Plywood sales activity in the UK during most of the current quarter has been generally lacklustre. At the same time, margins in the trade have fallen increasingly "under the cosh", according to one expert. "It’s a battlefield to get orders – but at least there is a demand in this country. In parts of the Continent, the phones aren’t even ringing."
There have been notable developments within the market: for example, some Chinese plywood suppliers are seeking price increases of typically 2-3% to compensate for the strengthening of the yuan against the US dollar; and also, substantial freight rate increases were being discussed for the China- UK route at the time of writing.
But at the same time, there is a strong sense that the UK plywood market is "in a kind of limbo" as it awaits the impact of the EU Timber Regulation (EUTR), which comes into effect in March next year and which will require documentary evidence to prove wood-based products are derived from a legal source. The EUTR has "dented people’s willingness to buy forward", TTJ was told this week.
Reports from dominant supplier China suggest that vessel space bookings already made for December and January will ensure that plywood volumes arriving in the UK ahead of the new regulation coming into force will easily outstrip likely demand. The market could be "awash" at a time when it "is generally quiet", one contact said. "My concern is overbuying and misrepresentation of the product purchased."
According to a leading UK importer, the company’s work with Chinese producers will mean that, by early next year, all the plywood it brings in from China will comply with EUTR strictures. But such claims are greeted generally with scepticism: indeed, a local expert has told TTJ that many Chinese manufacturers and exporters "are still having significant difficulty in securing relevant documentary evidence to this effect". He identified almost insurmountable problems in obtaining certificates of origin – a view echoed by many others within the trade.
Several contacts said the EUTR had the potential to be a game-changer for the plywood market "so long as the regulations are properly policed". But another expert believed fundamental change was inevitable because the regulation offered no limited liability and so the personal risks associated with a breach were far too onerous. Due diligence work in advance of the EUTR had already ruled out using some 20% of the factories with which his company deals, with many more expected to be added to the list as the process continues. In the longer term, he added, the EUTR has the potential to render plywood a specialist item, to send prices "through the roof", and to boost OSB and MDF sales substantially.
Switching to non-tropical
With the regulation in mind, some buyers are reported to have already broken with traditional practice by switching to non-tropical plywood types. One contact declared: "It’s the only way forward." Indeed, he said, it could be argued that, in five years from now, volumes of tropical hardwood plywood entering the UK will be limited to specialist, non-commodity items. In the shorter term, however, there is concern that the large shipments due to arrive from China in the coming weeks will delay the EUTR’s impact.
Europe is not alone in ratcheting up the pressure on Chinese plywood producers and exporters. On November 9, the US International Trade Commission unanimously approved an investigation into charges that Chinese companies are selling hardwood plywood in the US at unfairly low prices. The Commerce Department is expected to announce preliminary anti-dumping duties in March – but the moves made to date are already having a "profound" effect, it is reported, with some Chinese producers no longer choosing to ship to the US.
As reported by TTJ, the Coalition for Fair Trade of Hardwood Plywood, an association of US manufacturers of hardwood/decorative plywood, filed an unfair trade petition in late September. Said to have the support of hardwood plywood manufacturers representing around 80% of US production, it asserted that Chinese imports were being sold in the US at dumped prices and subsidised by the Chinese government. Over recent years, the share of the US hardwood plywood market captured by imports from China has grown from single or low double digits to around 50%, according to the coalition.
The figures for the UK are equally as impressive. In the nine months to September, China accounted for 56% of hardwood plywood imports to the UK, according to the latest statistics from the Timber Trade Federation. Chinese volumes increased 14% compared to the same period last year and in September China accounted for virtually two out of every three cubic metres of hardwood plywood imported.
Although some forward business has been taking place, UK demand for Malaysian plywood has followed the "lacklustre" pattern established throughout most of the trade. Despite the fact that decent logs have been at a premium for producers, they have been forced to "offer more competitive prices to maintain market share", such that "the gap between the price for good Chinese material and the price for EUTR-compliant material from Malaysia has diminished", according to one regional specialist. However, the differential was still more than 10%, he added.
Demand for Brazilian elliottii pine plywood is said to have improved in Europe and prices into the UK have edged US$5-10 per m3 higher of late. One regional specialist is predicting shortages in 2013 "because a lot of production has disappeared" and yet "demand is constant".
No significant price movements are envisaged in early 2013 for Finnish plywood. In the case of spruce, volumes sold into the UK have reportedly held up reasonably well despite falling sharply on the Continent during the second half of the year. UK demand for Finnish birch ply has been less resilient but spot deals on larger volumes have helped to alleviate downward price pressure. Lead times for both these forms of plywood are said to be in line with the norm at between four and six weeks.
Similarly, the price tag on birch ply imports from Latvia is expected to remain unchanged in the first quarter of 2013. With UK demand described as "sluggish" despite generally low stock levels in this country, sales beyond the EU have taken some of the pressure off producers, it was noted.
