were all generating sales, there was also possibly a “heightened sense of demand” created by the fact that the larger volumes of stocks held by traders at the beginning of the year had worked through the market and companies were not “quite as overstocked”.
“The trade always seems to build things up for the end of the year, for Chinese new year, Ramadan and the duty-free quota period for softwood plywood. Everyone jumps in and then they find themselves a bit overstocked and they don’t place as much volume going forward,” the importer said.
A merchant also pointed out that tightening of OSB supply in the UK was working in plywood’s favour. Norbord was building stock in preparation for switching over to its new OSB line towards the end of the year. The company’s £95m investment will double annual capacity to nearly 640,000m3 and a state-of-the-art continuous press will replace the two existing multidaylight presses.
“The drylining industry, which would often use plywood, was switching to OSB at quite a rate of knots but that’s dulled because of lack of availability,” the merchant said.
However, he warned plywood traders that it was a false market. “They’re probably thinking this is good, and volumes certainly reflect that, but there are extenuating circumstances. Once Kronospan and Norbord are producing normally they could take away substantial chunks of product,” he said. While traders are reasonably content with plywood orders, some supply issues are emerging.
According to the Timber Trade Federation’s statistics for the five months to May, Brazil accounts for two-thirds of all softwood plywood imported by the UK and now shipments from the country have been delayed. This may be in part due to more plywood going to the buoyant US market, which is prepared to pay higher prices than the UK, and because container lines are giving precedence to other products.
For one importer at least, shipments are “proving to be a nightmare”. Orders that were placed in February/March were expected to arrive in late August – way outside the usual four to six-week lead time – and in the meantime the importer was having to use other products to meet customers’ requirements.
Some shipments from Malaysia have also been delayed.
At the same time container lines have been steadily raising prices and those increases will be reflected in plywood prices.
“The shipping lines have had low prices for the last couple of years but now they’re limiting space on vessels and charging proper money and that has to be passed on,” the importer said.
Another importer said that over the past few months container rates had been fairly stable at US$1,800 but he anticipated a hike in September and October as Christmas cargo is shipped to Europe. If prices follow the traditional pattern they will fall again closer to Christmas and then rise again in the rush to get products out before Chinese new year.
Some sources of Chinese plywood could also be interrupted as mills are closed, temporarily or permanently, as a result of the government’s moves to impose tighter environmental controls on industry and improve employees’ working conditions. Other industries have already been subject to the clean-up and now it’s the turn of wood-based panel manufacturers.
In July, the International Tropical Timber Organisation (ITTO) reported that nearly 3,000 wood-based panel businesses in Wen’an County, Langfang City, Hebei province had been closed down as they don’t meet environmental and safety regulations. The companies employ a total of around 10,000 people. Now panel mills in Linyi City, Shandong province, have been told to stop operations.
The authorities will withdraw water and power supplies to the mills and those that cannot upgrade to meet the new standards will have machinery removed from their factories.
All wood-based panel markets in China have been affected by the Environmental Protection Bureau’s investigations and there’s been a sharp decline in output from mills in Hebei and Shandong provinces.
Guangdong panel manufacturers are said to have not been affected by the moves as they already operate to a high environmental standard.
Some mills will upgrade their existing premises but the government is also running workshops on “Returning to hometown to invest” to encourage panel businesses to relocate.
The closures were having “a significant impact” on supply in China and this would eventually be felt in the UK market, an importer told TTJ.
“The local government has a total disregard for how busy the factories are or how many orders they have. It could create major unemployment and it will affect supply,” he said.
It would be a “short-term blip” in supply, however, and any rationalisation resulting from the closures would help the industry. “There’s huge plywood overcapacity in China. In some cities there are hundreds of plywood factories next door to each other.
They’re small, family businesses producing perhaps only five or 10 containers a month but multiply that by 3,000 and that’s an enormous amount of plywood,” he said. His company regularly received emails from Chinese producers touting for orders, illustrating how some worked hand to mouth. “We get offers almost every day from mills that are wanting to sell to us. It’s worse than ever and they don’t give up. Many of them don’t know about the EUTR even though they say they sell to Europe,” the importer said.
The enforcement notices on China’s mills have happened at the same time the US has imposed anti-dumping duties on Chinese plywood, possibly mitigating the need for what was usually US-bound product to find markets elsewhere. Some of the mills that are operating, and exporting to the US, have side-stepped the duties by switching from birch-faced plywood to pine-faced, TTJ was told.
“Considering the amount of softwood available in the US, it’s like coals to Newcastle,” a contact said.
PRICE RISES
The production problems in China and shipping delays from Brazil are tightening supply and prices have risen as a result. Currency movements have also had an effect. Softwood plywood prices in particular have risen by around 10-12% to a level that one importer described as “proper rates”.
Price increases could also follow the Timber Trade Federation’s requirement for species testing and third-party performance testing of all plywood from higher risk supply chains outside the EU. The move, which follows the TTF’s Panel Products Review, comes into effect in January next year.
“It will definitely increase the price of plywood and that has to be a good thing,” a contact told TTJ. “Until the beginning of this year we were still in a race for the bottom. All that anybody could do to get an edge was to take out cost; this will encourage people to find a competitive edge by putting cost back in.
“It’s hoped that importers will start to look at added-value products, things that will outperform specifications, not just perform or underperform which is where the market has been for many years.”
Potential supply and shipping issues aside, UK traders expect little, or no change, in the market for the remainder of the year although there are still underlying reverberations from Brexit and the outcome of this year’s general election.
“There was upheaval last year and this year so there’s uncertainty, but we’re not being too pessimistic. People are still going to need timber but political uncertainty is creating a frisson,” said an importer, adding that over the next couple of years that uncertainty “could prove tricky”.
Another importer was similarly phlegmatic. “I’m not overly optimistic about the future but I’m not overly pessimistic either. “There are lots of types of plywood so there’s always something to do the job,” he said.
A merchant had a slightly more positive outlook: “The market is going along quite nicely at the moment,” he said.
Another importer shared this positive view. “Demand in the UK is reasonably good. We’ve had a fairly good few months, we have some reasonably good orders on the books and I think it will remain OK for the rest of the year,” he said
