Summary
¦ Heavy rain has reduced log supply in Malaysia.
¦ Malaysian ply prices have been rising.
¦ UK sales of Brazilian ply are mainly in large sizes.
¦ Elliottii pine ply faces competition from Chinese material.
“Whatever timber product you talk about, it is going to cost more in the future – prices have been too low in the past” was the mantra heard this week in relation to plywood and OSB, and buyers can expect to hear it repeated through 2011. A minority still believe, however, that flat demand could take the edge off UK prices at some stage during the coming months.
Since the previous plywood report, “exceedingly heavy rains” in Malaysia are said to have pushed availability of good-quality logs “beyond the critical level”. A UK-based specialist in Malaysian plywood confirmed: “We had to turn down business as a result. The situation has begun to improve and we can now take orders again – but at higher price levels.”
In effect, plywood mills in Malaysia have been looking for significant price increases – of “at least” US$20 per m³ since the start of the year – to help meet local loggers’ demands for higher returns. The same plywood producers are also facing pressure from higher glue costs at a time when the US dollar/Malaysian ringgit exchange rate “is certainly not in the exporter’s favour”. In any case, mills in Malaysia are busy in other markets – particularly those closer to home – and so are “not falling over themselves to sell into the UK at the moment”, TTJ was told.
While it is perhaps too early to make an accurate assessment of customer reaction in the UK to these recent price hikes, there is an understanding in seller circles that a ceiling price could exist beyond which most independent customers are unlikely to venture. Indeed, there are fears that Malaysian ply could be reduced to the status of a “niche” product in the UK market as price-conscious plywood buyers turn instead to alternatives such as Chinese ply which, for 18mm material, is typically around two-thirds of the cost. “It’s already happened, in effect, to Indonesian plywood in this country, so Malaysian material could easily follow suit,” said one contact.
On the other side, of course, Malaysia has at least one key selling point in this market, namely the offer of certification. “Demand for this has been growing with some customers,” TTJ was told. “But a lot of the independents will buy on price [from countries other than Malaysia] and haven’t got a clue what they are getting.”
Price movements
Whereas the pressure on Malaysian ply prices has remained solidly upwards, prices for Chinese material have been more “sideways” in nature. Here too, however, some experts are anticipating the emergence of higher price levels following the Chinese New Year holiday period.
Upward pressure is expected to be generated by higher oil-based raw material costs and by labour issues, including wage inflation. As has been reported previously, Chinese production after the New Year break can be affected by a sudden reduction in labour, as many workers head off to their rural homes for the holiday period but do not return.
Firm prices have been reported for hardwood ply out of Brazil. UK sales are continuing to be restricted mostly to the larger sizes, for which prices are said to have increased by upwards of 10% over the last six months.
Meanwhile, Brazilian elliottii pine plywood is continuing to struggle to compete on price with rival Chinese material, leading at least one agent to believe that prices into the UK could fall in the near term.
The price differential for thinner sizes has been estimated at 12% in favour of the Chinese, whereas the gap is somewhat narrower for thicker dimensions.
In connection with a debate within the trade about potential abuses of customs tariff headings, a market expert said: “Under other circumstances, Brazil might have been more competitive on the thicker items.”
Elliottii ply demand slows
In December, UK orders for elliottii shelved off well before the Christmas holiday period. “People still had a bit of stock in bond and so if they needed it, they brought it out,” said one expert.
He also believed that the UK is now seeing “less action surrounding the duty-free quota” than in the past.
UK stocks of elliottii are regarded as adequate to satisfy the current “fairly quiet” demand. “The market is quite lightly bought at the moment,” said one contact. A sudden upturn in demand could pose supply problems in certain product areas as the first quarter progresses, he added.
Elliottii prices have increased in recent weeks by around US$5-10 per m³ on a FOB basis. “The mills in Brazil are telling us that there are no deals to be done,” according to one contact. The pressure on exports was eased by lower freight rates for December and January, although shipping costs are widely expected to rise again for February – perhaps by US$100-200 per 40ft container.
UK demand for Finnish birch plywood has made a rather slow start to 2011 and yet supply issues have raised the very real prospect of substantial price increases for the second quarter. Hikes of around 10% cannot be ruled out across the product spectrum, according to a spokesperson for a leading producer whose log availability issues have pushed out company lead times to the end of March, or even into early April.
“Nobody has bought heavily and so there is not a lot of material on the ground,” TTJ was told.
Demand for Finnish spruce plywood has been more fluid and sales volumes have been “ticking along”, a regional expert said. His own company’s lead times are at a “pretty standard” four to six weeks, he added.
Russian and Latvian trends
The recent trend in Latvian and Russian birch ply prices has also been unwaveringly upwards. For the UK market, prices of Latvian plywood increased by as much as 11% at the start of the year on the back of high demand and increased production costs; as in Finland, log costs for Latvia’s producers have climbed “quite considerably”.
One supplier into the UK said that, from his own perspective, further product price increases of “no less than 5%” can be anticipated by UK buyers at the onset of the second quarter. Lead times on most items have gone out to May, he added.
