• Constraints on credit insurance are impacting on plywood trade.
• Plywood prices have softened as traders are keen to move stock before Christmas.
• UK stocks of Chinese plywood are said to be high.
• China’s plywood industry continues to contract.
• Finnish producers are planning extended Christmas shutdowns.

In many cases, customers’ cheque books were locked away several weeks ago and have not reappeared. It has become almost impossible for plywood sellers to quote a price that would encourage a purchaser to buy ahead of the Christmas period. Furthermore, credit limits are being slashed – or withdrawn altogether – by insurance companies, thereby placing a restriction on the number of potential customers and on the volumes that can be sold to them.

With Christmas on the horizon, the desire to be rid of stock has reached “desperation” levels and competition for any available business has become “intense”, according to many contacts. As a result, plywood prices have softened almost across the board – “but not enough to induce people to buy”.

A case in point: the Chinese government raised tax rebates on plywood and OSB – as well as on overseas shipments of chipboard, MDF, joinery and other processed wood products – from 5% to 9% with effect from December 1. This decision was intended to support falling sales but, to date, has singularly failed in its objective, despite exporters and UK distributors passing on a chunk of the benefit. A leading distributor said: “Nobody is going to change a buying decision at the moment based on 2, 3 or 4%.”

Look for the catch

There has been evidence of unsolicited offers of Chinese plywood “at very low levels”, but prospective buyers were warned this week to “look out for the catch”. He pointed out: “A lot of these offers are coming from people who are not even allied to a mill.”

According to feedback from the market, some of the UK’s largest importers of Chinese plywood are said to be sitting on several months’ stock and have also been offering material at relatively low prices. As a result, regular buyers have been able to secure their requirements almost instantly without having to resort to placing forward orders. Indeed, among those who have placed orders, “some are asking for delayed shipments or, at worst, are trying to renegotiate their contracts”.

With none of the world’s major plywood markets providing sales relief, experts are predicting a continuing collapse in China’s mill numbers. According to one report from North America, some 60% of China’s plywood producers have already closed and a further 15% are expected to shut down before Chinese New Year.

Having noted the example of a major Chinese plywood producer which has already reduced its number of operating lines from ten to one, a UK-based regional expert commented: “Some of the mills are saying that if trade does not improve very, very soon, they will have to close.” Other operators are choosing to mothball plants and to run the risk of losing the services of experienced staff for when they reopen.

Malaysian exports

In common with Chinese plywood, material out of Malaysia has also softened in price during the fourth quarter. A significant number of the country’s mills have either shut down or are considering closure owing to a lack of orders – notably from the Japanese market – and/or a scarcity of logs.

Hardwood plywood out of Brazil has bucked the general trend in recent weeks by posting price improvements on the back of currency changes; mills appear keen to do business again but the UK market is described as “dead” at present. Elliottii pine plywood from the same country has continued on its downward price path – although many experts believe the market may now have bottomed out after dropping some 10% in the fourth quarter on an FOB basis.

According to one expert, elliottii prices have been dragged down principally by the eagerness of smaller mills to obtain business. “Through them offering bargains, there is the danger this becomes the market level – even though their material is of a poorer quality and not certified.” The same contact added that leading importers have been running down stocks in anticipation of next year’s duty-free period. “They are just filling holes [in their inventories] and they want it tomorrow,” he said. “Price is not the main issue at the moment.”

Christmas shutdown

In Finland, lengthier Christmas shutdowns are planned as one means of minimising stock build-up and of shoring up prices. Most mills are understood to be closing for four weeks “or even longer in some cases” compared with the annual norm of two weeks.

A UK spokesman for a major Finnish producer said the intention is to maintain stability in birch and spruce plywood prices until the end of the first quarter of 2009 “subject to market conditions”. Given the weakness of the pound in relation to the euro, mills would like to impose price increases on sales into the UK but appreciate the stern resistance such a move would engender, he added.

Lead times from Finland for both birch and spruce plywood are described as “prompt” at a time when stocks in the UK are described as “not huge”. Meanwhile, European markets that had performed better than most during 2008 – such as the Netherlands and Denmark – have now joined the others in displaying a marked reluctance to place pre-Christmas orders for Finland’s plywood.

Baltic and Russian plywood

Similarly, buyers of Baltic and Russian plywood are not committing to any major volumes, preferring either to purchase “hand to mouth” or not at all. Potentially interested parties in the UK report a steady flow of sales offers “from traders we have not heard from before”.

According to market feedback, mills in the Baltics are on short lead times, are planning extended breaks over Christmas and, furthermore, are “resigned” to having to accept lower prices in the new year. On the plus side, costs of logs and all petrochemical necessities have been falling in recent months. The same source also noted that “nobody wants a December invoice for January arrival” and that, while the number of bad debts to date has been quite limited, a contraction in demand and in the number of potential customers is anticipated for the first half of 2009.

With most experts predicting no major upturn in the UK plywood market before the middle of next year, even the crumbs of comfort are meagre. However, several contacts pointed out that the starting pistol on panel sales for the London Olympics would have to be sounded at some point and that, in any case, “it will reach a stage where buyers will have to replenish their stocks”. Any new year upturn in sales could rapidly lead to shortages, TTJ was told.