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Report from
Europe
EU plywood market beset by uncertainty
It¡¯s been a roller coaster 12 months for the European
plywood industry according to stockholder importers and
distributors in the region.
Prices have fluctuated following the rise and fall of key
international markets, there have been supply issues due to
raw material availability in some supplier countries and
demand has ebbed and flowed in response.
European importers also report increasing pressure to
provide product legality, quality and performance
assurance and now, with forecasts the European market
will generally cool this year, plus the destabilising impacts
of uncertainty surrounding Brexit, business conditions in
the sector through 2019 are expected to become
increasingly challenging.
The market has certainly changed since the beginning of
2018, with one importer describing the first six months of
last year as ¡®frenetic¡¯.
¡°Demand was strong across Europe, as was US
consumption, with their importers buying significant
volumes of Brazilian ply in particular and leading to
Brazilian exports reaching around 2.2million m3 for the
year,¡± they said. ¡°Consequently prices just went up and
up, with increases from Brazil accompanied by rises from
China and Russia.¡±
Price inflation was also fuelled, said another importer
distributor, by weather restricted raw material supply in
China, Indonesia and Malaysia.
¡°The dry season was apparently too dry, the rainy season
too wet, so mills initially just weren¡¯t able to get sufficient
logs and price pressure increased further,¡± said an
importer.
This initial market buoyancy is reflected in the import
statistics. Total EU imports for January to November
2018, comprising tropical, other hardwood and softwood
plywood were up 11.1% at 2.27 million metric tonnes
(MT).
Leading buyers of plywood
Of the leading buyers of plywood (from outside the EU)
by volume, Belgian imports dipped 1.1% to 216,362 MT,
but imports increased in the UK by 5.2% to 625,257 MT,
in Germany by 15.5% to 381,211 MT, in Italy by 20% to
173,627 MT, in the Netherlands by 14.3% to 156,862 MT,
in Poland by 26.7% to 127,846 and in France by 20.7% to
92,673 MT.
EU tropical hardwood plywood imports overall were about
stable at 299,518 MT in the first eleven months of 2018.
Contraction in purchases from Malaysia, down 15% at
49,107 MT and Gabon, 19.2% lower at 12,701 MT, were
offset by increases from elsewhere. Imports increased
from Indonesia by 2.7% to 85,189 MT, from China by
8.5% to 108,589 MT, and from Vietnam by 144.8% to
11,507 MT.
Other hardwood plywood imports into the EU rose 14% to
1.16 million MT with increases from Russia, up 12% to
597,717 MT, China 10.3% to 410,014 MT, Ukraine 38.4%
at 62,190 MT and Belarus 38.7% at 71,612 MT.
Total softwood plywood imports rose 11.6%, with
increases from all key suppliers. Imports from Brazil rose
7.5% to 502,294 MT, Russia 0.8% to 79,172 MT, Chile
25.4% to 114,769 MT, China 20.4% to 54,519 MT and
South Africa 220.9% to 16,312 MT.
Volatile market leaves many importers overstocked
While it wasn¡¯t immediately reflected in the EU import
statistics, however, importers report that in the latter part
of the year, the plywood market started to turn around and
become more volatile.
¡°We saw the Turkish economy slow dramatically, with
construction particularly hard hit, and several of their big
name companies seeking court bankruptcy protection,¡±
said a continental importer. ¡°As a result Russian birch ply,
in particular, that would have been destined for Turkey,
was pushed into other markets, including Germany.
¡°At the same time, the Middle East started to slow down.
Following the buoyant international market in the first half
of the year, however, plywood production was still high
and given an added boost by rising availability of logs in
China, Indonesia and Malaysia,¡± said another plywood
specialist
European imports also initially remained strong, they
added, with contributory factors including importers
placing big orders for the next duty-free quota.
The eventual outcome of the combination of high output
and falling international market demand was prices, in the
words of one company representative, going into a
downward spiral. ¡°And due to the strengthening dollar,
dollar-based suppliers had to cut particularly deep to
remain competitive,¡± he said.
This, he added, left importers holding substantial
expensive stocks and facing the dilemma of whether and
by how much to discount them to compete with falling
current and forward import prices. Brazilian softwood
plywood recorded a particularly sharp fall in prices.
¡°Over six months the price fell between 30% and 40%,¡±
said a European distributor. ¡°Standard Brazilian 20mm
elliottis, for instance which had been $310m3 last April
went down to $225m3, or even less. After five or six years
of good growth, the Brazilian industry has also built up a
lot of capacity, which could undermine prices still
further.¡±
Russian plywood production was temporarily affected late
last year by unseasonably warm weather delaying the start
of logging, but it is also reported to be back to full
production.
¡°The result is that Russian mills have been cutting prices
too,¡± said an importer.
A UK company echoed the comments of continental
counterparts. ¡°After rising quickly in the first half of 2018
in line with demand, prices on Brazilian pine and
Malaysian ply have tumbled,¡± they said. ¡°Brazilian is
about $100m3 lower and Malaysian around $50 from its
high, or 10% FOB. Chinese is likely to rise by 4% after
the Chinese New Year, but currently it is 8% lower.¡±
Another importer distributor reported that Indonesian
plywood prices had also fallen a few per cent in the last
two to three months, possibly due to weaker exports and
cheaper logs.
¡°For Indonesian film-faced shuttering plywood prices are
also badly affected by cheap offers of Russian film-faced,
resulting in demand for Indonesian ¨Cbenchmark
18/21mm¨C being at probably its lowest point for years,¡±
they said. ¡°Malaysian prices are a few per cent lower too
in spite of stable cost prices and some mills are
consequently increasing their use of rubberwood to
compensate.¡±
While there wasn¡¯t complete consensus on the topic,
freight rates, which had been firm, were also expected by
some to flatten and fall, reflecting more competitive
conditions. ¡°Brazilian rates have already declined as less is
being shipped to the UK due to stocks now being so high
and Far East freight should also trend down,¡± said an
importer.
Cutting prices also does not seem to have had the impact
suppliers wanted to increase European consumption.
¡°If anything it has had the opposite effect,¡± said another
importer stockist. ¡°Prices have fallen so rapidly that,
instead of buying more, customers have deferred
purchases to see if products will be even cheaper the
following week, or week after.¡±
UK importers also mentioned continuing substitution of
plywood by OSB in key markets, with the competitive
threat increased by the opening last year of a £95 million
new line at Norbord¡¯s OSB plant near Inverness in
Scotland.
However, an importer on the continent did not see this as a
significant long-term or widespread threat, and felt the two
products could co-exist.
¡°It obviously poses increasing competition in some
sectors, but in other applications there is still a preference
for plywood,¡± they said. ¡°The degree of competition also
tends to strengthen and weaken. As prices of plywood rise,
some customers opt for OSB, then OSB goes up in price
and we see the reverse.¡±
Rougier/ Malvaux deal not expected to disrupt the
market
Meanwhile, in France, the acquisition of the €30 million
turnover timber and plywood business Rougier Sylvaco
Panneaux by plywood and decorative panels leader
Malvaux is not expected to add further disruption to the
market.
The deal follows on from Rougier¡¯s disposal of its African
timber operations, bar those in Gabon. But Malvaux,
which already had a panels and marine plywood
distribution relationship with Rougier has stressed that the
business, with its depots in Caen, Paris and S¨¨te, where it
holds stocks of some 30,000m3, is actually set to develop
under its ownership.
¡°Rougier Sylvain Panneaux becomes the distribution
subsidiary of the full range of Malvaux Group Products
throughout France,¡± stated Malvaux after the acquisition.
¡°In turn, the acquisition strengthens our industry and
distribution division, accelerating deployment of our
strategy to develop a global multi-product, eco-responsible
offer. It enables us to provide complete range of plywood,
technical and decorative panels.¡±
Importers said they had also not detected significant fallout
yet from US-China trade conflict, but were keeping an
eye on the situation.
¡°We haven¡¯t yet seen Chinese plywood that would have
been destined for the US diverted to Europe, but obviously
the longer their dispute goes on, the greater potential it
will have to disrupt international markets more widely,¡±
said an importer.
EUTR competent authorities have become more
experienced
What was an ongoing issue in the European plywood
market, however, was ever growing pressure to meet the
requirements of the EU Timber Regulation (EUTR) and
CE marking.
¡°EUTR competent authorities have become more
experienced over time and increased personnel, and
checks under the regulation are consequently becoming
more frequent and demanding,¡± said an importer. ¡°But we
have already considerably narrowed our supply base to
ensure the suppliers we deal with can meet our due
diligence requirements, and there is a limit to how much
further we can go in policing our supply chains.¡±
CE marking also represented a continuing challenge, said
another company. ¡°There has been progress, but some
suppliers still have a lot to do to achieve the levels of
professionalism and consistent performance standards
required,¡± they said. ¡°And regulatory compliance takes
administrative time and is a further cost we have to absorb
in a competitive market.¡±
Going forward into 2019, one plywood business thought
prices generally would start to plateau.
¡°Chinese prices do seem to have stabilised in December
and January and we¡¯re possibly going to see further
upward corrections due to the higher RMB and increasing
production costs,¡± they said. ¡°Though very cheap in
January, Russian film-faced prices also seem to have
levelled and Ukraine is looking for 5% increases from the
end of February, so overall the sector may have bottomed
out.¡±
Difficult plywood trading year forecast
In spite of this, however, European plywood businesses
said they anticipated ¡®a lot of challenges¡¯ this year and one
predicted ¡®very difficult trading¡¯.
The continuing slowdown of the Eurozone economy is
expected to be one factor impacting trade, with the IMF
predicting growth to slow to 1.9% from 2.7% in 2017, and
2.3% in 2018. And in an EU-wide poll of economic
analysts in the Financial Times at the end of December,
some predicted growth could slow to 1.3%, 1.2% and even
1%.
One continental-based international trader said that their
UK orders had grown recently, possibly the consequence
of customers building up stock prior to Brexit.
However, a British importer described the market now
showing signs of weakening, with both new construction
and building renovation markets slowing, partly again due
to Brexit, with contractors and clients putting projects on
hold pending greater clarity on the post-Brexit trade deal
between the UK and EU, yet to be struck at the time of
writing.
The latest news from the UK Construction Products
Association bears this view out, with the organisation in
January downgrading its previous forecast of 2.3% growth
in UK construction output in 2019 to just 0.3%.
¡°Our customers in the timber merchant sector are clearly
being affected by this increased hesitation in the market,¡±
said another UK importer. ¡°Delayed purchasing has
slowed their stock turn, and that in turn is affecting
importers¡¯ sales and margin.¡±
Despite early signs of European-wide economic slowdown
ahead, including a reported 1.6% December 2018 fall in
factory orders in the continent¡¯s economic powerhouse
Germany, far worse than 0.3% forecast by analysts in a
Reuter¡¯s poll, some continental European plywood
importers still reported stable and reasonably good
demand from key markets in early February.
¡°Our construction customers, particularly in north west
Europe, in Germany, Belgium and the Netherlands, remain
at about the same level and still seem to be reasonably
busy as does the packaging sector,¡± said one company
representative.
On the downside however, companies across Europe
shared the view that the market was overstocked following
the price and supply fluctuations in 2018 and that the
situation could deteriorate if, as expected, the Eurozone
slowdown does worsen and greater caution starts to spread
in the market.
In fact, another company said that, while their Netherlands
business was still robust, they did already detect
something of a slowdown in France and Germany.
Destabilising effect of Brexit to make matters worse
The destabilising effect of Brexit for the UK and Europe
more widely is also expected to grow as the deadline date
of March 29 for the UK to leave the EU approaches. In
the event of a no-deal Brexit, plywood trade between the
UK and the rest of the EU would become subject to duty
equivalent to the current external tariff on EU imports ¨C
that is between 6% to 10% depending on the product.
UK customs have said they will allow cargo to be
temporarily ¡®waved through¡¯ 20 ports without checks in
the event of a no-deal Brexit to avoid hold-ups, with
importers then having to complete an electronic customs
declaration within 24 hours. But businesses are clearly
concerned there will still be at least medium-term
disruptions as systems adapt to new trading arrangements
and an importer saw signs of the UK plywood trade
preparing.
¡°The European softwood plywood import quota reached a
balance of 275,000 m3 several weeks earlier than in 2016
and 2017,¡± they said. ¡°One factor could be UK buyers
building up stocks to hedge against anticipated import
disruption.¡±
Overall plywood companies said they were less optimistic
for business than at the start of 2018. ¡°There are already
many uncertainties affecting consumers and businesses
and I think the plywood market will be a lot more
volatile,¡± said one. ¡°Importers as a result may become
more cautious about holding stocks. And profit margins
will be under pressure for sure.¡±
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