Plywood trading may have become a bit more hand to mouth recently but it’s thought to be a response to exchange rate changes rather than a reflection of the state of demand.

The Timber Trade Federation’s figures reveal that in January the UK’s softwood plywood imports were down 16.9% on the year to 47,000m3, compared with 56,000m3 in January 2014. However, hardwood plywood imports were the highest for a January since 2007. Volumes rose by 35.5% to 102,000m3 from 75,000m3 in January 2014.

In general, UK traders report that demand has been steady but the weaker euro and strengthening dollar are making buyers more cautious.

"We’re definitely not seeing a decline in the underlying demand curve but people are definitely buying a little more carefully than they were, much more little and often," one merchant told TTJ.

"We’re busy on plywood, and softwood plywood in particular, but with the dollar strengthening – and so much softwood plywood is dollar related both in payment and freight – that importers probably don’t want to get caught."

One trader dealing in European hardwood plywood described trading as tough.

"But it’s been tough for everybody if you’re buying from European producers because the pound has been so strong against the euro," he said.

He also reported steady demand but UK prices have had to drop to accommodate the changing euro/sterling exchange rate and this too has influenced buying behaviour. In contrast, softwood plywood prices had risen in line with the stronger dollar.

"Prices have had to drop to reflect that but it doesn’t necessarily reflect an overall lack of demand," he said.

"It has made buyers rather nervous because nobody wants to be sitting on stock when the price might fall. People have been buying little and often rather than being over bold."

While he hoped that prices would stabilise, he was philosophical about the situation.

"We’ve been used to rising prices since the financial crash so it’s a bit of readjustment, but that happens," he said.

However, production and demand were generally in balance and, as he predicted no further weakening in the euro, prices should remain fairly stable.

The devaluing of the rouble late last year led to Russian birch plywood prices weakening; however, as the rouble has gained some ground against the euro in recent weeks prices have become more stable.

Lead times for European product were currently running at a "manageable" six weeks, although they would of course lengthen over the next eight weeks as Finnish, Latvian and Russian mills took their summer breaks.

A Chinese plywood expert said that, until recently, UK and European demand for commercial plywood had been static but over recent months it had slowed down.

"Shipping lines have reported a significant drop in shipments during February and March and mills are reporting a significant reduction in forward orders," he said.

However, speciality products remain in good demand and enquiries and orders increased during March and April.

According to the TTF’s statistics, in January China accounted for 18% of the UK’s softwood plywood imports – a fall of just over 18% on January 2014. However, this needs to be put in the context of an overall reduction in softwood plywood imports.

This comes at the same time that the Chinese economy has slowed and so domestic demand for plywood has fallen sharply. It’s been difficult to sell the resulting excess production capacity elsewhere, although demand from other Asian markets remains positive.

With volumes traded down, so too is demand for containers and container freight rates have more than halved since January. Now the price of a 40ft container, depending on the loading port, is around US$1,200 (US$25/m3), down from US$2,500 (US$52/m3) in January.

In the UK these reduced costs, combined with the favourable dollar/sterling exchange rate, have contributed to lower CIF prices but in the eurozone the benefit of cheaper freight rates has been offset by the unfavourable dollar/euro exchange rate.

While there were currently no supply issues for Europe, that could change if demand increased.

"With China being under the National Measurement Office’s spotlight, should UK/ European demand increase significantly then there’s a possibility that insufficient EUTRcompliant plywood would be available," TTJ was told.

And, he added, concerns remained over Chinese suppliers’ ability to provide genuine EUTR documents.

"A mill told me this week that, firstly their CE certification had expired but, more importantly, they are unable to provide EUTR documents. As a consequence they now use another mill to export everything on their behalf, with the other mill’s CE certificate number being shown on the crates and the other mill’s EUTR documents being presented to buyers," the contact said.

Another development in China is mills upgrading their machinery to produce higher value products previously not available there.

China’s enormous construction industry produces a correspondingly large volume of used film-faced formwork plywood which is usually discarded or burned. Now some mills are producing a ‘recycled’ film faced plywood that has half the 10-use service life of traditional film-faced board.

"The other downside with the recycled product is that it’s almost impossible to identify the origin of the plywood and therefore very difficult to comply with the EUTR," the contact said, adding that the recycled product is around 10% cheaper than new film-faced plywood.

Some mills are now also producing ‘plastic’ faced plywood for formwork. The product costs 10-15% more than traditional phenolic film but the manufacturers say the plywood can be reused up to about 30 times. Demand is currently coming mainly from the Middle East but interest is now being shown by UK and European buyers, TTJ was told.

These new products aside, the market for Chinese plywood over the next few months remains uncertain and one contact warned that if current conditions continue, some mills may close.

"Chinese mills are already worried about the current reduced demand both at home and overseas and shipping lines are already saying that current low rates cannot be sustained," a contact said.

"Most Chinese mills are small, privately-owned enterprises which are inadequately financed and unable to cope with significant market swings. Unless the current situation improves we could see a number of mills closing."

Meanwhile in the UK, despite the exchange rate issues, UK traders seem fairly content with business. The market is said to be reasonably balanced and some predicted that demand would increase over the next six months, although they acknowledge it’s still not easy.

"We’re very happy with the market although it’s still very fickle," said a merchant. "You blink or hesitate or try to ask for a little bit more and it’s too late, you’ve lost it. It’s very competitive but there’s demand to fill, which is great."

New capacity keeps OSB prices under pressure
In the four years to 2013, OSB mills in Europe, particularly eastern Europe, were running flat out to meet demand.

Now, however, according to the latest market survey by TTJ’s sister title, Wood-Based Panels International, mills in western Europe are finding it increasingly difficult to compete with the large quantity of new capacity that’s come on stream in eastern Europe in recent years, putting pressure on prices. From 2009- 2017 eastern Europe will have added around 4.23 million m3 a year in capacity.

In 2009 the annual capacity in all of Europe was 4.35 million m3. While this is displacing some OSB from western Europe this will change once the balance of European supply and demand improves.

The European Panel Federation’s preliminary results for 2014 show that OSB production rose by 3% on 2013. European sales increased by 5% and exports dropped by 2%.

According to the Timber Trade Federation’s latest statistics, in January UK imports of OSB were up 7.5% to 28,000m3 compared with January 2014.

In the US, the steady, although slower than expected, housebuilding recovery last year has given North American OSB producers some optimism that their primary market is picking up. In 2014 housing starts were up 9% year on year to around 1.01 million, with single-family home starts 5% higher.

"US housebuilding continues to recover, albeit at a more gradual pace than originally anticipated," said Norbord president and CEO Peter Wijnbergen Lower OSB prices were largely responsible for Norbord’s weaker financial performance in 2014.

The company said EBITDA of US$90m, down from US$287m the previous year, was mainly the result of a 31% reduction in benchmark North American OSB prices.

UPM expands plywood production
UPM is expanding its Otepää birch plywood mill in Estonia to almost double annual production to 90,000m3.

The €40m investment includes a new plywood production line and a bio power plant which replaces the existing, partly oil-burning plant. The expansion, due to be completed by the end of 2016, will create around 40 jobs.

"The expansion increases our capacity to deliver competitive birch plywood and improves the mill’s material, resource and operational efficiency," said Mika Sillanpää, executive vice-president of UPM Plywood.

"The environmental performance will also improve as the new power plant will generate all our heat energy for the mill from biological fuel."

Meanwhile, higher plywood demand and reduced costs helped UPM’s plywood division increase EBITDA by 47% to €25m in the first quarter.

The division’s adjusted operating profits increased by 73% to €19m. Sales rose by 4% to €119m and deliveries by 6% to 199,000m3.