Production sufficient to supply lower demand

Summary
• Chinese exports of hardwood plywood to the UK rose by 20% during the first nine months of last year.
• UK imports of Indonesian plywood are at an historically low level.
• Malaysian producers benefited from the doubt over the Chinese anti-dumping duty.
• On the back of strong domestic demand, Russian producers have raised prices.
• Latvian exports have been hampered by a shipping shortage.
• The OSB market is flat.

As in 2007, the UK plywood trade has made a steady but unspectacular start to the new year, with business confidence levels appearing markedly lower and margins tighter than at the start of last year.

Availability of plywood is generally sufficient to meet this lacklustre demand, partly as a result of overbuying during 2007 in response to supply concerns. However, there is a sense that a lack of forward buying might ultimately lead to shortages if order levels improve, and also that current prices do not adequately reflect replacement costs.

Meanwhile, a mixture of relief and annoyance has greeted the news that no further anti-dumping duties will be imposed on Chinese plywood. The European Commission confirmed in a letter sent to interested parties on December 17 last year that its enquiry into the matter was being terminated with immediate effect and that no duties were to be applied to tropical red-faced poplar plywood and tropical hardwood-throughout red-faced plywood coming from China. This ends a process begun more than a year ago when the European Federation of the Plywood Industry (FEIC) called for the 66.7% duty on okoumé-faced poplar plywood to be extended to other Chinese plywood products with different veneers such as bintangor, red canarium and kedondong.

According to the European Commission’s directorate-general for trade, the request by the FEIC for a possible widening of duties has been withdrawn. At the same time, EC officials have insisted that they cannot be held responsible for any negative effects the enquiry procedure might have had on trade. And while pleased that duties will not be extended, plywood mills in China and also UK importers of Chinese plywood have been irritated by the way they have been treated. One of the latter complained that the enquiry process had significantly damaged the profitability of companies which base a large proportion of their business around the Chinese plywood trade. He added: “I think it’s grossly unfair. This has affected a whole year of trading.”

Chinese exports

Chinese exports of hardwood plywood to the UK leapt around 20% during the first three quarters of last year. However, experts maintain that UK order levels shelved off sharply in the final quarter as the European Commission decision became more imminent. The UK customer base appeared to be showing slightly more interest in Chinese plywood during January, but market momentum has been stifled by Chinese New Year celebrations. “Nothing is done for two weeks because the mills are not there to confirm the orders,” said a supplier.

For the moment, many UK consumers appear to be holding reasonable stocks and to be adopting a hand-to-mouth approach to buying. At the same time, the price advantage enjoyed by Chinese plywood has narrowed significantly as rising freight, labour, raw material and veneer import costs have forced producers to ask for more money. “I don’t think Chinese material will stay the cheap option,” said a UK distributor. “We are already seeing some people going back to Malaysian and Brazilian hardwood plywood. Indonesian mills have also continued to pick up business in the UK although volumes are ot significant and prices certainly not low.” In effect, UK imports of Indonesian plywood remain at an historically low level and focused principally on special or niche products.

The same source pointed to growing demand for certified product and to mills responding by going down the certification route. He pointed to producers in Brazil and several other South American countries which were seeking either FSC or PEFC accreditation. He said that an increasing number of UK buyers were prepared to pay a premium for certified timbe and that many were “inching” increasingly towards a certified product-only approach to purchasing because they did not want the cost of maintaining separate stocks of both accredited and unaccredited plywood.

Malaysian producers were the main beneficiaries of the drift away from Chinese material occasioned by anti-dumping duty concerns. Most plywood producers in peninsular Malaysia and Sarawak are said to be sold out for most of the first quarter, not least because of strong Japanese buying activity. In Sabah, however, mills are suffering from what one contact described as an “acute” log shortage.

Overall, Malaysian plywood prices are expected to firm over the next few months, partly on the back of high freight rates and healthy export demand from a number of countries – although the UK is not among them.

Exports of Brazilian hardwood plywood have been undermined by the strength of the real in relation to the US dollar. Prices have remained firm as mills respond to increasing cost pressures, including an almost 30% hike in their glue outlay towards the end of last year. UK sales of Brazilian elliottii pine ply have been made at stable to slightly firming price levels, with several contacts contending that shortages could emerge in the UK before the end of the first quarter owing to a lack of forward buying.

Russian prices rise

With the luxury of strong domestic demand, Russian plywood producers have been issuing prices that have frightened off a large proportion of would-be overseas buyers. Minimal business has been booked for the UK market since the start of the year, leading one expert to suggest that availability is becoming tight in certain specifications, notably BB-grade large sheet sizes and the thinner C grades.

“Prices are firm and buyers are reluctant to jump in,” he said.

Over recent times, supply of plywood out of Latvia has been hampered by a lack of available shipping. Producers are experiencing decent demand both domestically and from other parts of Europe, although the UK market has made a relatively slow start to 2008.

“We are not seeing forward buying to the same extent as in the early part of 2007,” said a supplier. Supply issues had prompted many customers to buy several months in advance during the first half of 2007; however, the position has subsequently improved while lower demand from UK end users has left many companies with relatively healthy stocks.

Sales prices for Latvian ply have remained “pretty firm” as producers attempt to mitigate the impact of higher labour, log, glue and transport costs.

Forward prices of Finnish birch plywood have held station whereas some more attractive deals are now said to be available for material on the ground. A slowing of demand in the UK and elsewhere in Europe has been attributed – at least in part – to last year’s price escalation, prompting consumers to look for alternatives. Nevertheless, one expert argued that logs are not abundant and that any significant upturn in order levels would create supply issues within the market.

Log availability appears to be less of an issue for Finland’s spruce plywood producers. Prices were increased by several percentage points in January and were duly absorbed by the UK market, according to one UK market supplier.