Japanese rebuilding impacts plywood supply

Summary
¦ Japan is buying considerable volumes of plywood from overseas.
¦ The price of Chinese plywood is rising.
¦ Shortages of some forms of Brazilian elliottii pine plywood are possible.
¦ Finnish birch plywood is finding ready markets.
¦ OSB demand is improving in the UK and sales prices are recovering.
¦ Shortages of OSB may occur if plywood supply becomes more of an issue.

The connectivity of the world market has perhaps never been more evident than in recent weeks as the devastating earthquake in Japan has led to substantial upheaval across the plywood sector.

Although still only in the early stages of its recovery, Japan is already buying considerable volumes of plywood from overseas, notably from supplier countries in the same region of the world, such as Malaysia, Indonesia and even China. In part at least, this increase in imports has been triggered by the impact of the earthquake and tsunami on Japan’s own plywood production capacity – around 25% of which has been destroyed, according to a report from BIS Shrapnel. Given the enormous scale of the Japanese rebuilding programme, experts are pointing out that this shift in demand patterns “could be long term”.

As a result of Japan’s heightened buying activity, there has been a sizeable reduction in the availability of material for shipping to other parts of the world, leading to significant upward price progress. In the case of Malaysian ply, prices prevailing in the UK are estimated to have climbed as much as 20% since the beginning of the year – “and are likely to continue to increase”, according to one industry expert.

The Japanese earthquake “has acted as a tremendous stimulus for demand”, he explained, at a time when Malaysia is “very short of logs” and plywood mills’ production rates have been duly curtailed. “They are operating well off their peaks because they are not prepared to take a gamble on high-priced logs,” he continued. In other words, many of the country’s plywood producers are prepared to commit to satisfying an order only once the customer has committed to paying the elevated asking price.

The US has joined Japan in placing substantial order volumes whereas UK buyers are generally “sitting on the fence”. TTJ was told this week: “If they don’t pay the price, they won’t get any wood. There is already hardly any Malaysian plywood on the ground in the UK.”

Similarly with China, plywood prices have been propelled upwards in recent times. According to one local expert, FOB prices for plywood coming out of China have risen around 10% since the earthquake – “and I think it will be a continuing upward trend”, he said.

The price uptrend for Chinese ply is attributable only in part to the Japanese earthquake, with another salient factor being the rapidly-rising costs afflicting China’s plywood producers, including for labour, transport and fuel. It is also worth noting that many of China’s producers are opting to focus on satisfying domestic demand for plywood – from, for example, the country’s burgeoning furniture industry.

With the push for ever-higher prices now established for plywood from virtually any origin, buyers in this country have been accepting the price hikes on Chinese material, which remains the cheapest available to this market. At the same time, however, there is concern that, in the light of current demand and with a lot of volume expected to arrive on these shores within the next two to three weeks, the UK could become over-stocked with Chinese plywood. “The material that will be arriving may not easily find a home,” it was contended.

In contrast, some experts are suggesting that UK shortages of some forms of Brazilian elliottii pine plywood – particularly the thinner sizes – are a distinct possibility for the near future. Partly as a result of a significant mill closure in Brazil, FOB prices are reckoned to have increased by as much as 20% since January; faced with limited supplies, end users in the UK are paying these new higher levels only with great reluctance.

With the upward march in Malaysian plywood prices, it has been suggested in certain quarters that “a door may open” for shipments of Brazilian hardwood plywood to the UK. However, a number of regional experts have dismissed this possibility given the strength of the Brazilian currency, its high domestic demand and the rising cost base in Brazil itself.

Although sales of Finnish spruce plywood were described this week as somewhat “off the boil”, the country’s birch plywood is continuing to find ready markets at firm price levels. In the case of Baltic plywood, “constant” demand from the UK and mainland Europe has led to the recent introduction of price increases in, typically, the 5-10% band – with further hikes anticipated given currency swings and rising producer costs. Higher prices “are not scaring buyers off”, TTJ has been told, with one contact indicating mill bookings all the way through until September. Buying pressure is coming from across the user spectrum with the exception of heavy construction. For their part, Russia’s plywood producers are continuing to attract not only a strong domestic following for their products but are also fielding healthy levels of interest from their near neighbours.

Supplies of birch ply out of Finland, Russia and Latvia were affected by particularly severe, ice-related port problems earlier in the year, but supplies are now flowing again in earnest. The UK too suffered unhelpful weather conditions across December, January and February; however, according to several contacts, the onset of consistently warmer weather is already showing signs of boosting “outdoor activities”, with a resultant improvement in plywood demand.

Therefore, with supply pressures bearing down on plywood from a broad spread of origins, there is widespread talk of a “bull” market persisting over the next few months. Indeed, one distributor quipped: “We are suddenly everybody’s best friend.” However,

it has also been suggested that supply concerns have resulted in the same enquiries “being passed around the trade”, thereby “giving a false impression of the level of business in the UK”.