After repeated warnings from agents and importers, the long-anticipated sea change in the plywood market appears to have materialised. Supplies of Far Eastern and Brazilian hardwood plywood have become very short across the entire specification band – a situation that is deemed unlikely to improve greatly in the foreseeable future. Prices have been rising but some UK operators have been forced to turn away business owing to a lack of material to sell.
Many experts believe that, far from this being a temporary phenomenon, the plywood market is in the midst of a fundamental shift and that, as one put it, “things will never be the same again”. Mills in the Far East would tend to agree: some Indonesian operators have already informed contacts in the UK that prices will have to rise as high as Indo96 list +30. In the light of log shortages and higher production/shipping costs, some producers have declared force majeure, suspended production and cancelled existing contracts.
Although anticipated, plywood price progression over recent weeks has nonetheless been startling. Based on comments from industry sources contacted this week, business has already been conducted at +17 for Indonesian plywood, although many contacts suggested that the prevailing Indonesian plywood price was nearer +10 to +14. By comparison, prices were barely above nett early in the first quarter. Meanwhile, having languished in negative Indo list territory earlier in the year, Malaysian prices of around +14 have been reported from the Continent, although slightly lower levels are thought to prevail in the UK.
“The UK can’t go on paying the prices it’s been paying for its plywood, otherwise there won’t be any mills around,” TTJ was told this week. Another contact noted: “In the past, we would have been saying ‘let’s make the most of this before it all comes crashing down’. But this is a different ball game. If Indonesia keeps a hold on illegal logging, these prices are here to stay.”
According to sources within the trade, Indonesia’s forestry ministry has been holding back on logging licences since the first quarter, with the result that legal logging activities have ground to a halt and mill stocks have been whittled down. The number of Indonesian producers has dwindled alarmingly over recent times, prompting one regional expert to comment: “The government will have to act soon to sustain its plywood sector but its first priority seems to be stopping the illegal logging.”
The UK is also seeing very little plywood from Malaysia owing to a lack of logs and to strong demand from Japan. Indeed, with vessels said to be combing the region’s coastlines in search of cargo, experts said this week that any UK buyer placing an order can expect to wait up to three or four months before seeing their Far Eastern material.
Brazilian production
Meanwhile, the shortage of Brazilian hardwood plywood can be ascribed largely to the fact that many of the country’s producers have been forced to close or reduce or suspend production because the real/US dollar exchange rate has limited their sales almost exclusively to local markets. Prices for the UK market have been pitched at a high level, partly because knowledge of a piece of high-priced contracted business has raised the expectations of Brazilian producers. Nevertheless, no substantial volumes have arrived in the UK for some time.
Chinese plywood has also not been so readily available of late. However, there is widespread concern that constrained supply from Indonesia, Malaysia and Brazil will ultimately play into the hands of China’s plywood suppliers and boost the country’s growing share of the UK market. Having noted that Chinese plywood was still laden with quality and environmental baggage, one cynic added: “Unfortunately, market acceptance is based mostly on price and the availability of alternatives – not on principles.”
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“The UK can’t go on paying the prices it’s been paying for its plywood, otherwise there won’t be any mills around” |
UK imports of Chinese plywood soared 88% last year to 191,000m3 such that, having claimed a 17% share of the UK market in 2004 with 101,000m3, Chinese producers secured a 34% share the following year, according to independent analyst timber-trends. More traditional sources of tropical plywood suffered as a result, with Indonesia’s market share tumbling 7.7 percentage points following a fall in its UK sales from 126,000m3 in 2004 to 77,900m3 last year. Over the same comparative periods, exports of Malaysian plywood to the UK slipped from 170,000m3 to 144,000m3 while Brazilian sales into this country also fell to 144,000m3 in 2005 after having reached 182,000m3 in the previous year.
Figures from timbertrends for January 2006 actually show a decline in UK imports of Chinese plywood – from 10,000m3 in January 2005 to 8,600m3 this time round – while a leap in Malaysian plywood imports from 9,600m3 to 12,500m3 is ascribed largely to favourable GSP status. UK purchases of Indonesian plywood fell from 8,400m3 in January 2005 to 5,600m3 this time round, while Brazilian volumes slumped from 14,500m3 to 9,700m3.
Alternative sources
Constraints on supply from traditional sources have boosted interest in plywood of alternative origin. For example, several contacts pointed to good demand for plywood from Ghana, although one added: “Supplies are drying up now because other markets are willing to pay more.”
As for elliottii pine plywood out of Brazil, recent weeks have brought modest price increases of US$10-15 per m3. Many mills have curtailed production and/or declined to export based on currency considerations, with the result that 12mm material is in particularly short supply in the UK. The UK market is said to be under-bought because major buyers have been holding off, while some are said to have become increasingly indifferent to elliottii because of reasonably competitive domestic plywood prices.
Elsewhere, Finland’s birch and spruce mills are continuing to enjoy healthy order books while Latvian plywood prices have increased and availability to the UK has become somewhat tighter. Russian prices are more competitive: the prices of large sheets have held up well and availability has gone out to a minimum of four weeks; sales of squares have been buoyed by renewed interest from the US and prices have improved accordingly. Looking further ahead, severe tightness in the hardwood plywood market is seen as having only positive implications for birch plywood prices.
Owing to a combination of rising costs and good demand, regular price progression has become a feature of the OSB market in 2006. Several leading producers confirmed that, following the introduction of 5-7% price increases in January, similar hikes have either been implemented in April or are being prepared for May. One company also said that it was already anticipating a further increase in the region of 5-7% for either June or July. “We still need another 15% for it to be a viable industry,” commented a senior spokesman. Noting that energy, glue and other costs “have gone up horrendously”, he said OSB prices would be significantly higher but for the dampening effect on the UK market of Continental competition.
The early months of the year have seen reasonable OSB demand levels in the UK thanks to a number of factors, including: a lack of plywood availability and rising plywood prices; the strength of certain OSB-consuming sectors, notably timber frame housing; and a growing awareness of the product’s environmental and structural credentials. Order books appear to be fairly strong for the second quarter, not only in the UK but also on mainland Europe. One Continental producer contact suggested local markets were strong both in terms of consumption and price, such that shipments to the UK were relatively unattractive. Similarly, OSB exports to the US have dwindled owing to the robustness of European demand.
The European Panel Federation confirmed recently that OSB sales continued to improve during the second half of last year, both domestically and for export. For 2005 as a whole, European production climbed 3% to around 3 million m3 – somewhat slower growth than in 2004 when output was almost 15% above its previous record level.
