Given that the economic indicators are already inspiring little else but caution in the panel products markets, the arrival of the main summer holiday period seems guaranteed to further stem the flow of trading activity.

"I don’t expect much to happen now until September when everyone is back from their holidays," said one plywood contact. "I expect hand-to-mouth trading, mostly between importers." Another said people were looking "at the day-to-day". "There is not a lot of forward planning going on," he said.

In the UK, quantities of Chinese plywood are said to be changing hands for values well below the forward price. FOB prices in China have remained fairly stable recently, although heavy rains in the north of the country have prompted some local producers to drop hints about moderate price increases to come. Production at many mills in China is currently lower and is expected to remain so for several weeks, partly because some workers return to their rural homes to gather the harvest.

Shipping freight rates have fallen by more than 15% since the early part of the second quarter. "This significantly narrows the gap between container and break bulk freight rates," TTJ was told this week.

As regards the EU Timber Regulation which is due to come into effect in March next year and which requires documentary evidence to prove wood-based products come from a legal and sustainable source, it has again been suggested that genuine FSC plywood has already witnessed an upturn in demand and can be expected to see further growth in sales as the introduction of the new rule approaches. Mill owners and exporters in China "are now beginning to realise the significant implications [of the regulations] and the effect they will have on their business with Europe", said one contact. The consensus, he added, is that Chinese plywood with any tropical hardwood content "will be considered as high risk because it is virtually impossible to obtain any documentary evidence concerning the origin of the tropical hardwood logs". Given that a large proportion of Chinese plywood has tropical hardwood faces and backs, the impact on export volumes to Europe could be potentially "profound", he said.

At least one export agent who has sold significant volumes of Chinese commercial plywood to Europe in the past has reportedly told its buyers that it is impossible for it to comply with the new regulation and therefore it will be withdrawing from the EU market at year-end to concentrate on other sales avenues.

In addition, there are already reports of the "doctoring" of certificates of origin to show species and specifications different from those that the certificate originally referenced. "The perpetrators do not realise how easy it is to see the changes or how easy it is for anybody to check the authenticity of the certificate with the issuing authority," TTJ was told.

These observations come at a time when latest figures show that China is accounting for more than half of the hardwood plywood imported into the UK: its share increased to 56% in a first quarter in which total UK imports from all destinations fell just over 5% from 221,000m3 in January-March 2011 to 210,000m3 this time round, according to statistics released by the Timber Trade Federation (TTF).

Malaysia’s plywood producers appear to be mixing optimism and realism. Some have been pushing for price increases, not least because logs remain expensive even though the supply situation has eased; however, there is also evidence of mills "coming off a couple of points" with their prices "for regular customers". It is also worth noting that Malaysia’s domestic economy is relatively healthy and is thus providing an increasing outlet for the smaller volumes of locally-produced plywood that are now becoming available compared to several years ago; regional sales have also gone up.

Latvian plywood
Sales of Latvian plywood into the UK have exceeded expectations while pound/euro exchange rate movements have helped suppliers to keep their prices stable in this market. Lead times are said to be "about right for this time of year" in view of the imminent summer maintenance shutdowns.

Demand for Latvian plywood in other parts of western Europe is described as "more variable". However, a regional expert also indicated that the reduced volumes sent to customers on the Continent have been compensated by increased business levels with emerging, non-traditional markets.

Finnish producers are reporting a significant pre-summer slowdown in wider European demand for both spruce and birch plywood, resulting in relatively prompt availability ahead of a summer holiday period for which normal seasonal shutdowns are planned at present. Prices have held firm for the third quarter and, at this stage, are deemed unlikely to change for the final three months of the year as weakened sales prospects are expected to trump mills’ desire for higher prices.

The relative firmness of Finnish spruce ply prices can be attributed in part to the ongoing disruption to supplies from Chile where the Arauco fire earlier this year continues to impact on export volumes. "The Chileans have not really caught up as yet," TTJ was told.

As regards elliottii pine plywood out of Brazil, this year’s duty-free quota appears set to remain longer than anyone can remember – with some experts even predicting that it could last into August. "That shows you what demand is like," one commented. Another argued that the trade’s attitude to the quota has changed in recent years "because 7% can be wiped out easily these days by other swings" such as currency fluctuations and freight rate movements.

Mills in Brazil have downsized their expectations in recent weeks, having replaced their earlier "wish-list" prices with values typically some US$20-30 per m3 lower. Producers are being quite firm on these levels but little trading activity is currently taking place with the UK where "no areas of shortage" are reported on elliottii.

UK softwood plywood imports fell more sharply than those of hardwood ply in the first quarter of 2012, according to the TTF figures. The total of 89,000m3 was almost 25% down on the 119,000m3 arriving in the first three months of 2011.

OSB business "ticks over"
OSB prices have held reasonably steady of late as business continues to "tick over" in the UK ahead of the main summer holiday period. However, a leading figure argued that the product is currently "undervalued" in relation to plywood and that existing sales prices are "unsustainable", especially with rising glue and timber costs.

Looking ahead, he added, next year’s EU Timber Regulation will have a significant impact on the volumes of Chinese plywood imported into the UK. Large groups in this country are already looking to "re-align" their supply arrangements in a way that is likely to entail significant additional business for OSB, he said.

From the wider European perspective, OSB demand is described as generally better in the east of the Continent than the west. Overall, sales have generally slowed in the second quarter compared with the first three months of this year.

Latest figures from the Timber Trade Federation reveal that UK imports of OSB slumped 33.7% in the first quarter of 2012 to 41,000m3 from 61,000m3 in the corresponding period of last year. Exports have increased by almost the same proportion, 31.7%, over the same comparative periods – from 39,000m3 in January-March 2011 to 52,000m3 in the first three months of 2012.

In other developments, Egger has announced expanded OSB production capacities on mainland Europe as well as the creation of dedicated distributor hubs in Scotland and the north-east of England in order to service the UK. This extended presence in the OSB market is a reflection of "high demand", said the company.