Even the most confident of gamblers might hesitate to put a wager on the plywood and OSB markets at present.
Both products are still in extraordinary demand but OSB availability has improved, partly as the US market has eased, and prices have softened slightly. They are still at record levels, however, and whether this is a seasonal blip and the US market turns again is why few would place a firm bet on where it’s going.
“The general feeling is the US market won’t crash and it will come back. It depends on demand in September/October but nothing is normal now,” said a distributor.
An importer agreed that the market was easing and, after a frantic May and June, he believed “we’ve reached the ceiling”.
The change in the US market means the price of Brazilian plywood has come off a bit, with elliotis pine plywood prices down 20-25%. While Brazilian plywood competes with OSB, the importer said the price had not come down enough to have a notable impact.
Some buyers had turned to Chinese pine plywood as an alternative to elliotis pine but are likely to revert to Brazilian product as it becomes more readily available.
Meanwhile birch plywood, which was slower to feel the impact of the heightened global demand, is now following the same trajectory as other panels and from around May to July prices nearly doubled.
Around July the FOB price of Chinese plywood also rose because of raw material costs. Heavy rain limited harvesting and made transport difficult and manufacturers had to kiln dry logs, rather than relying on the usual air-drying.
Demand for Chinese plywood remains so fierce that one contact said shippers were renegotiating signed contract prices – something he had never seen before. “Shippers are saying ‘if you don’t renegotiate and agree to a higher price, we won’t ship’,” he said.
China’s poplar resource is already insufficient to meet the plywood industry’s needs and now it will reduce over time as the government recently announced that land use must give priority to food production over plantations. TTJ was told that a lot of manufacturers are now importing logs from New Zealand, South America and Europe to shore up their raw material supplies.
The rise and rise of container prices is another factor affecting plywood. A significant shortage of shipping capacity, particularly from Asia, is still putting pressure on both break bulk and containers.
“Even if you’re able to buy product competitively, you will struggle to have it shipped competitively, if you can get it shipped at all,” one contact said.
The container rate from China is now an eye-popping US$15,000-17,000 – up from US$2,500 in January this year. Even when a container rate is accepted it doesn’t always secure the space, an agent told TTJ.
“We’ve been offered a container with a rate, gone to the buyer to check they’ll accept the rate to then be told by the shipping agent the container has gone,” he said.
On top of limited shipping capacity, port congestion is causing further delays. Most of the UK trade will know about Swire’s vessel, Konya, which arrived in the Port of Tilbury in May, a month late, and as of late August it had still not been unloaded. Its cargo includes plywood destined – eventually – for buyers who paid for it back in February/March.
Now a second vessel expecting to unload at Tilbury has been diverted to the Port of Tyne, bringing further delays and costs for those waiting for product.
“It will cost the importers £4-5,000 per load to get it from Tyne to their warehouses in the south,” said a contact.
And that’s assuming they can secure a haulier. The UK’s shortage of HGV drivers is affecting all sectors from food retail to timber. An importer told TTJ that what would normally be 48- or 72-hour deliveries were now taking a week to 10 days.
A distributor told TTJ his company was “scraping by” with supplies of hardwood plywood from China, Malaysia and Indonesia and the Konya’s situation illustrated how difficult it could be to manage stock, especially from the Far East.
He expected shipping to continue to constrain supply at least until Chinese New Year in February 2022.
The supply issues may not have put a brake on construction but they have forced a change in expectations for just-in-time delivery.
“We’ve created the Amazon world where everyone wants everything at the click of a button. We don’t want people to panic buy but we do encourage customers to give more notice so we can manage their expectations,” said a distributor.
In the current market there is no opportunity for anyone in the supply chain to build stock and one contact believed that most people now realised that stock availability and just-in-time delivery were “no longer a given”.
OSB has been a much more difficult product for UK traders but plywood’s improved availability, and the easing in the US market, has led to a slight softening in OSB demand and prices. Nevertheless, demand remains strong, mainly driven by housebuilding.
“It’s hard to say whether demand has dropped off; the DIY market has definitely dipped. The summer is always a bit flatter and this year there have been a lot of distractions with hospitality opening, Wimbledon, the Euros and the Olympics,” said a distributor.
One manufacturer said despite many customers being on holiday in late July/early August, demand had not suffered. “This is usually the deadest time in our industry and yet we are sold out,” he said.
It is thought OSB pricing may have levelled off, and one manufacturer was not forecasting any “significant increases” up to the end of the year.
This year OSB prices have risen to such an extent that some merchants have now seen customers pushing back, turning to the cheaper option of softwood plywood, and some hardwood plywoods. If this trend were to take hold, however, the UK plywood trade would struggle to meet demand.
One OSB manufacturer set a 60% price increase in August, and another a 10% rise for September but it is widely thought the price has probably peaked. “But demand is still there,” said a distributor, “so it will be interesting to see how it pans out over the next few months.”
Another contact agreed that plywood’s improved availability had brought more stability for plywood and OSB but prices were still “two to three times above normal level”, he said.
A manufacturer thought market levels had peaked and was hoping they would plateau at this level but no-one can be certain about what will happen in the coming months.
“For August/September order books for European manufacturers look very strong. What happens in Q4 we genuinely don’t know because there will be external influences, such as plywood prices, but with shipping problems we could also see a shortage of plywood in Europe in October,” said one contact.
Summer shutdowns at European mills temporarily reduced capacity and their return to production will also influence the market in September.
To fill supply gaps some UK traders have turned to China for OSB and MDF. The panels are generally made from New Zealand radiata pine so UKTR documents are not a problem but some traders are wary of the quality of the finished product.
“Most of the Chinese product will probably be OSB2; if it says it’s OSB3 it won’t be BBA-approved,” said a merchant. “People might be compromising on quality but it’s for the need of having stock.”
A distributor also urged caution. “People are constantly chasing product and the fear is they may opt for something that’s not fit for purpose. OSB is a very consistent structural panel but some of the product from China isn’t; it isn’t a Class 3 glue line,” he said.
Some traders are concerned that the almost continual rise of timber product prices reflects “out of control” inflation in the wider economy, but generally their concerns are more focused on the procurement and delivery of product.
Manufacturers on this side of the Channel, and in Europe, are likely to remain on allocation for the rest of the year. If US demand continues to ease, some eastern European producers may focus attention on western Europe, and one merchant said he was already receiving more calls from European traders who had been supplying the US, but now had product available. The consensus is, however, that this is unlikely to have a major influence.
The shipping problems slowing plywood supply and the haulage issues affecting all timber products are expected to continue into next year, but that is about all anyone is willing to put their money on at present.
“The rest of it could turn very quickly,” said one contact. “It depends on demand in September/October but nothing is normal now and things won’t necessarily be as you expect. It’s been a 15-month whirlwind so we’re hoping for some stability.”
Another unknown is what effect the shortage of PMDI might have. TTJ was told it could disrupt the market to the point that the supply/demand balance will be even further out of kilter.
One contact put it plainly: “The structural panels market is difficult to read at present.”
While current market conditions are all-consuming, one contact said the long-term wood fibre supply was a bigger worry.
“There are outside factors that will keep us all concerned, but there are always market challenges and the majority in the past 10 months are because of the pandemic. A bigger, longer-term issue is global fibre availability,” said one contact.
As an example, he cited Turkey’s recent restrictions on raw MDF and chipboard exports in order to supply its own furniture industry.
“It illustrates how wood fibre is very valuable. It’s not quite the new gold or oil but it’s a valuable resource.”
