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Report from
Europe
Plywood markets facing multiple pressures
As the year has progressed, the European plywood sector
has become increasingly depressed. That¡¯s the consensus
among a number of leading importers and distributors. In
the words of one company, the market faced a ¡®perfect
storm of negative factors¡¯.
There has been a steady draining away of end-user and
consumer confidence, buying, as a result, has become
increasingly piecemeal, with forward ordering evaporating
and prices have fallen across the board, in the case of
certain products up to 40%.
Many European buyers are heavily stocked and bad debt is
reported on the rise. Reflecting dwindling demand, supply
is plentiful and orders available on relatively short lead
times.
However, with manufacturers now trimming output in the
face of deteriorating market conditions and plant closures
and production line mothballing anticipated, importer
nervousness about prepaying for orders has increased.
¡°We expected some market adjustment after having a
robust three years of business from 2016 to 2018, with
global plywood output hitting a record 161 million cu.m in
2017 and Chinese production reaching 117 million cu.m,¡±
said one continental European importer. ¡°But we didn¡¯t
think it would be as difficult as this.¡±
A new analysis of the total supply of plywood to the EU
market in 2018 by the FLEGT Independent Market
Monitor (IMM), an ITTO project, highlights one reason
for the scale of the current difficulties.
This reveals that, when EU domestic production of around
5 million cu.m is taken into account, the total volume of
plywood supplied to the EU market in 2018 increased
4.6% to 9.50 million cu.m, that is a level which exceeds
the previous high-water mark in 2007 before the global
financial crises.
This begs the question of exactly where the large new
plywood supplies arriving in the EU market in the last few
years (mainly from Russia, China, Belarus, and Ukraine)
are able to find an outlet - given that construction and
furniture sector activity in the EU are still down,
respectively, around 6% and 14% on the 2007 level.
There's also been much well-publicised substitution of
plywood by other products, such as OSB, since then. Part
of the answer to that question appears to be that a
significant proportion of the most recent surge in supply
has gone into stock which can't now find a buyer.
Plywood companies themselves attribute market
difficulties to several factors, the most significant being
declining confidence in the global economy generally.
This is the result itself of several developments, including
slowing of Chinese economic output, US-China trade
tensions and uncertainty surrounding Brexit and its
potential impact on European economic stability.
¡°We are seeing the effects of international market caution
in European manufacturing and exports, notably in
Germany, which is, of course, a bellwether for the wider
European market,¡± said an importer. ¡°Latest figures show
German industrial output falling 1.5% in June, taking the
downturn to 1.8% for the second quarter, with predictions
of a further 1.5% decline in July. According to some
reports this leaves the country on the brink of recession.¡±
These comments are in line with reports from market
analysts Bloomberg, which reports an 8% fall in German
exports in the year to June, the worst performance for four
years. It describes Germany as being caught in the middle
of the trade dispute between the US and China, its two
main trade partners, with the former hiking trade tariffs
and the latter ¡®responding by allowing its currency to
tumble to its lowest value in more than a decade¡¯.
Leading German manufacturers, including Daimler and
BASF, have consequently cut their outlooks and
Bloomberg predicts German overall growth this year of
just 0.5%.
The manufacturing contagion is also reported to be
spreading. French industrial production in June fell 2.3%,
the most since early 2018, and Netherlands manufacturing
has registered its fourth consecutive annual decline.
With the added burden of Brexit nerves and the related fall
in the value of the pound pushing up its import costs, UK
manufacturing in May reported its worst downturn for 2.5
years, with car and textile production suffering particularly
badly.
The one bright spot, say plywood importers, has been
European construction, which, to date, has been relatively
resilient. ¡°Historically, there¡¯s a delayed reaction in
construction to wider economic stagnation and
slowdown,¡± said one continental-based company. ¡°It is
among the last sectors both to enter and emerge from a
downturn.¡±
This is borne out by latest analysis from Euroconstruct. In
June it stated that in its coverage area, comprising 19
European countries, construction output in 2018 grew by
3.1%, slightly better than expected, to reach €1,600
billion.
This took seven countries above pre-economic crisis levels
of building activity, while six are now at 2007 levels, and
the remaining six, including three of the big five
construction markets, still performing less well than 12
years ago.
¡°We are still experiencing good demand from the German
construction sector and particularly the Netherlands,¡± said
another plywood importer. ¡°And companies still report
solid order books.¡±
Looking ahead, however, Euroconstruct says that 2018
construction performance will be viewed as a peak for a
number of years, with European output predicted to grow
by just 2% in 2019 and less than 1.5% for the next two
years. Infrastructure sector activity will be strongest, with
3% growth forecast this year, but general building,
including housing is expected to increase just 1%.
The best performing individual construction markets from
2019 to 2021 are expected to be in Eastern Europe, with
growth rates up to 6%, followed by the Netherlands,
Portugal and Spain, up 4%. But construction in France and
Germany is forecast to stagnate, while Italy and UK are
expected to grow at under 2%.
Latest figures from the UK Construction Products
Association suggest that UK growth may actually have to
be downgraded further, once more due to the general
market unpredictability and caution caused by uncertainty
surrounding Brexit. It had forecast UK construction to
grow 2% in 2019, but has now cut that to just 0.3%. Its
latest analysis in August stated that, with the added
problem of unseasonably bad weather in June, UK
building actually contracted 1.3% in the second quarter.
That said, a leading UK importer maintained in early
August that demand, while lower, was not ¡®disastrous¡¯.
¡°Business has been pretty steady, albeit not very
profitable,¡± they said.
While construction has to date offered some relief to the
plywood sector, the same can¡¯t be said of packaging.
¡°Packaging manufacturers are definitely being hit by the
downturn in industrial manufacturing in lead European
economies,¡± said an importer. ¡°Particularly hard hit are
those producers supplying the wider engineering, machine
tools and automotive sectors, which have seen export
demand tightening.¡±
One plywood business said that the Brexit issue was also
affecting packaging sector confidence. ¡°The prospect of
all solid wood packaging for goods exported from the rest
of the EU to the UK having to have ISPM 15
(phytosanitary) certification post-Brexit is an issue for
manufacturers,¡± said one company. ¡°Plywood, as a
processed wood packaging material, may not be directly
affected, but it is causing uncertainty in the market
generally.¡±
Some European importers say the deterioration in market
conditions started from the beginning of the year. Others
said that their first three to four months sales were
satisfactory, but subsequently turned down. All agreed that
by the end of July business was flat. One described it as
¡®dead as a dodo¡¯.
¡°The orders are still coming in, but it¡¯s much more
piecemeal,¡± said one company. ¡°Customers aren¡¯t
committing to large volumes, it¡¯s hand to mouth and just
in time. Everyone is very wary of building stocks in the
current climate.¡±
Contributing to market problems, the larger European
stockholding importers are reported to have bought
heavily towards the close of 2018, due to over confidence
about market growth and in order to buy within the
plywood quota. So they held very large inventories as
demand started to contract. They are said now to be
attempting to work through the excess and in the
meantime have curtailed purchasing further.
In response to declining demand, combined with particular
circumstances in key supplier countries and manufacturers
attempting to gain competitive advantage, prices have
been trending down, depending on source, for the past 10-
12 months.
¡°Brazilian elliottis is down around 40% since last
August/September, and Russian down 25-30% since
around October, while Chinese has come down 10-15%,¡±
said an importer.
The Brazilian price squeeze has also been attributed to
tightening demand in producers key US export markets,
plus deteriorating economic conditions in Brazil itself
impacting producers¡¯ domestic sales.
¡°At recent price levels, given the cost of elliottis logs,
manufacturers cannot be making a margin, and, with at
least one producer already closing, and others mothballing
plant and taking out shifts, conditions are clearly tough
and further casualties can¡¯t be ruled out, ¡± said another
company. ¡°It¡¯s more difficult to work out whether Russian
mills are still in profit as their raw material costs are not so
easy to ascertain, but they can¡¯t want to continue at recent
price levels.¡±
Chinese price deflation is put down to manufacturers
following international market trends to remain
competitive, plus US tariff hikes.
The Americans were also reported in April by
www.woodworkingnetwork.com to be stepping up
policing against attempts to evade antidumping and
countervailing tariffs on Chinese imports.
Indonesian and Malaysian plywood prices were also
reported to have weakened in line with the wider market,
although one importer said that, other than in the UK,
these suppliers had become ¡®niche¡¯ in the EU.
¡°They¡¯ve faced increasingly fierce competition from other
sources,¡± they said. ¡°For instance, Indonesian film-faced
has been undercut by Russian, which has also become an
increasingly high quality product.¡±
On a brighter note, there are signs that prices may finally
be bottoming out, with some Brazilian and Russian
suppliers reported to be attempting to edge the market
upwards slowly.
However, many stockholding importers are said to be still
taking a hit on over-valued stocks.
¡°In some cases we¡¯re talking about US$100 cu.m
difference between what companies paid for product, and
current import prices. That¡¯s around US$5,000 per
container and it¡¯s not unusual for some of the bigger
businesses to be placing orders of 100 to 200 containers,
so we¡¯re talking about stock write-offs of between
US$500,000 to US$1 million. It¡¯s pretty serious.
Quite a few companies must be under some pressure.
Consequently we¡¯re being very careful in our purchasing.
Given the precarious state of some Brazilian producers,
we¡¯re keeping a close eye on payment times and in we¡¯re
also not prepaying for orders as we used to. Once a
shipment is on the water, then we¡¯ll pay.¡±
Chinese prices were also reported by a UK importer as
now ¡®steady¡¯, with Indonesian and Malaysian following
suit, ¡®although volumes of the latter have been down and
shortages are anticipated in Q4, which is also the rainy
season¡¯, they said.
Latest figures from Eurostat are for January to May 2019,
so prior, according to most importers, to the sharpest
slowdown in demand. They show total EU imports of
plywood by EU countries (including internal EU trade)
down 4.3% compared to the same period in 2018 at 2.01
million tonnes. Total EU imports from outside the EU
were 1.27 million tonnes, 2% more than the same period
in 2018.
Of larger EU importers, Spanish imports (including intra-
EU and extra-EU imports) were up 11.4% to 52,600
tonnes from January to May. This, say plywood
businesses, reflects the country¡¯s improving economy,
with the Bank of Spain in June revising its forecast for
GDP growth for the year from 2.2% in March to 2.4% and
Spanish ¡®value-added¡¯ construction, led by the residential
and commercial building, sector expected to grow 3%.
Total intra-EU and extra-EU imports were also up in
Belgium (+4% to 165,300 tonnes), France (+6.3% to
157,400 tonnes) and Denmark (+9.3% to 69,500 tonnes).
However, imports fell in Poland (-5.2% to 94,900 tonnes),
Italy (-13.4% to 124,700 tonnes), Netherlands (-0.8% to
184,700 tonnes), Germany (-15.7% to 372,100 tonnes) and
UK (-2.6% to 373,400 tonnes).
EU tropical hardwood plywood imports were actually up
from January to May compared to the same period in
2018, rising 11.8% in volume to 149,200 tonnes and 20%
in value to €133.3 million. This, say importers, reflected
continuing confidence in demand in late 2018 and that
price deflation experienced in the market was more
focused in temperate hardwood and softwood sectors, and
became steeper as the year went on.
In the January to May 2019 period, tropical plywood
imports fell in Belgium (-3.1% to 16,300 tonnes), France
(-2.4% to 8,700 tonnes), and Italy (-0.3% to 7,100 tonnes).
However, German imports of tropical plywood rose 3.1%
to 11,200 tonnes, and imports in the Netherlands were up
5.6% to 14,700 tonnes, but the biggest increase came in
the UK, up 22.2% at 83,200 tonnes, a trend attributed in
part to stockpiling pre-Brexit. ¡°Quite a number of
companies built their [tropical plywood] stocks very high,
despite weakening demand and they¡¯re now trying to
offload surpluses which means competitive market
conditions,¡± said one UK importer.
EU tropical hardwood plywood imports were up from
China (+48.5% to 66,000 tonnes), Brazil (+23.4% to 5,400
tonnes) and Vietnam (+16.4% to 5,400 tonnes). However,
imports fell further from Malaysia (-31.8% to 16,100
tonnes) and were also down 1% from Indonesia, to 39,700
tonnes.
Asked whether FLEGT licensing was having any more
market impact for Indonesian suppliers, EU importers
echoed comments from the last IMM Trade Consultation
in Antwerp earlier this year. They said there was still little
awareness or understanding of what a FLEGT license
means further down the supply chain and that, where any
form of legality or sustainability verification or
certification was specified, it was FSC or PEFC. So
FLEGT remained a ¡®nice to have¡¯ rather than a ¡®must
have¡¯.
Previously reported mismatches on FLEGT licensed
shipment product codes between the EU and Indonesia
were not flagged up by importers as a major issue and one
thought the problem had been ¡®largely resolved¡¯.
An issue reported in Germany of customs putting
¡®patched¡¯ plywood, which was touch or contact sanded to
achieve a specified nominal thickness post import, into a
higher duty band has also been settled according to
German timber trade federation GD Holz. The authorities
ultimately decided this did not constitute a product
refinement.
In the EU temperate hardwood plywood sector, imports
from outside the EU were up 2.9% overall to 630,300
tonnes in the January to May period.
The biggest increases came in imports from Russia
(+10.8% to 337,800 tonnes) and Ukraine (+17.2% to
37,100 tonnes). The largest decreases were in imports
from China (-7.9% to 199,300 tonnes) and Belarus (-8.5%
to 45,200 tonnes).
In softwood plywood, EU imports from outside the bloc
between January and May 2019 contracted 1.7% to
487,000 tonnes, with biggest declines from Chile (-13.3%
to 43,500 tonnes) and Russia (-10.5% to 40,600 tonnes).
However, imports increased from China (+2.5% to 28,500
tonnes) and Brazil (+4.3% to 358,900 tonnes). Growth in
the latter was again attributed in part to UK stockpiling in
the first quarter.
¡°There was crazy elliottis buying in the first three months
¨C way too much,¡± said a UK importer. ¡°Then it was
dumped as forward prices kept falling. Utter madness by
UK importers.¡±
Looking forward, EU importers said they could see no
immediate reason for much change in market conditions
through the rest of 2019. One anticipated improvement
setting in in 2020, although another said it was impossible
to predict ¡®when we can¡¯t even forecast what¡¯s going to
happen in the coming three months. The overall economic
outlook is just too uncertain¡±.
Prices were expected to be more stable, with Russian and
Brazilian suppliers continuing to nudge levels upward.
¡°But in the current climate, with Brexit, international trade
tensions between the US and China and to some extent the
US and Europe, we don¡¯t anticipate jumps of 10%,¡± said
an importer.
¡°We¡¯re gearing for the market to remain competitive,¡±
said another company. ¡°In fact, forecasters are saying
we¡¯re going to have to get used to lower overall economic
growth than recently for the next two to three years. It¡¯s a
case of being cautious in buying, ensuring stocks are not
too high and being as lean and mean as possible.¡±
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