparison is not valid,” the TTF said.
The federation also argued that plywood with a plantation grown poplar core was inherently more environmentally acceptable. Therefore, its effective exclusion from the EU market would “run counter to both EU and UK policies on illegal logging”.
Customs vigilance
The duty of almost 50% applied to China’s okoumé-faced plywood has led to a re-think at one of the companies responsible for bringing it into the UK. “We will stay committed to Chinese product and have switched to other, non-sensitive species,” a spokesperson explained. Meanwhile, another member of the trade assured TTJ this week that UK customs officials had been particularly vigilant recently with regard to tariff headings on Chinese plywood imports and that, to his knowledge, three importers had been contacted in the space of a week with a view to arranging checks.
Turning to OSB, the UK market saw further price increases at the start of the month. A senior spokesperson for a major manufacturer which raised prices by 6-7% observed: “People accept that this is now the price of OSB and that it has been under-valued for too long.”
At the same time, he expressed concern at continuing confusion surrounding CE marking and the use of inappropriate products in certain applications.
A reasonable balance is now said to exist between OSB supply and consumption in the European market. In the US, prices may have come off their peak after reaching record levels but they remain strong.
