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Report from
Europe
European plywood market pressure
persists
At the time of the last update on the European plywood
market (ITTO TTMR Volume 23 Number 16, 16 -31
August 2019), the sector was experiencing a tightening
market and competitive conditions. In the intervening four
months, according to leading importers, not a lot has
changed.
There have been indications that prices from some sources
are starting to come off the floor. Overall, however, they
remain depressed compared to 2018 and ¡®rock bottom
offers¡¯ from Russia are felt by some to threaten any
significant wider increase and to be actually squeezing
product from other countries out of the European market.
The US-China trade dispute continues to destabilise the
sector and UK companies say that continuing uncertainty
surrounding Brexit, politics and the economy generally
has seriously undermined market confidence.
A slowdown in European manufacturing, notably in
Germany, is also impacting demand, and although overall
construction consumption is reported to have held up
reasonably well to date, it is forecast to slow and stagnate
over the next two years.
In recent weeks, Brazilian elliotti and Malaysian plywood
prices have both seen rises of US$10-15/cu.m. However,
these prices are still reported down 33-40% and 28%
respectively on 18 months ago. Chinese prices are still
down around 15% and Russian film-faced plywood and
raw plywood prices are down 30% and 25% respectively
during the same period.
¡°We are still far away from 2018 levels, but these
increases [in Brazilian elliotti and Malaysian plywood
prices] may be signs of a recovery and we¡¯d hope to see
them embed and continue as we move into 2020,¡± said an
importer/distributor. ¡°Malaysian suppliers also report log
shortages, so that may also underpin further increases.¡±
Import volumes of Brazilian plywood are expected to get
slightly better in January, mainly due to the new duty-free
quota coming up in Europe. ¡°But, like price, volumes are
still way off 2018 figures,¡± said an importer. ¡°I also
wonder what will happen later in 2020 after the first duty
free volumes have been shipped.¡±
Prices out of China are reported to be stable at present
although it¡¯s felt a range of factors may add some upward
pressure here too.
¡°Chinese plywood has already become a bit more
expensive again on FOB terms due to the exchange rate
of the RMB versus the dollar,¡± said a continental-based
importer. ¡°As usual, this is also driving up container rates.
But we expect Chinese trade for January/February to be
slower too due to weather conditions.¡±
Another factor for China, said a UK importer, has been the
continued impact of new environmental regulation on
manufacturers.
¡°Efforts to clean up the industry in the Linyi/Pizhou area
has resulted in a lot of plywood and peeling mills closing
as they couldn¡¯t afford the new equipment required to
reduce emissions. Others have suffered in excess of 70
days lost production as the government tries to improve air
quality and the impact on peeling mills has put price
pressure on poplar core veneer¡± said the UK importer.
¡°But while there may be less Chinese availability¡±, the
importer continued, ¡°I believe [quality] is improved, with
manufacturers better understanding the demands of the EU
Timber Regulation (EUTR) and our UK Timber Trade
Federation Responsible Purchasing Policy and also
meeting EN quality standards.¡±
Another European importer felt that diversion of Chinese
production to Europe due to US tariffs had not been a
significant issue due to different market requirements.
¡°Factories geared up for the US don¡¯t find it easy to meet
European specification,¡± he said.
European importers also report no stand-out trends for
FLEGT-licensed product from Indonesia. Indonesia¡¯s
film-faced plywood, said one company, is ¡°still too
expensive for Europe¡± although raw board ¡®is trading
more or less OK¡¯.
The FLEGT licensing system itself is said by plywood
importers to be to working well, although the consensus
remains that, to gain market traction and wider awareness,
more licensed product is needed from more sources.
¡°The sooner more countries engaged with the FLEGT
Voluntary Partnership Agreement complete the process
and start licensing, particularly Malaysia, the better, given
that the responsibility for product legality under the EUTR
on non-FLEGT licensed goods remains on the importer,
who cannot know 100% what the product mix is even if
we ask all the right questions and gather the paperwork,¡±
said one UK company.
A fellow UK importer said that getting more VPA
countries to FLEGT licensing stage could also open up
new sources of supply. ¡°We¡¯ve had interesting offers from
Gabon, for instance. The product looks good and could
represent a real business opportunity for us and the
supplier,¡± he said. ¡°But currently it can¡¯t meet our
requirements on legality assurance.¡±
An added ongoing issue for some European importers is
their inability to use the bonded warehousing system for
FLEGT licensed goods. This system allows import
consignments to be broken up and duty paid piecemeal on
each order as it goes out to spread the cost.
¡°As the licence applies to the entire shipment, it cannot be
divided, so duty has to be paid all at once,¡± said an
importer.
¡°That needs resolving as it effectively puts licensed goods
at a competitive disadvantage and it has a particular
impact on smaller companies needing to spread duty
payment for cash flow purposes.¡±
A related issue for FLEGT-licensed goods customs
handling was flagged up by another importer. ¡°We had an
instance of an agent selling some of a shipment to us and
some to another importer where only one licence had been
issued for the whole amount exported from Indonesia,¡± he
said.
¡°We couldn¡¯t use the FLEGT licence unless we also
customs cleared the other consignee¡¯s goods and
recharged them the duty. So the agent had to present the
licence in their own name and sell to both buyers as landed
duty-paid stock. Not ideal all round.¡±
Another ¡°real headache¡± for the European plywood import
sector, in the words of one company, continues to be cutprice
Russian material.
¡°Russian birch plywood prices have dropped again after
some slight increases a few months ago and it looks like
this situation will continue for some time as the Russians
seem to be quite happy with it,¡± he said.
¡°Their logs are extremely cheap and, as is the case with
gas, they don¡¯t put any value on their natural resources¡±,
continued the importer. ¡°They need foreign income, and
that¡¯s all that seems to count. I¡¯d advocate putting a fat
import duty on Russian imports as they are destroying the
business for others who are trying to do the right thing,
such as Indonesian producers, and are actually being
pushed out of the market at the moment.¡±
Adding to market competition is a new softwood plywood
mill now on stream in Belarus run by the Krono group.
¡°This will put a lot of pressure on European factories like
Thebault and others,¡± said an importer.
Slowdown in European manufacturing and
construction
On the state of demand, an ongoing slowdown in
European manufacturing is reported to be particularly
affecting plywood consumption in the automotive and
packaging sectors.
According to financial commentators, Germany remains
the big drag on the Eurozone economy, with its
manufacturing exports reported hit particularly hard by
global slowdown in investment resulting from the USChina
trade dispute.
Improved survey data for German production in October
and forecasts for November had led to predictions that the
worst was over, but Commerzbank said a turnaround is
¡®not yet in sight¡¯, with manufacturing output forecast to
show a 5% year on year fall end of November. German car
production in October was also down 14.4% on the year
and the sector is reported to be set to shed tens of
thousands of jobs.
¡°The automotive slowdown worldwide is clearly a concern
for the plywood trade and the contraction in European
manufacturing is inevitably impacting the important
packaging sector,¡± said an importer.
The eurozone economy did expand faster than expected in
the third quarter of 2019, up by 0.3%, giving annual
expected growth of 1.1% according to Eurostat and the
European Central Bank. However, this compares with
1.8% in 2018 and the forecast is just 1.2% in 2020, leading
Morgan Stanley to comment that the zone was ¡°nearly
stagnating¡±.
The Economic Sentiment Indicator ¨C a composite of
European surveys on business and consumer confidence ¨C
also fell to 100.8 for October, the lowest level for five
years. Capital Economics consequently predicted that the
European economy would ¡®continue to expand at a feeble
pace¡¯.
According to the latest Euroconstruct data, European
construction output growth is projected at around 2.3% for
2019, down from 3.2% in 2018. However, Euroconstruct
now forecast annual growth of only 1% between 2020 and
2022. All areas of building will slow, although repair,
maintenance and improvement is expected to perform
better than new build.
Best performing European building markets are expected
to be Ireland, Hungary and Poland, while the sharpest
slowdown is predicted for Finland and Sweden. Germany
and France are expected to see construction market
contraction of around 2% over the next three years.
One European plywood importer commented that their
general construction sales were still going well currently,
but others acknowledged the uncertain outlook in the
sector.
As for the UK economy, it ¡°flatlined¡± in the third quarter
of 2019 and October to October growth was just 0.7%, the
slowest pace since June 2012. ¡°This confirmed a loss of
momentum in the economy since the summer due to
Brexit-related uncertainty and slower global growth,¡± said
advisory firm PwC.
UK construction is also contracting, with new orders
falling further in November as the market-depressing
effect of Brexit, combined with election uncertainty and
bad weather led to more civil engineering and commercial
projects being delayed.
The IHS Markit/CIPS UK purchasing managers¡¯ subindex
for construction new orders fell to 43.95 in
November, from 44.61 the previous month. This was the
eighth consecutive month of contraction and the longest
phase of decline since 2013, with Brexit once more
implicated in the downturn.
Brexit ¡°awful for the UK plywood market¡±
¡°Brexit has been awful for the market, with uncertainty
affecting demand, projects delayed and households
deferring spending,¡± said a UK plywood importer.
¡°Merchants are saying it¡¯s quieter, which in turn affects us
as importers.¡±
UK plywood companies say they are also keeping a
¡®watching brief¡¯ on the potential impact of Brexit on
EUTR and EU FLEGT regulation administration. Both are
being assimilated into UK law, to be known respectively
as the UKTR and UK FLEGT when the country leaves the
EU.
The Brexit date is now scheduled for 31st January and,
following the UK parliamentary election on 12th December
which delivered a large majority for the ruling
conservative party, seems to certain to take place as
planned under the revised withdrawal agreement
negotiated between Boris Johnson¡¯s government and the
European Union in 2019.
Under the terms of this withdrawal agreement, the UK will
enter a transition period after 31st January to provide time
for the UK and the EU to negotiate on what their future
relationship will look like. During the transition period the
UK won¡¯t be a member of the EU but will still have to
abide by its rules.
The end date for the transition period is currently set for
31st December 2020 but could be extended for one or two
years. During the election campaign, the conservative
party stated that it would not seek an extension to the
transition period.
However, the EU has suggested that the timeline for
negotiations to be completed before the end of 2020 is
unrealistic. The size of the government¡¯s majority after the
election also gives the UK prime minister leeway within
his own party to reset the timetable to be more
manageable. The terms of any extension would have to be
agreed with the EU before 1st July 2020.
While Brexit now seems a certainty, the risk of a ¡°no deal¡±
Brexit has receded. The risk has not completely
disappeared since there is no guarantee that negotiations
towards a future arrangement with the EU will be
successful. A ¡°no deal¡± departure could still theoretically
occur at the end of 2020, or 2022 at the very latest. After
that, if no future relationship deal was agreed, then the
UK¡¯s trading relationship with the EU would be on WTO
terms.
In the event of ¡°no deal¡±, all plywood imported into the
UK, from EU countries as well as other sources, would
have to undergo UKTR due diligence. However, the
agreement eventually reached with the EU might include
mutual recognition arrangements so that imports from EU
countries might not require due diligence.
From January to August, latest analysis of Eurostat
Comext data shows UK imports from the rest of the EU at
90,400 tonnes, an increase of 8.3% (which some attribute
to an element of stockpiling prior to the original Brexit
deadline at the end of March).
This compared with 454,400 tonnes from outside the EU,
down 6.7% on the same period in 2018.
Plywood imports across the EU as a whole for the eight
months were down 3% to 3.165 million tonnes, with intra-
EU trade 4% lower at 1.3 million tonnes and extra-EU
imports down 2%.
Among the biggest falls were seen in Germany, with total
plywood imports down 12% to 602,000 tonnes, Italy,
down 14% to 184,700 tonnes, Latvia down 15% to 57,000
tonnes and Poland down 5% to 154,300 tonnes.
Strongest increases in plywood imports in the January to
August period included those of the Netherlands, up 6% to
325,000 tonnes, Belgium up 9% at 245,300 tonnes, France
up 4% at 237,400 tonnes, Denmark up 2% to 99,600
tonnes, Sweden up 20% at 92,700 tonnes (with extra EU
imports up 61% at 43,000 tonnes) and Spain up 11% at
79,100 tonnes.
China drives rise in EU imports of tropical hardwood
plywood
For the nine months to the end of September 2019, total
tropical plywood imports into the EU were ahead 4% by
volume and 7% by value to 250,000 tonnes and €221
million respectively.
The biggest tropical plywood volume increase came from
China, up 32% at 110,000 tonnes in the first nine months
of 2019. Other increases were posted by Gabon (+12% at
11,100 tonnes), Brazil (+8% at 8,700 tonnes) and
Paraguay (+30% at 4,200 tonnes).
However, imports of plywood from Indonesia were down
5.6% at 64,500 tonnes, imports from Malaysia were down
28.8% at 29,700 tonnes, and imports from Vietnam
declined 20.3% to 8,100 tonnes.
The UK accounted for the vast bulk of the increase in EU
imports, with its tropical plywood imports ahead 18.5% to
140,300 tonnes, with pre-Brexit stock piling considered
once more to have played a part. Most of the gain in UK
imports was not due to direct imports from the tropics, but
to a rise in tropical hardwood faced plywood
manufactured in China.
Imports of tropical plywood declined in all other leading
EU markets in the first nine months of 2019 including
Belgian (-21% at 26,300 tonnes), Netherlands (-11% at
24,200 tonnes), Germany (-7% to 18,600 tonnes), France
(-3% to 14,700 tonnes) and Italy (-4% at 12,300 tonnes).
However, Greek imports increased 4% to 23,000 tonnes).
Total EU imports of temperate hardwood plywood in the
nine-month period were down 1% at 1.11 million tonnes.
Of the lead suppliers, Russia recorded a 5.3% EU sales
increase to 586,800 tonnes and Ukraine a rise of 8.3% to
62,300 tonnes.
However, these gains failed to offset declining imports of
temperate hardwood plywood from China (-8% to 374,300
tonnes), Belarus (-15% to 77,000 tonnes), Uruguay (-15%
to 5,900 tonnes) and Bosnia-Herzegovina (-15% to 4,300
tonnes).
EU softwood plywood imports from January to September
were 8.8% lower at 655,900 tonnes. Brazilian product was
down 3.1% at 451,700 tonnes, Chilean down 18.1% at
75,800 tonnes, Russian down 7.2% at 64,800 tonnes,
Chinese down 19.9% at 36,900 tonnes and Canadian down
20% at 5,500 tonnes.
Looking forward, a UK importer pinned their hopes on
¡°some post-election Brexit clarity and demand picking up
as the government works to avoid recession¡±, although he
still anticipated prices ¡°continuing to bounce off the
floor¡±.
A continental plywood importer was also cautious. ¡°We
don¡¯t foresee any significant improvement for six months
or so, unless the US settles all its trade disputes and the
UK finally leaves the EU (or not). That could give some
positive signals and incentives.¡±
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