Summary
• Demand has improved slightly.
• Some gaps in stocks are beginning to appear.
• The EU duty-free quota is expected to be filled in the next few weeks.
• Cheaper freight rates may boost shipments from China and the Far East.

In TTJ’s last plywood market report the UK trade painted a bleak picture of mills working reduced weeks or closing lines and little sign of improvement for the very depressed market. According to our latest feedback from the sector, business remains very challenging, although there are now reports of an element of restocking.

Further evidence of the market being, as one company said, “both slower and lighter than last year”, can be seen in the most recent news on the fulfillment of the EU duty-free quota for coniferous plywood. In 2008, the threshold of 650,000m³ was reached by early April. Latest estimates this year were that this figure was not expected to be hit until mid-May. So, said sources in the trade, expect the impact on prices over coming few weeks.

Highlighting the difficulty of the international situation, plywood mills in Brazil, where prices are said to be down by around US$60-70/m³, are still reported to be cutting hours or being mothballed.

“Demand for [material] from Russia and the Baltics has also weakened over the last month,” said one importer. This, he added, has had the inevitable softening effect on eastern European prices, although deliveries remain prompt.

Far Eastern output

Chinese and Far Eastern output generally is also said to be weak but cheaper freight rates may give producers a bit of a market edge – and shipments from these areas are also reported to be reliably on schedule.

One Asian plywood provider that seems to be fairing better than average, however, is Malaysia. Producers here are said to be insulated to some degree from the downturn in the west by continuing business with more local markets, including Singapore and Thailand. And evidence of their stronger order books, according to one agent, was that they are standing firm on price.

Malaysian producers are forecast to be given an added boost by the Malaysian Timber Certification Scheme (MTCS) gaining endorsement from the Programme for the Endorsement of Forest Certification scheme. This is expected to benefit Malaysian timber and wood products in the UK, in particular, as certified material generally is reported to be holding up reasonably well and, according to some, becoming a standard ‘no-choice’ option. “With virtually zero price premium for certified, it is an easy decision to make,” said one source.

The Chinese are also reported to be increasingly angling for this market, with growing numbers announcing they have secured environmental chain of custody certification. Of course, the bona fides of some of these claims have been questioned in the past and one company said they are still worth checking out on the ground.

“We’re buying from one mill only in China which has FSC,” said one company. “And we are happy [with the certification] as we’ve visited and inspected.”

Freight prices

On freight prices, plywood traders say there have been reports of increases out of Malaysia. But overall they remain low. One company dealing in South American elliotti pine ply said freight had “fallen over US$1,000 a box”, while another reported that Chinese freight prices were said to have dropped between US$5-10/m³ due to the lack of demand. The latter, he added, now provided a chance for sales of timber from China to strengthen, although another added that any improvement in competitiveness that cheaper freight did produce was unlikely to boost demand in the remainder of 2009 to the extent that it offsets the decline in sales for the year to date.

Inevitably, currency fluctuations are also still affecting the whole market, particularly companies trading principally in sterling and dollars. Continuing unpredictably here, said one trader, is making pricing and margin controls “very difficult” and the fluctuating dollar, in particular, has added to the pressure to buy UK ex-stock to side-step exchange volatility.

Forward ordering

As to the reports of restocking and a recovery in forward ordering, some say this is because less plywood has been imported in recent months so, even though demand is still weak, stock levels are now hitting bare minimum. One importer said customers were still “slow at committing to wood” and ordering on a hand-to-mouth basis and “on a moderate scale”.

However, while no-one would put their neck on the line and say this is definitely the case, some are hoping that the degree of restocking may hint at a slight rise in market confidence, or at least a sign of greater stability, with the market having bottomed. One trader told TTJ that “demand is still light but surprisingly better than we expected”. Another described the market as “patchy, but busy some days. We can’t complain”.

An increase in intra-UK trade was also cited by a trader as evidence of some glimmers of improvement in the market, albeit unpredictable and regional. Demand also clearly varies across product categories too, with some shortages now reported in 12mm.